UNITED
        STATES SECURITIES AND EXCHANGE
        COMMISSION
 Washington, DC
        20549
 FORM
        10-Q
 (Mark
        One)
 þ
              
              **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                SECURITIES EXCHANGE ACT OF 1934**
 **For
        the Quarter ended June 30,
        2007**
 OR
 o
              
              **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                THE
                SECURITIES EXCHANGE ACT OF 1934**
 0-28252(Commission
        File Number)
 BROADVISION,
        INC.
 
  **Delaware**
              
              **94-3184303**(State
                  or other jurisdiction of
              
              (I.R.S.
                  Employerincorporation
                  or organization)
              
              Identification
                  Number)**1600
                  Seaport Blvd., 5th Floor, North
                  Bldg.**
              
              **94063****Redwood
                  City, California**(Address
                  of principal executive offices)
              
              (Zip
                  code)
 (650) 331-1000
   þ o
  o o þ
  o þ
 As
          of
          July 31, 2007 there were 108,326,267 shares of the Registrant's Common
          Stock
          issued and outstanding.








TABLE
          OF CONTENTS




BROADVISION,
        INC. AND SUBSIDIARIESFORM 10-QQuarter Ended June 30, 2007
 TABLE
        OF CONTENTS
 **PART
                    I.**
                
                **FINANCIAL
                    INFORMATION**
                
                1Item 1.
                
                Financial
                    Statements
                
                1Condensed
                    Consolidated Balance Sheets at June 30, 2007
                    (unaudited) and December 31, 2006
                
                1Condensed
                    Consolidated Income Statements and Comprehensive
                    Income - Three and six months ended June 30, 2007 and
                    2006 (unaudited)
                
                2Condensed
                    Consolidated Statements of Cash Flows for the six
                    months ended June 30, 2007 and 2006 (unaudited)
                
                3Notes
                    to Condensed Consolidated Financial
                    Statements (unaudited)
                
                4Item 2.
                
                Management's
                    Discussion and Analysis of Financial Condition and Results ofOperations
                
                18Item 3.
                
                Quantitative
                    and Qualitative Disclosures About Market
                    Risk
                
                29Item 4.
                
                Controls
                    and Procedures
                
                29**PART
                    II.**
                
                **OTHER
                    INFORMATION**
                
                30Item 1.
                
                Legal
                    Proceedings
                
                30Item 1A.
                
                Risk
                    Factors
                
                30Item 2.
                
                Unregistered
                    Sales of Equity Securities and Use of
                    Proceeds
                
                39Item 3.
                
                Defaults
                    Upon Senior Securities
                
                39Item 4.
                
                Submission
                    of Matters to a Vote of Security
                    Holders
                
                39Item 5.
                
                Other
                    Information
                
                39Item 6.
                
                Exhibits
                
                40
 **SIGNATURES**
                
                41
 EXHIBIT
                    31.1EXHIBIT
                    32.1
 TABLE
                OF CONTENTS
  **PART
            I. FINANCIAL INFORMATION**
 **Item 1.
Financial
            Statements**
  **BROADVISION,
            INC. AND SUBSIDIARIES**
 **CONDENSED
            CONSOLIDATED BALANCE SHEETS**
 **(In
            thousands, except par value amounts)**
  **June
                        30,**
                    
                    
                    **December
                        31,****2007**
                    
                    
                    **2006****(unaudited)**
                    
                    
                    
                    ***ASSETS**Current
                        assets:Cash
                        and cash equivalents
                    
                    $
                    46,167
                    
                    
                    $
                    37,003Accounts
                        receivable, less allowance for doubtful accounts of $504
                        as of
                        June 30, 2007 and $1,141 as of December 31, 2006
                    
                    
                    8,640
                    
                    
                    
                    10,106Prepaids
                        and other
                    
                    
                    1,558
                    
                    
                    
                    1,108Restricted
                        cash, current portion
                    
                    
                    796
                    
                    
                    
                    997Total
                        current assets
                    
                    
                    57,161
                    
                    
                    
                    49,214Property
                        and equipment, net
                    
                    
                    945
                    
                    
                    
                    1,144Restricted
                        cash, net of current portion
                    
                    
                    1,000
                    
                    
                    
                    1,000Goodwill
                    
                    
                    25,066
                    
                    
                    
                    25,066Other
                        assets
                    
                    
                    507
                    
                    
                    
                    518Total
                        assets
                    
                    $
                    84,679
                    
                    
                    $
                    76,942**LIABILITIES
                        AND STOCKHOLDERS' EQUITY**Current
                        liabilities:Accounts
                        payable
                    
                    $
                    1,180
                    
                    
                    $
                    1,249Accrued
                        expenses
                    
                    
                    8,711
                    
                    
                    
                    10,538Warrant
                        liability
                    
                    
                    5,848
                    
                    
                    
                    1,610Unearned
                        revenue
                    
                    
                    4,304
                    
                    
                    
                    6,278Deferred
                        maintenance
                    
                    
                    10,890
                    
                    
                    
                    10,584Total
                        current liabilities
                    
                    
                    30,933
                    
                    
                    
                    30,259Other
                        non-current liabilities
                    
                    
                    2,672
                    
                    
                    
                    3,429Total
                        liabilities
                    
                    
                    33,605
                    
                    
                    
                    33,688Commitments
                        and contingenciesStockholders'
                        equity:Convertible
                        preferred stock, $0.0001 par value; 1,000 shares authorized
                        as of June 30,
                        2007 and 10,000 shares authorized as of December 31, 2006;
                        none issued and
                        outstanding
                    
                    
                    -
                    
                    
                    
                    -Common
                        stock, $0.0001 par value; 280,000 shares authorized and 107,484
                        shares
                        issued and outstanding as of June 30, 2007; 2,000,000 shares
                        authorized and 106,523 shares issued and outstanding as of
                        December 31, 2006
                    
                    
                    10
                    
                    
                    
                    10Additional
                        paid-in capital
                    
                    
                    1,254,542
                    
                    
                    
                    1,253,135Accumulated
                        other comprehensive income
                    
                    
                    248
                    
                    
                    
                    168Accumulated
                        deficit
                    
                    
                    (1,203,726
                    )
                    
                    
                    (1,210,059
                    )Total
                        stockholders' equity
                    
                    
                    51,074
                    
                    
                    
                    43,254Total
                        liabilities and stockholders' equity
                    
                    $
                    84,679
                    
                    
                    $
                    76,942*
                        Derived from audited consolidated financial statements filed
                        in the
                        Company's 2006 Annual Report on Form 10-K.
 *See
            Accompanying Notes to Condensed Consolidated Financial
            Statements*
 **~1~**
 TABLE
                OF CONTENTS
  **BROADVISION,
            INC. AND SUBSIDIARIES**
 **CONDENSED
            CONSOLIDATED INCOME STATEMENTS AND
            COMPREHENSIVE  INCOME**
 **(In
            thousands, except per share amounts)**
 **(Unaudited)**
  **Three
                        Months Ended June 30,**
                    
                    
                    **Six
                        Months Ended June 30,****2007**
                    
                    
                    **2006**
                    
                    
                    **2007**
                    
                    
                    **2006****Revenues:**Software
                        licenses
                    
                    $
                    5,494
                    
                    
                    $
                    3,627
                    
                    
                    $
                    11,228
                    
                    
                    $
                    6,509Services
                    
                    
                    7,774
                    
                    
                    
                    9,102
                    
                    
                    
                    14,785
                    
                    
                    
                    18,844Total
                        revenues
                    
                    
                    13,268
                    
                    
                    
                    12,729
                    
                    
                    
                    26,013
                    
                    
                    
                    25,353**Cost
                        of revenues:**Cost
                        of software licenses
                    
                    
                    22
                    
                    
                    
                    142
                    
                    
                    
                    34
                    
                    
                    
                    204Cost
                        of services
                    
                    
                    2,215
                    
                    
                    
                    3,496
                    
                    
                    
                    4,608
                    
                    
                    
                    7,554Total
                        cost of revenues
                    
                    
                    2,237
                    
                    
                    
                    3,638
                    
                    
                    
                    4,642
                    
                    
                    
                    7,758Gross
                        profit
                    
                    
                    11,031
                    
                    
                    
                    9,091
                    
                    
                    
                    21,371
                    
                    
                    
                    17,595**Operating
                        expenses:**Research
                        and development
                    
                    
                    2,483
                    
                    
                    
                    2,405
                    
                    
                    
                    5,138
                    
                    
                    
                    5,036Sales
                        and marketing
                    
                    
                    1,781
                    
                    
                    
                    1,982
                    
                    
                    
                    3,850
                    
                    
                    
                    4,363General
                        and administrative
                    
                    
                    1,479
                    
                    
                    
                    3,239
                    
                    
                    
                    2,546
                    
                    
                    
                    4,977Restructuring
                        charge (credit)
                    
                    
                    306
                    
                    
                    
                    (15
                    )
                    
                    
                    584
                    
                    
                    
                    475Total
                        operating expenses
                    
                    
                    6,049
                    
                    
                    
                    7,611
                    
                    
                    
                    12,118
                    
                    
                    
                    14,851Operating
                        income
                    
                    
                    4,982
                    
                    
                    
                    1,480
                    
                    
                    
                    9,253
                    
                    
                    
                    2,744Interest
                        income, net
                    
                    
                    555
                    
                    
                    
                    125
                    
                    
                    
                    910
                    
                    
                    
                    232Gains
                        (losses) on revaluation of warrants
                    
                    
                    3,104
                    
                    
                    
                    (16
                    )
                    
                    
                    (4,238
                    )
                    
                    
                    (386
                    )Other
                        income, net
                    
                    
                    29
                    
                    
                    
                    226
                    
                    
                    
                    305
                    
                    
                    
                    262Income
                        before provision for income taxes
                    
                    
                    8,670
                    
                    
                    
                    1,815
                    
                    
                    
                    6,230
                    
                    
                    
                    2,852Provision
                        for income taxes
                    
                    
                    (230
                    )
                    
                    
                    (65
                    )
                    
                    
                    (286
                    )
                    
                    
                    (221
                    )Net income
                    
                    $
                    8,440
                    
                    
                    $
                    1,750
                    
                    
                    $
                    5,944
                    
                    
                    $
                    2,631Basic income
                        per share
                    
                    $
                    0.08
                    
                    
                    $
                    0.03
                    
                    
                    $
                    0.06
                    
                    
                    $
                    0.05Diluted income
                        per share
                    
                    $
                    0.08
                    
                    
                    $
                    0.03
                    
                    
                    $
                    0.05
                    
                    
                    $
                    0.05**Shares
                        used in computing:**Weighted
                        average shares-basic
                    
                    
                    107,424
                    
                    
                    
                    69,151
                    
                    
                    
                    107,047
                    
                    
                    
                    56,055Weighted
                        average shares-diluted
                    
                    
                    111,035
                    
                    
                    
                    69,151
                    
                    
                    
                    110,027
                    
                    
                    
                    56,055**Comprehensive income:**Net income
                    
                    $
                    8,440
                    
                    
                    $
                    1,750
                    
                    
                    $
                    5,944
                    
                    
                    $
                    2,631Other
                        comprehensive gain (loss), net of tax:Foreign
                        currency translation adjustment
                    
                    
                    106
                    
                    
                    
                    (180
                    )
                    
                    
                    80
                    
                    
                    
                    (196
                    )Total
                        comprehensive income
                    
                    $
                    8,546
                    
                    
                    $
                    1,570
                    
                    
                    $
                    6,024
                    
                    
                    $
                    2,435
 *See
            Accompanying Notes to Condensed Consolidated Financial
            Statements*
 **~2~**
 TABLE
                OF CONTENTS
  **BROADVISION,
            INC. AND SUBSIDIARIES**
 **CONDENSED
            CONSOLIDATED STATEMENTS OF CASH
            FLOWS**
 **(In
            thousands, Unaudited)**
 **Six
                        Months Ended June 30,****2007**
                    
                    
                    **2006****Cash
                        flows from operating activities:**Net income
                    
                    $
                    5,944
                    
                    
                    $
                    2,631Adjustments
                        to reconcile net income to net cash provided by operating
                        activities:Depreciation
                        and amortization
                    
                    
                    609
                    
                    
                    
                    549(Reversal
                        of) allowance for doubtful accounts
                    
                    
                    (637
                    )
                    
                    
                    554Stock
                        based compensation
                    
                    
                    593
                    
                    
                    
                    308Losses
                        on revaluation of warrants
                    
                    
                    4,238
                    
                    
                    
                    386Changes
                        in operating assets and liabilities:Accounts
                        receivable
                    
                    
                    2,103
                    
                    
                    
                    2,264Prepaids
                        and other
                    
                    
                    (445
                    )
                    
                    
                    147Other
                        non-current assets
                    
                    
                    6
                    
                    
                    
                    134Accounts
                        payable and accrued expenses
                    
                    
                    (1,259
                    )
                    
                    
                    (2,000
                    )Restructuring
                        accrual
                    
                    
                    (406
                    )
                    
                    
                    (494
                    )Unearned
                        revenue and deferred maintenance
                    
                    
                    (1,668
                    )
                    
                    
                    3,437Other
                        non-current liabilities
                    
                    
                    (596
                    )
                    
                    
                    491Net
                        cash provided by operating activities
                    
                    
                    8,482
                    
                    
                    
                    8,407**Cash
                        flows from investing activities:**Purchase
                        of property and equipment
                    
                    
                    (413
                    )
                    
                    
                    (98
                    )Transfer
                        from restricted cash
                    
                    
                    201
                    
                    
                    
                    -Net
                        cash used for investing activities
                    
                    
                    (212
                    )
                    
                    
                    (98
                    )**Cash
                        flows from financing activities:**Repayments
                        of bank line of credit and term debt
                    
                    
                    -
                    
                    
                    
                    (227
                    )Proceeds
                        from issuance of common stock, net
                    
                    
                    814
                    
                    
                    
                    128Net
                        cash provided by (used for) financing activities
                    
                    
                    814
                    
                    
                    
                    (99
                    )Effect
                        of exchange rates on cash and cash equivalents
                    
                    
                    80
                    
                    
                    
                    196Net
                        increase in cash and cash equivalents
                    
                    
                    9,164
                    
                    
                    
                    8,406Cash
                        and cash equivalents at beginning of period
                    
                    
                    37,003
                    
                    
                    
                    4,849Cash
                        and cash equivalents at end of period
                    
                    $
                    46,167
                    
                    
                    $
                    13,255**Supplemental
                        information of non-cash financing and investing
                        activities:**Exchange
                        of convertible debt to common stock
                    
                    $
                    -
                    
                    
                    $
                    20,535Reclassification
                        of tax liability to accumulated deficit
                    
                    $
                    388
                    
                    
                    $
                    -Conversion
                        of accrued interest to equity
                    
                    $
                    -
                    
                    
                    $
                    167
 *See
            Accompanying Notes
            to Condensed Consolidated Financial Statements*
 **~3~**
 TABLE
                OF CONTENTS
  **BROADVISION,
            INC. AND SUBSIDIARIES**
 **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL
            STATEMENTS**
  **(Unaudited)**
  **Note
            1. Organization and Summary of Significant Accounting
            Policies**
  ***Nature
            of Business***
 
 BroadVision, Inc.
            (collectively with its subsidiaries, "we" or "our") was incorporated
            in the
            state of Delaware on May 13, 1993 and has been a publicly traded
            corporation since 1996. We develop, market, and support enterprise portal
            applications that enable companies to unify their e-business infrastructure
            and
            conduct both interactions and transactions with employees, partners,
            and
            customers through a personalized self-service model that increases revenues,
            reduces costs, and improves productivity.
  ***Basis
            of Presentation***
 
 The
            condensed consolidated financial results and related information as of
            and for
            the three and six months ended June 30, 2007 and 2006 are unaudited.
            The
            Condensed Consolidated Balance Sheet at December 31, 2006 has been derived
            from
            the audited consolidated financial statements as of that date but does
            not
            necessarily reflect all of the informational disclosures previously reported
            in
            accordance with U.S. generally accepted accounting principles ("U.S.
            GAAP"). The
            unaudited condensed consolidated financial statements should be reviewed
            in
            conjunction with the audited consolidated financial statements and related
            notes
            contained in our 2006 Annual Report on Form 10-K filed with the SEC on
            March
            27,2007.
 
 The
            accompanying unaudited condensed consolidated financial statements have
            been
            prepared in accordance with U.S. GAAP for interim financial information
            and with
            the instructions in Form 10-Q and Article 10 of Regulation S-X. Accordingly,
            these statements do not include all of the information and footnotes
            required by
            U.S. GAAP for annual financial statements. In the opinion of management,
            all
            adjustments (consisting of normal recurring accruals) considered necessary
            for a
            fair presentation of interim financial information have been included.
            Operating
            results for the three and six months ended June 30, 2007 are not necessarily
            indicative of the results that may be expected for the remainder of the
            fiscal
            year ending December 31, 2007 or any future interim period. The condensed
            consolidated financial statements include our accounts and our wholly
            owned
            subsidiaries. All significant intercompany accounts and transactions
            have been
            eliminated.
 
 Based
            on
            our internal forecasts and projections, we believe that our cash resources
            at
            June 30, 2007 will be sufficient to fund our operations through at least
            June
            30, 2008.  At June 30, 2007, our current assets exceeded our current
            liabilities by approximately $26.2 million. If our existing cash resources
            are
            not sufficient to meet our obligations, we will seek to raise additional
            capital
            through public or private equity financing or from other sources. If
            adequate
            funds are not available or are not available on acceptable terms as needed,
            we
            may be unable to pay our debts as these become due, develop our products,
            take
            advantage of future opportunities or respond to competitive pressures
            or
            unanticipated requirements.
 
 ***Use
            of Estimates***
 
 The
            preparation of condensed consolidated financial statements in conformity
            with
            U.S. GAAP requires management to make certain assumptions and estimates
            that
            affect reported amounts of assets and liabilities as of the date of the
            financial statements and the reported amounts of revenues and expenses
            during
            the reporting period. On an ongoing basis, we evaluate our estimates,
            including
            those related to the collectibility of accounts receivables, the value
            assigned
            to and the estimated useful lives of long-lived assets, the realization
            of
            goodwill and deferred tax assets, and the valuation of stock-based compensation,
            the reasonableness of the restructuring reserves, the determination of
            contingent liabilities and the valuation of debt and equity securities.
            We base
            our estimates on historical experience and on various other assumptions
            we
            believe are reasonable under the circumstances, the results of which form
            the basis for making judgments about the carrying values of assets and
            liabilities. Actual results could differ from estimates.
 **~4~**
 TABLE
                OF CONTENTS
 
 ***Revenue
            Recognition***
 
 *Overview*
 
 Our
            revenue consists of fees for licenses of our software products, maintenance,
            consulting services and customer training. We generally charge fees for
            licenses
            of our software products either based on the number of persons using the
            product or based on the number of CPUs on which the product is installed.
            Licenses for software for which fees are charged based upon the number
            of
            persons using the product include licenses for development use and licenses
            for
            use by registered users of the customer's website (deployment use). Licenses
            for
            software for which fees are charged on a per-CPU basis differentiate
            between
            development and deployment usage. Our revenue recognition policies comply
            with
            the provisions of Statement of Position ("SOP") No. 97-2, *Software
            Revenue Recognition*("SOP 97-2"), as amended by SOP No. 98-9, *Software
            Revenue Recognition, With Respect to Certain Transactions*("SOP 98-9"), and
            Staff Accounting Bulletin ("SAB") 104, *Revenue Recognition*("SAB
            104")*.* We apply the separation criteria in Emerging Issues Task Force
            ("EITF"), "Revenue Arrangements with Multiple Deliverables" ("EITF 00-21")
            to
            determine whether our arrangements with multiple deliverables should
            be treated
            as separate units of accounting. EITF 00-21 indicates that revenue recognized
            for any multiple-element contract is to be allocated to each element
            of the
            arrangement based on the relative fair value of each element. The determination
            of the fair value of each element is based on our analysis of objective
            evidence
            from comparable sales of the individual element.
  *Software
            License Revenue*
 
 We
            license our products through our direct sales force and indirectly through
            resellers and Application Service Providers ("ASP"). In general, software
            license revenues are recognized when a non-cancelable license agreement
            has been
            signed and the customer acknowledges an unconditional obligation to pay,
            the
            software product has been delivered, there are no uncertainties surrounding
            product acceptance, the fees are fixed and determinable and collection
            is
            reasonably assured. Delivery is considered to have occurred when title
            and risk
            of loss have been transferred to the customer, which generally occurs
            when media
            containing the licensed programs is provided to a common carrier. In
            case of
            electronic delivery, delivery occurs when the customer is given access
            to the
            licensed programs. For products that cannot be used without a licensing
            key, the
            delivery requirement is met when the licensing key is made available
            to the
            customer. If collectibility is not reasonably assured, revenue is recognized
            when the fee is collected. Subscription-based license revenues are recognized
            ratably over the subscription period. We enter into reseller arrangements
            that
            typically provide for sublicense fees payable to us based upon a percentage
            of
            list prices. We do not grant resellers the right of return.
 
