047UNITED 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 quarterly period ended March 31, 2010


OR


o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transaction period from _________ to __________


Commission File Number 1-34205


BROADVISION, INC.


Delaware

94-3184303(State or other jurisdiction of

(I.R.S. Employerincorporation or organization)

Identification No.)1600 Seaport Blvd., Suite 550, North Bldg.

94063Redwood City, California(Address of principal executive offices)

(Zip code)
 (650) 331-1000
  Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
 Yes R No o
 
 Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 Yes o No o
  Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 Large accelerated filer o Accelerated filero  Non-accelerated filer (do not check if a smaller reporting company) þ Smaller reporting
company o
 
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
 Yes o No R
 
 As of April 30, 2010, the registrant had 4,453,056 shares of common stock outstanding.
 BROADVISION, INC. AND SUBSIDIARIES
  FORM 10-Q
  Quarter Ended March 31, 2010
  TABLE OF CONTENTS
 PART I.

FINANCIAL INFORMATIONItem 1.

Financial Statements

1Condensed Consolidated Balance Sheets at March 31, 2010 (unaudited) and December 31, 2009

1Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2010 and 2009 (unaudited)

2Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and 2009 (unaudited)

3Notes to Condensed Consolidated Financial Statements (unaudited)

4Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

12Item 3.

Quantitative and Qualitative Disclosures About Market Risk

15Item 4T.

Controls and Procedures

15PART II.

OTHER INFORMATION

15Item 1.

Legal Proceedings

15Item 1A.

Risk Factors

16Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

22Item 3.

Defaults Upon Senior Securities

22Item 5.

Other Information

22Item 6.

Exhibits

22
  SIGNATURES

23
 
 EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 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)
 March 31,
2010


December 31,
2009(unaudited)



*ASSETSCurrent assets:Cash and cash equivalents

$
24,367


$
21,580Short-term investments


38,424



40,209Accounts receivable, less allowance for doubtful accounts of $128 as of March 31, 2010 and $274 as of December 31, 2009


4,219



7,099Restricted cash


20



20Prepaids and other


1,913



2,190Total current assets


68,943



71,098Property and equipment, net


344



384Restricted cash, net of current portion


1,000



1,000Other assets


379



385Total assets

$
70,666


$
72,867LIABILITIES AND STOCKHOLDERS’ EQUITYCurrent liabilities:Accounts payable

$
907


$
788Accrued expenses


4,670



4,827Unearned revenue


2,299



2,010Deferred maintenance


6,774



7,496Total current liabilities


14,650



15,121Other non-current liabilities


2,416



2,353Total liabilities


17,066



17,474Stockholders’ equity:Convertible preferred stock, $0.0001 par value; 1,000 shares authorized; none issued and outstanding


-



-Common stock, $0.0001 par value; 11,200 shares authorized; 4,445 and 4,433 shares issued and outstanding as of March 31, 2010 and December 31, 2009, respectively


-



-Additional paid-in capital


1,260,662



1,260,257Accumulated other comprehensive loss


(1,124
)


(1,195
)Accumulated deficit


(1,205,938
)


(1,203,669
)Total stockholders’ equity


53,600



55,393Total liabilities and stockholders’ equity

$
70,666


$
72,867
  * Derived from audited consolidated financial statements filed in the Company’s 2009 Annual Report on Form 10-K.
 
 See Accompanying Notes to Condensed Consolidated Financial Statements
 ~ 1 ~
 Table of Contents
  BROADVISION, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
 (In thousands, except per share amounts)
 (Unaudited)
  Three Months Ended March 31,2010


2009Revenues:Software licenses

$
1,887


$
2,852Services


3,990



5,149Total revenues


5,877



8,001Cost of revenues:Cost of software licenses


6



6Cost of services


1,589



1,964Total cost of revenues


1,595



1,970Gross profit


4,282



6,031Operating expenses:Research and development


2,141



2,168Sales and marketing


1,652



2,036General and administrative


1,368



1,451Restructuring charges (credits)


526



(2
)Total operating expenses


5,687



5,653Operating (loss) income


(1,405
)


378Interest income, net


106



281Loss on revaluation of warrants


-



(31
)Other loss, net


(955
)


(1,113
)Loss before provision for income taxes


(2,254
)


(485
)Provision for income taxes


(15
)


(141
)Net loss

$
(2,269
)

$
(626
)Basic loss per share

$
(0.51
)

$
(0.14
)Diluted loss per share

$
(0.51
)

$
(0.14
)Shares used in computing:Weighted average shares-basic


4,441



4,381Weighted average shares-diluted


4,441



4,381Comprehensive loss:Net loss

$
(2,269
)

$
(626
)Other comprehensive gain (loss), net of tax:Foreign currency translation adjustment


71



(478
)Total comprehensive loss

$
(2,198
)

$
(1,104
)
  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)
 Three Months Ended March 31,2010


2009Cash flows from operating activities:Net loss

$
(2,269
)

$
(626
)Adjustments to reconcile net loss to net cash provided by (used for) operating activities:Depreciation and amortization


42



67Restructuring charge (credit)


526



(2
)(Credit) provision of receivable reserves


(8
)


7Stock based compensation


288



261Loss on revaluation of warrants


-



31Changes in operating assets and liabilities:Accounts receivable


2,888



2,101Prepaids and other


277



714Other non-current assets


5



93Accounts payable and accrued expenses


(137
)


(587
)Restructuring accrual


(130
)


(121
)Unearned revenue and deferred maintenance


(433
)


(2,083
)Other noncurrent liabilities


(234
)


(233
)Net cash provided by (used for) operating activities


815



(378
)Cash flows from investing activities:Purchase of property and equipment


(1
)


(28
)Purchase of short term investment


(17,524
)


(10,795
)Maturities of short term investment


19,309



10,000Net cash provided by (used for) investing activities


1,784



(823
)Cash flows from financing activities:Proceeds from issuance of common stock, net


117



142Net cash provided by financing activities


117



142Effect of exchange rates on cash and cash equivalents


71



(478
)Net increase (decrease) in cash and cash equivalents


2,787



(1,537
)Cash and cash equivalents at beginning of period


21,580



52,884Cash and cash equivalents at end of period

$
24,367


$
51,347
  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
 
 There have been no material changes in our critical accounting policies, estimates and judgments during the three month period ended March 31, 2010 compared to the disclosures in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2009, filed with the Securities and Exchange Commission (the “SEC”)
on March 5, 2010, other than those disclosed herein.

Basis of Presentation

The condensed consolidated financial results and related information as of and for the three months ended March 31, 2010 and 2009 are unaudited. The Condensed Consolidated Balance Sheet at December 31, 2009 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 2009 Annual Report on Form 10-K filed with the SEC on March 5, 2010.

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 months ended March 31, 2010 are not necessarily indicative of the results that may be expected for the remainder of the year ending December 31, 2010 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 in the consolidation.

