##### Table of Contents



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 March 31, 2006
 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)585 Broadway,
    
    94063Redwood City, California(Address of principal executive offices)
    
    (Zip code)
 (650) 542-5100
 þ o
  o o þ
 o þ




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##### 



BROADVISION, INC. AND SUBSIDIARIES
FORM 10-Q
Quarter Ended March 31, 2006
 TABLE OF CONTENTS
 PART I.
    
    FINANCIAL INFORMATION
    
    3Item 1.
    
    Financial Statements
    
    3Condensed Consolidated Balance Sheets at March 31, 2006 and December 31, 2005
    
    3Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)for the three months ended March 31, 2006 and 2005
    
    4Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2006 and 2005
    
    5Notes to Condensed Consolidated Financial Statements
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    18Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    29Item 4.
    
    Controls and Procedures
    
    29PART II.
    
    OTHER INFORMATION
    
    30Item 1.
    
    Legal Proceedings
    
    30Item 1A.
    
    Risk Factors
    
    30Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    38Item 3.
    
    Defaults Upon Senior Securities
    
    38Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    38Item 5.
    
    Other Information
    
    38Item 6.
    
    Exhibits
    
    38SIGNATURES
    
    40Ex-10.56EXHIBIT 31.1EXHIBIT 32.1
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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 BROADVISION, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
 March 31,
    
    
    December 31,2006
    
    
    2005(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    10,644
    
    
    $
    4,849Accounts receivable, less allowance for doubtful accounts of $772 as of
March 31, 2006 and $731 as of December 31, 2005
    
    
    13,068
    
    
    
    12,640Prepaids and other
    
    
    1,943
    
    
    
    1,914Restricted cash, current portion
    
    
    201
    
    
    
    Total current assets
    
    
    25,856
    
    
    
    19,403Property and equipment, net
    
    
    2,088
    
    
    
    2,334Restricted cash and investments, net of current portion
    
    
    1,796
    
    
    
    1,997Goodwill
    
    
    25,066
    
    
    
    25,066Other assets
    
    
    1,034
    
    
    
    1,142Total assets
    
    $
    55,840
    
    
    $
    49,942LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Current portion of bank borrowings
    
    $
    277
    
    
    $
    389Current portion of convertible notes due to a related party
    
    
    
    
    
    
    20,535Accounts payable
    
    
    4,058
    
    
    
    4,396Accrued expenses
    
    
    15,094
    
    
    
    16,090Warrant liability
    
    
    647
    
    
    
    277Unearned revenue
    
    
    5,335
    
    
    
    2,678Deferred maintenance
    
    
    13,659
    
    
    
    10,910Total current liabilities
    
    
    39,070
    
    
    
    55,275Other non-current liabilities
    
    
    4,697
    
    
    
    4,390Total liabilities
    
    
    43,767
    
    
    
    59,665Commitments and contingenciesStockholders equity (deficit):Convertible preferred stock, $0.0001 par value; 10,000 shares authorized;
none issued and outstanding
    
    
    
    
    
    
    Common stock, $0.0001 par value; 2,000,000 shares authorized; 69,025 shares
issued and outstanding as of March 31, 2006 and 34,522 shares issued and
outstanding as of December 31, 2005
    
    
    7
    
    
    
    3Additional paid-in capital
    
    
    1,236,151
    
    
    
    1,215,256Accumulated other comprehensive income
    
    
    109
    
    
    
    93Accumulated deficit
    
    
    (1,224,194
    )
    
    
    (1,225,075)
    )Total stockholders equity (deficit)
    
    
    12,073
    
    
    
    (9,723
    )Total liabilities and stockholders equity (deficit)
    
    $
    55,840
    
    
    $
    49,942
 See Accompanying Notes to Condensed Consolidated Financial Statements
 Page 3




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##### Table of Contents



BROADVISION, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
 (In thousands, except per share data)
(unaudited)
 Three Months EndedMarch 31,2006
    
    
    2005(restated)Revenues:Software licenses
    
    $
    2,882
    
    
    $
    4,416Services
    
    
    9,742
    
    
    
    11,951Total revenues
    
    
    12,624
    
    
    
    16,367Cost of revenues:Cost of software licenses
    
    
    62
    
    
    