 We
            recognize revenue using the residual method pursuant to the requirements
            of SOP
            97-2, as amended by SOP 98-9. Revenues recognized from multiple-element
            software
            arrangements are allocated to each element of the arrangement based on
            the fair
            values of the elements, such as licenses for software products, maintenance,
            consulting services or customer training. The determination of fair value
            is
            based on vendor-specific objective evidence, which is specific to us.
            We limit
            our assessment of objective evidence for each element to either the price
            charged when the same element is sold separately or the price established
            by
            management having the relevant authority to do so, for an element not
            yet sold
            separately. If evidence of fair value of all undelivered elements exists
            but
            evidence does not exist for one or more delivered elements, then revenue
            is
            recognized using the residual method. Under the residual method, the
            fair value
            of the undelivered elements is deferred and the remaining portion of
            the
            arrangement fee is recognized as revenue.
 
 We
            record
            unearned revenue for software license agreements when cash has been received
            from the customer and the agreement does not qualify for revenue recognition
            under our revenue recognition policy. We record accounts receivable for
            software
            license agreements when the agreement qualifies for revenue recognition
            but cash
            or other consideration has not been received from the customer.
 
 *Services
            Revenue*
 
 Consulting
            services revenues and customer training revenues are recognized as such
            services
            are performed.
 
 Maintenance
            revenues, which include revenues bundled with software license agreements
            that
            entitle the customers to technical support and future unspecified enhancements
            to our products, are deferred and recognized ratably over the related
            agreement
            period, generally twelve months.
 **~5~**
 TABLE
                OF CONTENTS
 
 Our
            consulting services, which consist of consulting, maintenance and training,
            are
            delivered through the BroadVision Global Services ("BVGS") organization.
            The
            services that we provide are not essential to the functionality of the
            software.
            We record reimbursement from our customers for out-of-pocket expenses
            as an
            increase to services revenues.
 
 ***Employee
            Stock Benefit Plans***
 
 *2006
            Equity Incentive Plan:*At our 2006 annual meeting on August 8, 2006, our
            stockholders approved the adoption of our 2006 Equity Incentive Plan
            (the
            "Equity Plan"), under which 3,500,000 shares of common stock are reserved
            for
            issuance. Our 1996 Equity Incentive Plan  was terminated and replaced
            by the Equity Plan. Under the Equity Plan, the Board of Directors may
            grant
            incentive or nonqualified stock options at prices not less than 100%
            of the fair
            market value of our common stock, as determined by the Board of Directors,
            at
            the prior date of grant. The vesting of individual options may vary but
            in each
            case at least 25% of the total number of shares subject to options will
            become
            exercisable per year. These options generally expire ten years after
            the grant
            date. When an employee option is exercised prior to vesting, any unvested
            shares
            so purchased are subject to repurchase by us at the original purchase
            price of
            the stock upon termination of employment. Our right to repurchase lapses
            at a
            minimum rate of 20% per year over five years from the date the option
            was
            granted or, for new employees, the date of hire. Such right is exercisable
            only
            within 90 days following termination of employment. For the six months
            ended
            June 30, 2007 and 2006, no shares were repurchased, respectively.
 
 *2000
            Non-Officer Plan:* In February 2000, we adopted our 2000 Non-Officer Plan
            under which 6,000,000 shares of common stock were reserved for issuance
            to
            selected employees, consultants, and our affiliates who are not officers
            or
            directors. Under the 2000 Non-Officer Plan, we may grant non-statutory
            stock
            options at prices not less than 85% of the fair market value of our common
            stock
            at the date of grant. Options granted under the 2000 Non-Officer Plan
            generally
            vest over two years and are exercisable for not more than ten
            years.  The 2000 Non-Officer Plan is not subject to approval by
            our stockholders.
 
 *2006
            Employee Stock Purchase Plan:* We also have a compensatory Employee Stock
            Purchase Plan (the "Purchase Plan") that enables employees to purchase,
            through
            payroll deductions, shares of our common stock at a discount from the
            market
            price of the stock at the time of purchase. The Board of Directors has
            authorized sequential one-year offerings beginning on July 1 of each
            year and
            extending until June 30 of the following year.
 
 As
            of
            June 30, 2007, we had 153,303 shares available for issuance under the
            Purchase
            Plan. However, an amendment to our Purchase Plan was approved by our
            stockholders at the 2007 annual meeting, held on June 5, 2007, that will
            add an
            additional 2,000,000 shares to the number of share of common stock issuable
            under the Purchase Plan. The Purchase Plan permits eligible employees
            to
            purchase common stock with a value equivalent to a percentage of the
            employee's
            earnings, not to exceed the lesser of 15% of the employee's earnings
            or $25,000,
            at a price equal to the lesser of 85% of the fair market value of the
            common
            stock on the date of the offering or the date of purchase. Under APB
            No. 25,
*Accounting for* *Stock Issued to Employees*, we were not
            required to recognize stock-based compensation expense for the cost of
            shares
            issued under the Purchase Plan within certain criteria. Upon adoption
            of SFAS
            123 (revised 2004), *Share-Based Payment* ("SFAS 123R") (effective
            January 1, 2006), we began recording stock-based compensation expense
            related to
            the Purchase Plan.
  ***Stock-Based
            Compensation***
 
 Effective
            January 1, 2006, we adopted the fair value recognition provisions of
            SFAS 123R,
            using the modified-prospective transition method. Under the fair value
            recognition provisions of SFAS 123R, share-based compensation cost is
            estimated
            at the grant date based on the fair value of the award and is recognized
            as
            expense, net of estimated pre-vesting forfeitures, ratably over the vesting
            period of the award. In addition, the adoption of SFAS 123R requires
            additional
            accounting related to the income tax effects and disclosure regarding
            the cash
            flow resulting from share-based payment arrangements. In January 2005,
            the SEC
            issued SAB No. 107, *Share-Based Payment*, which provides
            supplemental implementation guidance for SFAS 123R. Calculating share-based
            compensation expense requires the input of highly subjective assumptions,
            including the expected term of the share-based awards, stock price volatility,
            dividend yield, risk free interest rates, and pre-vesting forfeitures.
            The
            assumptions used in calculating the fair value of stock-based awards
            represent
            our best estimates, but these estimates involve inherent uncertainties
            and the
            application of management judgment. As a result, if factors change and
            we use
            different assumptions, our share-based compensation expense could be
            materially
            different in the future. In addition, we are required to estimate the
            expected
            pre-vesting forfeiture rate and only recognize expense for those shares
            expected
            to vest. If our actual forfeiture rate is materially different from our
            estimate, our share-based compensation expense could be significantly
            different
            from what we have recorded in the current period.
 **~6~**
 TABLE
                OF CONTENTS
 
 Stock-based
            compensation is classified in the Condensed Consolidated Income Statements
            in
            the same expense line items as cash compensation. The following table
            sets forth
            the total stock-based compensation expense recognized in our Condensed
            Consolidated Income Statements for the three and six months ended June 30,
            2007 and 2006:
 **Three
                          Months Ended June 30,**
                      
                      
                      **Six
                          Months Ended June 30,****2007**
                      
                      
                      **2006**
                      
                      
                      **2007**
                      
                      
                      **2006**Cost
                          of services
                      
                      $
                      55,942
                      
                      
                      $
                      24,395
                      
                      
                      $
                      109,764
                      
                      
                      $
                      48,665Research
                          and development
                      
                      
                      109,993
                      
                      
                      
                      55,137
                      
                      
                      
                      232,229
                      
                      
                      
                      128,967Sales
                          and marketing
                      
                      
                      69,269
                      
                      
                      
                      33,884
                      
                      
                      
                      137,201
                      
                      
                      
                      72,254General
                          and administrative
                      
                      
                      58,152
                      
                      
                      
                      26,669
                      
                      
                      
                      114,008
                      
                      
                      
                      58,199$
                      293,356
                      
                      
                      $
                      140,085
                      
                      
                      $
                      593,202
                      
                      
                      $
                      308,085
 On
            November 10, 2005, the Financial Accounting Standard Board ("FASB") issued
            FASB Staff Position No. FAS 123(R)-3 *"Transition Election Related to
            Accounting for Tax Effects of Share-Based Payment Awards*". We adopted the
            alternative transition method provided in the FASB Staff Position for
            calculating the tax effects of stock-based compensation pursuant to SFAS
            123R in
            the fourth quarter of fiscal 2006. The alternative transition method
            includes
            simplified methods to establish the beginning balance of the additional
            paid-in
            capital pool (APIC pool) related to the tax effects of employee stock-based
            compensation, and to determine the subsequent impact on the APIC pool
            and
            Consolidated Statements of Cash Flows of the tax effects of employee
            stock-based
            compensation awards that are outstanding upon adoption of SFAS 123R.
            The
            adoption did not have a material impact on our results of operations
            and
            financial condition.
  The
            fair
            value of each option award is estimated on the date of grant using the
            Black-Scholes option valuation model based on the assumptions noted in
            the
            following table. The expected term of options represents the period that
            our
            stock-based awards are expected to be outstanding based on the simplified
            method
            provided in SAB 107. The risk-free interest rate for periods related
            to the
            expected life of the options is based on the comparable U.S. Treasury
            yield
            curve in effect at the time of grant.  The expected volatility is based on
            historical volatilities of our stock over the expected life of the option. 
The expected dividend yield is zero, as we do not anticipate paying dividends
            in
            the near future. For the six-month periods ended June 30, 2007 and 2006,
            we used
            forfeiture rates of 9% and 11%, respectively, based on an analysis of
            historical
            data. The following assumptions were used to determine stock-based compensation
            during the three and six months ended June 30, 2007 and 2006:
  **Six
                        Months Ended June 30,****2007**
                    
                    
                    **2006**Expected
                        life (in years)
                    
                    
                    6.00
                    
                    
                    
                    6.00Risk-free
                        interest rate
                    
                    
                    4.94
                    %
                    
                    
                    5.00
                    %Expected
                        volatility
                    
                    
                    97.23
                    %
                    
                    
                    85.00
                    %Expected
                        dividend
                    
                    
                    -
                    %
                    
                    
                    -
                    %Forfeiture
                        rate
                    
                    
                    9.00
                    %
                    
                    
                    11.00
                    %
 As
            of June 30, 2007, we
            had reserved 9,269,884 common shares for future issuance upon the exercise
            of outstanding stock options and warrants.
 
 Our
            Chairman and Chief Executive Officer ("CEO") has options to purchase
            1,704,444
            shares of common stock at an average exercise price of $38.60 per share.
            The
            table below is a summary of options granted to him through June 30,
            2007:
 **Date**
                    
                    **Options**
                    
                    
                    **Exercise**
                    
                    
                    
                    
                    
                    **Vesting
                        Period****Granted**
                    
                    **Granted**
                    
                    
                    **Price**
                    
                    
                    **Vested**
                    
                    
                    **(months)**6/23/1999
                    
                    
                    500,000
                    
                    
                    $
                    60.00
                    
                    
                    
                    500,000
                    
                    
                    
                    605/25/2001
                    
                    
                    500,000
                    
                    
                    
                    66.51
                    
                    
                    
                    500,000
                    
                    
                    
                    4811/27/2001
                    
                    
                    4,444
                    
                    
                    
                    35.01
                    
                    
                    
                    4,444
                    
                    
                    
                    242/19/2002
                    
                    
                    55,555
                    
                    
                    
                    18.63
                    
                    
                    
                    55,555
                    
                    
                    
                    4810/30/2002
                    
                    
                    644,445
                    
                    
                    
                    2.16
                    
                    
                    
                    644,445
                    
                    
                    
                    48Totals
                    
                    
                    1,704,444
                    
                    
                    
                    
                    
                    
                    
                    1,704,444
 **~7~**
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                  OF CONTENTS
 Activity
            in our Equity Plan for the six months ended June 30, 2007, is as
            follows:
 **Six
                          Months Ended,****June
                          30, 2007****Weighted
                          -****Weighted
                          -**
                      
                      
                      **Average**
                      
                      
                      **Aggregate****Options**
                      
                      
                      **Average**
                      
                      
                      **Remaining**
                      
                      
                      **Intrinsic****Shares**
                      
                      
                      **Exercise**
                      
                      
                      **Contractual**
                      
                      
                      **Value****('000)**
                      
                      
                      **Price**
                      
                      
                      **Term**
                      
                      
                      **('000)**Outstanding
                          at December 31, 2006
                      
                      
                      6,239
                      
                      
                      $
                      13.48Granted
                      
                      
                      259
                      
                      
                      
                      1.21Exercised
                      
                      
                      (454
                      )
                      
                      
                      0.58
                      
                      
                      
                      
                      
                      
                      $
                      791Forfeited
                      
                      
                      (19
                      )
                      
                      
                      1.07Expired
                      
                      
                      (40
                      )
                      
                      
                      20.31Outstanding
                          at June 30, 2007
                      
                      
                      5,985
                      
                      
                      $
                      13.92
                      
                      
                      
                      6.86
                      
                      
                      $
                      4,547Vested
                          and expected to vest at June 30, 2007
                      
                      
                      5,899
                      
                      
                      $
                      14.10
                      
                      
                      
                      6.82
                      
                      
                      $
                      4,442Exercisable
                          at June 30, 2007
                      
                      
                      4,312
                      
                      
                      $
                      19.05
                      
                      
                      
                      6.05
                      
                      
                      $
                      2,356
 
 We
            grant
            options outside of our Equity Plan under the 2000 Non-Officer Plan and
            pursuant
            to non-plan grants. The terms of these options are generally identical
            to those
            granted under our Equity Plan. A summary of options outside of the Equity
            Plan
            for the six months ended June 30, 2007, is presented below:
  **Six
                          Months Ended,****June
                          30, 2007****Weighted
                          -****Weighted
                          -**
                      
                      
                      **Average**
                      
                      
                      **Aggregate****Options**
                      
                      
                      **Average**
                      
                      
                      **Remaining**
                      
                      
                      **Intrinsic****Shares**
                      
                      
                      **Exercise**
                      
                      
                      **Contractual**
                      
                      
                      **Value****('000)**
                      
                      
                      **Price**
                      
                      
                      **Term**
                      
                      
                      **('000)**Outstanding
                          at December 31, 2006
                      
                      
                      765
                      
                      
                      $
                      9.70Granted
                      
                      
                      -
                      
                      
                      
                      -Exercised
                      
                      
                      (108
                      )
                      
                      
                      1.24
                      
                      
                      
                      
                      
                      
                      $
                      164Forfeited
                      
                      
                      (17
                      )
                      
                      
                      5.72Expired
                      
                      
                      -
                      
                      
                      
                      -Outstanding
                          at June 30, 2007
                      
                      
                      640
                      
                      
                      $
                      11.23
                      
                      
                      
                      6.85
                      
                      
                      $
                      565Vested
                          and expected to vest at June 30, 2007
                      
                      
                      635
                      
                      
                      $
                      11.32
                      
                      
                      
                      6.84
                      
                      
                      $
                      557Exercisable
                          at June 30, 2007
                      
                      
                      502
                      
                      
                      $
                      14.18
                      
                      
                      
                      6.31
                      
                      
                      $
                      360
 The
            aggregate intrinsic value is calculated as the difference between the
            exercise
            price of the underlying awards and the quoted price of our common stock
            for
            those options for which the quoted price was in excess of the exercise
            price at
            June 30, 2007. As of June 30, 2007, the total compensation cost related
            to the
            non-vested stock options, net of estimated forfeitures, is approximately
            $480,000 for the remainder of year 2007, $337,000 for year 2008, $83,000
            for
            year 2009, and $3,000 for year 2010. **~8~**
 TABLE
                  OF CONTENTS
  ***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,
            , and
            shares subject to repurchase, if any using the as-if converted method.
            There
            were 2.7 million and 11.4 million potential common shares excluded from
            the
            determination of diluted net income per share for the three months ended
            June
            30, 2007 and 2006, respectively, as the effect of each share was
            anti-dilutive because the per-share strike price of the options under
            which
            these shares may be issued is higher than current market price. There
            were 3.4
            million and 10.3 million potential common shares excluded from the determination
            of diluted net income per share for the six months ended June 30, 2007
            and
            2006, respectively, as the effect of each share was anti-dilutive because
            the per-share strike price of the options under which these shares may
            be issued
            is higher than current market price. The following table sets forth the
            basic
            and diluted (loss) income per share computational data for the periods
            presented
            (in thousands, except per share amounts):
  **Three
                            Months Ended June 30,**
                        
                        
                        **Six
                            Months Ended June 30,****2007**
                        
                        
                        **2006**
                        
                        
                        **2007**
                        
                        
                        **2006**Net income
                        
                        $
                        8,440
                        
                        
                        $
                        1,750
                        
                        
                        $
                        5,944
                        
                        
                        $
                        2,631Weighted-average
                            common shares outstanding used to compute basic income per
                            share
                        
                        
                        107,424
                        
                        
                        
                        69,151
                        
                        
                        
                        107,047
                        
                        
                        
                        56,055Weighted-average
                            common equivalent shares from outstanding common stock
                            options and
                            warrants
                        
                        
                        3,611
                        
                        
                        
                        -
                        
                        
                        
                        2,980
                        
                        
                        
                        -Total
                            weighted-average common and common equivalent shares
                            outstanding used to
                            compute diluted income per share
                        
                        
                        111,035
                        
                        
                        
                        69,151
                        
                        
                        
                        110,027
                        
                        
                        
                        56,055Basic income
                            per share
                        
                        $
                        0.08
                        
                        
                        $
                        0.03
                        
                        
                        $
                        0.06
                        
                        
                        $
                        0.05Diluted income
                            per share
                        
                        $
                        0.08
                        
                        
                        $
                        0.03
                        
                        
                        $
                        0.05
                        
                        
                        $
                        0.05
 ***Legal
            Proceedings***
  We
            are subject from time to time to various legal actions and other claims
            arising
            in the ordinary course of business. We are not presently a party to any
            material
            legal proceedings.******
  ***Foreign
            Currency Transactions***
  During
            fiscal 2004, we changed the functional currencies of all foreign subsidiaries
            from the U.S. dollar to the local currency of the respective countries.
            Assets
            and liabilities of these subsidiaries are translated into U.S. dollars
            at the
            balance sheet date. Income and expense items are translated at average
            exchange
            rates for the period. Foreign exchange gains and losses resulting from
            the
            remeasurement of foreign currency assets and liabilities are included
            as other
            income (expense) in the Condensed Consolidated Income Statements. For
            the
            six-month periods ended June 30, 2007, and 2006, translation gain and
            (loss) was
            $80,000, and ($196,000), respectively. These amounts are included in
            the
            accumulated other comprehensive income account in the Condensed Consolidated
            Balance Sheets.
 
 ***Cash
            and Cash Equivalents, and Restricted Cash***
 
 We
            consider all debt and equity securities with remaining maturities of
            three
            months or less at the date of purchase to be cash equivalents. Short-term
            cash
            investments consist of debt and equity securities that have a remaining
            maturity
            of less than one year as of the date of the balance sheet. Cash and cash
            equivalents that serve as collateral for financial instruments such as
            letters
            of credit are classified as restricted cash. Restricted cash in which
            the
            underlying instrument has a term of greater than twelve months from the
            balance
            sheet date are classified as non-current.
 