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 receivable reserves, stock-based compensation, investments, impairment assessments, income taxes and restructuring, as well as contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates using different assumptions or conditions.

Stock-Based Compensation

The following table sets forth the total stock-based compensation expense recognized in our Condensed Consolidated Statements of Operations for the three months ended March 31, 2010 and 2009:

Three Months Ended March 31,2010


2009Cost of services

$
30,830


$
28,358Research and development


87,358



102,719Sales and marketing


84,659



52,486General and administrative


85,514



77,589$
288,361


$
261,152

~ 4 ~
Table of Contents

Earnings Per Share Information

Basic net loss per share is computed using the weighted-average number of shares of common stock outstanding less shares subject to repurchase. Diluted net 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 571,000 and 700,000 potential common shares excluded from the determination of diluted net loss per share for the three months ended March 31, 2010 and 2009, 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 the current market price. The following table sets forth the basic
and diluted net loss per share computational data for the periods presented (in thousands, except per share amounts):

Three Months Ended March 31,2010


2009Net loss

$
(2,269
)

$
(626
)Weighted-average common shares outstanding used to compute basic loss per share


4,441



4,381Weighted-average common equivalent shares from outstanding common stock options and warrants


-



-Total weighted-average common and common equivalent shares outstanding used to compute diluted loss per share


4,441



4,381Basic loss per share

$
(0.51
)

$
(0.14
)Diluted loss per share

$
(0.51
)

$
(0.14
)

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 a party to any legal proceedings that we believe would have a material adverse effect on our financial position or our results of operation.

Foreign Currency Translations

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 loss, net in the Condensed Consolidated Statements of Operations. For the three-month periods ended March 31, 2010, and 2009, translation gain (loss) was $71,000, and ($478,000), respectively.  These amounts are included in the accumulated other comprehensive loss account in the Condensed Consolidated Balance Sheets.

Comprehensive Loss

Comprehensive loss includes net loss and other comprehensive gain (loss), which primarily consists of foreign currency translation adjustments. Total comprehensive loss is presented in the accompanying Condensed Consolidated Statements of Operations.

Total accumulated other comprehensive loss is displayed as a separate component of stockholders’ equity in the accompanying Condensed Consolidated Balance Sheets. The accumulated balances of other comprehensive loss consist of the following, net of taxes (in thousands):

Accumulated Other
Comprehensive
LossBalance, December 31, 2009

$
(1,195
)Net change during period


71Balance, March 31, 2010

$
(1,124
)

~ 5 ~
Table of Contents

Recent Accounting Pronouncements

In October 2009, the Financial Accounting Standards Board (“FASB”) issued new authoritative literature that provides guidance on determining multiple elements in an arrangement and how total consideration should be allocated amongst the elements. It also expands disclosure requirements for multiple-element arrangements.
Concurrently, the FASB also issued new authoritative literature for arrangements that include both software and tangible products. This guidance excludes tangible products and certain related elements from the scope of the revenue recognition authoritative guidance specific to software transactions. The standards must both be adopted in the same period and can be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010,
with earlier application permitted, or they can be adopted on a retrospective basis. We are currently evaluating whether the standard will have any significant impact on our Condensed Consolidated Financial Statements.

In January 2010, the FASB issued new accounting guidance related to the disclosure requirements for fair value measurements and provides clarification for existing disclosures requirements. More specifically, this update will require (a) an entity to disclose separately the amounts of significant transfers in and out of Levels 1
and 2 fair value measurements and to describe the reasons for the transfers; and (b) information about purchases, sales, issuances and settlements to be presented separately (i.e. present the activity on a gross basis rather than net) in the reconciliation for fair value measurements using significant unobservable inputs (Level 3 inputs). This guidance clarifies existing disclosure requirements for the level of disaggregation used for classes of assets and liabilities measured at fair value and requires
disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements using Level 2 and Level 3 inputs. The new disclosures and clarifications of existing disclosure are effective for fiscal years beginning after December 15, 2009, except for the disclosure requirements related to the purchases, sales, issuances and settlements in the rollforward activity of Level 3 fair value measurements. Those disclosure requirements are
effective for fiscal years ending after December 31, 2010. We have provided the additional required disclosures effective January 1, 2010.

Note 2. Selected Condensed Consolidated Balance Sheet Detail

Property and equipment consisted of the following (in thousands):

March 31,
2010


December 31,
2009(unaudited)Furniture and fixtures

$
528


$
548Computer and software


3,946



3,956Leasehold improvements


1,269



1,2755,743



5,779Less accumulated depreciation and amortization


(5,399
)


(5,395
)Total property and equipment, net

$
344


$
384

Accrued expenses consisted of the following (in thousands):

March 31,
2010


December 31,
2009(unaudited)Employee benefits

$
1,096


$
1,033Commissions and bonuses


958



975Sales and other taxes


625



743Income tax and tax contingency reserves


56



75Restructuring


343



244Customer advances


81



81Royalties


1,086



1,086Other


425



590Total accrued expenses

$
4,670


$
4,827

~ 6 ~
Table of Contents

Note 3.  Fair Value of Financial Instruments

We measure assets and liabilities at fair value based on exit price as defined by the FASB guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be
based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level. The following are the hierarchical levels of inputs to measure fair value:

·
Level 1 – Quoted prices in active markets for identical assets or liabilities.
·
Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
·
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

We measurethe following financial assets at fair value on a recurring basis. The fair value of these financial assets as of March 31, 2010 and December 31,2009 (in thousands)areas
follows:

Fair Value at Reporting Date UsingMarch 31, 2010


Quoted Prices in Active Markets for Identical Assets  (Level 1)


Significant Other
Observable Inputs
(Level 2)



Significant
Unobservable Input
(Level 3)Cash and cash equivalents:Cash

$
15,030


$
15,030


$
-


$
-Money market fund


6,337



6,337



-



-Commercial paper


3,000



3,000



-



-Total cash and cash equivalents

$
24,367


$
24,367


$



$Fixed income securities:Certificates of deposits

$
11,809


$
11,809


$
-


$
-Corporate bonds - financial


8,230



-



8,230



-Corporate bonds - industrial


11,473



-



11,473



-Corporate bonds - utility


3,274



-



3,274



-Corporate bonds - international


3,638



-



3,638



-Total fixed income securities

$
38,424


$
11,809


$
26,615


$
-
Fair Value at Reporting Date UsingDecember 31, 2009


Quoted Prices in Active Markets for Identical Assets  (Level 1)


Significant Other
Observable Inputs
(Level 2)



Significant
Unobservable Input
(Level 3)Cash and cash equivalents:Cash

$
6,817


$
6,817


$
-


$
-Money market fund


12,763



12,763



-



-Commercial paper


2,000



2,000



-



-Total cash and cash equivalents

$
21,580


$
21,580


$



$Fixed income securities:Certificates of deposits

$
12,843


$
12,843


$
-


$
-Corporate bonds - financial


9,580



-



9,580



-Corporate bonds - industrial


10,721



-



10,721



-Corporate bonds - utility


2,843



-



2,843



-Corporate bonds - international


4,222



-



4,222



-Total fixed income securities

$
40,209


$
12,843


$
27,366


$
-
Level 2 securities are priced using quoted market prices for similar instruments, nonbinding market prices that are corroborated by observable market data, or discounted cash flow techniques.  There have been $435,000 transfers from Level 2 to Level 1 measurements due to the low corporate coupon rate of corporate bonds during the three
months ended March 31, 2010.