    (57
    )Cost of services
    
    
    4,058
    
    
    
    5,980Total cost of revenues
    
    
    4,120
    
    
    
    5,923Gross profit
    
    
    8,504
    
    
    
    10,444Operating expenses:Research and development
    
    
    2,631
    
    
    
    4,287Sales and marketing
    
    
    2,381
    
    
    
    5,811General and administrative
    
    
    1,738
    
    
    
    2,535Restructuring charge (credit)
    
    
    490
    
    
    
    (704
    )Total operating expenses
    
    
    7,240
    
    
    
    11,929Operating income (loss)
    
    
    1,264
    
    
    
    (1,485
    )Interest income (expense), net
    
    
    107
    
    
    
    (1,723
    )(Loss) gain on revaluation of warrants
and change in value of derivatives
    
    
    (370
    )
    
    
    7,991Other income, net
    
    
    36
    
    
    
    598Income before provision for income taxes
    
    
    1,037
    
    
    
    5,381(Provision) benefit for income taxes
    
    
    (156
    )
    
    
    2,032Net income
    
    $
    881
    
    
    $
    7,413Basic income per share
    
    $
    0.02
    
    
    $
    0.22Diluted income per share
    
    $
    0.02
    
    
    $
    0.19Shares used in computing:Weighted average shares-basic
    
    
    42,958
    
    
    
    33,971Weighted average shares-diluted
    
    
    43,068
    
    
    
    39,968Comprehensive income:Net income
    
    $
    881
    
    
    $
    7,413Other comprehensive gain , net of tax:Foreign currency translation adjustment
    
    
    (16
    )
    
    
    (45
    )Total comprehensive income
    
    $
    865
    
    
    $
    7,368
 See Accompanying Notes to Condensed Consolidated Financial Statements
 Page 4




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BROADVISION, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
(unaudited)
 Three Months Ended March 31,2006
    
    
    2005(restated)Cash flows from operating activities:Net income
    
    $
    881
    
    
    $
    7,413Adjustments to reconcile net income (loss) to net cash used for operating activities:Depreciation and amortization
    
    
    267
    
    
    
    416Allowance for doubtful accounts and reserves
    
    
    41
    
    
    
    (159
    )Stock based compensation
    
    
    168
    
    
    
    (Gain) on cost method investments
    
    
    
    
    
    
    (1,215
    )Loss on sale or abandonment of fixed assets
    
    
    
    
    
    
    24Provision (benefits) for income tax
    
    
    156
    
    
    
    (2,032
    )Loss (gain) on revaluation of warrants and change in value of derivatives
    
    
    370
    
    
    
    (7,991
    )Amortization of discount on convertible notes
    
    
    
    
    
    
    1,612Changes in operating assets and liabilities:Accounts receivable
    
    
    (469
    )
    
    
    1,789Prepaids and other
    
    
    (29
    )
    
    
    (277
    )Other non-current assets
    
    
    109
    
    
    
    88Accounts payable and accrued expenses
    
    
    (1,130
    )
    
    
    (2,342
    )Restructuring accrual
    
    
    (314
    )
    
    
    (20,886
    )Unearned revenue and deferred maintenance
    
    
    5,406
    
    
    
    (1,749
    )Other noncurrent liabilities
    
    
    455
    
    
    
    Net cash provided by (used for) operating activities
    
    
    5,912
    
    
    
    (25,309
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    (21
    )
    
    
    (57
    )Transfer from restricted cash
    
    
    
    
    
    
    19,103Proceeds from sale of cost method investments
    
    
    
    
    
    
    350Proceeds from dividends
    
    
    
    
    
    
    1,101Net cash (used for) provided by investing activities
    
    
    (21
    )
    
    
    20,497Cash flows from financing activities:Proceeds from bank line of credit, term debt, and convertible notes
    
    
    
    
    
    
    20,000Repayments of bank line of credit, term debt, and convertible notes
    
    
    (112
    )
    
    
    (20,250
    )Proceeds from issuance of common stock, net
    
    
    
    
    
    
    370Net cash (used for) provided by financing activities
    
    
    (112
    )
    
    
    120Effect of exchange rates on cash and cash equivalents
    
    
    16
    
    
    