 Our
            cash
            and cash equivalents, and restricted cash consisted of the following
            as of
            June 30, 2007 and December 31, 2006 (in thousands):
  **June
                        30, 2007**
                    
                    
                    **December
                        31, 2006****(unaudited)**Cash
                        and certificates of deposits
                    
                    $
                    20,759
                    
                    
                    $
                    15,830Money
                        market
                    
                    
                    25,408
                    
                    
                    
                    21,173Total
                        cash and equivalents
                    
                    $
                    46,167
                    
                    
                    $
                    37,003
 ***Valuation
            of Long-Lived Assets***
  We
            adopted SFAS No. 142, *Goodwill and Other Intangible Assets* ("SFAS
            142"), on January 1, 2002. Pursuant to SFAS 142, we are required to
            test our goodwill for impairment upon adoption and annually or more often
            if
            events or changes in circumstances indicate that the asset might be impaired.
            SFAS 142 provides for a two-step approach to determining whether and by how
            much goodwill has been impaired. The first step requires a comparison
            of our
            fair value to our net book value. If our fair value is greater, then
            no
            impairment is deemed to have occurred. If our fair value is less, then
            the
            second step must be completed to determine the amount, if any, of actual
            impairment. There were no impairment charges recognized by us for the
            six-month
            periods ended June 30, 2007 and 2006, respectively.
 **~9~**
 TABLE
                OF CONTENTS
  ***Reclassification***
  Certain
            reclassifications have been made to prior period balances to conform
            to current
            period financial statement presentation.
  ***Comprehensive
            Income***
  Comprehensive
            income includes net income and other comprehensive income, which primarily
            consists of foreign currency translation adjustments. Total comprehensive
            income
            is presented in the accompanying Condensed Consolidated Income Statements.
            Total
            accumulated other comprehensive income is displayed as a separate component
            of
            stockholder's equity in the accompanying Condensed Consolidated Balance
            Sheets.
            The accumulated balances for each classification of comprehensive income
            consist
            of the following, net of taxes (in thousands):
  **Accumulated
                        Other****Comprehensive
                        **Income****Balance,
                        December 31, 2006
                    
                    $
                    168Net
                        change during period
                    
                    
                    80Balance,
                        June 30, 2007
                    
                    $
                    248
 ***Recent
            Accounting Pronouncements***
  In
            February 2007, the FASB issued Statement No. 159, *The Fair Value Option for
            Financial Assets and Financial Liabilities* ("SFAS 159"). SFAS No. 159
            permits the measurement of many financial instruments and certain other
            items at
            fair value. Entities may choose to measure eligible items at fair value
            at
            specified election dates, reporting unrealized gains and losses on such
            items at
            each subsequent reporting period. The objective of SFAS No. 159 is to
            provide
            entities with the opportunity to mitigate volatility in reported earnings
            caused
            by measuring related assets and liabilities differently without having
            to apply
            complex hedge accounting provisions. It is intended to expand the use
            of fair
            value measurement. SFAS No. 159 is effective for fiscal years beginning
            after
            November 15, 2007. We are currently evaluating what effect, if any, the
            adoption
            of SFAS No. 159 will have on our consolidated results of operations and
            financial position.
  In
            September 2006, the FASB issued SFAS No. 157, *Fair Value
            Measurements* ("SFAS 157")*.* SFAS 157 establishes a framework
            for measuring the fair value of assets and liabilities. This framework
            is
            intended to provide increased consistency in how fair value determinations
            are
            made under various existing accounting standards which permit, or in
            some cases
            require, estimates of fair market value. SFAS 157 is effective for fiscal
            years beginning after November 15, 2007, and interim periods within those
            fiscal years. Earlier application is encouraged, provided that the reporting
            entity has not yet issued financial statements for that fiscal year,
            including
            any financial statements for an interim period within that fiscal year.
            We are
            currently evaluating what effect, if any, the adoption of SFAS 157 will
            have on
            our consolidated results of operations and financial position.
  **Note
            2. Selected Balance Sheet Detail**
  Property
            and equipment consisted of the following (in thousands):
  **June
                        30,**
                    
                    
                    **December
                        31,****2007**
                    
                    
                    **2006****(unaudited)**Furniture
                        and fixtures
                    
                    $
                    737
                    
                    
                    $
                    795Computers
                        and software
                    
                    
                    13,297
                    
                    
                    
                    14,547Leasehold
                        improvements
                    
                    
                    5,322
                    
                    
                    
                    5,00719,356
                    
                    
                    
                    20,349Less
                        accumulated depreciation and amortization
                    
                    
                    (18,411
                    )
                    
                    
                    (19,205
                    )$
                    945
                    
                    
                    $
                    1,144
 **~10~**
 TABLE
                  OF CONTENTS
 Accrued
            expenses consisted of the following (in thousands):
  **June
                        30,**
                    
                    
                    **December
                        31,****2007**
                    
                    
                    **2006****(unaudited)**Employee
                        benefits
                    
                    $
                    1,178
                    
                    
                    $
                    961Commissions
                        and bonuses
                    
                    
                    871
                    
                    
                    
                    885Sales
                        and other taxes
                    
                    
                    1,776
                    
                    
                    
                    2,000Income
                        tax and tax contingency reserves
                    
                    
                    848
                    
                    
                    
                    1,378Restructuring
                        (See Note 6)
                    
                    
                    1,024
                    
                    
                    
                    1,272Customer
                        advances
                    
                    
                    382
                    
                    
                    
                    654Royalties
                    
                    
                    1,745
                    
                    
                    
                    1,745Other
                    
                    
                    887
                    
                    
                    
                    1,643Total
                        accrued expenses
                    
                    $
                    8,711
                    
                    
                    $
                    10,538
 **Note
              3. Warrants and Other Non-Current Liabilities**
  As
            of
            June 30, 2007, the following warrants to purchase our common stock were
            outstanding:
  **Underlying**
                      
                      
                      **Exercise****Description**
                      
                      **Shares**
                      
                      
                      **Price
                          per Share**Issued
                          to landlord in real estate buyout transaction in
                          August 2004
                      
                      
                      700,000
                      
                      
                      $
                      5.00Issued
                          to convertible notes investors in November 2004
                      
                      
                      4,206,811
                      
                      
                      
                      1.48Other
                          issued in connection with revenue transactions in 2000
                      
                      
                      620
                      
                      
                      
                      435.98Total
                          warrants
                      
                      
                      4,907,431
 Warrant
              liability consisted of the following (in thousands):
 
 **June
                          30, 2007**
                      
                      
                      **December
                          31, 2006****(unaudited)**Warrants
                          related to real estate buy out
                      
                      $
                      451
                      
                      
                      $
                      79Warrants
                          related to the notes
                      
                      
                      5,397
                      
                      
                      
                      1,531$
                      5,848
                      
                      
                      $
                      1,610
  *Warrants
            issued to landlord in real estate buyout transaction in August
            2004*
  The
            warrants issued to our landlord in connection with the August 2004 real
            estate
            buyout transaction have a term of five years and became exercisable beginning
            in
            August 2005. The warrants have not been exercised as of June 30,
            2007.
 
 In
            accordance with EITF 00-19 *Accounting for Derivative Financial Instruments
            Indexed to, and Potentially Settled in, a Company's Own Stock*("EITF
            00-19"),**the warrants issued to the landlord have been included in
            our condensed consolidated financial statements as a short-term liability
            and
            were originally valued at fair value on the date of issuance. The warrants
            are
            revalued each period until and unless the warrants are exercised. For
            the three
            months ended June 30, 2007 and 2006, we recorded gains (losses) related
            to the
            revaluation of warrants to landlord of approximately $311,000 and $(1,000),
            respectively.  For the six months ended June 30, 2007 and 2006, we
            recorded (losses) gains related to the revaluation of warrants to landlord
            of
            approximately $(372,000) and $13,000, respectively.  These gains
            (losses) are included in gain (loss) on revaluation of warrants in the
            accompanying Condensed Consolidated Income Statements. If the warrants
            are
            exercised prior to their termination, their carrying value at the time
            of
            exercise will be transferred to equity.
  *Warrants
            issued to convertible note investors in November 2004*
  In
            November 2004, we issued $16.0 million in convertible notes (the "Notes")
            to
            unaffiliated investors.  In November 2005, the Notes were purchased by
            an entity controlled by Dr. Pehong Chen, our Chairman and Chief Executive
            Officer.  In March 2006, the Notes were cancelled and exchanged for
            34.5 million shares of our common stock.
 **~11~**
 TABLE
                OF CONTENTS
 
 The
            warrants issued to the original Notes purchasers in November 2004, which
            were
            initially exercisable to purchase 1,739,130 shares at an exercise price
            of $3.58
            per share, the warrants were adjusted twice during 2006. Pursuant to
            an
            anti-dilution provision of the warrants and as triggered by (i) the conversion
            of the Notes into shares of our common stock and (ii) the rights offering,
            the
            exercise price of the warrants and the number of shares underlying the
            warrants
            were adjusted in March 2006 and November 2006, respectively. We recorded
            a
            charge of $574,000 and $282,000 in our consolidated financial statements
            for the
            quarters ended December 31, 2006 and March 31, 2006, respectively, to
            reflect
            these adjustments. All other terms of the warrants remained unchanged.
            As of
            June 30, 2007, the warrants are exercisable for 4,206,811 shares of our
            common
            stock at an exercise price of $1.48 per share. The warrants were first
            exercisable on May 10, 2005 and may be exercised on or prior to
            May 10, 2010. Any warrants not exercised prior to such time will expire.
            No
            warrants had been exercised as of June 30, 2007.  In July 2007, a
            total of 341,000 shares of common stock were issued as a result of certain
            warrants being exercised (see Note 9).
  In
            accordance with EITF 00-19,**the warrants issued to the original
            Notes purchasers have been included in our consolidated financial statements
            as
            a short-term liability and were originally valued at fair value on the
            date of
            issuance. The warrants are revalued each period until and unless the
            warrants
            are exercised. For the three months ended June 30, 2007 and 2006, we
            recorded
            gains (losses) related to the revaluation of warrants to the Note holders
            of
            approximately $2,793,000 and $(15,000), respectively.  For the six
            months ended June 30, 2007 and 2006, we recorded (losses) related to
            the
            revaluation of warrants to the Note holders of approximately $(3,866,000)
            and
            $(399,000), respectively.  These gains (losses) are included in gain
            (loss) on revaluation of warrants in the accompanying Condensed Consolidated
            Income Statements. If the warrants are exercised prior to their termination,
            their carrying value at the date of exercise will be transferred to
            equity.
  Effective
            January 1, 2007, we adopted FASB Staff Position EITF 00-19-2, *Accounting for
            Registration Payment Arrangements*("FSP"). This FSP addresses how to
            account for registration payment arrangements and clarifies that a financial
            instrument subject to a registration payment arrangement should be accounted
            for
            in accordance with other GAAP without regard to the contingent obligation
            to
            transfer consideration pursuant to the registration payment arrangement.
            This
            accounting pronouncement further clarifies that a liability for liquidated
            damages resulting from registration statement obligations should be recorded
            in
            accordance with SFAS No. 5, *Accounting for Contingencies*, when the
            payment of liquidated damages becomes probable and can be reasonably
            estimated.
  Pursuant
            to the terms of the registration rights agreement entered into with the
            warrant
            holders in connection with the Note financing, if all of the shares underlying
            the warrants cannot be sold (other than during certain grace periods
            as set
            forth in the registration rights agreement) pursuant to the registration
            statement, then, as partial relief for the damages to any holder of shares
            underlying the warrants, by reason of any such reduction of such holders'
            ability to sell the underlying shares we shall pay an amount in cash
            equal to
            one percent of the amount such holder paid to us in consideration for
            the Notes
            and warrants, per month (such payments accruing beginning on the first
            day in
            which such shares can not be sold) until such shares can again be sold
            pursuant
            to the registration statement. Our potential payment obligation under
            this
            provision of the registration rights agreement is uncapped. In the event
            we fail
            to make any such payments in a timely manner, such payments shall bear
            interest
            at the rate of one percent per month (prorated for partial months) until
            paid in
            full.
  We
            have
            made no such payments to date, and are currently maintaining an effective
            registration statement for the above warrants; therefore, we have
            not recognized a liability for such contingent obligations in accordance
            with the provisions of the FSP.
  Gains
            (losses) on the revaluation of warrants were recorded as follows (in
            thousands):
  **Three
                        Months Ended June 30,**
                    
                    
                    **Six
                        Months Ended June 30,****2007**
                    
                    
                    **2006**
                    
                    
                    **2007**
                    
                    
                    **2006**Warrants
                        related to the Notes
                    
                    $
                    2,794
                    
                    
                    $
                    (15
                    )
                    
                    $
                    (3,866
                    )
                    
                    $
                    (399
                    )Warrants
                        related to real estate buyout
                    
                    
                    311
                    
                    
                    
                    (1
                    )
                    
                    
                    (372
                    )
                    
                    
                    13Gains
                        (losses) on revaluation of warrants
                    
                    $
                    3,105
                    
                    
                    $
                    (16
                    )
                    
                    $
                    (4,238
                    )
                    
                    $
                    (386
                    )
 **~12~**
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                  OF CONTENTS
 *Other
            Non-Current Liabilities*
  Other
            non-current liabilities consist of the following (in thousands):
  **June
                        30,**
                    
                    
                    **December
                        31,****2007**
                    
                    
                    **2006****(unaudited)**Restructuring
                        (Note 6)
                    
                    $
                    1,132
                    
                    
                    $
                    1,290Deferred
                        maintenance and unearned revenue
                    
                    
                    909
                    
                    
                    
                    1,739Other
                    
                    
                    631
                    
                    
                    
                    400Total
                        other non-current liabilities
                    
                    $
                    2,672
                    
                    
                    $
                    3,429
 **Note
            4. Commitments and Contingencies**
  *Warranties
            and Indemnification*
  We
            provide a warranty to our customers that our software will perform substantially
            in accordance with documentation, typically for a period of 90 days following
            receipt of the software. Historically, costs related to these warranties
            have
            been immaterial. Accordingly, we have not recorded any warranty liabilities
            as
            of June 30, 2007 and 2006.
 
 Our
            software license agreements typically provide for indemnification of
            customers
            for intellectual property infringement claims caused by use of a current
            release
            of our software consistent with the terms of the Agreement. The term
            of these
            indemnification clauses is generally perpetual. The potential future
            payments we
            could be required to make under these indemnification clauses is generally
            limited to the amount the customer paid for the software. Historically,
            costs
            related to these indemnifications provisions have been immaterial. We
            also
            maintain liability insurance that limits our exposure. As a result, we
            believe
            the potential liability of these indemnification clauses is minimal.
            Accordingly, we have not recorded any liabilities for these agreements
            as of
            June 30, 2007 and 2006.
  We
            have
            agreements whereby we indemnify our officers and directors for certain
            events or
            occurrences while the officer is, or was, serving in such capacity. The
            term of
            the indemnification period is for so long as such officer or director
            is subject
            to an indemnifiable event by reason of the fact that such person was
            serving in
            such capacity. The maximum potential amount of future payments we could
            be
            required to make under these indemnification agreements may be unlimited;
            however, we have a director and officer insurance policy that limits
            our
            exposure and enables us to recover a portion of any future amounts paid.
            As a
            result of our insurance policy coverage, we believe the estimated fair
            value of
            these indemnification agreements is insignificant. Accordingly, we have
            no
            liabilities recorded for these agreements as of either June 30, 2007 or
            2006. We assess the need for an indemnification reserve on a quarterly
            basis and
            there can be no guarantee that an indemnification reserve will not become
            necessary in the future.
  *Leases*
  We
            lease
            our headquarters facility and our other facilities under noncancellable
            operating lease agreements expiring in or prior to the year 2012. Under
            the
            terms of the agreements, we are required to pay property taxes, insurance
            and
            normal maintenance costs.
 
 A
            summary
            of total future minimum lease payments under noncancellable operating
            lease
            agreements is as follows (in millions):
  **Operating****Years
                        Ending December 31,**
                    
                    **Leases**2007
                    
                    $
                    1.62008
                    
                    
                    2.02009
                    
                    
                    1.82010
                    
                    
                    1.32011
                        and thereafter
                    
                    
                    1.6Total
                        minimum lease payments
                    
                    $
                    8.3
 These
            future minimum lease payments are net of approximately $3.9 million of
            sublease income to be received under sublease agreements. As of June
            30, 2007,
            we have accrued $1.8 million of estimated future facilities costs as
            a
            restructuring accrual.
 **~13~**
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                OF CONTENTS
  *Standby
            Letter of Credit Commitments*
  As
            of June 30, 2007, we had $1.8 million of outstanding commitments in
            the form of standby letters of credit, primarily in favor of our various
            landlords to secure obligations under our facility leases.
  **Note
            5. Geographic, Segment and Significant Customer
            Information**
  We
            operate in one segment, electronic business commerce solutions. Our reportable
            segment includes our facilities in North and South America (Americas),
            Europe
            and Asia Pacific and the Middle East (Asia/Pacific). We consider our
            CEO to be
            our chief operating decision-maker. The CEO reviews financial information
            presented on a consolidated basis accompanied by disaggregated information
            about
            revenues by geographic region and by product for purposes of making operating
            decisions and assessing financial performance. The disaggregated revenue
            information reviewed by the CEO is as follows (in thousands):
  **Three
                        Months Ended**
                    
                    
                    **Six
                        Months Ended****June
                        30,**
                    
                    
                    **June
                        30,**Revenues:
                    
                    **2007**
                    
                    
                    **2006**
                    
                    
                    **2007**
                    
                    
                    **2006**Software
                        licenses
                    
                    $
                    5,494
                    
                    
                    $
                    3,627
                    
                    
                    $
                    11,228
                    
                    
                    $
                    6,509Consulting
                        services
                    
                    
                    1,852
                    
                    
                    
                    3,153
                    
                    
                    
                    3,138
                    
                    
                    
                    6,995Maintenance
                    
                    
                    5,922
                    
                    
                    
                    5,949
                    
                    
                    
                    11,647
                    
                    
                    
                    11,849Total
                        revenues
                    
                    $
                    13,268
                    
                    
                    $
                    12,729
                    
                    
                    $
                    26,013
                    
                    
                    $
                    25,353
  We
            sell
            our products and provide services worldwide through a direct sales force
            and
            through a channel of independent distributors, value-added resellers
            ("VARs")
            and ASPs. In addition, the sales of our products are promoted through
            independent professional consulting organizations known as systems integrators.
            We provide services worldwide through our BroadVision Global Services
            Organization and indirectly through distributors, VARs, ASPs, and systems
            integrators. We currently operate in three primary geographical territories,
            Americas, Europe and Asia/Pacific.
 
 Disaggregated
            financial information regarding our geographic revenues and long-lived
            assets is
            as follows (in thousands):
  **Three
                        months ended**
                    
                    
                    **Six
                        months ended****June
                        30,**
                    
                    
                    **June
                        30,****2007**
                    
                    
                    **2006**
                    
                    
                    **2007**
                    
                    
                    **2006**Revenues:Americas
                    
                    $
                    8,498
                    
                    
                    $
                    10,633
                    
                    
                    $
                    15,408
                    
                    
                    $
                    20,652Europe
                    
                    
                    2,808
                    
                    
                    
                    1,350
                    
                    
                    
                    6,818
                    
                    
                    
                    2,621Asia/Pacific
                    
                    
                    1,962
                    
                    
                    
                    746
                    
                    
                    
                    3,787
                    
                    
                    
                    2,080Total
                        revenues
                    
                    $
                    13,268
                    
                    
                    $
                    12,729
                    
                    
                    $
                    26,013
                    
                    
                    $
                    25,353
 **June
                        30,**
                    
                    
                    **December
                        31,****2007**
                    
                    
                    **2006**Long-Lived
                        Assets:
                    
                    (unaudited)Americas
                    
                    $
                    25,852
                    
                    
                    $
                    26,025Europe
                    
                    
                    83
                    
                    
                    
                    104Asia/Pacific
                    
                    
                    76
                    
                    
                    
                    81Total
                        long-lived assets
                    
                    $
                    26,011
                    
                    
                    $
                    26,210
 During
            the three months ended June 30, 2007 and 2006, no single customer accounted
            for more than 10% of our revenues.  During the six months ended
            June 30, 2007 and 2006, no single customer accounted for more than 10% of
            our revenues.
 **~14~**
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                OF CONTENTS
  **Note
            6. Restructuring Charges**
  Through
            June 30, 2007, we approved restructuring plans to, among other things,
            reduce
            our workforce and consolidate our facilities. Restructuring and asset
            impairment
            charges were taken to align our cost structure with changing market conditions
            and to create a more efficient organization. Our restructuring charges
            are
            comprised primarily of (i) severance and benefits termination costs related
            to the reduction of our workforce; (ii) lease termination costs and/or
            costs associated with permanently vacating our facilities; (iii) other
            incremental costs incurred as a direct result of the restructuring plan;
            and
            (iv) impairment costs related to certain long-lived assets abandoned. We
            account for each of these costs in accordance with SAB 100, *Restructuring
            and Impairment Charges,*and as follows:
  ***Severance
            and Termination Costs.***
  •
For
            exit or disposal activities initiated on or prior to December 31, 2002, we
            account for costs in accordance with EITF 94-3, *Liability Recognition for
            Certain Employee Termination Benefits and Other Costs to Exit an Activity
            (Including Certain Costs Incurred in a Restructuring)* ("EITF 94-3"). 
Accordingly, we record the liability related to these termination
            costs when the
            following conditions have been met: (i) management with the appropriate
            level of authority approves a termination plan that commits us to such
            plan and
            establishes the benefits the employees will receive upon termination;
            (ii) the benefit arrangement is communicated to the employees in sufficient
            detail to enable the employees to determine the termination benefits;
            (iii) the plan specifically identifies the number of employees to be
            terminated, their locations and their job classifications; and (iv) the
            period of time to implement the plan does not indicate changes to the
            plan are
            likely.
 