The fair value of cash and cash equivalents, short-term investments, accounts receivable and accounts payable for all periods presented approximates their respective carrying amounts due to the short-term nature of these balances.

~ 7 ~
Table of Contents

Note 4. Warrants and Other Non-Current Liabilities

Warrants

As of March 31, 2010, the following warrants to purchase our common stock were outstanding:

Underlying


ExerciseDescription

Shares


Price per ShareIssued to convertible notes investors in November 2004


154,631


$
37.00

Gain (loss) on the revaluation of warrants were recorded as follows (in thousands):

Three Months Ended March 31,2010


2009Warrants related to the Notes

$
-


$
(32
)Warrants related to real estate buyout (1)


-



1Loss on revaluation of warrants

$
-


$
(31
)

(1) The shares underlying the warrants issued in connection with a real estate buyout transaction in August 2004 were not exercised and expired in July 2009.

Other Non-Current Liabilities

Other non-current liabilities consist of the following:

March 31,
2010


December 31,
2009(in thousands)Restructuring

$
452


$
155Deferred maintenance and unearned revenue


1,222



1,444Other


742



754Total other non-current liabilities

$
2,416


$
2,353

~ 8 ~
Table of Contents

Note 5. Commitments and Contingencies

Warranties and Indemnification
We provide a warranty to our perpetual license customers that our software will perform substantially in accordance with the documentation we provide with the software, typically for a period of 90 days following receipt of the software. Historically, costs related to these warranties have been immaterial. Accordingly, we have not recorded
any warranty liabilities as of March 31, 2010 and 2009, respectively.

Our perpetual software license agreements typically provide for indemnification of customers for intellectual property infringement claims caused by use of a current release of our software consistent with the terms of the license agreement. The term of these indemnification clauses is generally perpetual. The potential future payments
we could be required to make under these indemnification clauses is generally limited to the amount the customer paid for the software. Historically, costs related to these indemnification provisions have been immaterial. We also maintain liability insurance that limits our exposure. As a result, we believe the potential liability of these indemnification clauses is minimal. Accordingly, we have not recorded any liabilities for these agreements as of March 31, 2010 and 2009, respectively.

We entered into agreements whereby we indemnify our officers and directors for certain events or occurrences while the officer is, or was, serving in such capacity. The term of the indemnification period is for so long as such officer or director is subject to an indemnifiable event by reason of the fact that such person was serving in
such capacity. The maximum potential amount of future payments we could be required to make under these indemnification agreements may be unlimited; however, we have a director and officer insurance policy that limits our exposure and enables us to recover a portion of any future amounts paid. As a result of our insurance policy coverage, we believe the estimated fair value of these indemnification agreements is insignificant. Accordingly, we have no liabilities recorded for these agreements as of either March
31, 2010 or December 31, 2009. We assess the need for an indemnification reserve on a quarterly basis and there can be no guarantee that an indemnification reserve will not become necessary in the future.

Leases

We lease our headquarters facility and our other facilities under noncancelable operating lease agreements expiring through the year 2014. Under the terms of the agreements, we are required to pay property taxes, insurance and normal maintenance costs.

As discussed under Note 7 Restructuring Charges, as of May 7, 2010 we have 22,500 square feet of vacant office space that we are actively seeking to sublease.  If we are unable to sublease this space our future expected cash outflows will be approximately $200,000 per quarter until our lease terminates in June 2012.A summary of total future minimum lease payments under noncancelable operating lease agreements is as follows (in millions) as of March 31, 2010:

Years Ending December 31,

Operating
Leases2010

$
1.22011


1.52012


0.72013


0.12014


0.1Total minimum lease payments

$
3.6

As of March 31, 2010, we have accrued $0.8 million of estimated future facilities costs as a restructuring accrual.

Standby Letter of Credit Commitments

As of March 31, 2010 and December 31, 2009, we had $1.0 million of outstanding commitments in the form of a standby letter of credit, in favor of our landlord to secure obligations under our facility leases.  This standby letter of credit is collateralized by the restricted
cash listed in the Condensed Consolidated Balance Sheets.

~ 9 ~
Table of Contents

Note 6. Geographic, Segment and Significant Customer Information

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

Three Months Ended
March 31,2010


2009Software licenses

$
1,887


$
2,852Consulting services


721



1,263Maintenance


3,269



3,886Total revenues

$
5,877


$
8,001

We currently operate in three primary geographical territories. Our reportable segment includes our facilities in North and South America (Americas), Europe and Asia Pacific and the Middle East (Asia/Pacific).

Disaggregated financial information regarding our geographic revenues and long-lived assets is as follows (in thousands):

Three Months Ended
March 31,2010


2009Revenues:Americas

$
3,154


$
4,360Europe


1,709



2,757Asia/Pacific


1,014



884Total revenues

$
5,877


$
8,001

March 31,
2010


December 31,
2009Long-Lived Assets:Americas

$
233


$
265Europe


10



12Asia/Pacific


101



107Total Company

$
344


$
384

For the three-month period ended March 31, 2010, none of our customers accounted for more than 10% of our revenues.  For the three-month period ended March 31, 2009, one customer accounted for more than 10% of our revenues.

~ 10 ~
Table of Contents

Note 7. Restructuring Charges

The net restructuring charge of $526,000 consists of mainly two elements: 1) a markdown loss of $702,000 for office space in Redwood City, California; and 2) a gain of $176,000 from office space in New York City.

We have leased approximately 22,500 square feet of office space in Redwood City that we previously subleased to Dexterra Inc.   As reported in an 8-K filed in June 2009, Dexterra exercised an early termination option, and we received Dexterra’s last sublease payment in January 2010.   During the quarter
ended March 31, 2010, we re-evaluated the estimated restructuring charge for this space, which resulted in an additional charge of $702,000. We are actively seeking a subtenant, while continuing to pay rents and operating expenses for this space.  If we are unable to rent out the space, we will have a cash outflow of approximately $200,000 per quarter until the lease termination in June 2010.   As of May 7, 2010, the space remains vacant.