    59Net increase (decrease) in cash and cash equivalents
    
    
    5,795
    
    
    
    (4,633
    )Cash and cash equivalents at beginning of period
    
    
    4,849
    
    
    
    41,851Cash and cash equivalents at end of period
    
    $
    10,644
    
    
    $
    37,218Supplemental disclosures of cash flow information:Cash paid for interest
    
    $
    188
    
    
    $
    162Cash paid (refunds received) for income taxes
    
    $
    68
    
    
    $
    (384
    )Supplemental information of noncash financing and investing activities:Exchange of convertible debt to common stock
    
    $
    20,535
    
    
    $
    Conversion of accrued interest to equity
    
    $
    196
    
    
    $
    
 See Accompanying Notes to Condensed Consolidated Financial Statements
 Page 5




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BROADVISION, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (All quarterly data herein is unaudited)
 Note 1. Organization and Summary of Significant Accounting Policies
 Nature of Business
   Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Companys Own Stock
 Basis of Presentation
  Basis of consolidations
  Use of Estimates
  Page 6




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Employee Stock Option and Purchase Plans
     Page 7




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##### Table of Contents



Weighted average volatility
    
    
    0.834Expected dividends
    
    
    0Expected term (in years)
    
    
    3Risk free rate
    
    
    4.81
    %Forfeiture rate
    
    
    0
    %
 Accounting for Certain Transactions Involving Stock Compensationan Interpretation of APB Opinion
25 Accounting for Equity Instruments That
Are Issued to Other Than Employees For Acquiring or in Conjunction with Selling Goods or Services.
  March 31, 2005(restated)Net income, as reported
    
    $
    7,413Add: Stock-based employee compensation expense
included in reported net income, net of related
tax effects
    
    
    Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects
    
    
    1,334Pro forma net income
    
    $
    6,079Income per share:Basicas reported
    
    $
    0.22Basicpro forma
    
    $
    0.18Dilutedas reported
    
    $
    0.19Dilutedpro forma
    
    $
    0.15
 Page 8




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##### Table of Contents



VestingDate
    
    Options
    
    
    Options
    
    
    
    
    
    
    PeriodGranted
    
    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
  First Quarter, 2006Weighted-Average
    
    
    Aggregate
    
    
    Number ofOptions
    
    
    Exercise
    
    
    Intrinsic
    
    
    NonvestedFixed Options
    
    (000s)
    
    
    Price
    
    
    Value
    
    
    OptionsOutstanding at 1/1/2006
    
    
    3,765
    
    
    
    23.48
    
    
    
    
    
    
    
    Granted
    
    
    3,744
    
    
    
    0.57
    
    
    
    
    
    
    
    3,744Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expired
    
    
    (314
    )
    
    
    6.21
    
    
    
    
    
    
    
    Outstanding at 3/31/2006
    
    
    7,195
    
    
    
    12.04
    
    
    
    
    
    
    
    3,744Options exercisable at end of
period
    
    
    3,451
    
    
    $
    21.16
    
    
    
    Weighted-average fair value of
options granted during the
period
    
    $
    0.32Number of options vested during
the period
    
    
    
  OutstandingWeighted-AverageRemaining
    
    
    Weighted
    
    
    AggregateRange of Exercise
    
    Options
    
    
    Contractual
    
    
    Exercise
    
    
    IntrinsicPrices
    
    (000s)
    
    
    Life in Years
    
    
    Price
    
    
    Value$     0.43  $     1.52
    
    
    3,901
    
    
    
    9.92
    
    
    $
    0.57
    
    
    
    2.10         2.94
    
    
    1,147
    
    
    
    7.60
    
    
    
    2.37
    
    
    
    3.08         3.80
    
    
    419
    
    
    
    7.18
    
    
    
    3.65
    
    
    
    4.25         8.50
    
    
    325
    
    
    
    6.14
    
    
    
    6.25
    
    
    
    10.75       30.00
    
    
    121
    
    
    
    4.23
    
    
    
    21.41
    
    
    
    30.50       39.63
    
    
    170
    
    
    
    5.28
    
    
    
    35.01
    
    
    
    42.75       87.19
    
    
    1,103
    
    
    
    4.20
    
    
    