 •
For
            exit or disposal activities initiated after December 31, 2002, we account
            for costs in accordance with SFAS 146, *Accounting for Costs Associated with
            Exit or Disposal Activities*("SFAS 146").  SFAS 146 requires that a
            liability for a cost associated with an exit or disposal activity be
            recognized
            and measured initially at fair value only when the liability is
            incurred.
  ***Excess
            Facilities Costs.***
  • For
            exit or disposal activities initiated on or prior to December 31, 2002, we
            account for lease termination and/or abandonment costs in accordance
            with EITF
            88-10, *Costs Associated with Lease Modification or Termination*.
            Accordingly, we recorded the costs associated with lease termination
            and/or
            abandonment when the leased property had no substantive future use or
            benefit.
 
 •
For
            exit or disposal activities initiated after December 31, 2002, we account
            for lease termination and/or abandonment costs in accordance with SFAS
            146,
            which requires that a liability for such costs be recognized and measured
            initially at fair value on the cease use date of the facility.
 
 The
            severance and termination costs and excess facilities costs we record
            under
            these provisions are not associated with nor do they benefit continuing
            activities.
  As
            of June 30, 2007, the total restructuring accrual of $2.2 million consisted
            of
            the following (in millions):
  **Current**
                    
                    
                    **Non-Current**
                    
                    
                    **Total**Severance
                        and termination
                    
                    $
                    0.4
                    
                    
                    $
                    -
                    
                    
                    $
                    0.4Excess
                        facilities
                    
                    
                    0.6
                    
                    
                    
                    1.2
                    
                    
                    
                    1.8Total
                    
                    $
                    1.0
                    
                    
                    $
                    1.2
                    
                    
                    $
                    2.2
 We
            estimate that the $0.4 million severance and termination accrual will
            be nearly
            paid in full by December 31, 2007. We expect to pay the excess facilities
            amounts related to restructured or abandoned leased space as follows
            (in
            millions):
  **Total
                        future****minimum****Years
                        ending December 31,**
                    
                    **payments**2007
                    
                    $
                    0.42008
                    
                    
                    0.52009
                    
                    
                    0.62010
                    
                    
                    0.22011
                        and thereafter
                    
                    
                    0.1Total
                        minimum facilities payments
                    
                    $
                    1.8
 **~15~**
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 The
            following table summarizes the activity related to the restructuring
            plans
            initiated subsequent to December 31, 2002, and accounted for in accordance
            with SFAS 146 (in thousands):
  **Amounts****Accrued**
                    
                    
                    **charged
                        to****restructuring**
                    
                    
                    **restructuring**
                    
                    
                    
                    
                    
                    **Accrued****costs**
                    
                    
                    **costs**
                    
                    
                    **Amounts
                        paid**
                    
                    
                    **restructuring****beginning**
                    
                    
                    **and
                        other**
                    
                    
                    **or
                        written off**
                    
                    
                    **costs,
                        ending****Three
                        Months Ended June 30, 2007**Lease
                        cancellations and commitments
                    
                    $
                    118
                    
                    
                    $
                    2
                    
                    
                    $
                    (62
                    )
                    
                    $
                    59Termination
                        payments to employees and related costs
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -$
                    118
                    
                    
                    $
                    2
                    
                    
                    $
                    (62
                    )
                    
                    $
                    59**Three
                        Months Ended June 30, 2006**Lease
                        cancellations and commitments
                    
                    $
                    4,296
                    
                    
                    $
                    -
                    
                    
                    $
                    103
                    
                    
                    $
                    4,399Termination
                        payments to employees and related costs
                    
                    
                    103
                    
                    
                    
                    -
                    
                    
                    
                    (65
                    )
                    
                    
                    38$
                    4,399
                    
                    
                    $
                    -
                    
                    
                    $
                    38
                    
                    
                    $
                    4,437**Six
                        Months Ended June 30, 2007**Lease
                        cancellations and commitments
                    
                    $
                    77
                    
                    
                    $
                    113
                    
                    
                    $
                    (131
                    )
                    
                    $
                    59Termination
                        payments to employees and related costs
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -$
                    77
                    
                    
                    $
                    113
                    
                    
                    $
                    (131
                    )
                    
                    $
                    59**Six
                        Months Ended June 30, 2006**Lease
                        cancellations and commitments
                    
                    $
                    4,188
                    
                    
                    $
                    108
                    
                    
                    $
                    103
                    
                    
                    $
                    4,399Termination
                        payments to employees and related costs
                    
                    
                    105
                    
                    
                    
                    374
                    
                    
                    
                    (441
                    )
                    
                    
                    38$
                    4,293
                    
                    
                    $
                    482
                    
                    
                    $
                    (338
                    )
                    
                    $
                    4,437
 The
            following table summarizes the activity related to the restructuring
            plans
            initiated on or prior to December 31, 2002, and accounted for in accordance
            with EITF 94-3 (in thousands):
  **Amounts****Accrued**
                    
                    
                    **charged
                        to****restructuring**
                    
                    
                    **restructuring**
                    
                    
                    
                    
                    
                    **Accrued****costs,**
                    
                    
                    **costs**
                    
                    
                    **Amounts
                        paid**
                    
                    
                    **restructuring****beginning**
                    
                    
                    **and
                        other**
                    
                    
                    **or
                        written off**
                    
                    
                    **costs,
                        ending****Three
                        Months Ended June 30, 2007**Lease
                        cancellations and commitments
                    
                    $
                    1,966
                    
                    
                    $
                    300
                    
                    
                    $
                    (525
                    )
                    
                    $
                    1,741Termination
                        payments to employees and related costs
                    
                    
                    352
                    
                    
                    
                    4
                    
                    
                    
                    -
                    
                    
                    
                    356$
                    2,318
                    
                    
                    $
                    304
                    
                    
                    $
                    (525
                    )
                    
                    $
                    2,097**Three
                        Months Ended June 30, 2006**Lease
                        cancellations and commitments
                    
                    $
                    2,223
                    
                    
                    $
                    (15
                    )
                    
                    $
                    (216
                    )
                    
                    $
                    1,992Termination
                        payments to employees and related costs
                    
                    
                    319
                    
                    
                    
                    -
                    
                    
                    
                    13
                    
                    
                    
                    332$
                    2,542
                    
                    
                    $
                    (15
                    )
                    
                    $
                    (203
                    )
                    
                    $
                    2,324**Six
                        Months Ended June 30, 2007**Lease
                        cancellations and commitments
                    
                    $
                    2,138
                    
                    
                    $
                    462
                    
                    
                    $
                    (859
                    )
                    
                    $
                    1,741Termination
                        payments to employees and related costs
                    
                    
                    347
                    
                    
                    
                    9
                    
                    
                    
                    -
                    
                    
                    
                    356$
                    2,485
                    
                    
                    $
                    471
                    
                    
                    $
                    (859
                    )
                    
                    $
                    2,097**Six
                        Months Ended June 30, 2006**Lease
                        cancellations and commitments
                    
                    $
                    2,651
                    
                    
                    $
                    (7
                    )
                    
                    $
                    (652
                    )
                    
                    $
                    1,992Termination
                        payments to employees and related costs
                    
                    
                    311
                    
                    
                    
                    -
                    
                    
                    
                    21
                    
                    
                    
                    332$
                    2,962
                    
                    
                    $
                    (7
                    )
                    
                    $
                    (631
                    )
                    
                    $
                    2,324
 **~16~**
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 We
            have based our excess facilities accrual, in part, upon estimates of
            future
            sublease income. We have used the following factors, among others, in
            making
            such estimates: opinions of independent real estate experts, current
            market
            conditions and rental rates, an assessment of the time period over which
            reasonable estimates could be made, the status of negotiations with potential
            subtenants, and the location of the respective facilities. We have recorded
            the
            low-end of a range of assumptions modeled for restructuring charges,
            in
            accordance with SFAS 5. Adjustments to the facilities accrual will be
            required
            if actual sublease income differs from amounts currently expected. We
            will
            review the status of restructuring activities on a quarterly basis and,
            if
            appropriate, record changes to our restructuring obligations in current
            operations based on management's most current estimates.
  **Note
            7. Accounting for Uncertainty in Income Taxes**
  Effective
            January 1, 2007, we adopted FASB Interpretation No.48, *Accounting for
            Uncertainty in Income Taxes - an interpretation of FASB Statement
            No. 109.* ("FIN 48"). FIN 48 prescribes a recognition threshold and
            measurement attribute for the financial statement recognition and measurement
            of
            uncertain tax positions taken or expected to be taken in a company's
            income tax
            return, and also provides guidance on derecognition, classification,
            interest
            and penalties, accounting in interim periods, disclosure, and transition.
            FIN 48
            utilizes a two-step approach for evaluating uncertain tax positions accounted
            for in accordance with SFAS No. 109, *Accounting for Income Taxes*("SFAS
            109"). Step one, *Recognition*, requires a company to determine if the
            weight of available evidence indicates that a tax position is more likely
            than
            not to be sustained upon audit, including resolution of related appeals
            or
            litigation processes, if any. Step two, *Measurement*, is based on the
            largest amount of benefit, which is more likely than not to be realized
            on
            ultimate settlement. The cumulative effect of adopting FIN 48 on January
            1, 2007
            is recognized as a change in accounting principle, recorded as an adjustment
            to
            the opening balance of retained earnings on the adoption date.
 
 We
            recognized a $388,000 decrease in liability and an increase in stockholder's
            equity for unrecognized tax benefits related to tax positions taken in
            prior
            periods in the first quarter of 2007. Additionally, we reclassified $160,000
            from current taxes payable to long-term taxes payable as FIN 48 specifies
            that
            tax positions for which the timing of the ultimate resolution is uncertain
            should be recognized as long-term liabilities in the first quarter of
            2007.
 
 Despite
            the adoption of FIN 48, our policy to include interest and penalties
            related to
            unrecognized tax benefits within our provision for (benefit from) income
            taxes
            has not changed.
 
 Our
            total
            amount of unrecognized tax benefits as of January 1, 2007 (FIN48 adoption
            date)
            and June 30, 2007 was $548,000 and $160,000, respectively. Total amount
            of
            unrecognized tax benefits that, if recognized, would affect our effective
            tax
            rate was $548,000 and $160,000 as of January 1, 2007 and June 30, 2007,
            respectively.
 
 The
            tax
            years 1993 to 2006 remain open in several jurisdictions, none of which
            have
            individual significance.
  **Note
            8. Related Party Transactions**
  In
            June
            2007, we executed a software license agreement with a third party in
            which Dr.
            Pehong Chen, our CEO and largest stockholder, is a board member. The
            total
            contract value is $132,000.  For the six months ended June 30, 2007,
            $75,000 was recognized as revenue. We have not received payment for the
            contract
            as of June 30, 2007.
  **Note
            9. Subsequent Event**
 
 In
            July 2007, we issued 341,000 shares of common stock upon exercise of
            certain warrants issued in connection with our convertible note transaction
            in
            November 2004 (see Note 3).  We received $504,680 in cash payment
            based on an aggregate exercise price of $1.48 for such
            shares.
 **~17~**
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                OF CONTENTS
  **Item 2.
            Management's Discussion and Analysis of Financial
            Condition and Results of Operations**
  *This
            report on Form 10-Q 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, including those described herein and in the Company's
            most
            recently filed Annual Report on Form 10-K and other documents filed with
            the
            SEC. We undertake no obligation to publicly release any revisions to
            the
            forward-looking statements or to reflect events and circumstances after
            the date
            of this document.*
  **Overview**
  Since
            1993, we have been a pioneer and consistent innovator of e-business solutions.
            We deliver a combination of technologies and services into the global
            market
            that enable customers of all sizes to power mission-critical web initiatives
            that ultimately deliver high-value to their bottom line. Our offering
            consists
            of a robust framework for personalization and self-service, modular applications
            and agile toolsets that customers use to create e-commerce and portal
            solutions.
            We have more than 500 customers - including Audible.com, Baker Hughes,
            Cardinal
            Health, Citibank, Hilti, Japan Airlines, Renault, Sears, Sony, Standard
            Chartered Bank, Vodafone, U.S. Air Force, Yomiuri Shinbun and
            Xerox.
  Our
            objective is to further our position as a global supplier of web-based,
            self-service applications. This will require us to continue to build
            new
            functionality into our applications to offer our customers a compelling
            value
            proposition to license our products rather than design and build custom
            solutions.
  We
            generate revenue from fees for licenses of our software products, and
            related
            maintenance, consulting services and customer training. We generally
            charge fees
            for licenses of our software products either based on the number of persons
            registered to use the product or based on the number of CPUs utilized
            by the
            machine on which the product is installed. Payment terms are generally
            30 days
            from the date the products are delivered, the maintenance contract is
            booked or
            the consulting services are provided.
  From
            2001
            to 2005, we incurred significant losses and negative cash flows from
            our
            operations. In fiscal years 2004 and 2005, we incurred significant cash
            usage
            related to the termination of excess real estate obligations, certain
            reductions
            in workforce and the execution and subsequent termination of an acquisition
            agreement. Although we generated net income in 2006 and believe that
            our future
            cash flows will benefit from these events, our ability to generate profits
            or
            positive cash flows in future periods remains uncertain.
  We
            strive
            to anticipate changes in the demand for our services and aggressively
            manage our
            labor force appropriately. As part of our budgeting process, cross-functional
            management participates in the planning, reviewing and managing of our
            business
            plans. This process is intended to allow us to adjust our cost structures
            to
            changing market needs, competitive landscapes and economic factors. Our
            emphasis
            on cost control helps us manage our margins even if revenues generated
            fall
            short of our expectations.
  As
            of
            June 30, 2007, we are more than halfway through implementing a 24-month
            turnaround plan. To date under this plan we have implemented cost-cutting
            measures and we are beginning to see results from our marketing initiatives
            over
            the last six months.  In June, we officially launched eMerchandising,
            our first commerce server agnostic product. In addition, we will continue
            our
            integrated direct marketing, online, and print campaigns to promote Kona*Kukini
            based Portal, Commerce, and eMerchandising applications, which are being
            added
            to our current product platform and will culminate in the formal release
            of our
            updated product suite, BroadVision 8.1, during the last half of 2007. Our
            focus under this plan will be on delivering new products and technologies
            and
            generating demand among existing and potential new customers during the
            remainder of 2007.
 
 In
            February 2006, we announced a subscription rights offering to existing
            stockholders to sell a total of 178 million shares, or 5.9 shares for
            each share
            of BroadVision common stock held as of the record date of December 20,
            2005, at
            an effective price per share of $0.45. The primary purpose of the rights
            offering was to allow holders of our common stock on the record date
            an
            opportunity to further invest in BroadVision in order to maintain their
            proportionate interest in our common stock, at the same price per share
            as the
            per share price afforded to Dr. Chen in connection with his acquisition
            of
            shares of common stock in exchange for the cancellation of the Notes.
            The rights
            offering expired on November 28, 2006. Eligible participants exercised
            rights to
            purchase 36.4 million shares, resulting in $15.8 million in net proceeds.
            Dr.
            Chen's ownership was approximately 39% as a result of closing the rights
            offering in the fourth quarter of 2006.
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  In
            order
            to complete the issuance of shares to Dr. Chen without violating applicable
            listing standards, we voluntarily delisted our common stock from the
            NASDAQ
            National Market ("NASDAQ") effective prior to the opening of trading
            on March 8,
            2006. We had previously received a notice from NASDAQ stating that we
            were not
            in compliance with the minimum bid price rules applicable to stocks traded
            on
            NASDAQ, and that we had until March 6, 2006 to regain compliance. On
            March 8, 2006, our common stock began trading only on the Pink Sheets®.
            On May 25, 2007,
            our common stock began trading on the OTC Bulletin Board ("OTCBB"). Quotations
            for our common stock are currently available through OTCBBunder
            the
            trading symbol "BVSN", and we anticipate that such quotations will continue
            to
            be available.
 
 In
            June
            2006, William Meyer resigned as our Chief Financial Officer, a position
            Mr.
            Meyer had held since April 2003. Dr. Chen is currently serving as Chief
            Financial Officer on an interim basis until a permanent replacement is
            hired.
  **Critical
            Accounting Policies, Estimates and Judgments**
 
 This
            management's discussion and analysis of our financial condition and results
            of
            operations is based upon our condensed consolidated financial statements,
            which
            have been prepared in accordance with U.S. GAAP. In preparing these financial
            statements, we are required to make estimates and judgments that affect
            the
            reported amounts of assets, liabilities, revenues and expenses, and related
            disclosures of contingent assets and liabilities. On an ongoing basis,
            we
            evaluate our estimates, including those related to the collectibility
            of
            accounts receivables, the value assigned to and the estimated useful
            lives of
            long-lived assets, the realization of goodwill and deferred tax assets,
            and the
            valuation of stock-based compensation, the reasonableness of the restructuring
            reserves, the determination of contingent liabilities and the valuation
            of debt
            and equity securities. We base our estimates on historical experience
            and on
            various other assumptions that we believe are reasonable, the results
            of which
            form the basis for making judgments about the carrying values of assets
            and
            liabilities that are not readily apparent from other sources. Actual
            results may
            differ from these estimates using different assumptions or conditions.
            We
            believe the following critical accounting policies reflect the more significant
            judgments and estimates used in the preparation of our consolidated financial
            statements.
  During
            the previous years through December 31, 2005, we faced various liquidity
            challenges. During the year ended December 31, 2006, the following significant
            events occurred: approximately $20.5 million in convertible debt was
            exchanged
            for 34.5 million shares of common stock; we generated cash flow from
            operations
            of approximately $16 million; and we closed our rights offering and raised
            net
            proceeds of approximately $15.8 million. At June 30, 2007, our current
            assets
            exceeded our current liabilities by approximately $26.2 million. Our
            management
            believes that our cash resources at June 30, 2007 will be sufficient to
            fund operations through at least June 30, 2008. If our existing cash
            resources
            are not sufficient to meet our obligations, we will seek to raise additional
            capital through public or private equity financing or from other sources.
            If
            adequate funds are not available or are not available on acceptable terms
            as
            needed, we may be unable to pay our debts as they become due, develop
            our
            products, take advantage of future opportunities or respond to competitive
            pressures or unanticipated requirements.
  *Revenue
            Recognition*
  *Overview*
 
 Our
            revenue consists of fees for licenses of our software products, maintenance,
            consulting services and customer training. We generally charge fees for
            licenses
            of our software products either based on the number of persons using
            the product
            or based on the number of CPUs on which the product is installed. Licenses
            for
            software for which fees charged are based upon the number of persons
            using the
            product include licenses for development use and licenses for use by
            registered
            users of the customer's website (deployment use). Licenses for software
            for
            which fees charged are on a per-CPU basis differentiate between development
            and
            deployment usage. Our revenue recognition policies comply with SOP 97-2,
            as
            amended by SOP 98-9, and SAB 104*.*
 
 We
            apply
            the separation criteria in EITF 00-21 to determine whether our arrangements
            with
            multiple deliverables should be treated as separate units of accounting.
            EITF
            00-21 indicates that revenue recognized for any multiple-element contract
            is to
            be allocated to each element of the arrangement based on the relative
            fair value
            of each element. The determination of the fair value of each element
            is based on
            our analysis of objective evidence from comparable sales of the individual
            element.
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  *Software
            License Revenue*
 
 We
            license our products through our direct sales force and indirectly through
            resellers and ASP. In general, software license revenues are recognized
            when a
            non-cancelable license agreement has been signed and the customer acknowledges
            an unconditional obligation to pay, the software product has been delivered,
            there are no uncertainties surrounding product acceptance, the fees are
            fixed
            and determinable and collection is reasonably assured. Delivery is considered
            to
            have occurred when title and risk of loss have been transferred to the
            customer,
            which generally occurs when media containing the licensed programs is
            provided
            to a common carrier. In case of electronic delivery, delivery occurs
            when the
            customer is given access to the licensed programs. For products that
            cannot be
            used without a licensing key, the delivery requirement is met when the
            licensing
            key is made available to the customer. If collectibility is not reasonably
            assured, revenue is recognized when the fee is collected. Subscription-based
            license revenues are recognized ratably over the subscription period.
            We enter
            into reseller arrangements that typically provide for sublicense fees
            payable to
            us based upon a percentage of list price. We do not grant resellers the
            right of
            return.
 