Our 10-year office lease in New York City expired in March 2010.   This space had been subleased out since 2004.   In connection with the expiration of the sublease, we collected $176,000 more from the subtenant than we had expected, and recorded the excess as a restructuring gain.As of March 31, 2010, the total restructuring accrual of $795,000 consisted of the following (in thousands):
 
 Current


Non-Current


TotalExcess Facilities

$
343


$
452


$
795
 
 We expect to pay the excess facilities amounts related to restructured or abandoned leased space as follows (in thousands):
 
 Years ending December 31,

Total future
minimum
payments2010

$
2552011


3542012


1862013 and thereafter


-Total minimum facilities payments

$
795
 
 The following table summarizes the activity related to the restructuring plans (in thousands):
 
 Accrued
restructuring
costs,
beginning


Amounts
charged to
restructuring
costs
and other


Amounts paid
or written off


Accrued
restructuring
costs, endingThree Months Ended March 31, 2010Lease cancellations and commitments

$
399


$
742


$
(346
)

$
795Three Months Ended March 31, 2009Lease cancellations and commitments

$
845


$
(2
)

$
(121
)

$
722
  Note 8. Related Party Transactions
 
 In 2009, we executed a renewal contract with a third party in which Dr. Pehong Chen, our CEO and largest stockholder, is a board member.   For the three months ended March 31, 2010, we recognized $14,000 in license revenue and we incurred $6,000 in direct costs and expenses relating to this contract.
 
 ~ 11 ~
 Table 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, including, but not limited to, statements regarding expectations for working capital requirements, anticipated increases in competition and assumptions regarding the impact of certain products on future revenue, 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 our 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.
 
 Critical Accounting Policies, Estimates and Judgments
 
 There have been no material changes in our critical accounting policies, estimates and judgments during the three month period ended March 31, 2010 compared to the disclosures in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2009, other than as disclosed herein.
 
 Recent Accounting Pronouncements
 
 In October 2009, the FASB issued new authoritative literature that provides guidance on determining multiple elements in an arrangement and how total consideration should be allocated amongst the elements. It also expands disclosure requirements for multiple-element arrangements. Concurrently, the FASB also issued new authoritative
literature for arrangements that include both software and tangible products. This guidance excludes tangible products and certain related elements from the scope of the revenue recognition authoritative guidance specific to software transactions. The standards must both be adopted in the same period and can be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with earlier application permitted, or they can be
adopted on a retrospective basis. We are currently evaluating whether the standard will have any impact on our Condensed Consolidated Financial Statements.
 
 In January 2010, the FASB issued new accounting guidance related to the disclosure requirements for fair value measurements and provides clarification for existing disclosures requirements. More specifically, this update will require (a) an entity to disclose separately the amounts of significant transfers in and out of Levels 1
and 2 fair value measurements and to describe the reasons for the transfers; and (b) information about purchases, sales, issuances and settlements to be presented separately (i.e. present the activity on a gross basis rather than net) in the reconciliation for fair value measurements using significant unobservable inputs (Level 3 inputs). This guidance clarifies existing disclosure requirements for the level of disaggregation used for classes of assets and liabilities measured at fair value and requires
disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements using Level 2 and Level 3 inputs. The new disclosures and clarifications of existing disclosure are effective for fiscal years beginning after December 15, 2009, except for the disclosure requirements related to the purchases, sales, issuances and settlements in the rollforward activity of Level 3 fair value measurements. Those disclosure requirements are
effective for fiscal years ending after December 31, 2010. We have provided the additional required disclosures effective January 1, 2010.
 
 Results of Operations
 
 Revenues
 
 Total revenuesdecreased 26% during the three months ended March 31, 2010, to $5.9 million, as compared to $8.0 million for the three months ended March 31, 2009.  A summary of our revenues by geographic region is as follows (dollars in thousands,
unaudited):
 
 Software
Licenses


%


Services


%


Total


%Three Months Ended:March 31, 2010Americas

$
1,253



66
%

$
1,901



48
%

$
3,154



54
%Europe


305



16
%


1,404



35
%


1,709



29
%Asia Pacific


329



18
%


685



17
%


1,014



17
%Total

$
1,887



100
%

$
3,990



100
%

$
5,877



100
%March 31, 2009Americas

$
2,097



73
%

$
2,263



44
%

$
4,360



55
%Europe


597



21
%


2,160



42
%


2,757



34
%Asia Pacific


158



6
%


726



14
%


884



11
%Total

$
2,852



100
%

$
5,149



100
%

$
8,001



100
%
 
 Our revenues declined during the three months ended March 31, 2010 as compared to the same period of 2009.  The decline was primarily due to transitioning our product focus, and the revenue model associated with the products on which we are increasingly focusing.  We
are investing heavily in our new product, the Clearvale Enterprise Social Network, while our older products mature.  Clearvale offers Cloud-based subscriptions, with free basic functions.  As a result of this pricing model, we do not anticipate recognizing significant revenues from Clearvale in the near term.

Our more established products produced most of our revenues in the first quarter of 2010.  Software license revenuesdecreased 34% during the three months ended March 31, 2010, to $1.9 million, as compared to $2.9 million for the three months ended March 31, 2009. Services
revenuesconsisting of consulting, training and maintenance decreased 22% during the three months ended March 31, 2010, to $4.0 million, as compared to $5.1 million for the three months ended March 31, 2009. Maintenance revenues decreased 15% for the three months ended March 31, 2010, to $3.3 million, as compared to $3.9 million for the three months ended March 31, 2009, due primarily to a decreasing rate of renewal by existing customers.  Consulting and training revenues decreased
42% for the three months ended March 31, 2010, to $0.7 million, as compared to $1.2 million for the three months ended March 31, 2009.  The decrease in consulting revenue roughly corresponded to the decrease in license revenues.
 ~ 12 ~
 Table of Contents
 
 Cost of Revenues
 
 Cost of software licenses includes the net costs of product media, duplication, packaging, and other manufacturing costs as well as royalties payable to third parties for software that is either embedded in, or bundled and sold with, our products.
 
 Cost of services consists primarily of employee-related costs, third-party consultant fees incurred on consulting projects, post-contract customer support and instructional training services.  A summary of our cost of revenues is as follows (dollars in thousands, unaudited):
 
 Three Months Ended March 31,2010


%


2009


%Cost of software licenses

$
6



0
%

$
6



0
%Cost of services


1,589



27
%


1,964



25
%Total cost of revenues

$
1,595



27
%

$
1,970



25
%
 _______________________
 (1)
Expressed as a percent of total revenues for the period indicated.
 
 Cost of software licensesremained unchanged at $6,000during the three months ended March 31, 2010, as compared to the three months ended March 31, 2009.
 
 Cost of servicesdecreased 20% during the three months ended March 31, 2010, to $1.6 million, as compared to $2.0 million for the three months ended March 31, 2009.   These decreases are the result of a reduction in consulting expenses
and employee related expense resulting from a decrease in services revenue.
 
 Gross margindecreased to 73% during the three months ended March 31, 2010 as compared to 75% for the three months ended March 31, 2009. This decrease is the result of a reduction in revenues.
 