    62.86
    
    
    
    133.06     448.31
    
    
    9
    
    
    
    4.20
    
    
    
    186.56
    
    
    
    7,195
    
    
    
    8.13
    
    
    $
    12.24
    
    
    
    
 Page 9




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##### Table of Contents



OutstandingWeighted-AverageExercisable
    
    
    Remaining
    
    
    Weighted
    
    
    AggregateRange of
    
    Options
    
    
    Contractual
    
    
    Exercise
    
    
    IntrinsicExercise Prices
    
    (000s)
    
    
    Life in Years
    
    
    Price
    
    
    Value$     0.43
 $     1.52
    
    
    157
    
    
    
    7.18
    
    
    $
    1.49
    
    
    
    2.10         2.94
    
    
    1,147
    
    
    
    7.60
    
    
    
    2.37
    
    
    
    3.08         3.80
    
    
    419
    
    
    
    7.18
    
    
    
    3.65
    
    
    
    4.25         8.50
    
    
    325
    
    
    
    6.14
    
    
    
    6.25
    
    
    
    10.75       30.00
    
    
    121
    
    
    
    4.23
    
    
    
    21.41
    
    
    
    30.50       39.63
    
    
    170
    
    
    
    5.28
    
    
    
    35.01
    
    
    
    42.75       87.19
    
    
    1,103
    
    
    
    4.20
    
    
    
    62.86
    
    
    
    133.06
    448.31
    
    
    9
    
    
    
    4.20
    
    
    
    186.56
    
    
    
    3,451
    
    
    
    6.15
    
    
    $
    23.48
    
    
    
    
  Earnings Per Share Information
   Three Months EndedMarch 31,2006
    
    2005(restated)Net income
    
    $
    881
    
    
    $
    7,413Weighted average common shares outstanding
utilized for basic net income per share
    
    
    42,958
    
    
    
    33,971Potential common stock issued for debt
    
    
    
    
    
    
    5,797Potential common stock issued for employee
stock purchase plans
    
    
    110
    
    
    
    Potential common stock issued for options
    
    
    
    
    
    
    200Weighted average common shares outstanding
utilized for diluted net income per share:
    
    
    43,068
    
    
    
    39,968Basic net income per share
    
    $
    0.02
    
    
    $
    0.22Diluted net income per share
    
    $
    0.02
    
    
    $
    0.19
 Legal Matters
  Page 10




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##### Table of Contents



Foreign Currency Transactions
  Valuation of Long-Lived Assets
 Accounting for the Impairment or Disposal of Long-Lived Assets Business Combinations Goodwill and Other Intangible
Assets
 Goodwill and Other
Intangible Assets
 Reclassification
  Comprehensive Income (Loss)
  Foreign
    
    Accumulated OtherCurrency
    
    ComprehensiveTranslation
    
    Income (Loss)Balance, December 31, 2005
    
    $
    93
    
    
    $
    93Net change during period
    
    
    16
    
    
    
    16Balance, March 31, 2006
    
    $
    109
    
    
    $
    109
 New Accounting Pronouncements
  Page 11




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##### Table of Contents



Note 2. Selected Balance Sheet Detail
  March 31,
    
    
    December 31,2006
    
    
    2005(unaudited)Furniture and fixtures
    
    $
    2,694
    
    
    $
    2,791Computers and software
    
    
    32,739
    
    
    
    32,705Leasehold improvements
    
    
    5,821
    
    
    
    6,21941,254
    
    
    
    41,715Less accumulated depreciation and amortization
    
    
    (39,166
    )
    
    
    (39,381
    )$
    2,088
    
    
    $
    2,334
  March 31,
    
    
    December 31,2006
    
    
    2005(unaudited)Employee benefits
    
    $
    1,165
    
    
    $
    1,048Commissions and bonuses
    
    
    559
    
    
    
    533Sales and other taxes
    
    
    3,762
    
    
    
    3,885Restructuring (See Note 6)
    
    
    5,368
    
    
    
    5,533Other
    
    
    4,389
    
    
    
    5,091$
    15,243
    
    
    $
    16,090
 Note 3. Bank Borrowings, Convertible Notes and Other Non-Current Liabilities
  March 31, 2006
    
    
    December 31, 2005(unaudited)Bank borrowings  Term debt
    
    $
    277
    
    
    $
    389277
    
    
    
    389Less: Current portion of bank borrowings
    
    
    (277
    )
    
    
    (389
    )Long-term debt, net of current portion
    
    $
    
    
    
    $
    
 Page 12




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##### Table of Contents




    
    During the year ended December 31, 2005, the Company maintained a revolving line
of credit in the form of a loan and security agreement with a commercial lender, which
expired in February 2006. No amounts were outstanding under this credit facility.
    