 We
            recognize revenue using the residual method pursuant to the requirements
            of SOP
            97-2, as amended by SOP 98-9. Revenues recognized from multiple-element
            software
            arrangements are allocated to each element of the arrangement based on
            the fair
            values of the elements, such as licenses for software products, maintenance,
            consulting services or customer training. The determination of fair value
            is
            based on vendor-specific objective evidence, which is specific to us.
            We limit
            our assessment of objective evidence for each element to either the price
            charged when the same element is sold separately or the price established
            by
            management having the relevant authority to do so, for an element not
            yet sold
            separately. If evidence of fair value of all undelivered elements exists
            but
            evidence does not exist for one or more delivered elements, then revenue
            is
            recognized using the residual method. Under the residual method, the
            fair value
            of the undelivered elements is deferred and the remaining portion of
            the
            arrangement fee is recognized as revenue.
 
 We
            record
            unearned revenue for software license agreements when cash has been received
            from the customer and the agreement does not qualify for revenue recognition
            under our revenue recognition policy. We record accounts receivable for
            software
            license agreements when the agreement qualifies for revenue recognition
            but cash
            or other consideration has not been received from the customer.
 
 *Services
            Revenue*
 
 Consulting
            services revenues and customer training revenues are recognized as such
            services
            are performed.
 
 Maintenance
            revenues, which include revenues bundled with software license agreements
            that
            grant our customers the right to technical support and future unspecified
            enhancements to our products, are deferred and recognized ratably over
            the
            related agreement period, generally twelve months.
 
 Our
            consulting services, which consist of consulting, maintenance and training,
            are
            delivered through the BVGS organization. The services that we provide
            are not
            essential to the functionality of the software. We record reimbursement
            from our
            customers for out-of-pocket expenses as an increase to services
            revenues.
  *Receivable
            Reserves*
  Occasionally,
            our customers experience financial difficulty after we record the sale
            but
            before payment has been received. We maintain receivable reserves for
            estimated
            losses resulting from the inability of our customers to make required
            payments.
            Our normal payment terms are generally 30 to 90 days from invoice date. If
            the financial condition of our customers were to deteriorate, resulting
            in an
            impairment of their ability to make payments, additional reserves may
            be
            required. Losses from customer receivables in the three and six months
            ended
            June 30, 2007 and, 2006, have not been significant. If all efforts to
            collect a
            receivable fail, and the receivable is considered uncollectible, we would
            write
            off against the receivable reserve.
  *Impairment
            Assessment*
 
 We
            adopted SFAS 142 on January 1, 2002. 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. SFAS  142 provides for a two-step approach to determining whether
            and by how much goodwill has been impaired. Since we have only one reporting
            unit for purposes of applying SFAS  142, the first step requires a
            comparison of the fair value of BroadVision to our net book value. If
            the fair
            value is greater, then no impairment is deemed to have occurred. If the
            fair
            value is less, then the second step must be completed to determine the
            amount,
            if any, of actual impairment. Our last impairment test was as of December
            31,
            2006. There were no events or circumstances from that date through June
            30, 2007
            indicating that a further assessment was necessary. As of June 30, 2007,
            our
            market capitalization was significantly higher than our book value.
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  *Income
            Taxes and Deferred Tax Assets*
  Income
            taxes are computed using an asset and liability approach in accordance
            with SFAS
            No. 109, *Accounting for Income Taxes*, which requires the recognition of
            taxes payable or refundable for the current year and deferred tax assets
            and
            liabilities for the future tax consequences of events that have been
            recognized
            in our consolidated financial statements or tax returns. The measurement
            of
            current and deferred tax assets and liabilities is based on provisions
            of the
            enacted tax law; the effects of future changes in tax laws or rates are
            not
            anticipated. The measurement of deferred tax assets is reduced, if necessary,
            by
            the amount of any tax benefits that, based on available evidence, is
            not
            expected to be realized.
  We
            analyze our deferred tax assets with regard to potential realization.
            We have
            established a valuation allowance on our deferred tax assets to the extent
            that
            management has determined that it is more likely than not that some portion
            or
            all of the deferred tax asset will not be realized based upon the uncertainty
            of
            their realization. We have considered estimated future taxable income
            and
            ongoing prudent and feasible tax planning strategies in assessing the
            amount of
            the valuation allowance.
 
 We
            recognized a decrease in liability in the amount of $388,000 for unrecognized
            tax benefits related to tax positions taken in prior periods in the first
            quarter of 2007. Additionally, we reclassified $160,000 from current taxes
            payable to long-term taxes payable as FIN 48 specifies that tax positions
            for
            which the timing of the ultimate resolution is uncertain should be recognized
            as
            long-term liabilities in the first quarter of 2007.
 
 Upon
            the
            adoption of FIN 48, our policy to include interest and penalties related
            to
            unrecognized tax benefits within our provision for (benefit from) income
            taxes
            has not changed.
 
 Our
            total
            amount of unrecognized tax benefits as of January 1, 2007 (FIN48 adoption
            date)
            and June 30, 2007 was $548,000 and $160,000, respectively. Total amount
            of
            unrecognized tax benefits that, if recognized, would affect our effective
            tax
            rate was $548,000 and $160,000 as of January 1, 2007 and June 30, 2007,
            respectively.
 
 The
            tax
            years 1993 to 2006 remain open in several jurisdictions, none of which
            have
            individual significance.
  *Accounting
            for Stock-Based Compensation*
 
 On
            January 1, 2006, we adopted SFAS 123R using the modified prospective
            method as
            permitted under SFAS 123R. Under the modified-prospective-transition
            method,
            results for the prior periods have not been restated.
 
 In
            anticipation of the reporting requirements under SFAS 123R, our Board
            of
            Directors on November 29, 2005 unanimously approved accelerating the
            vesting of out-of-the-money, unvested stock options held by current employees,
            including executive officers, and Board members. The acceleration applied
            only
            to those options with an exercise price of $1.13 per share or higher.
            The
            closing market price of BroadVision common stock on November 28, 2005, the
            last full trading day before the date of the acceleration, was $0.72
            per share.
            The following table summarizes the options for which vesting was
            accelerated:
  **Aggregate****Number
                        of****Common
                        Shares****Issuable
                        Under**
                    
                    
                    **Weighted
                        Average****Accelerated
                        Stock**
                    
                    
                    **Exercise
                        Price****Options**
                    
                    
                    **per
                        Share**Total
                        Non-Employee Directors
                    
                    
                    122,181
                    
                    
                    $
                    2.98Total
                        Named Executive Officers
                    
                    
                    391,886
                    
                    
                    
                    2.87Total
                        Directors and Named Executive Officers
                    
                    
                    514,067
                    
                    
                    
                    2.89Total
                        All Other Employees
                    
                    
                    610,707
                    
                    
                    
                    2.97Total
                    
                    
                    1,124,774
                    
                    
                    
                    2.94
 We
            decided to accelerate vesting of these options in order to avoid recognizing
            compensation cost in our statements of operations as required under the
            provisions of SFAS 123R, which was effective as of January 1, 2006.
 
 In
            accordance with SFAS 123R, we started to recognize compensation expense
            related
            to stock options granted to employees based on: (a) compensation cost
            for all
            share-based payments granted prior to, but not yet vested as of January
            1, 2006,
            based on the grant date fair value estimated in accordance with SFAS
            123,
            adjusted for an estimated future forfeiture rate, and (b) compensation
            cost for
            all share-based payments granted subsequent to January 1, 2006, based
            on the
            grant-date fair value estimated in accordance with the provisions of
            SFAS
            123R.
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 Our
            assessment of the estimated fair value of the stock options granted is
            affected
            by our stock price as well as assumptions regarding a number of complex
            and
            subjective variables. We utilize the Black-Scholes model to estimate
            the fair
            value of stock options granted. Generally, our calculation of the fair
            value for
            options granted under SFAS 123R is similar to the calculation of fair
            value
            under SFAS 123 with the exception of the treatment of forfeitures. The
            fair
            value of restricted stock units granted is based on the grate date price
            of our
            common stock.
 
 The
            Black-Scholes option valuation model was developed for use in estimating
            the
            fair value of traded options that have no vesting restrictions and are
            fully
            transferable. This model also requires the input of highly subjective
            assumptions including:
  •
The
            expected volatility of our common stock price, which we determine based
            on
            historical volatility of our common stock over the expected term of the
            option;
  •
            Expected dividends, which are nil, as we do not currently anticipate
            issuing
            dividends;
  •
            Expected life of the stock option, which is estimated based on the historical
            stock option exercise behavior of our employees; and
  •
            Expected forfeitures of stock options, which is estimated based on the
            historical turnover of our employees. Prior to adoption of SFAS 123R,
            we
            recognized forfeitures under SFAS 123 as they occurred.
  In
            the
            future, we may elect to use different assumptions under the Black-Scholes
            valuation model or a different valuation model, which could result in
            a
            significantly different impact on our net income or loss.
  *Restructuring
            Charges*
  Through
            June 30, 2007, we have approved restructuring plans to, among other things,
            reduce our workforce and consolidate facilities. Restructuring and asset
            impairment charges were taken to align our cost structure with changing
            market
            conditions and to create a more efficient organization. Our restructuring
            charges are comprised primarily of: (i) severance and benefits termination
            costs related to the reduction of our workforce; (ii) lease termination
            costs and/or costs associated with permanently vacating our facilities;
            (iii) other incremental costs incurred as a direct result of the
            restructuring plan; and (iv) impairment costs related to certain long-lived
            assets abandoned. We account for each of these costs in accordance with
            SAB 100,
*Restructuring and Impairment charges*, as
            follows:**
  ***Severance
            and Termination Costs.***
  •
For
            exit or disposal activities initiated on or prior to December 31, 2002, we
            account for costs in accordance with EITF 94-3.  Accordingly, we record the
            liability related to these termination costs when the following conditions
            have
            been met: (i) management with the appropriate level of authority approves a
            termination plan that commits us to such plan and establishes the benefits
            the
            employees will receive upon termination; (ii) the benefit arrangement is
            communicated to the employees in sufficient detail to enable the employees
            to
            determine the termination benefits; (iii) the plan specifically identifies
            the number of employees to be terminated, their locations and their job
            classifications; and (iv) the period of time to implement the plan does not
            indicate changes to the plan are likely.
 
 •
For
            exit or disposal activities initiated after December 31, 2002, we account
            for costs in accordance with SFAS 146.  SFAS 146 requires that a liability
            for a cost associated with an exit or disposal activity be recognized
            and
            measured initially at fair value only when the liability is
            incurred.
  ***Excess
            Facilities Costs.***
  • For
            exit or disposal activities initiated on or prior to December 31, 2002, we
            account for lease termination and/or abandonment costs in accordance
            with EITF
            88-10, *Costs Associated with Lease Modification or Termination*.
            Accordingly, we recorded the costs associated with lease termination
            and/or
            abandonment when the leased property had no substantive future use or
            benefit to
            us.
 
 •
For
            exit or disposal activities initiated after December 31, 2002, we account
            for lease termination and/or abandonment costs in accordance with SFAS
            146,
            which requires that a liability for such costs be recognized and measured
            initially at fair value on the cease use date of the facility.
 
 Severance
            and termination costs and excess facilities costs we record under these
            provisions are not associated with nor do these benefit continuing
            activities.
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  Inherent
            in the estimation of the costs related to our restructuring efforts are
            assessments related to the most likely expected outcome of the significant
            actions to accomplish the restructuring. In determining the charges related
            to
            the restructurings to date, the majority of estimates made by management
            have
            related to charges for excess facilities. In determining the charges
            for excess
            facilities, we were required to estimate future sublease income, future
            net
            operating expenses of the facilities, and brokerage commissions, among
            other
            expenses. The most significant of these estimates have related to the
            timing and
            extent of future sublease income in which to reduce our lease obligations.
            We
            based our estimates of sublease income, in part, on the opinions of independent
            real estate experts, current market conditions and rental rates, an assessment
            of the time period over which reasonable estimates could be made, the
            status of
            negotiations with potential subtenants, and the location of the respective
            facility, among other factors. We have recorded the low-end of a range
            of
            assumptions modeled for restructuring charges, in accordance with SFAS
            5. 
Adjustments to the facilities accrual will be required if actual lease
            exit
            costs or sublease income differ from amounts currently expected. We will
            review
            the status of restructuring activities on a quarterly basis and, if appropriate,
            record changes to our restructuring obligations in current operations
            based on
            management's most current estimates.
  *Cash
            and Cash Equivalents, and Restricted
            Cash*****
 
 We
            consider all debt and equity securities with remaining maturities of
            three
            months or less at the date of purchase to be cash equivalents. Short-term
            cash
            investments consist of debt and equity securities that have a remaining
            maturity
            of less than one year as of the date of the balance sheet. Cash and cash
            equivalents that serve as collateral for financial instruments such as
            letters
            of credit are classified as restricted cash. Restricted cash in which
            the
            underlying instrument has a term of greater than twelve months from the
            balance
            sheet date are classified as non-current.
 
 Our
            cash
            and cash equivalents, and restricted cash consisted of the following
            as of
            June 30, 2007 and December 31, 2006 (in thousands):
  **June
                        30, 2007**
                    
                    
                    **December
                        31, 2006****(unaudited)**Cash
                        and certificates of deposits
                    
                    $
                    20,759
                    
                    
                    $
                    15,830Money
                        market
                    
                    
                    25,408
                    
                    
                    
                    21,173Total
                        cash and equivalents
                    
                    $
                    46,167
                    
                    
                    $
                    37,003
 *Research
            and Development and Software Development Costs*
 
 Under
            the
            criteria set forth in 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, we have not capitalized any
            costs
            related to the development of software for external use.
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  *Concentrations
              of Credit Risk*
 Financial
            instruments that potentially subject us to concentrations of credit risk
            consist
            primarily of cash and cash equivalents and accounts receivable. We place
            our
            cash and cash equivalents with high-quality institutions. Our management
            performs ongoing credit evaluations of our customers and requires certain
            of
            these customers to provide security deposits or letters of
            credit.
  Cash
            deposits in foreign countries of approximately $13.4 million are subject
            to
            local banking laws and may bear higher or lower risk than cash deposited
            in the
            United States. As part of our cash and investment management processes,
            we
            perform periodic evaluations of the credit standing of the financial
            institutions we use and we have not sustained any credit losses from
            instruments
            held at these financial institutions. From time to time, our financial
            instruments maintained in our foreign subsidiaries may be subject to
            political
            risks or instability that may arise in foreign countries where we
            operate.
 
 At
            June
            30, 2007 and 2006, no customer accounted for 10% or more of our accounts
            receivable balance. For the three month ended June 30, 2007, and 2006, no
            customer accounted for 10% or more of our total revenues.  For the six
            month ended June 30, 2007, and 2006, no customer accounted for 10% or more
            of our total revenues.
 
 *Fair
            Value of Financial Instruments*
 
 Our
            financial instruments consist of cash equivalents, accounts receivable,
            accounts
            payable and debt. We do not have any derivative financial instruments.
            We
            believe the reported carrying amounts of our financial instruments
            approximates fair value, based upon the short maturity of cash equivalents,
            accounts receivable and payable, and based on the current rates available
            to it
            on similar debt issues.
  *Foreign
            Currency Transactions*
 
 During
            fiscal 2004, we changed the functional currencies of all foreign
            subsidiaries from the U.S. dollar to the local currency of the respective
            countries. Assets and liabilities of these subsidiaries are translated
            into U.S.
            dollars at the balance sheet date. Income and expense items are translated
            at
            average exchange rates for the period. Foreign exchange gains and losses
            resulting from the remeasurement of foreign currency assets and liabilities
            are
            included as other income (expense) in the Condensed Consolidated Statements
            of
            Operations. For the six-month periods ended June 30, 2007, and 2006,
            translation
            gain (loss) was $80,000, and $(196,000), respectively. These amounts
            are
            included in the accumulated other comprehensive income account in the
            Condensed
            Consolidated Balance Sheets.
  *Legal
            Proceedings*
 
 We
            are
            subject from time to time to various legal actions and other claims arising
            in
            the ordinary course of business. We are not presently a party to any
            material legal proceedings.
  *Recent
            Accounting Pronouncements*
  In
            February 2007, the FASB issued Statement No. 159, *The Fair Value Option for
            Financial Assets and Financial Liabilities* ("SFAS 159"). SFAS 159 permits
            the measurement of many financial instruments and certain other items
            at fair
            value. Entities may choose to measure eligible items at fair value at
            specified
            election dates, reporting unrealized gains and losses on such items at
            each
            subsequent reporting period. The objective of SFAS 159 is to provide
            entities
            with the opportunity to mitigate volatility in reported earnings caused
            by
            measuring related assets and liabilities differently without having to
            apply
            complex hedge accounting provisions. It is intended to expand the use
            of fair
            value measurement. SFAS 159 is effective for fiscal years beginning after
            November 15, 2007. We are currently evaluating what effect, if any, the
            adoption
            of SFAS 159 will have on our consolidated results of operations and financial
            position.
  In
            September 2006, the FASB issued SFAS No. 157, *Fair Value
            Measurements*("SFAS 157")*.* SFAS 157 establishes a framework
            for measuring the fair value of assets and liabilities. This framework
            is
            intended to provide increased consistency in how fair value determinations
            are
            made under various existing accounting standards which permit, or in
            some cases
            require, estimates of fair market value. SFAS 157 is effective for fiscal
            years beginning after November 15, 2007, and interim periods within those
            fiscal years. Earlier application is encouraged, provided that the reporting
            entity has not yet issued financial statements for that fiscal year,
            including
            any financial statements for an interim period within that fiscal year.
            We are
            currently evaluating what effect, if any, the adoption of SFAS 157 will
            have on
            our consolidated results of operations and financial position.
 **~24~**
 TABLE
                OF CONTENTS
  ***Results
            of Operations***
  *Revenues*
  *Total
            revenues*increased 5% during the three months ended June 30, 2007 to
            $13.3 million as compared to $12.7 million for the three months ended
            June 30, 2006. Total revenues**increased 3% during the six
            months ended June 30, 2007 to $26.0 million as compared to $25.4
            million for the six months ended June 30, 2006.  A summary of our
            revenues by geographic region is as follows (dollars in thousands,
            unaudited):
  **Software****Licenses**
                    
                    
                    **%**
                    
                    
                    **Services**
                    
                    
                    **%**
                    
                    
                    **Total**
                    
                    
                    **%**Three
                        Months Ended:June
                        30, 2007Americas
                    
                    $
                    3,302
                    
                    
                    60
                    %
                    
                    $
                    5,196
                    
                    
                    67
                    %
                    
                    $
                    8,498
                    
                    
                    64
                    %Europe
                    
                    
                    1,368
                    
                    
                    25
                    
                    
                    
                    1,440
                    
                    
                    19
                    
                    
                    