 A summary of operating expenses, including as a percentage of total revenues, is set forth in the following table (dollars in thousands, unaudited):
 
 Three Months Ended
March 31,2010


%


2009


%Research and development

$
2,141



36
%

$
2,168



27
%Sales and marketing


1,652



28



2,036



25General and administrative


1,368



23



1,451



18Restructuring charges / (credits)


526



9



(2
)


-Total operating expenses

$
5,687



96
%

$
5,653



70
%
 ____
 (1)
Expressed as a percent of total revenues for the period indicated.
 
 Research and development expenseswere $2.1 million for the three months ended March 31, 2010, as compared to $2.2 million for the three months ended March 31, 2009.   This decrease was the result of reductions in contractor related expenses.
 
 Sales and marketing expensesdecreased 20% during the three months ended March 31, 2010, to $1.7 million, as compared
to $2.0 million for the three months ended March 31, 2009.This decrease was primarily due to decreased variable compensation costs due to lower revenues, and decreased travel and marketing program costs as a result of various cost-cutting measures.
 
 General and administrative expensesdecreased 6% during the three months ended March 31, 2010, to $1.4 million, as compared to $1.5 million for the three months ended March 31, 2009.  These decreases are primarily a result of a reduction in headcount.
 
 Restructuring charge (credit), net for the three months ended March 31, 2010 was a $526,000 expense, as compared to a credit of $2,000 for the three months ended March 31, 2009.   These changes are primarily due
to a charge of $702,000 for the re-evaluation of sublease rental incomes for our Redwood City vacant facilities and the collection in the amount of $176,000 with our former subtenant from our New York City facilities during the quarter ended March 31, 2010.
  Interest income, net decreased 62% for the three months ended March 31, 2010, to $106,000, as compared to $281,000 for the three months ended March 31, 2009.  The decreases are due to a decline in interest rates.
 
 Loss on revaluation of warrants for the three months ended March 31, 2010 was zero, as compared to a loss of $31,000 for the three months ended March 31, 2009.  These changes are primarily due to fluctuations in our stock price during the relevant periods
and the reduction in time to maturity.
 
 Other loss, net during the three months ended March 31, 2010, was a loss of  $955,000, as compared to a loss of $1,113,000 for the three months ended March 31, 2009.   The
losses in both years were primarily due to unrealized losses on our Euro currency rate fluctuation on our Euro cash balance.
 
 Provision for income taxes expense during the three months ended March 31, 2010, was $15,000, as compared to a provision for income tax expenses of $141,000 for the three months ended March 31, 2009. The provision
for the first quarter of 2010 primarily relates to state income tax in various jurisdictions and foreign local income tax.  The provision for the first quarter of 2009 was primarily related to a reserve under Accounting for Uncertainty in Income Taxes, for an ongoing income tax audit of a foreign subsidiary for the tax year ended December 31, 2006.
 
 ~ 13 ~
 Table of Contents
 
 Liquidity and Capital Resources
 
 Overview
 
 We continue to maintain a strong cash position on our Condensed Consolidated Balance Sheet. As of March 31, 2010, we had $62.8 million of cash and cash equivalents and short-term investments with no long-term debt borrowings, as compared to a balance of $61.8 million at December 31, 2009. The increase was due primarily to strong collection.
 
 The majority of our license and subscription revenues for the first quarter of 2010 were generated by our BroadVision® Business Agility SuiteTM, Commerce Agility SuiteTM, QuickSilverTM, eMerchandisingTM, CLEARTM and ClearvaleTM. We
have entered into licensing agreements with new and existing customers, such as the Toshiba, UCPA (Union Nationale des Centres Sportifs de Plein Air), Avant Grade, La Poste, Indian Ministry of Defense - Controller General of Defense Accounts, Gemeente Tilburg, Aeroxchange Ltd., Hong Kong Baptist Hospital, Raytheon, Fidelity Investments, Health Care Services Corp., and several other brand-name global customers.
  We continued to focus on expense control in the first quarter of 2010. Operating expenses for the first quarter of 2010 and 2009 were  $5.7 million. For the three months ended March 31, 2010, net loss was $2.3 million, or $0.51 per diluted share. This compares to net loss of $626,000, or $0.14 per diluted share, for the three months ended March
31, 2009.
 
 The following table represents our liquidity at March 31, 2010 and December 31, 2009 (dollars in thousands):
 
 March 31,
2010


December 31,
2009(unaudited)Cash and cash equivalents

$
24,367


$
21,580Short-term investments

$
38,424


$
40,209Restricted cash, current portion

$
20


$
20Restricted cash, net of current portion

$
1,000


$
1,000Working capital

$
54,293


$
55,977Working capital ratio


4.71



4.70
 
 Cash Provided By (Used For) Operating Activities
 
 Cash provided by operating activities was $0.8 million for the three months ended March 31, 2010, and was mainly attributable to a $2.3 million operating loss, a decrease of $2.4 million in accounts receivables and unearned revenue accounts, and an adjustment for non-cash items such as a $526,000 restructuring charge and $288,000 of stock-based
compensation expense.
 
 Cash used for operating activities was $378,000 for the three months ended March 31, 2009. Net cash used for operating activities was due to operating expenses in excess of the cash collections from our customers during this quarter.
 
 Cash Provided By (Used For) Investing Activities
 
 Cash provided by investing activities was $1.8 million for the three months ended March 31, 2010, primarily related to the net maturities of short-term investments in bonds and certificates of deposit.  Cash used for investing activities was $823,000 for the three months ended March 31, 2009. This figure reflects the purchase
of $795,000 of short-term investments  and an expenditure of $28,000 for the purchase of property and equipment.
 
 Cash Provided By Financing Activities
  Cash provided by financing activities was $117,000 for the three months ended March 31, 2010, primarily consisting of cash received from employees’ purchases of common stock under the Employee Stock Purchase Plan (“Purchase Plan”). Cash provided by financing activities was $142,000 for the three months ended March 31,
2009, primarily consisting of cash received from employees’ purchases of common stock under the Purchase Plan.
  Leases and Other Contractual Obligations
 
 We lease our headquarters facility and other facilities under non-cancelable operating lease agreements expiring through the year 2014. A total of $1.0 million of restricted cash as shown on our Condensed Consolidated Balance Sheets represents collateral for the letter of credit which has been issued in connection with our facility lease
obligation.
 
 ~ 14 ~
 Table of Contents
 
 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 March 31, 2010 and 2009. 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 4T. Controls and Procedures
 
 Evaluation of Disclosure Controls and Procedures
 
 Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, as of March 31, 2010 we evaluated the effectiveness of the design and operation of our "disclosure controls and procedures," which are defined under the Securities and Exchange Commission’s rules
as controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within required time periods. Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2010.
 