    The Company has entered into term debt in the form of notes payable with the
same lender. The term debt requires monthly payments of approximately $38,000 plus
interest through October 2006, and monthly payments of approximately $2,000 for the five
months ending March 2007. A portion of the term debt was utilized for an equipment line of
credit. Principal and interest are due in monthly payments through maturity based on the
terms of the facilities. As of March 31, 2006 and December 31, 2005, the entire balance of
$277,000and $389,000, respectively, was classified as currently due.
 Convertible Notes
      Page 13




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##### Table of Contents



Quarter Ended March 31,2006
    
    
    2005(restated)Warrants related to the Notes
    
    $
    (384
    )
    
    $
    1,764Warrants related to real estate buyout
    
    
    14
    
    
    
    753Conversion Feature
    
    
    
    
    
    
    4,670Additional Investment Rights
    
    
    
    
    
    
    804(Loss) gain on revaluation of warrants
and change in value of derivatives
    
    $
    (370
    )
    
    $
    7,991
 Other Non-Current Liabilities
  March 31,
    
    
    December 31,2006
    
    
    2005(in thousands)Restructuring (Note 6)
    
    $
    1,573
    
    
    $
    1,722Deferred maintenance and unearned revenue
    
    
    2,790
    
    
    
    2,334Other
    
    
    334
    
    
    
    334Total other non-current liabilities
    
    $
    4,697
    
    
    $
    4,390
 Note 4. Commitments and Contingencies
 Warranties and Indemnification
   Leases
  Page 14




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##### Table of Contents



OperatingYears Ending December 31,
    
    Leases2006
    
    $
    3.02007
    
    
    3.92008
    
    
    2.12009
    
    
    2.12010 and thereafter
    
    
    4.1Total minimum lease payments
    
    $
    15.2
  Standby Letter of Credit Commitments
  Note 5. Geographic, Segment and Significant Customer Information
   Three Months EndedMarch 31,2006
    
    
    2005Software licenses
    
    $
    2,882
    
    
    $
    4,416Consulting services
    
    
    3,842
    
    
    
    5,147Maintenance
    
    
    5,900
    
    
    
    6,804Total revenues
    
    $
    12,624
    
    
    $
    16,367
   Three months endedMarch 31,2006
    
    
    2005Revenues:Americas
    
    $
    10,019
    
    
    $
    12,423Europe
    
    
    1,271
    
    
    
    2,390Asia/Pacific
    
    
    1,334
    
    
    
    1,554Total revenues
    
    $
    12,624
    
    
    $
    16,367
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##### Table of Contents



March 31,
    
    
    December 31,2006
    
    
    2005Long-Lived Assets:Americas
    
    $
    27,543
    
    
    $
    29,039Europe
    
    
    203
    
    
    
    328Asia/Pacific
    
    
    440
    
    
    
    445Total long-lived assets
    
    $
    28,186
    
    
    $
    29,812
  Note 6. Restructuring Charges
 Restructuring and Impairment
   Severance and Termination Benefits
  Excess Facilities
  Current
    
    
    Non-Current
    
    
    TotalSeverance and Termination
    
    $
    0.4
    
    
    $
    
    
    
    $
    0.4Excess Facilities
    
    
    5.0
    
    
    
    1.5
    
    
    
    6.5Total
    
    $
    5.4
    
    
    $
    1.5
    
    
    $
    6.9
  Total futureminimumYears ending December 31,
    
    payments2006
    
    $
    4.82007
    
    
    0.72008
    
    
    0.42009
    
    
    0.42010
    
    
    0.2Total minimum facilities payments
    
    $
    6.5
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##### Table of Contents