                    2,808
                    
                    
                    21Asia
                        Pacific
                    
                    
                    824
                    
                    
                    15
                    
                    
                    
                    1,138
                    
                    
                    14
                    
                    
                    
                    1,962
                    
                    
                    15Total
                    
                    $
                    5,494
                    
                    
                    100
                    %
                    
                    $
                    7,774
                    
                    
                    100
                    %
                    
                    $
                    13,268
                    
                    
                    100
                    %June
                        30, 2006Americas
                    
                    $
                    3,131
                    
                    
                    86
                    %
                    
                    $
                    7,502
                    
                    
                    82
                    %
                    
                    $
                    10,633
                    
                    
                    84
                    %Europe
                    
                    
                    367
                    
                    
                    10
                    
                    
                    
                    983
                    
                    
                    11
                    
                    
                    
                    1,350
                    
                    
                    11Asia
                        Pacific
                    
                    
                    129
                    
                    
                    4
                    
                    
                    
                    617
                    
                    
                    7
                    
                    
                    
                    746
                    
                    
                    5Total
                    
                    $
                    3,627
                    
                    
                    100
                    %
                    
                    $
                    9,102
                    
                    
                    100
                    %
                    
                    $
                    12,729
                    
                    
                    100
                    %Six
                        Months Ended:June
                        30, 2007Americas
                    
                    $
                    6,414
                    
                    
                    57
                    %
                    
                    $
                    8,994
                    
                    
                    61
                    %
                    
                    $
                    15,408
                    
                    
                    59
                    %Europe
                    
                    
                    3,222
                    
                    
                    29
                    
                    
                    
                    3,596
                    
                    
                    24
                    
                    
                    
                    6,818
                    
                    
                    26Asia
                        Pacific
                    
                    
                    1,592
                    
                    
                    14
                    
                    
                    
                    2,195
                    
                    
                    15
                    
                    
                    
                    3,787
                    
                    
                    15Total
                    
                    $
                    11,228
                    
                    
                    100
                    %
                    
                    $
                    14,785
                    
                    
                    100
                    %
                    
                    $
                    26,013
                    
                    
                    100
                    %June
                        30, 2006Americas
                    
                    $
                    5,396
                    
                    
                    83
                    %
                    
                    $
                    15,256
                    
                    
                    81
                    %
                    
                    $
                    20,652
                    
                    
                    81
                    %Europe
                    
                    
                    713
                    
                    
                    11
                    
                    
                    
                    1,908
                    
                    
                    10
                    
                    
                    
                    2,621
                    
                    
                    10Asia
                        Pacific
                    
                    
                    400
                    
                    
                    6
                    
                    
                    
                    1,680
                    
                    
                    9
                    
                    
                    
                    2,080
                    
                    
                    8Total
                    
                    $
                    6,509
                    
                    
                    100
                    %
                    
                    $
                    18,844
                    
                    
                    100
                    %
                    
                    $
                    25,353
                    
                    
                    100
                    %
 We
            operate in a competitive industry. There have been declines in both the
            technology industry and in general economic conditions since the beginning
            of
            2001. Although general economic conditions have improved in the past
            two years,
            we may experience declines again. Financial comparisons discussed herein
            may not
            be indicative of future performance.
  *Software
            license revenues*increased 53% during the three months ended June 30,
            2007 to $5.5 million as compared to $3.6 million for the three months ended
            June 30, 2006. **Software license
            revenues**increased 72% during the six months ended June 30,
            2007 to $11.2 million as compared to $6.5 million for the six months ended
            June 30, 2006. The increase was mainly due to increased license sales to
            existing customers.
  *Services
            revenues*consisting of consulting revenues, customer training revenues and
            maintenance revenues decreased 14% during the three months ended June 30,
            2007 to $7.8 million as compared to $9.1 million for the three months
            ended June 30, 2006*.* Services revenues (including
            maintenance and consulting) decreased 22% during the six months ended
            June 30, 2007 to $14.8 million as compared to $18.8 million for
            the six months ended June 30, 2006. The decrease in service revenues was
            mainly attributable to lower consulting revenues. Maintenance revenues
            for the
            three months ended June 30, 2007 of $5.9 million is comparable to
            $6.0 million for the three months ended June 30,
            2006.  Maintenance revenues for the six months ended June 30, 2007 of
            $11.6 million is comparable to $11.9 million for the six months ended
            June 30, 2006.  Consulting revenues decreased 41% for the three
            months ended June 30, 2007 to $1.8 million as compared to
            $3.1 million for the three months ended June 30,
            2006.  Consulting revenues decreased 56% for the six months ended
            June 30, 2007 to $3.1 million as compared to $7.0 million for the
            six months ended June 30, 2006. The decline in consulting revenues can be
            attributable to a lagging effect caused by declining license revenues
            in 2006.
            Consulting revenues tend to trail licenses by 6 to 12 months.
 **~25~**
 TABLE
                OF CONTENTS
  *Cost
            of Revenues*
  Cost
            of software license revenues includes the costs of product media, duplication,
            packaging and other manufacturing costs, as well as royalties payable
            to third
            parties for software that is either embedded in, or bundled and licensed
            with,
            our products. Cost of services consists primarily of employee-related
            costs,
            third-party consultant fees incurred on consulting projects, post-contract
            customer support and instructional training services. A summary of our
            cost of
            revenues is as follows (dollars in thousands, unaudited):
  **Three
                        Months Ended June 30,**
                    
                    
                    **Six
                        Months Ended June 30,****2007**
                    
                    
                    **%**
                    
                    
                    **2006**
                    
                    
                    **%**
                    
                    
                    **2007**
                    
                    
                    **%**
                    
                    
                    **2006**
                    
                    
                    **%**Cost
                        of software licenses
                    
                    $
                    22
                    
                    
                    
                    0
                    %
                    
                    $
                    142
                    
                    
                    
                    1
                    %
                    
                    $
                    34
                    
                    
                    
                    0
                    %
                    
                    $
                    204
                    
                    
                    
                    1
                    %Cost
                        of services
                    
                    
                    2,215
                    
                    
                    
                    17
                    
                    
                    
                    3,496
                    
                    
                    
                    28
                    
                    
                    
                    4,608
                    
                    
                    
                    18
                    
                    
                    
                    7,554
                    
                    
                    
                    30Total
                        cost of revenues
                    
                    $
                    2,237
                    
                    
                    
                    17
                    %
                    
                    $
                    3,638
                    
                    
                    
                    29
                    %
                    
                    $
                    4,642
                    
                    
                    
                    18
                    %
                    
                    $
                    7,758
                    
                    
                    
                    31
                    %
 *Cost
            of software licenses*decreased 85% during the three months ended
            June 30, 2007 to $22,000 as compared to $142,000 for the three months ended
            June 30, 2006.  Cost of software licenses decreased 83% during
            the six months ended June 30, 2007 to $34,000 as compared to $204,000 for
            the six months ended June 30, 2006.  This decrease is primarily a
            result of decreased proportion of license revenues generated from
            royalty-bearing products.
  *Cost
            of services*decreased 37% during the three months ended June 30, 2007
            to $2.2 million as compared to $3.5 million for the three months ended
            June 30, 2006. Cost of services**decreased 39% during the six
            months ended June 30, 2007 to $4.6 million as compared to
            $7.5 million for the six months ended June 30, 2006.  This
            decrease was the result of the reduction in consulting headcount, the
            consolidation of our facilities and less services revenue.
  *Gross
            margin*increased to 83% during the three months ended June 30, 2007
            from 71% for the three months ended June 30, 2006. Gross
            margin**increased to 82% during the six months ended June 30,
            2007 from 69% for the six months ended June 30, 2006.  The
            increase is a result of increased license revenue and our restructuring
            and cost
            control plans.
  Operating
            expenses consist of the following:
  •
             *Research and development expenses*consist primarily of salaries,
            employee-related benefit costs and consulting fees incurred in association
            with
            the development of our products. Costs incurred for the research and
            development
            of new software products are expensed as incurred until such time that
            technological feasibility, in the form of a working model, is established
            at
            which time such costs are capitalized and recorded at the lower of unamortized
            cost or net realizable value. The costs incurred subsequent to the establishment
            of a working model but prior to general release of the product have not
            been
            significant to date, and we have not capitalized any costs related to
            the
            development of software for external use.
 
 •
            *Sales and marketing expenses*consist primarily of salaries,
            employee-related benefit costs, commissions and other incentive compensation,
            travel and entertainment and marketing program-related expenditures such
            as
            collateral materials, trade shows, public relations, advertising, and
            creative
            services.
 
 •
            *General and administrative expenses*consist primarily of salaries,
            employee-related benefit costs, provisions and credits related to receivable
            reserves and professional service fees.
 
 •
             *Restructuring charges*represent costs incurred to restructure
            company operations. These charges, including charges for excess facilities,
            severance and certain non-cash items, were recorded under the provisions
            of EITF
            94-3 and SFAS 146.
 
 A
            summary of operating expenses is set forth in the following table. The
            percentage of expenses is calculated based on total revenues (dollars
            in
            thousands, unaudited):
  **Three
                        months ended**
                    
                    
                    **Six
                        months ended****June
                        30,**
                    
                    
                    **June
                        30,****2007**
                    
                    
                    ****
                    **%****(1)**
                    
                    **2006**
                    
                    
                    ****
                    **%****(1)**
                    
                    **2007**
                    
                    
                    ****
                    **%****(1)**
                    
                    **2006**
                    
                    
                    ****
                    **%****(1)**Research
                        and development
                    
                    $
                    2,483
                    
                    
                    
                    19
                    %
                    
                    $
                    2,405
                    
                    
                    
                    19
                    %
                    
                    $
                    5,138
                    
                    
                    
                    20
                    %
                    
                    $
                    5,036
                    
                    
                    
                    20
                    %Sales
                        and marketing
                    
                    
                    1,781
                    
                    
                    
                    13
                    
                    
                    
                    1,982
                    
                    
                    
                    16
                    
                    
                    
                    3,850
                    
                    
                    
                    15
                    
                    
                    
                    4,363
                    
                    
                    
                    17General
                            and administrative
                    
                    
                    1,479
                    
                    
                    
                    11
                    
                    
                    
                    3,239
                    
                    
                    
                    25
                    
                    
                    
                    2,546
                    
                    
                    
                    10
                    
                    
                    
                    4,977
                    
                    
                    
                    20Restructuring
                        charges
                    
                    
                    306
                    
                    
                    
                    2
                    
                    
                    
                    (15
                    )
                    
                    
                    -
                    
                    
                    
                    584
                    
                    
                    
                    2
                    
                    
                    
                    475
                    
                    
                    
                    2Total
                        operating expenses
                    
                    $
                    6,049
                    
                    
                    
                    45
                    %
                    
                    $
                    7,611
                    
                    
                    
                    60
                    %
                    
                    $
                    12,118
                    
                    
                    
                    47
                    %
                    
                    $
                    14,851
                    
                    
                    
                    59
                    %
 _______________________
 
 (1)
                  Expressed
                      as a percent of total revenues for the period
                      indicated.
 **~26~**
 TABLE
                OF CONTENTS
  *Research
            and development expenses*during the three months ended June 30, 2007
            of $2.5 million is comparable to $2.4 million for the three months
            ended June 30, 2006.  Research and development expenses during
            the six months ended June 30, 2007 of $5.1 million is comparable to
            $5.0 million for the six months ended June 30, 2006.
  *Sales
            and marketing expenses*decreased 10% during the three months ended
            June 30, 2007 to $1.8 million as compared to $2.0 million for the
            three months ended June 30, 2006.  Sales and marketing
            expenses**decreased 9% during the six months ended June 30,
            2007 to $3.9 million as compared to $4.3 million for the six months ended
            June 30, 2006.  This decrease was primarily due to due to a
            favorable one-time employee payroll tax adjustment in Europe.
  *General
            and
            administrative expenses*decreased
            53% during the three months
            ended June 30, 2007 to $1.5 million as compared to $3.2 million
            for the three months ended June 30, 2006.General and administrative
            expenses**decreased
            49% during the six months
            ended June 30, 2007 to $2.5 million as compared to $5.0 million
            for the six months ended June 30, 2006.  The decrease was
            primarily attributable to a reduction in professional service fees, less
            bad
            debt reserve, and function consolidations.
  *Interest
            income, net*was of $555,000 for the three months ended June 30,
            2007 as compared to $125,000 for the three months ended June 30,
            2006.  Interest income, net was $910,000 for the six months ended
            June 30, 2007 as compared to $232,000 for the six months ended
            June 30, 2006.  The increase was due to increased cash balances
            due to positive cash from operating activities and the closing of the
            rights
            offering.
  *Gains
            (losses) on revaluation of warrants*was $3,104,000 for the three months
            ended June 30, 2007 as compared to ($16,000) for the three months ended
            June 30, 2006.  Loss on revaluation of warrants**was
            $4,238,000 for the six months ended June 30, 2007 as compared to $386,000
            for the six months ended June 30, 2006.  The changes were
            primarily due to the fluctuations of our stock price during the comparison
            periods.
  *Other
            income, net,*was $29,000 for the three months ended June 30, 2007 as
            compared to $226,000 for the three months ended June 30,
            2006.  Other income, net,**was $305,000 for the six
            months ended June 30, 2007 as compared to $262,000 for the six months ended
            June 30, 2006.  The changes were primarily due to foreign
            exchange transaction gains and losses.
  *Provision
            for income taxes* was $230,000 for the three months ended June 30, 2007 as
            compared to a provision of $65,000 for the three months ended June 30,
            2006.  Provision for income taxes was $286,000 for the six months
            ended June 30, 2007 as compared to a provision of $221,000 for the six
            months
            ended June 30, 2006. This is the result of expenses related to Alternative
            Minimum Taxes calculated at both Federal and state levels after the
            application of net operating loss carryforwards, plus income taxes subject
            to foreign jurisdictions.
  ***Liquidity
            and Capital Resources***
  **Overview**
  During
            the previous years through December 31, 2005, we faced various liquidity
            challenges. During the year ended December 31, 2006, the following significant
            events occurred: approximately $20.5 million in convertible debt was
            exchanged
            for 34.5 million shares of common stock; we generated cash flow from
            operations
            of approximately $16.0 million; and we closed our rights offering and
            raised net
            proceeds of approximately $15.8 million. At June 30, 2007, our current
            assets
            exceeded our current liabilities by approximately $26.2 million. Our
            management
            believes that cash resources at June 30, 2007 will be sufficient to fund
            operations through at least June 30, 2008. If our existing cash resources
            are
            not sufficient to meet our obligations, we will seek to raise additional
            capital
            through public or private equity financing or from other sources. If
            adequate
            funds are not available or are not available on acceptable terms as needed,
            we
            may be unable to pay our debts as they become due, develop our products,
            take
            advantage of future opportunities or respond to competitive pressures
            or
            unanticipated requirements.
 
 Our
            consolidated balance sheet strengthened considerably throughout 2006,
            and in the
            first half of 2007. As of June 30, 2007, we had $46.2 million of cash
            and cash
            equivalents, with no long-term debt borrowings. This compares with a
            cash
            position of $37.0 million at December 31, 2006. The increase was due
            primarily
            to $8.5 million cash generated from our operations.
 **~27~**
 TABLE
                OF CONTENTS
 
 Revenues
            for the first six months of 2007 were $26.0 million, as compared to revenues
            of
            $25.3 million for the first six months of 2006. License revenue for the
            first
            six months of 2007 was $11.2 million versus $6.5 million for the first
            six
            months of 2006. The majority of our license revenue for the first six
            months of
            2007 was generated from our core Commerce and Portal solutions from customers
            including BNP Paribas, Canon, Circuit City, Vodafone, Ferrari, and several
            other
            international, brand-name customers. License revenues increased in all
            regions
            as compared to the first six months of 2006: revenues from customers
            in Americas
            increased by $1.0 million, revenues from customers in Europe increased
            by $2.5
            million and revenues from customers in Asia Pacific increased by $1.2
            million.
            The most significant change was the year-over-year decline in consulting
            revenues due to lagging effect of decreased licenses demand. Typically
            consulting projects tend to trail licenses by 6 to 12 months.This
            decline was more than offset by corresponding cost savings in both direct
            headcount and contractor expenses. As a result, consulting services generated
            better operating margins than many prior higher-revenue quarters.
 
 We
            continued to focus on expense control in the second quarter of 2007,
            with the
            goal of achieving strong operating results and profit margins. Operating
            expenses for the second quarter of 2007 were $6.1 million, as compared
            to $7.6
            million for the second quarter of 2006. For the three months ended of
            June 30,
            2007 and 2006, we took a gain of $3.1 million and took a charge $16,000,
            respectively, on the revaluation of warrants and change in value of derivatives.
            As a result, for the three months ended June 30, 2007 net income was
            $8.4
            million, or $0.08 per share. This compares to net income of $1.8 million,
            or
            $0.03 per diluted share for the three months ended June 30, 2006.
   The
            following table represents our liquidity at June 30, 2007 and December
            31, 2006
            (dollars in thousands):
  **June
                        30,**
                    
                    
                    **December
                        31,****2007**
                    
                    
                    **2006****(unaudited)**Cash
                        and cash equivalents
                    
                    $
                    46,167
                    
                    
                    $
                    37,003Restricted
                        cash, current portion
                    
                    $
                    796
                    
                    
                    $
                    997Restricted
                        cash, net of current portion
                    
                    $
                    1,000
                    
                    
                    $
                    1,000Working
                        capital
                    
                    $
                    26,228
                    
                    
                    $
                    18,955Working
                        capital ratio
                    
                    
                    1.85
                    
                    
                    
                    1.63
 *Cash
            Provided By Operating Activities*
  Cash
            provided by operating activities was $8.5 million for the six months
            ended June
            30, 2007. Net cash provided by operating activities in this period consisted
            primarily of $9.8 million in operating profit (excluding restructuring
            charges)
            generated from sales margin improvement and company-wide cost reduction
            efforts,
            offset by payment of $1.3 million of accounts payable and accrued expenses
            and
            reduction in accounts receivable and unearned revenue accounts.
  Cash
            provided by operating activities
            was $8.4 million for six months ended June 30, 2006. The primary
            reason for the net cash provided by operating activities was a net operating
            income of $2.6 million, along with $3.4 million of unearned revenue and
            deferred maintenance revenue received in the six months ended June 30,
            2006. Other significant adjustments to reconcile net income to cash provided
            by
            operating activities included net increases in accounts receivable of
            approximately $2.3 million and decreases in accounts payable and accrued
            expenses of $2.0 million.
 