 Changes in Internal Control over Financial Reporting
 
 There has been no change in our internal control over financial reporting during the quarter ended March 31, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
 Limitations on the Effectiveness of Controls
 
 Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls
and procedures are effective at that reasonable assurance level.  However, our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all 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 our Company have been detected.
 
 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 a party to any legal proceedings that we believe would have a material adverse effect on our financial position or our results of operation.
 
 ~ 15 ~
 Table of Contents
 
 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.
 
 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 products 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. Our future financial
performance will also depend on our ability to retain our installed customer base.  When existing customers terminate or fail to renew their relationships with us, often due to budget constraints or competition, we lose recurring maintenance revenue and future “up-sell” opportunities.
 
 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 released BroadVision 8.1ä in 2007, CHRM*360 in 2008 (which was upgraded and renamed to Clear in 2009), BroadVision 8.2ä in 2009 and Clearvale in 2009.  We have spent significant resources
in developing these offerings and training our employees to implement and support the offerings, and we plan to add additional sales and marketing resources to support these new products, services and technologies.  We do not yet know whether any of these new offerings will appeal to existing and potential new customers, and if so, whether sales of these new offerings will be sufficient for us to offset the costs of development, implementation, support, operation and marketing. Particularly in difficult
economic times when companies are more likely to be managing spending, potential new customers may delay spending decisions and our existing customers may determine that the BroadVision products and services they currently use are sufficient for their purposes, or that the added benefit from these new offerings is not sufficient to merit the additional cost.  As a result we may need to decrease our prices or develop modifications.  Although we have performed extensive testing of our new products and
technologies, their broad-based implementation may require more support than we anticipate, which would further increase our expenses. If sales of our new products, services and technologies are lower than we expect, or if we must lower our prices or delay implementation to fix unforeseen problems and develop modifications, our operating margins are likely to decrease and we may not be able to operate profitably.  A failure to operate profitably would significantly harm our business.
 
 We have recently introduced Cloud-based offerings.  Our business will be harmed and our growth potential will be limited, if we are unable to provide reliable, scalable, and cost-efficient Cloud hosting operation.
 
 Traditionally, we have offered perpetual software licenses, which have required customers to be responsible for the IT equipment needed for running BroadVision software.   By comparison, the new Clear and Clearvale products include Cloud-based offerings, where BroadVision provides
hosted IT equipment and operation for subscribing customers.  The Cloud model is also known as Software-as-a-Service, or SaaS.  We do not have significant prior experience in operating Cloud hosting.   We may be unable to timely provide adequate computing capacity to keep up with business growth and performance requirements.  Our hosted operation may fail due to hardware problems, software problems, power problems, network problems, scalability problems, human errors,
hacker attacks, disasters, third-party data center problems and other reasons.  The failures may cause us to compromise security, lose customer data or identity, endure prolonged downtime, etc., all of which will harm our business and limit our growth.   We do not have significant prior experience in estimating the costs of Cloud hosting.  If we underestimate the costs or under-charge customers, we may not have adequate margins to sustain the Cloud hosting operation.  Clearvale
allows customers to use basic functions for free, a business practice that is gaining popularity in our industry.   If we do not have enough customers upgrading to for-fee premium functions, we may be unable to sustain our Cloud hosting operation economically.
 
 Current and potential competitors could make it difficult for us to acquire and retain customers now and in the future.
 
 The market for our products is intensely competitive. We expect competition in this market to persist and increase in the future. If we fail to compete successfully with current or future competitors, we may be unable to attract and retain customers. Increased competition could also result in price reductions for our products and lower
profit margins and reduced market share, any of which could harm our business, results of operations and financial condition.
 
 Many of our competitors have significantly greater financial, technical, marketing and other resources, greater name recognition, a broader range of products and a larger installed customer base, any of which could provide them with a significant competitive advantage. In addition, new competitors, or alliances among existing and future
competitors, may emerge and rapidly gain significant market share. Some of our competitors, particularly established software vendors, may also be able to provide customers with products and services comparable to ours at lower or at aggressively reduced prices in an effort to increase market share or as part of a broader software package they are selling to a customer. We may be unable to match competitors’ prices or price reductions, and we may fail to win customers that choose to purchase an information
technology solution as part of a broader software and services package. As a result, we may be unable to compete successfully with current or new competitors.
 
 ~ 16 ~
 Table of Contents
 
 If we are unable to keep pace with the rapid technological changes in online commerce, portal, social networking and enterprise software, 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, portal, social networking and enterprise software. 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.
 
 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.
 
 Our quarterly operating results have fluctuated in the past and may fluctuate significantly in the future as a result of a variety of factors, many of which are outside of our control.   As of March 31, 2010, we had an accumulated deficit of approximately $1.2 billion.
 
 Given our planned operating and capital expenditures, for the foreseeable future we expect our results of operations to fluctuate, and during this period we may incur losses and/or negative cash flows. If our revenue does not increase or if we fail to maintain our expenses at an amount less than our projected revenue, we will not be able
to achieve or sustain operating profitability on a consistent basis. We are continuing our efforts to reduce and control our expense structure. We believe strict cost containment and expense reductions are essential to achieving positive cash flow and profitability. A number of factors could preclude us from successfully bringing costs and expenses in line with our revenues, including unplanned uses of cash, the inability to accurately forecast business activities and further deterioration of our revenues. If
we are not able to effectively reduce our costs and achieve an expense structure commensurate with our business activities and revenues, we may have inadequate levels of cash for operations or for capital requirements, which could significantly harm our ability to operate our business.
 
 Our failure to operate profitably or control negative cash flows on a quarterly or annual basis could harm our business and the value of BroadVision common stock. If the negative cash flow continues, our liquidity and ability to operate our business would be severely and adversely impacted. Additionally, our ability to raise financial
capital may be hindered due to our operational losses and negative cash flows, reducing our operating flexibility.
 
  Our quarterly operating results are volatile and difficult to predict, and our stock price may decline if we fail to meet the expectations of securities analysts or investors.
 
 Historically our quarterly operating results have varied significantly from quarter to quarter and are likely to continue to vary significantly in the future. If our revenues, operating results, earnings or projections are below the levels expected by securities analysts or investors, our stock price is likely to decline.
 
 We are likely to continue to experience significant fluctuations in our future results of operations due to a variety of factors, some of which are outside of our control, including:
 
 •
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;•
the timing of receipt, fulfillment and recognition as revenue of significant orders;•
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; and•
costs associated with litigation, regulatory compliance and other corporate events such as operational reorganizations.
 
 ~ 17 ~
 Table of Contents
 
 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.
 
 Our sales and product implementation cycles are lengthy and subject to delay, which make it difficult to predict our quarterly results.
 