AmountsAccrued
    
    
    charged torestructuring
    
    
    restructuring
    
    
    
    
    
    
    Accruedcosts
    
    
    costs
    
    
    Amounts paid
    
    
    restructuringbeginning
    
    
    and other
    
    
    or written off
    
    
    costs, endingThree Months Ended March 31, 2006Lease cancellations and commitments
    
    $
    4,188
    
    
    $
    108
    
    
    $
    
    
    
    $
    4,296Termination payments to employees and related costs
    
    
    105
    
    
    
    374
    
    
    
    (376
    )
    
    
    103$
    4,293
    
    
    $
    482
    
    
    $
    (376
    )
    
    $
    4,399Three Months Ended March 31, 2005Lease cancellations and commitments
    
    $
    21,824
    
    
    $
    (631
    )
    
    $
    (17,347
    )
    
    $
    3,846Termination payments to employees and related costs
    
    
    365
    
    
    
    (95
    )
    
    
    (155
    )
    
    
    115$
    22,189
    
    
    $
    (726
    )
    
    $
    (17,502
    )
    
    $
    3,961
  AmountsAccrued
    
    
    charged torestructuring
    
    
    restructuring
    
    
    
    
    
    
    Accruedcosts,
    
    
    costs
    
    
    Amounts paid
    
    
    restructuringbeginning
    
    
    and other
    
    
    or written off
    
    
    costs, endingThree Months Ended March 31, 2006Lease cancellations and commitments
    
    $
    2,651
    
    
    $
    8
    
    
    $
    (436
    )
    
    $
    2,223Termination payments to employees and
related costs
    
    
    311
    
    
    
    
    
    
    
    8
    
    
    
    319$
    2,962
    
    
    $
    8
    
    
    $
    (428
    )
    
    $
    2,542Three Months Ended March 31, 2005Lease cancellations and commitments
    
    $
    11,515
    
    
    $
    22
    
    
    $
    (2,666
    )
    
    $
    8,871Termination payments to employees and
related costs
    
    
    459
    
    
    
    
    
    
    
    (14
    )
    
    
    445$
    11,974
    
    
    $
    22
    
    
    $
    (2,680
    )
    
    $
    9,316
  Note 7. Warrants
  Underlying
    
    
    ExerciseDescription
    
    Shares
    
    
    Price per ShareIssued to landlord in real estate buyout transaction in August 2004
    
    
    700,000
    
    
    $
    5.00Issued to convertible notes investors in November 2004
    
    
    3,082,219
    
    
    
    2.02Other issued in connection with revenue transactions in 1997 and 2000
    
    
    9,628
    
    
    VariousTotal warrants
    
    
    3,791,847
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##### Table of Contents



Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Companys Own Stock,
 Note 8. Stockholders Equity
  Note 9. Subsequent Event
  
 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
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##### Table of Contents



Recent Events
     Page 19




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##### Table of Contents



Critical Accounting Policies, Estimates and Judgments
   Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Companys Own Stock
 Revenue Recognition
 Overview Software Revenue Recognition Software Revenue
Recognition, With Respect to Certain Transactions Revenue Recognition .
 Software License Revenue
  Page 20




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##### Table of Contents



Services Revenue
   Allowances and Reserves
  Impairment Assessments
  Page 21




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##### Table of Contents



Deferred Tax Assets
  Accounting for Stock-Based Compensation
   Aggregate Number
    
    
    Weightedof Common Shares
    
    
    AverageIssuable Under
    
    
    ExerciseAccelerated Stock
    
    
    Price PerOptions
    
    
    ShareTotal 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
     
    
    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 FAS 123R, we recognized forfeitures under
FAS 123 as they occurred.
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##### Table of Contents



Restructuring Charges
 .
 Severance and Termination Costs
 
 
 Excess Facilities Costs
  Costs
Associated with Lease Modification or Termination
 
   Page 23




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##### Table of Contents



Cash and Cash Equivalents
   Fair valueCash and certificates of deposits
    
    $
    9,816Money market
    
    
    828Total cash and equivalents
    
    $
    10,644
  Fair valueCash and certificates of deposits
    
    $
    4,030Money market
    
    
    819Total cash and equivalents
    
    $
    4,849
 Concentrations of Credit Risk
  Fair Value of Financial Instruments
  Foreign Currency
  Equity Investments
  Page 24