 *Cash
            Used For Investing Activities*
  Cash
            used
            for investing activities was $212,000 for the six months ended June 30,
            2007.
            This figure reflects the release of $201,000 of restricted cash, offset
            by $413,000 in expenditures for the purchase of property and equipment and
            leasehold improvements related to the relocation of our corporate headquarters.
            Cash used in investing activities was $98,000 for the six months ended
            June 30, 2006, and primarily consisted of the purchase of property and
            equipment.
  *Cash
            Provided By (Used For) Financing Activities*
  Cash
            provided by financing activities was $813,000 for the six months ended
            June 30,
            2007, primarily consisting of cash received in connection with employees'
            exercise of stock options and purchases of stock. Cash used in financing
            activities was $99,000 for the six months ended June 30, 2006, mainly as a
            result of payments on bank term debt.
 **~28~**
 TABLE
                OF CONTENTS
  *Leases
            and Other Contractual Obligations*
  We
            lease
            our headquarters facility and other facilities under non-cancelable operating
            lease agreements expiring through the year 2012. 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 as of June 30, 2007, under
            noncancellable operating lease agreements, is as follows (in
            millions):
  **Operating****Years
                        Ending December 31,**
                    
                    **Leases**2007
                    
                    $
                    1.62008
                    
                    
                    2.02009
                    
                    
                    1.82010
                    
                    
                    1.32011
                        and thereafter
                    
                    
                    1.6Total
                        minimum lease payments
                    
                    $
                    8.3
 Restricted
            cash represents collateral for letters of credit, all of which are due
            to mature
            within one year.  These letters of credit have been issued primarily
            in connection with our facility lease obligations.
  **Item 3.
            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
            June 30, 2007 and 2006. We place our investments in instruments that meet
            high credit quality standards and the amount of credit exposure to any
            one
            issue, issuer and type of instrument is limited.
  **Item
            4. Controls and Procedures**
  We
            maintain disclosure controls and procedures that are designed to ensure
            that
            information required to be disclosed in our reports filed under the Securities
            Exchange Act of 1934, as amended, (the "Exchange Act")  is recorded,
            processed, summarized and reported within the time periods specified
            in the
            SEC's rules and forms and that such information is accumulated and communicated
            to our management, including the individual who serves as our Chief Executive
            Officer and interim Chief Financial Officer, as appropriate, to allow
            for timely
            decisions regarding required disclosures. In designing and evaluating
            the
            disclosure controls and procedures, our management recognizes that any
            controls
            and procedures, no matter how well designed and operated, can provide
            only
            reasonable assurance of achieving the desired control objectives, and
            our
            management is required to apply its judgment in evaluating the cost-benefit
            relationship of possible controls and procedures. Our disclosure controls
            and
            procedures were designed to provide reasonable assurance that the controls
            and
            procedures would meet their objectives.
  As
            required by Rules 15(e) and 15d-15(e) under the Exchange Act, we carried
            out an
            evaluation, under the supervision and with the participation of our management,
            including the individual who serves as both our Chief Executive Officer
            and our
            interim Chief Financial Officer, of the effectiveness of the design and
            operation of our disclosure controls and procedures as of the end of
            the period
            covered by this report. Based on the foregoing, our Chief Executive Officer
            and
            interim Chief Financial Officer concluded that our disclosure controls
            and
            procedures were not effective at the reasonable assurance level. This
            conclusion
            was based on the identification of one material weakness in internal
            control
            over financial reporting as of December 31, 2006, which we are unable
            to
            conclude had been remediated as of June 30, 2007.
  ***Changes
            in Internal Control over Financial Reporting***
  There
            has
            been no change in our internal control over financial reporting during
            the
            quarter ended June 30, 2007 that has materially affected, or is reasonably
            likely to materially affect, our internal control over financial
            reporting.
 **~29~**
 TABLE
                OF CONTENTS
  ***Limitations
            on the Effectiveness of Controls***
  Our
            management, including our Chief Executive Officer and interim Chief Financial
            Officer, does not expect that our disclosure controls and procedures
            or our
            internal controls will prevent all error and fraud. A control system,
            no matter
            how well conceived and operated, can provide only reasonable, not absolute,
            assurance that the objectives of the control system are met. Further,
            the design
            of a control system must reflect the fact that there are resource constraints,
            and the benefits of controls must be considered relative to their costs.
            Because
            of the inherent limitations in all control systems, no evaluation of
            controls
            can provide absolute assurance that all control issues and instances
            of fraud,
            if any, within the company have been detected. These inherent limitations
            include the realities that judgments in decision-making can be faulty,
            and that
            breakdowns can occur because of simple error or mistake. Additionally,
            controls
            can be circumvented by the individual acts of some persons, by collusion
            of two
            or more people, or by management override of the controls. The design
            of any
            system of controls also is based in part upon certain assumptions about
            the
            likelihood of future events, and there can be no assurance that any design
            will
            succeed in achieving its stated goals under all potential future conditions;
            over time, controls may become inadequate because of changes in conditions,
            or
            the degree of compliance with the policies or procedures may deteriorate.
            Because of the inherent limitations in a cost-effective control system,
            misstatements due to error or fraud may occur and not be detected. Our
            disclosure controls and procedures are designed to provide reasonable
            assurance
            of achieving their objectives, and we are in the process of remediating
            the
            material weakness that existed at December 31, 2006 and June 30,
            2007.  We anticipate that we will be able to remediate the material
            weakness that existed as of December 31, 2006 by the end of 2007, but
            we cannot
            provide assurance that we will be successful in doing so.
  **PART
            II. OTHER INFORMATION**
  **Item 1.
            Legal Proceedings**
  We
            are subject from time to time to various legal actions and other claims
            arising
            in the ordinary course of business. We are not presently a party to any
            material
            legal proceedings.
  **Item 1A.
            Risk Factors**
  *The
            risks and uncertainties described below are not the only ones facing
            us.
            Additional risks and uncertainties not presently known to us or that
            we
            currently deem immaterial also may impair our business operations. If
            any of the
            following risks actually occur, our business could be harmed. In that
            event, the
            trading price of our common stock could decline.*
 
 ***We
            have a history of losses and our future profitability on a quarterly
            or annual
            basis is uncertain, which could have a harmful effect on our business
            and the
            value of BroadVision common stock.***
  While
            we
            generated positive operating income and cash flow in each of the six
            quarters in
            the eighteen months ended June 30, 2007, we have incurred substantial
            cumulative
            net operating losses and negative cash flows from operations since 2000.
            As of
            June 30, 2007, we had an accumulated deficit of approximately
            $1.2 billion.
  Given
            our
            planned operating and capital expenditures, for the foreseeable future
            we expect
            our results of operations to fluctuate, and during this period we may
            incur
            losses and/or negative cash flows. If our revenue does not increase or
            if we
            fail to maintain our expenses at an amount less than our projected revenue,
            we
            will not be able to achieve or sustain operating profitability on a consistent
            basis. We are continuing our efforts to reduce and control our expense
            structure. We believe strict cost containment and expense reductions
            are
            essential to achieving positive cash flow and profitability. A number
            of factors
            could preclude us from successfully bringing costs and expenses in line
            with our
            revenues, including unplanned uses of cash, the inability to accurately
            forecast
            business activities and further deterioration of our revenues. If we
            are not
            able to effectively reduce our costs and achieve an expense structure
            commensurate with our business activities and revenues, we may have inadequate
            levels of cash for operations or for capital requirements, which could
            significantly harm our ability to operate our business.
  Our
            failure to operate profitably or control negative cash flows on a quarterly
            or
            annual basis could harm our business and the value of BroadVision common
            stock.
            If the negative cash flow continues, our liquidity and ability to operate
            our
            business would be severely and adversely impacted. Additionally, our
            ability to
            raise financial capital may be hindered due to our operational losses
            and
            negative cash flows, reducing our operating flexibility.
 
 ***Because
            our quarterly operating results are volatile and difficult to predict,
            our
            quarterly operating results in one or future periods are likely to fluctuate
            significantly, which could cause our stock price to decline if we fail
            to meet
            the expectations of securities analysts or
            investors.***
  Our
            quarterly operating results have varied significantly in the past and
            are likely
            to continue to vary significantly in the future. For example, in the
            quarters
            ended March 31, 2005, June 30, 2005, September 30, 2005, December
            31, 2005, and March 31, 2006, our revenues declined 22%, 23%, 18%, 1%,
            and 13%
            respectively, as compared to the previous quarters. In the quarters ended
            June
            30, 2006, and September 30, 2006, our revenue increased 1%, and 7% respectively,
            as compared to the previous quarters. In the quarters ended December
            31, 2006
            and March 31, 2007, our revenue declined 4%, and 2% respectively, as
            compared to
            the previous quarters. In the quarter ended June 30, 2007, our revenue
            increased
            4% as compared to the previous quarter.  If our revenues, operating
            results, earnings or future projections are below the levels expected
            by
            securities analysts or investors, our stock price is likely to
            decline.
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  We
            expect
            to continue to experience significant fluctuations in our results of
            operations
            due to a variety of factors, some of which are outside of our control,
            including:
  • 
            introduction of products and services and enhancements by us and our
            competitors;
  • 
            competitive factors that affect our pricing;
  • 
            market acceptance of new products;
  • 
            the mix of products sold by us;
  • 
            changes in our pricing policies or our competitors;
  • 
            changes in our sales incentive plans;
  • 
            the budgeting cycles of our customers;
  • 
            customer order deferrals in anticipation of new products or enhancements
            by our
            competitors or us or because of macro-economic conditions;
  • 
            nonrenewal of our maintenance agreements, which generally automatically
            renew
            for one-year terms unless earlier terminated by either party upon 90-days
            notice;
  • 
            product life cycles;
  • 
            changes in strategy;
  • 
            seasonal trends;
  • 
            the mix of distribution channels through which our products are
            sold;
  • 
            the mix of international and domestic sales;
  • 
            the rate at which new sales people become productive;
  • 
            changes in the level of operating expenses to support projected
            growth;
  • 
            increase in the amount of third party products and services that we use
            in our
            products or resell with royalties attached;
  • 
            fluctuations in the recorded value of outstanding common stock warrants
            that
            will be based upon changes to the underlying market value of BroadVision
            common
            stock;
  • 
            the timing of receipt and fulfillment of significant orders; and
 
 • 
            costs associated with litigation, regulatory compliance and other corporate
            events such as
 operational
            reorganizations.
 
 As
            a
            result of these factors, we believe that quarter-to-quarter comparisons
            of our
            revenue and operating results are not necessarily meaningful, and that
            these
            comparisons are not accurate indicators of future performance. Because
            our
            staffing and operating expenses are based on anticipated revenue levels,
            and
            because a high percentage of our costs are fixed, small variations in
            the timing
            of the recognition of specific revenue could cause significant variations
            in
            operating results from quarter to quarter. If we were unable to adjust
            spending
            in a timely manner to compensate for any revenue shortfall, any significant
            revenue shortfall would likely have an immediate negative effect on our
            operating results. If our operating results in one or more future quarters
            fail
            to meet the expectations of securities analysts or investors, we would
            expect to
            experience an immediate and significant decline in the trading price
            of our
            stock.
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  ***Our
            business currently depends on revenue related to BroadVision e-business
            solutions, and if the market does not increasingly accept these products
            and
            related products and services, our revenue may continue to
            decline.***
  We
            generate our revenue from licenses of BroadVision e-business solutions,
            including process, commerce, portal and content management and related
            products
            and services. We expect that these products, and future upgraded versions,
            will
            continue to account for a large portion of our revenue in the foreseeable
            future. Our future financial performance will depend on increasing acceptance
            of
            our current product and on the successful development, introduction and
            customer
            acceptance of new and enhanced versions of our products. If new and future
            versions and updates of our products and services do not gain market
            acceptance
            when released commercially, or if we fail to deliver the product enhancements
            and complementary third party products that customers want, demand for
            our
            products and services, and our revenue, may decline.
 
 ***We
            have recently introduced new products, services and technologies and
            our
            business will be harmed if we are not successful in selling these offerings
            to
            our existing customers and new customers.***
 
 We
            have
            recently introduced a product roadmap for 2007 that includes new products,
            services and technologies, to complement and replace certain of our existing
            products, services and technologies.  We have spent significant resources
            in developing these offerings and training our employees to implement
            and
            support the offerings, and we plan to add sales and marketing resources. 
We do not yet know whether any of these new offerings will appeal to
            existing
            and potential new customers, and if so, whether sales of these new offerings
            will be sufficient for us to offset the costs of development, implementation,
            support and marketing.  Our existing customers may determine that
            BroadVision products and services they currently use are sufficient for
            their
            purposes, or that the added benefit from these new offerings is not sufficient
            to merit the additional cost.  As a result we may need to decrease our
            prices or develop modifications.  And while we have performed extensive
            testing of our new products and technologies, their broad-based implementation
            may require more support than we anticipate, which would further increase
            our
            expenses.  If sales of our new products, services and technologies are
            lower than we expect, or if we must lower our prices or delay implementation
            to
            fix unforeseen problems and develop modifications, our operating margins
            are
            likely to decrease and we may not be able to operate profitably.  A failure
            to operate profitably would significantly harm our business.
 
 ***Our
            management identified a material weakness in the effectiveness of our
            internal
            control over financial reporting as of December 31, 2005 and as of December
            31, 2006. The 2005 material weakness caused restatement of our historical
            operating results. Additional material weaknesses may be discovered and
            additional restatements may be required in the
            future.***
  We
            previously reported that as of March 31, 2006, we did not have a sufficient
            number of experienced personnel in our accounting and finance organization
            to
            facilitate an efficient financial statement close process and permit
            the
            preparation of our financial statements in accordance with GAAP. For
            example,
            there were a significant number of adjustments to our financial statements
            during the course of the 2005 audit, at least one of which was individually
            material and required us to restate several prior quarters. Our personnel
            also
            lacked certain required skills and competencies to oversee the accounting
            operations and perform certain important control functions, such as the
            review,
            periodic inspection and investigation of transactions of our foreign
            locations.
            We consider this to be a deficiency that was also a material weakness
            in the
            operation of entity-level controls.
 
 In
            2006
            we hired several new full-time employees, and we believe that as of December
            31,
            2006, we have retained a sufficient number of experienced personnel in
            our
            accounting and finance organization to enable us to address the material
            weakness that existed as of December 31, 2005. These new hires have augmented
            the capabilities of our organization, but in many cases they replaced
            employees
            or part-time contractors who had left us for various reasons. In addition,
            several experienced members of our accounting staff left in early 2007.
            This
            turnover has caused a reduction in our institutional knowledge regarding
            historical events. While we believe that the recent additions to our
            accounting
            and finance organization continue to gain familiarity with the complex
            issues
            relating mainly to our historical operations, as of December 31, 2006
            the full
            organization had not yet been in place for a sufficient amount of time
            to allow
            us to conclude that no material weakness existed as of December 31, 2006.
            Accordingly, when our management assessed the effectiveness of our internal
            control over financial reporting as of December 31, 2006, this assessment
            identified one material weakness. If we are not successful in retaining
            experienced personnel in our accounting and finance organization in order
            to
            sufficiently address the reduction in institutional knowledge referenced
            above,
            there is more than a remote likelihood that our quarterly or annual financial
            statements could be materially misstated, which could require a
            restatement.
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  We
            anticipate that we will be able to remediate the material weakness that
            existed
            as of December 31, 2006 by the end of 2007, but we cannot provide assurance
            that
            we will be successful in doing so. Maintaining sufficient expertise and
            historical institutional knowledge in our accounting and finance organization
            is
            dependent upon retaining existing employees and filling any open positions
            with
            experienced personnel in a timely fashion. The market for skilled accounting
            and
            finance personnel is competitive and we may have continued difficulty
            in
            retaining our staff because (1) in the region in which we compete there are
            many established companies that can offer more lucrative compensation
            packages
            and (2) some professionals are reluctant to deal with our complex
            accounting issues relating to our historical operations. Several experienced
            members of our accounting staff left in early 2007. Our inability to
            staff the
            department with competent personnel with sufficient training will affect
            our
            internal controls over financial reporting to the extent that we may
            not be able
            to prevent or detect material misstatements. Remediating the material
            weakness
            that existed as of December 31, 2006 will require us to incur the recruiting
            and
            compensation costs necessary to attract and retain an adequate staff
            of
            qualified accounting and finance personnel. These costs may be higher
            than
            normal due to the importance to us of remediating this weakness, but
            we do not
            anticipate that any incremental costs associated with this remediation
            effort
            will be material.
 
 ***If
            we are unable to keep pace with the rapid technological changes in online
            commerce and communication, our products and services may fail to be
            competitive.***
 
 Our
            products and services may fail to be competitive if we do not maintain
            or exceed
            the pace of technological developments in Internet commerce and communication.
            Failure to be competitive could cause our revenue to decline. The information
            services, software and communications industries are characterized by
            rapid
            technological change, changes in customer requirements, frequent new
            product and
            service introductions and enhancements and evolving industry standards
            and
            practices. The introduction of products and services embodying new technologies
            and the emergence of new industry standards and practices can render
            existing
            products and services obsolete. Our future success will depend, in part,
            on our
            ability to:
  • develop
            leading
            technologies;
  • enhance
            our existing products and
            services;
  • develop
            new products and services that
            address the increasingly sophisticated and varied needs of our prospective
            customers; and
  • respond
            to technological advances and
            emerging industry standards and practices on a timely and cost-effective
            basis.
 
 ***Our
            sales and product implementation cycles are lengthy and subject to delay,
            which
            make it difficult to predict our quarterly results.***
  Our
            sales
            and product implementation cycles generally span months. Delays in customer
            orders or product implementations, which are difficult to predict, can
            affect
            the timing of revenue recognition and adversely affect our quarterly
            operating
            results. Licensing our products is often an enterprise-wide decision
            by
            prospective customers. The importance of this decision requires that
            we engage
            in a lengthy sales cycle with prospective customers. A successful sales
            cycle
            may last up to nine months or longer. Our sales cycle is also affected
            by a
            number of other factors, some of which we have little or no control over,
            including the volatility of the overall software market, the business
            condition
            and purchasing cycle of each prospective customer, and the performance
            of our
            technology partners, systems integrators and resellers. The implementation
            of
            our products can also be time and resource intensive, and subject to
            unexpected
            delays. Delays in either product sales or implementations could cause
            our
            operating results to vary significantly from quarter to quarter.
  ***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.
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  Many
            of
            our competitors have significantly greater financial, technical, marketing
            and
            other resources, greater name recognition, a broader range of products
            and a
            larger installed customer base, any of which could provide them with
            a
            significant competitive advantage. In addition, new competitors, or alliances
            among existing and future competitors, may emerge and rapidly gain significant
            market share. Some of our competitors, particularly established software
            vendors, may also be able to provide customers with products and services
            comparable to ours at lower or at aggressively reduced prices in an effort
            to
            increase market share or as part of a broader software package they are
            selling
            to a customer. We may be unable to match competitor's prices or price
            reductions, and we may fail to win customers that choose to purchase
            an
            information technology solution as part of a broader software and services
            package. As a result, we may be unable to compete successfully with current
            or
            new competitors.
  ***Because
            a significant portion of our sales activity occurs at the end of each
            fiscal
            quarter, delays in a relatively small number of license transactions
            could
            adversely affect our quarterly operating
            results.***
  A
            significant proportion of our sales are concentrated in the last month
            of each
            fiscal quarter. Gross margins are high for our license transactions.
            Customers
            and prospective customers may use these conditions in an attempt to obtain
            more
            favorable terms. While we endeavor to avoid making concessions that could
            result
            in lower margins, the negotiations often result in delays in closing
            license
            transactions. Small delays in a relatively small number of license transactions
            could have a significant impact on our reported operating results for
            that
            quarter.
  ***We
            have substantially modified our business and operations and will need
            to manage
            and support these changes effectively in order for our business plan
            to
            succeed.***
  We
            have
            substantially expanded and subsequently contracted our business and operations
            since our inception in 1993. We grew from 652 employees at the end of
            1999 to
            2,412
            employees at the end of 2000 and then reduced our numbers to 1,102 at
            the end of
            2001, 449 at the end of 2002, 367 at the end of 2003, 337 at the end
            of 2004,
            181 at the end of 2005, and
            159
            at the end of 2006. On June 30, 2007, we had approximately 169 employees.
            As a
            consequence of our employee base growing and then contracting so rapidly,
            we
            entered intosignificant contracts for facilities space for which we
            ultimately determined we didnot have a future use. We announced during
            the third and fourth quarters of 2004 that we had agreed with the landlords
            of
            various facilities to renegotiate future lease commitments, extinguishing
            a
            total of approximately $155 million of future obligations. The management
            of the expansion and later reduction of our operations has taken a considerable
            amount of our management's attention during the past several years. As
            we manage
            our business to introduce and support new products, we will need to continue
            to
            monitor our workforce and make appropriate changes as necessary. If we
            are
            unable to support past changes and implement future changes effectively,
            we may
            have to divert additional resources away from executing our business
            plan and
            toward internal administration. If our expenses significantly outpace
            our
            revenues, we may have to make additional changes to our management systems
            and
            our business plan may not succeed.
  ***We
            may face liquidity challenges and need additional financing in the
            future.***
  We
            currently expect to be able to fund our working capital requirements
            from our
            existing cash and cash equivalents and our anticipated cash flows from
            operations and subleases through at least June 30, 2008. However, we
            could
            experience unforeseen circumstances, such as an economic downturn, difficulties
            in retaining customers and/or key employees, or other factors that could
            increase our use of available cash and require us to seek additional
            financing.
            We may find it necessary to obtain additional equity or debt financing
            due to
            the factors listed above or in order to support a more rapid expansion,
            develop
            new or enhanced products or services, respond to competitive pressures,
            acquire
            complementary businesses or technologies or respond to unanticipated
            requirements.
 