 Our sales and product implementation cycles generally span months. Delays in customer orders or product implementations, which are difficult to predict, can affect the timing of revenue recognition and adversely affect our quarterly operating results. Licensing our products is often an enterprise-wide decision by prospective customers.
The importance of this decision requires that we engage in a lengthy sales cycle with prospective customers. A successful sales cycle may last up to nine months or longer. Our sales cycle is also affected by a number of other factors, some of which we have little or no control over, including the volatility of the overall software market, the business condition and purchasing cycle of each prospective customer, and the performance of our technology partners, systems integrators and resellers. The implementation
of our products can also be time and resource intensive, and subject to unexpected delays. Delays in either product sales or implementations could cause our operating results to vary significantly from quarter to quarter.
 
 Because 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 195 at the end of 2007, 219 at the end of 2008, and 214 at the end of 2009. On March 31, 2010, we had 204
employees. As a consequence of our employee base growing and then contracting so rapidly, we entered into significant contracts for facilities space for which we ultimately determined we did not have a future use. We announced during the third and fourth quarters of 2004 that we had agreed with the landlords of various facilities to renegotiate future lease commitments, extinguishing a total of approximately $155 million of future obligations. As we manage our business to introduce and support new products,
we will need to continue to monitor our workforce and make appropriate changes as necessary. If we are unable to support past changes and implement future changes effectively, we may have to divert additional resources away from executing our business plan and toward internal administration. If our expenses significantly outpace our revenues, we may have to make additional changes to our management systems and our business plan may not succeed. We may face liquidity challenges and need additional financing in the future.
 
 We currently expect to be able to fund our working capital requirements from our existing cash and cash equivalents and our anticipated cash flows from operations and subleases through at least December 31, 2010. 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.
 
 If we are unable to maintain our disclosure controls and procedures, including our internal control over financial reporting, our ability to report our financial results on a timely and accurate basis may be adversely affected.
 
 We have evaluated our "disclosure controls and procedures" as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended.  Effective controls are necessary for us to provide reliable financial reports and effectively prevent fraud. If we cannot provide reliable financial reports or prevent fraud,
our operating results could be harmed.
 
 Maintaining sufficient expertise and historical institutional knowledge in our accounting and finance organization is dependent upon retaining existing employees and filling any open positions with experienced personnel in a timely fashion. The market for skilled accounting and finance personnel is competitive and we may have continued
difficulty in retaining our staff because (1) the region in which we compete consists of many established companies that can offer more lucrative compensation packages and (2) some professionals are reluctant to deal with the complex accounting issues relating to our historical operations. Our inability to staff the department with competent personnel with sufficient training will affect our internal controls over financial reporting to the extent that we may not be able to prevent or detect material
misstatements.
 
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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 may take a significant amount of time before achieving full productivity. Our recent hires may not become as productive as necessary, and we may be unable to hire and retain sufficient numbers of qualified individuals in the future. We have entered into strategic alliance agreements
with partners, under which partners have agreed to resell and support our current BroadVision product suite. These contracts are generally terminable by either party upon 30 days' notice of an uncured material breach or for convenience upon 90 days' notice prior to the end of any annual term. Termination of any of these alliances could harm our expected revenues. We may be unable to expand our other distribution channels, and any expansion may not result in revenue increases. If we fail to maintain
and expand our direct sales force or other distribution channels, our revenues may not grow or they may decline. Revenue generated from third-party distributors in recent years has not been significant.
 
 Failure to maintain relationships with third-party systems integrators could harm our ability to achieve our business plan.
 
 Our relationships with third-party systems integrators who deploy our products have been a key factor in our overall business strategy, particularly because many of our current and prospective customers rely on integrators to develop, deploy and manage their online marketplaces. Our efforts to manage our relationships with systems integrators
may not succeed, which could harm our ability to achieve our business plan due to a variety of factors, including:
 
 •
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 three months ended March 31, 2010, approximately 46% 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;•
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.
 
 Management of international operations presents special challenges, particularly at our reduced staffing levels.  For example, during 2008 we uncovered through our whistle blower program that an officer of our Japan subsidiary was involved in a scheme to submit fraudulent expense reimbursements
totaling approximately $84,000 during the period between 2007 and 2008.  We were able to recover the funds from the officer and the officer was terminated.  Although this scheme was detected, we face the risk that other similar misappropriations of assets may occur in the future.
 
 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.
 
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 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",  "Interleaf" and "Interleaf Xtreme" as trademarks in the United States and in other countries. It is possible that our competitors or
other companies will adopt product names similar to these trademarks, impeding our ability to build brand identity and possibly confusing customers.
 
 As a matter of our company policy, we enter into confidentiality and assignment agreements with our employees, consultants and vendors. We also control access to and distribution of our software, documents and other proprietary information. Notwithstanding these precautions, it may be possible for an unauthorized third party to copy or
otherwise obtain and use our software or other proprietary information or to develop similar software independently. Policing unauthorized use of our products will be difficult, particularly because the global nature of the Internet makes it difficult to control the ultimate destination or security of software and other transmitted data. The laws of other countries may afford us little or no effective protection of our intellectual property.
 
 A breach of the encryption technology that we use could expose us to liability and harm our reputation, causing a loss of customers.
 
 If any breach of the security technology embedded in our products or hosted Cloud operation 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, portal, social networking and enterprise software the secure exchange of valuable
and confidential information over public networks. We rely on encryption and authentication technology, such as Open SSL, public key cryptography, encryption algorithms RC2 and MD5, digital certificates and HTTPS, to provide the security and authentication necessary to affect the secure exchange of confidential information. Advances in computer capabilities, new discoveries in the field of cryptography, new hacking methods, security holes in third-party components (such as operating system bugs) or other events
or developments could cause a breach of the above measures that we use to protect customer data and identity.
 
 The loss or malfunction of technology from third parties could delay the introduction of our products and services.
 
 We rely in part on technology that we license from third parties or we obtain from open sources, including relational database management systems from Oracle, Microsoft and MySQL object request broker software from IONA Technologies PLC, J2EE from Sun Microsystems, JBoss application server from open source, and others. The loss or malfunction
of any third-party technology could harm our business. We integrate or sublicense third-party technology with internally developed software to perform key functions. For example, our products and services incorporate data encryption and authentication technology from Open SSL. Third-party technology might not continue to be available to us on commercially reasonable terms, or at all. Moreover, third-party technology may contain defects that we cannot control. Problems with third-party technology could cause delays
in introducing our products or services until equivalent technology, if available, is identified, licensed or obtained, and integrated. Delays in introducing our products and services could adversely affect our results of operations.
 
 Our officers, key employees and highly skilled technical and managerial personnel are critical to our business, and they may not remain with us in the future.
 