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##### Table of Contents



Legal Matters
  Results of Operations
 Revenues
 Total revenues
 SoftwareLicenses
    
    %
    
    Services
    
    %
    
    Total
    
    %Three Months Ended:March 31, 2006Americas
    
    $
    2,265
    
    
    
    79
    %
    
    $
    7,754
    
    
    
    80
    %
    
    $
    10,019
    
    
    
    79
    %Europe
    
    
    346
    
    
    
    12
    
    
    
    925
    
    
    
    9
    
    
    
    1,271
    
    
    
    10Asia Pacific
    
    
    271
    
    
    
    9
    
    
    
    1,063
    
    
    
    11
    
    
    
    1,334
    
    
    
    11Total
    
    $
    2,882
    
    
    
    100
    %
    
    $
    9,742
    
    
    
    100
    %
    
    $
    12,624
    
    
    
    100
    %March 31, 2005Americas
    
    $
    1,914
    
    
    
    43
    %
    
    $
    6,724
    
    
    
    56
    %
    
    $
    8,638
    
    
    
    53
    %Europe
    
    
    1,706
    
    
    
    39
    
    
    
    4,212
    
    
    
    35
    
    
    
    5,918
    
    
    
    36Asia Pacific
    
    
    796
    
    
    
    18
    
    
    
    1,015
    
    
    
    9
    
    
    
    1,811
    
    
    
    11Total
    
    $
    4,416
    
    
    
    100
    %
    
    $
    11,951
    
    
    
    100
    %
    
    $
    16,367
    
    
    
    100
    %
  Software license revenues
 Services revenues
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##### Table of Contents



Cost of Revenues
  Three Months Ended March 31,2006
    
    %
    
    2005
    
    %Cost of software licenses
    
    $
    62
    
    
    
    1
    %
    
    $
    (57
    )
    
    
    (1)
    %Cost of services
    
    
    4,058
    
    
    
    32
    
    
    
    5,980
    
    
    
    37Total cost of revenues
    
    $
    4,120
    
    
    
    33
    %
    
    $
    5,923
    
    
    
    36
    %
 Cost of (credit for) software licenses
 Cost of services
 Gross margin
 Operating Expenses and Other Income, net
   Research and development expenses
  Sales and marketing expenses
  General and administrative expenses
  Restructuring charges
  Three months endedMarch 31,2006
    
    % (1)
    
    2005
    
    % (1)Research and development
    
    $
    2,631
    
    
    
    21
    %
    
    $
    4,287
    
    
    
    26
    %Sales and marketing
    
    
    2,381
    
    
    
    19
    
    
    
    5,811
    
    
    
    36General and administrative
    
    
    1,738
    
    
    
    13
    
    
    
    2,535
    
    
    
    15Restructuring charges
    
    
    490
    
    
    
    4
    
    
    
    (704
    )
    
    
    (4
    )Total operating expenses
    
    $
    7,240
    
    
    
    57
    %
    
    $
    11,929
    
    
    
    73
    %
 
 (1)
    
    Expressed as a percent of total revenues for the period indicated Page 26




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##### Table of Contents



Research and development expenses
 Sales and marketing expenses
 General and administrative expenses
 Interest income (expense), net
 (Loss) gain on revaluation of warrants and change in value of derivatives
 Other income, net,
 income taxes
 Liquidity and Capital Resources
 Background and Overview
   Page 27




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March 31,
    
    December 31,2006
    
    2005(unaudited)Cash and cash equivalents
    
    $
    10,644
    
    
    $
    4,849Restricted cash and
investments, net of current
portion
    
    $
    1,796
    
    
    $
    1,997Working capital (deficit)
    
    $
    (13,214
    )
    
    $
    (35,872
    )Working capital ratio
    
    
    0.66
    
    
    
    0.35
   Cash Provided By (Used For) Operating Activities
   Cash Provided By (Used For) Investing Activities
  Cash (Used For) Provided By Financing Activities
  Leases and Other Contractual Obligations
  Page 28