 We
            may
            seek to raise additional funds through private or public sales of securities,
            strategic relationships, bank debt, financing under leasing arrangements
            or
            otherwise. If additional funds are raised through the issuance of equity
            securities, the percentage ownership of our stockholders will be reduced,
            stockholders may experience additional dilution or any equity securities
            we sell
            may have rights, preferences or privileges senior to those of the holders
            of our
            common stock. We expect that obtaining additional financing on acceptable
            terms
            would be difficult, at best. If adequate funds are not available or are
            not
            available on acceptable terms, we may be unable to pay our debts as they
            become
            due, develop our products, take advantage of future opportunities or
            respond to
            competitive pressures or unanticipated requirements, which could have
            a material
            adverse effect on our business, financial condition and future operating
            results.
 **~34~**
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 ***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. Revenue generated from third-party
            distributors in recent years has not been significant.
  ***Failure
            to maintain relationships with third-party systems integrators could
            harm our
            ability to achieve our business plan.***
  Our
            relationships with third-party systems integrators who deploy our products
            have
            been a key factor in our overall business strategy, particularly because
            many of
            our current and prospective customers rely on integrators to develop,
            deploy and
            manage their online marketplaces. Our efforts to manage our relationships
            with
            systems integrators may not succeed, which could harm our ability to
            achieve our
            business plan due to a variety of factors, including:
  •
                  Systems
                      integrators may not view their relationships with us as valuable
                      to their
                      own businesses. The related arrangements typically may be terminated
                      by
                      either party with limited notice and in some cases are not
                      covered by a
                      formal agreement.
  •
                  Under
                      our business model, we often rely on our system integrators'
                      employees to
                      perform implementations. If we fail to work together effectively,
                      or if
                      these parties perform poorly, our reputation may be harmed
                      and deployment
                      of our products may be delayed or
                      inadequate.
  •
                  Systems
                      integrators may attempt to market their own products and services
                      rather
                      than ours.
  •
                  Our
                      competitors may have stronger relationships with our systems
                      integrators
                      than us and, as a result, these integrators may recommend a
                      competitor's
                      products and services over ours.
 •
                    If
                        we lose our relationships with our systems integrators, we
                        will not have
                        the personnel necessary to deploy our products effectively,
                        and we will
                        need to commit significant additional sales and marketing
                        resources in an
                        effort to reach the markets and customers served by these
                        parties.
 ***We
            may be unable to manage or grow our international operations and assets,
            which
            could impair our overall growth or financial
            position.***
  We
            derive
            a significant portion of our revenue from our operations outside North
            America.
            In the twelve months ended December 31, 2006, approximately 40% of our
            revenues were derived from international sales. In the six months ended
            June 30,
            2007, approximately 41% of our revenue was derived from international
            sales. If
            we are unable to manage or grow our existing international operations,
            we may
            not generate sufficient revenue required to establish and maintain these
            operations, which could slow our overall growth and impair our operating
            margins.
  As
            we
            rely materially on our operations outside of North America, we are subject
            to
            significant risks of doing business internationally, including:
 • difficulties
              in staffing and managing
              foreign operations and safeguarding foreign assets;
  • unexpected
                changes in regulatory
                requirements;
  • export
                  controls relating to encryption
                  technology and other export restrictions;
  • tariffs
                    and other trade
                    barriers;
  • difficulties
                      in staffing and managing
                      foreign operations;
  • political
                        and economic
                        instability;
  • fluctuations
                          in currency exchange
                          rates;
  • reduced
                            protection for intellectual
                            property rights in some countries;
  • cultural
                              barriers;
 •seasonal
            reductions in
            business activity during the summer months in Europe and certain other
            parts of the world; and
  • potentially
              adverse tax
              consequences.
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  Management
            of international operations presents special challenges, particularly
            at our
            reduced staffing levels. For example, in December 2005, an inappropriate
            transfer of approximately $60,000 was made from our bank account in Japan
            to a
            consulting services provider affiliated with two officers of our Japan
            subsidiary without the approvals required under our internal control
            policies.
            Although this transfer was later detected, the funds were recaptured
            and the
            services of the Japan subsidiary officers involved were terminated, we
            face the
            risk that other similar misappropriations of assets may occur in the
            future.
 
 During
            the second quarter of 2007, we recorded, for the first time, modest subscription
            and consulting revenues related to our new CHRM(TM) on-demand
            solution, which we  officially launched in Beijing on August 2,
            2007.  Our international sales growth could be limited if we are
            unable to establish additional foreign operations, expand international
            sales
            channel management and support, hire additional personnel, customize
            products
            for local markets and develop relationships with international service
            providers, distributors and system integrators. Even if we are able to
            successfully expand our international operations, we may not succeed
            in
            maintaining or expanding international market demand for our
            products.
 
 ***Our
            success and competitive position will depend on our ability to protect
            our
            proprietary technology.***
  Our
            success and ability to compete are dependent to a significant degree
            on our
            proprietary technology. We hold a U.S. patent, issued in January 1998,
            on
            elements of the BroadVision platform, which covers electronic commerce
            operations common in today's web business. We also hold a U.S. patent,
            issued in November 1996, acquired as part of the Interleaf acquisition
            on the
            elements of the extensible electronic document processing system for
            creating
            new classes of active documents. Although we hold these patents, they
            may not
            provide an adequate level of intellectual property protection. In addition,
            litigation may be necessary in the future to enforce our intellectual
            property
            rights, to protect our trade secrets, or to determine the validity and
            scope of
            the proprietary rights of others. It is also possible that third parties
            may
            claim we have infringed their patent, trademark, copyright or other proprietary
            rights. Claims may be made for indemnification resulting from allegations
            of
            infringement. Intellectual property infringement claims may be asserted
            against
            us as a result of the use by third parties of our products. Claims or
            litigation, with or without merit, could result in substantial costs
            and
            diversions of resources, either of which could harm our business.
  We
            also
            rely on copyright, trademark, service mark, trade secret laws and contractual
            restrictions to protect our proprietary rights in products and services.
            We have
            registered "BroadVision", "iGuide", "BroadVision Self-Service Suite",
            "BroadVision Process", "BroadVision Commerce", "BroadVision Portal",
            "BroadVision Content" and "Interleaf" as trademarks in the United States
            and in
            other countries. It is possible that our competitors or other companies
            will
            adopt product names similar to these trademarks, impeding our ability
            to build
            brand identity and possibly confusing customers.
  As
            a
            matter of company policy, we enter into confidentiality and assignment
            agreements with our employees, consultants and vendors. We also control
            access
            to and distribution of our software, documents and other proprietary
            information. Notwithstanding these precautions, it may be possible for
            an
            unauthorized third party to copy or otherwise obtain and use our software
            or
            other proprietary information or to develop similar software independently.
            Policing unauthorized use of our products will be difficult, particularly
            because the global nature of the Internet makes it difficult to control
            the
            ultimate destination or security of software and other transmitted data.
            The
            laws of other countries may afford us little or no effective protection
            of our
            intellectual property.
  ***A
            breach of the encryption technology that we use could expose us to liability
            and
            harm our reputation, causing a loss of
            customers.***
  If
            any
            breach of the security technology embedded in our products were to occur,
            we
            would be exposed to liability and our reputation could be harmed, which
            could
            cause us to lose customers. A significant barrier to online commerce
            and
            communication is the secure exchange of valuable and confidential information
            over public networks. We rely on encryption and authentication technology,
            including Open SSL and public key cryptography technology featuring the
            major
            encryption algorithms RC2 and MDS, to provide the security and authentication
            necessary to effect the secure exchange of confidential information.
            Advances in
            computer capabilities, new discoveries in the field of cryptography or
            other
            events or developments could cause a breach of the RSA or other algorithms
            that
            we use to protect customer transaction data.
 
 ***The
            loss or malfunction of technology licensed from third parties could delay
            the
            introduction of our products and services.***
  We
            rely
            in part on technology that we license from third parties, including relational
            database management systems from Oracle and Sybase, Informix object request
            broker software from IONA Technologies PLC, and database access technology
            from
            Rogue Wave Software. The loss or malfunction of any of these technology
            licenses
            could harm our business. We integrate or sublicense this technology with
            internally developed software to perform key functions. For example,
            our
            products and services incorporate data encryption and authentication
            technology
            licensed from Open SSL. Third-party technology licenses might not continue
            to be
            available to us on commercially reasonable terms, or at all. Moreover,
            the
            licensed technology may contain defects that we cannot control. Problems
            with
            our technology licenses could cause delays in introducing our products
            or
            services until equivalent technology, if available, is identified, licensed
            and
            integrated. Delays in introducing our products and services could adversely
            affect our results of operations.
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 ***Our
            officers, key employees and highly skilled technical and managerial personnel
            are critical to our business, and they may not remain with us in the
            future.***
  Our
            performance substantially depends on the performance of our officers
            and key
            employees. We also rely on our ability to retain and motivate qualified
            personnel, especially our management and highly skilled development teams.
            The
            loss of the services of any of our officers or key employees, particularly
            our
            founder, Chief Executive Officer and interim Chief Financial Officer,
            Dr. Pehong Chen, could cause us to incur increased operating expenses and
            divert senior management resources in searching for replacements. 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
            and the uncertainty created by the execution and subsequent termination
            of our
            merger agreement with an affiliate of Vector Capital Corporation has
            had and may
            continue to have a negative impact on our operations. We have restructured
            our
            operations by reducing our workforce and implementing other cost containment
            activities. These actions could lead to disruptions in our business,
            reduced
            employee morale and productivity, increased attrition, and problems with
            retaining existing and recruiting future employees.
 
 ***Limitations
            on the online collection of profile information could impair the effectiveness
            of our products.***
  Online
            users' resistance to providing personal data, and laws and regulations
            prohibiting use of personal data gathered online without express consent
            or
            requiring businesses to notify their web site visitors of the possible
            dissemination of their personal data, could limit the effectiveness of
            our
            products. This in turn could adversely affect our sales and results of
            operations.
  One
            of
            the principal features of our products is the ability to develop and
            maintain
            profiles of online users to assist business managers in determining the
            nature
            of the content to be provided to these online users. Typically, profile
            information is captured when consumers, business customers and employees
            visit a
            web site and volunteer information in response to survey questions concerning
            their backgrounds, interests and preferences. Profiles can be augmented
            over
            time through the subsequent collection of usage data. Although our products
            are
            designed to enable the development of applications that permit web site
            visitors
            to prevent the distribution of any of their personal data beyond that
            specific
            web site, privacy concerns may nevertheless cause visitors to resist
            providing
            the personal data necessary to support this profiling capability. The
            mere
            perception by prospective customers that substantial security and privacy
            concerns exist among online users, whether or not valid, may indirectly
            inhibit
            market acceptance of our products.
 
 In
            addition, new laws and regulations could heighten privacy concerns by
            requiring
            businesses to notify web site users that the data captured from them
            while
            online may be used by marketing entities to direct product messages to
            them. We
            are subject to increasing regulation at the federal and state levels
            relating to
            online privacy and the use of personal user information. Several states
            have
            proposed legislation that would limit the uses of personal user information
            gathered online or require online services to establish privacy policies.
            In
            addition, the U.S. Federal Trade Commission, or FTC, has urged Congress to
            adopt legislation regarding the collection and use of personal identifying
            information obtained from individuals when accessing web sites. The FTC
            has
            settled several proceedings resulting in consent decrees in which Internet
            companies have been required to establish programs regarding the manner
            in which
            personal information is collected from users and provided to third parties.
            We
            could become a party to a similar enforcement proceeding. These regulatory
            and
            enforcement efforts could also harm our customers' ability to collect
            demographic and personal information from users, which could impair the
            effectiveness of our products.
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 ***We
            may not have adequate back-up systems, and natural or manmade disasters
            could
            damage our operations, reduce our revenue and lead to a loss of
            customers.***
  We
            do not
            have fully redundant systems for service at an alternate site. A disaster
            could
            severely harm our business because our service could be interrupted for
            an
            indeterminate length of time. Our operations depend upon our ability
            to maintain
            and protect our computer systems at our facility in Redwood City, California,
            which reside on or near known earthquake fault zones. Although these
            systems are
            designed to be fault tolerant, they are vulnerable to damage from fire,
            floods,
            earthquakes, power loss, acts of terrorism, telecommunications failures
            and
            similar events. In addition, our facilities in California could be subject
            to
            electrical blackouts if California faces another power shortage similar
            to that
            of 2001. Although we do have a backup generator that would maintain critical
            operations, this generator could fail. We also have significantly reduced
            our
            workforce in a short period of time, which has placed different requirements
            on
            our systems and has caused us to lose personnel knowledgeable about our
            systems,
            both of which could make it more difficult to quickly resolve system
            disruptions. Disruptions in our internal business operations could harm
            our
            business by resulting in delays, disruption of our customers' business,
            loss of
            data, and loss of customer confidence.
  **Risks
            related to BroadVision common stock**
 
 ***One
            stockholder beneficially owns a substantial portion of the outstanding
            BroadVision common stock, and as a result exerts substantial control
            over the
            company.***
 
 As
            of
            July 31, 2007, Dr. Pehong Chen, our Chairman, CEO and interim CFO, beneficially
            owned approximately 42.0 million shares of our common stock, which represents
            approximately 39% of the outstanding common stock as of such date. As
            a result,
            Dr. Chen exerts substantial control over all matters coming to a vote
            of our
            stockholders, including with respect to:
 
 •     the composition of our board of directors and, through
            it, any determination with respect to our business direction and policies,
            including the appointment and removal of officers;
  •     any determinations with respect to mergers and other
            business combinations;
  •     our acquisition or disposition of
            assets;
  •     our financing activities; and
  •     the payment of dividends on our capital
            stock.
 
 This
            control by Dr. Chen could depress the market price of our common stock
            or delay
            or prevent a change in control of BroadVision.
  ***Our
            stock price has been highly volatile.***
  The
            trading price of BroadVision common stock has been highly volatile. For
            example,
            the trading price of BroadVision common stock has ranged from $0.32 per
            share to $9.05 per share between January 1, 2004 and August 6, 2007.
            On August 6, 2007 the closing price of BroadVision common stock was $2.18
            per
            share. Our stock price is subject to wide fluctuations in response to
            a variety
            of factors, including:
  • quarterly
            variations in operating
            results;
  • announcements
            of technological
            innovations;
  • announcements
            of new software or
            services by us or our competitors;
  • changes
            in financial estimates by
            securities analysts;
  • general
            economic
            conditions; or
  • other
            events or factors that are beyond
            our control.
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  In
            addition, the stock market has experienced significant price and volume
            fluctuations that have particularly affected the trading prices of equity
            securities of many technology companies. These fluctuations have often
            been
            unrelated or disproportionate to the operating performance of these companies.
            Any negative change in the public's perception of the prospects of Internet
            or
            electronic commerce companies could further depress our stock price regardless
            of our results. Other broad market fluctuations may decrease the trading
            price
            of BroadVision common stock. In the past, following declines in the market
            price
            of a company's securities, securities class action litigation, such as
            the class
            action lawsuits filed against us and certain of our officers and directors
            in
            early 2001, has often been instituted against that company. Litigation
            could
            result in substantial costs and a diversion of management's attention
            and
            resources.
  **Item 2.
            Unregistered Sales of Equity Securities and Use of
            Proceeds**
  Not
            applicable.
  **Item 3.
            Defaults Upon Senior
            Securities**
  Not
            applicable.
  **Item 4.
            Submission of Matters to a Vote of Security
            Holders**
  We
            held our 2007 annual meeting on June 5, 2007. The following proposals were
            submitted to and approved by the stockholders at the meeting.
  1)
                  
                  Pehong
                      Chen, James D. Dixon, Robert Lee and Francois Stieger were
                      elected members
                      of the Board of Directors to serve until the 2008 Annual Meeting
                      of
                      Stockholders and until their successors are elected and qualified.
                      The  results of the voting were as
                      follows:
 For
                      
                      
                      WithheldPehong
                          Chen
                      
                      
                      88,471,474
                      
                      
                      
                      276,026James
                          D. Dixon
                      
                      
                      88,522,241
                      
                      
                      
                      225,259Robert
                          Lee
                      
                      
                      88,520,945
                      
                      
                      
                      226,555Francois
                          Stieger
                      
                      
                      88,512,942
                      
                      
                      
                      234,558
 2)
                  
                  The
                      BroadVision, Inc. 2006 Employee Stock Purchase Plan was approved
                      to add an
                      additional 2,000,000 shares to the number of share of common
                      stock
                      issuable under the Purchase Plan. There were 45,652,443 votes
                      for to
                      1,419,225 votes against with 103,262 votes abstaining and 41,572,570
                      broker non-votes.
  3)
                  
                  The
                      appointment of Odenberg, Ullakko, Muranishi & Co. LLP as independent
                      auditors for the Company's fiscal year ending December 31, 2007 was
                      ratified and approved. The vote was 88,461,044 votes for to
                      181,121 votes
                      against with 105,335 votes
                      abstaining.
 
 **Item 5.
            Other Information**
  Not
            applicable.


**~39~**
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**Item 6.
      Exhibits**


**(a) Exhibits**
 **Exhibits**
                  
                  **Description**3.1
                      (1)
                  
                  Amended
                      and Restated Certificate of Incorporation.3.2
                      (2)
                  
                  Certificate
                      of Amendment of Certificate of Incorporation.3.3
                      (4)
                  
                  Certificate
                      of Amendment of Certificate of Incorporation.3.4
                      (3)
                  
                  Amended
                      and Restated Bylaws.4.1
                      (1)
                  
                  References
                      are hereby made to Exhibits 3.1 to 3.331.1
                  
                  Certification
                      of the Chief Executive Officer and Chief Financial Officer
                      of
                      BroadVision.32.1
                  
                  Certification
                      of the Chief Executive Officer and Chief Financial Officer
                      of BroadVision
                      pursuant to Section 906 of the Sarbanes-Oxley Act of
                      2002.
 (1)
                  
                  Incorporated
                      by reference to the Company's Registration Statement on Form
                      S-1 filed on
                      April 19, 1996 as amended by Amendment No. 1 filed on May 9,
                      1996, Amendment No. 2 filed on May 29, 1996 and Amendment
                      No. 3 filed on June 17, 1996.(2)
                  
                  Incorporated
                      by reference to the Company's Proxy Statement filed on May 14,
                      2002.(3)
                  
                  Incorporated
                      by reference to the Company's Current Report on Form 8-K filed
                      on December
                      22, 2005.(4)
                  
                  Incorporated
                      by reference to the Company's Form 10-K for the fiscal year
                      ended December
                      31, 2006 filed on March 26,
                      2007.
  **~40~**
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 **SIGNATURES**
  Pursuant
        to the requirements 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.
  **BROADVISION,
                  INC.**Date:
                  August 07, 2007
              
              By:
              
              */s/
                  Pehong Chen*Pehong
                  ChenChairman
                  of the Board, President, Chief Executive Officer and Interim Chief
                  Financial Officer
 **~41~**
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  **EXHIBIT INDEX**
 **Exhibits**
                
                **Description**3.1
                    (1)
                
                Amended
                    and Restated Certificate of Incorporation.3.2
                    (2)
                
                Certificate
                    of Amendment of Certificate of Incorporation.3.3(4)
                
                Certificate
                    of Amendment of Certificate of Incorporation.3.4
                    (3)
                
                Amended
                    and Restated Bylaws.4.1
                    (1)
                
                References
                    are hereby made to Exhibits 3.1 to 3.3.31.1
                
                Certification
                    of the Chief Executive Officer and Chief Financial Officer of
                    BroadVision.32.1
                
                Certification
                    of the Chief Executive Officer and Chief Financial Officer of
                    BroadVision
                    pursuant to Section 906 of the Sarbanes-Oxley Act of
                    2002.
 (1)
                
                Incorporated
                    by reference to the Company's Registration Statement on Form
                    S-1 filed on
                    April 19, 1996 as amended by Amendment No. 1 filed on May 9,
                    1996, Amendment No. 2 filed on May 29, 1996 and Amendment
                    No. 3 filed on June 17, 1996.(2)
                
                Incorporated
                    by reference to the Company's Proxy Statement filed on May 14,
                    2002.(3)
                
                Incorporated
                    by reference to the Company's Current Report on Form 8-K filed
                    on December
                    22, 2005.(4)
                
                Incorporated
                    by reference to the Company's Form 10-K for the fiscal year ended
                    December
                    31, 2006 filed on March 26, 2007.
 **~42~**