 Our performance substantially depends on the performance of our officers and key employees. We also rely on our ability to retain and motivate qualified personnel, especially our management and highly skilled development teams. The loss of the services of any of our officers or key employees, particularly our founder and Chief Executive
Officer, Dr. Pehong Chen, could cause us to incur increased operating expenses and divert senior management resources in searching for replacements. The loss of their services also could harm our reputation if our customers were to become concerned about our future operations. We do not carry "key person" life insurance policies on any of our employees. Our future success also depends on our continuing ability to identify, hire, train and retain other highly qualified technical and managerial personnel.
Competition for these personnel is intense, especially in the Internet industry. We have in the past experienced, and may continue to experience, difficulty in hiring and retaining sufficient numbers of highly skilled employees. The significant downturn in our business over the past several years has had and may continue to have a negative impact on our operations. We have restructured our operations by reducing our workforce and implementing other cost containment activities. These actions could lead to disruptions
in our business, reduced employee morale and productivity, increased attrition, and problems with retaining existing and recruiting future employees.
 
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 Limitations on the online collection of profile information could impair the effectiveness of our products.
 
 Online users' resistance to providing personal data, and laws and regulations prohibiting use of personal data gathered online without express consent or requiring businesses to notify their web site visitors of the possible dissemination of their personal data, could limit the effectiveness of our products. This in turn could adversely
affect our sales and results of operations.
 
 One of the principal features of our products is the ability to develop and maintain profiles of online users to assist business managers in determining the nature of the content to be provided to these online users. Typically, profile information is captured when consumers, business customers and employees visit a web site and volunteer
information in response to survey questions concerning their backgrounds, interests and preferences. Profiles can be augmented over time through the subsequent collection of usage data. Although our products are designed to enable the development of applications that permit web site visitors to prevent the distribution of any of their personal data beyond that specific web site, privacy concerns may nevertheless cause visitors to resist providing the personal data necessary to support this profiling capability.
The mere perception by prospective customers that substantial security and privacy concerns exist among online users, whether or not valid, may indirectly inhibit market acceptance of our products.
 
 In addition, new laws and regulations could heighten privacy concerns by requiring businesses to notify web site users that the data captured from them while online may be used by marketing entities to direct product messages to them. We are subject to increasing regulation at the federal and state levels relating to online privacy and
the use of personal user information. Several states have proposed legislation that would limit the uses of personal user information gathered online or require online services to establish privacy policies. In addition, the U.S. Federal Trade Commission, or FTC, has urged Congress to adopt legislation regarding the collection and use of personal identifying information obtained from individuals when accessing web sites. The FTC has settled several proceedings resulting in consent decrees in which Internet
companies have been required to establish programs regarding the manner in which personal information is collected from users and provided to third parties. We could become a party to a similar enforcement proceeding. These regulatory and enforcement efforts could also harm our customers' ability to collect demographic and personal information from users, which could impair the effectiveness of our products.
 
 We may not have adequate back-up systems, and natural or manmade disasters could damage our operations, reduce our revenue and lead to a loss of customers.
 
 We do not have fully redundant systems for service at an alternate site. A disaster could severely harm our business because our service could be interrupted for an indeterminate length of time. Our operations depend upon our ability to maintain and protect our computer systems at our facility in Redwood City, California, which reside
on or near known earthquake fault zones. Although these systems are designed to be fault tolerant, they are vulnerable to damage from fire, floods, earthquakes, power loss, acts of terrorism, telecommunications failures and similar events. In addition, our facilities in California could be subject to electrical blackouts if California faces another power shortage similar to that of 2001. Although we do have a backup generator that would maintain critical operations, this generator could fail. We also have significantly
reduced our workforce in a short period of time, which has placed different requirements on our systems and has caused us to lose personnel knowledgeable about our systems, both of which could make it more difficult to quickly resolve system disruptions. Disruptions in our internal business operations could harm our business by resulting in delays, disruption of our customers' business, loss of data, and loss of customer confidence.
 
 Risks related to BroadVision common stock
 
 One stockholder beneficially owns a substantial portion of the outstanding BroadVision common stock, and as a result exerts substantial control over us.
 
 As of March 31, 2010, Dr. Pehong Chen, our Chairman and CEO, beneficially owned approximately 1.6 million shares of our common stock, which represents approximately 37% of the outstanding common stock as of such date. As a result, Dr. Chen exerts substantial control over all matters coming to a vote of our stockholders, including with
respect to:
 
 •
the composition of our board of directors and, through it, any determination with respect to our business direction and policies, including the appointment and removal of officers;•
any determinations with respect to mergers and other business combinations;•
our acquisition or disposition of assets;•
our financing activities; and•
the payment of dividends on our capital stock.
 
 This control by Dr. Chen could depress the market price of our common stock or delay or prevent a change in control of BroadVision.
 
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 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 $9.00 per share to $32.00 per share between March 31, 2008 and March 31, 2010. On May 6, 2010 the closing price of BroadVision
common stock was $12.27per share. Our stock price is subject to wide fluctuations in response to a variety of factors, including:
 
 •
quarterly variations in operating results;•
announcements of technological innovations;•
announcements of new software or services by us or our competitors;•
changes in financial estimates by securities analysts;•
low trading volume on the NASDAQ Global Market;•
general economic conditions; or•
other events or factors that are beyond our control.
 
 In addition, the stock market has experienced significant price and volume fluctuations that have particularly affected the trading prices of equity securities of many technology companies. These fluctuations have often been unrelated or disproportionate to the operating performance of these companies. Any negative change in the public's
perception of the prospects of Internet or electronic commerce companies could further depress our stock price regardless of our results. Other broad market fluctuations may decrease the trading price of BroadVision common stock. In the past, following declines in the market price of a company's securities, securities class action litigation, such as the class action lawsuits filed against us and certain of our officers and directors in early 2001, has often been instituted against that company. Litigation could
result in substantial costs and a diversion of management's attention and resources.
 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
 Not applicable.
 Item 3. Defaults Upon Senior Securities
 
 Not applicable.
 
 Item 5. Other Information
 
 Not applicable.
 
 Item 6. Exhibits




Exhibits Number

Description3.1 (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 of BroadVision.31.2

Certification of the 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 Form 10-K for the fiscal year ended December 31, 2006 filed on March 27, 2007.(3)

Incorporated by reference to the Company's Current Report on Form 8-K filed on October 16, 2008.(4)

Incorporated by reference to the Company’s Form 10-Q for the fiscal quarter ended September 30, 2008 filed on November 6, 2008.







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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: May 7, 2010

By:

/s/ Pehong ChenPehong ChenChairman of the Board, President and Chief Executive Officer




BROADVISION, INC.Date: May 7, 2010

By:

/s/ Shin-Yuan TzouShin-Yuan TzouChief Financial Officer





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EXHIBIT INDEX


Exhibits Number

Description3.1 (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 of BroadVision.31.2

Certification of the 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 Form 10-K for the fiscal year ended December 31, 2006 filed on March 27, 2007.(3)

Incorporated by reference to the Company's Current Report on Form 8-K filed on October 16, 2008.(4)

Incorporated by reference to the Company’s Form 10-Q for the fiscal quarter ended September 30, 2008 filed on November 6, 2008.