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##### Table of Contents



OperatingYears Ending December 31,
    
    Leases2006
    
    $
    3.02007
    
    
    3.92008
    
    
    2.12009
    
    
    2.12010 and thereafter
    
    
    4.1Total minimum lease payments
    
    $
    15.2
    
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 ITEM 4. Controls and Procedures
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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. 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.
    We face liquidity challenges and may need additional near-term financing.
  Page 30




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##### Table of Contents



Our management identified a material weakness in the effectiveness of our internal control over
financial reporting as of December 31, 2005 and restated our historical operating results, and we
cannot assure you that additional material weaknesses will not be discovered or additional
restatements will not be made in the future.
    Our business currently depends on revenue related to our BroadVision Self-Service Suite, and if the
market does not increasingly accept this product and related products and services, our revenue may
continue to decline.
  Page 31




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##### Table of Contents



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.
  
    
    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.
  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.
   
    
    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;
 Page 32




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##### Table of Contents




    
    changes in our sales incentive plans;
    
    the budgeting cycles of our customers;
    
    customer order deferrals in anticipation of new products or enhancements by us or our
competitors or because of macro-economic conditions;
    
    nonrenewal of our maintenance agreements, which generally automatically renew for
one-year terms unless earlier terminated by either party upon 90-days notice;
    
    product life cycles;
    
    changes in strategy;
    
    seasonal trends;
    
    the mix of distribution channels through which our products are sold;
    
    the mix of international and domestic sales;
    
    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.
  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.
  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.
  Page 33




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##### Table of Contents



Modifications to our business and operations may not result in a reduced cost structure as
anticipated and may otherwise adversely impact our productivity.
  We are dependent on direct sales personnel and third-party distribution channels to achieve revenue
growth.
  Failure to maintain relationships with third-party systems integrators could harm our ability to
achieve our business plan.
  
    
    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.
 Page 34




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##### Table of Contents



We may be unable to manage or grow our international operations and assets, which could impair our
overall growth or financial position.
   
    
    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.
   Current and potential competitors could make it difficult for us to acquire and retain customers
now and in the future.
   Page 35




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##### Table of Contents



Our success and competitive position will depend on our ability to protect our proprietary
technology.
    A breach of the encryption technology that we use could expose us to liability and harm our
reputation, causing a loss of customers.
  The loss or malfunction of technology licensed from third parties could delay the introduction of
our products and services.
  Page 36




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##### Table of Contents



Our executive officers, key employees and highly skilled technical and managerial personnel are
critical to our business, and they may not remain with us in the future.
  Limitations on the online collection of profile information could impair the effectiveness of our
products.
    We may not have adequate back-up systems, and natural or manmade disasters could damage our
operations, reduce our revenue and lead to a loss of customers.
  Page 37




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##### Table of Contents



Risks related to BroadVision common stock
 Our stock price has been highly volatile.
  
    
    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.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
 (a) Exhibits
 Exhibits
    
    Description3.1 (1)
    
    Amended and Restated Certificate of Incorporation.3.2 (2)
    
    Certificate of Amendment of Certificate of Incorporation.3.3 (3)
    
    Amended and Restated Bylaws.4.1 (1)
    
    References are hereby made to Exhibits 3.1 to 3.2
 Page 38




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##### Table of Contents



Exhibits
    
    Description10.56
    
    Form of Restricted Stock Grant Agreement31.1
    
    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 Form 10-Q for the quarter ended March 31,
2004 filed on May 10, 2004. Page 39




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##### Table of Contents



SIGNATURES
  BROADVISION, INC.Date: August 9, 2006
    
    By:
    
    /s/ Pehong ChenPehong ChenChairman of the Board, President, Chief Executive Officer and Chief Financial Officer
 Page 40




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##### Table of Contents



EXHIBIT INDEX
 Exhibits
    
    Description3.1 (1)
    
    Amended and Restated Certificate of Incorporation.3.2 (2)
    
    Certificate of Amendment of Certificate of Incorporation.3.3 (3)
    
    Amended and Restated Bylaws.4.1 (1)
    
    References are hereby made to Exhibits 3.1 to 3.210.56
    
    Form of Restricted Stock Grant Agreement31.1
    
    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 Form 10-Q for the quarter ended March 31,
2004 filed on May 10, 2004.