10-K 1 bvsn-20151231x10k.htm 10-K BVSN-20151231 K_2015


UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549


FORM 10-K



 

 

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)

 

 

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

   

   

 For the Fiscal Year Ended December 31, 2015

OR

 

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

   

   

 For the transition period from                             to

 

Commission File Number 1-34205



BROADVISION, INC.

(Exact name of registrant as specified in its charter)



 

 

Delaware

   

94-3184303

(State or other jurisdiction of

   

(I.R.S. Employer

incorporation or organization)

   

Identification No.)



   

   

1700 Seaport Blvd, Suite 210

   

   

Redwood City, California

   

94063

(Address of principal executive offices)

   

(Zip code)

(650) 331-1000

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.0001 par value

(Title of Class)



 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes  No

    Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

Yes  No

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  No 

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  No

Indicate by check mark if the disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

 

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  Accelerated filer   Non-accelerated filer  Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes  No

                As of June 30,  2015, based on the closing sales price as reported by the NASDAQ Market,  3,209,486 shares of Common Stock, having an aggregate market value of approximately $19,289,011 were held by non-affiliates. For purposes of the above statement only, all directors and executive officers of the registrant are assumed to be affiliates.

As of April 8,  2016, the registrant had 4,908,954 shares of common stock outstanding.



DOCUMENTS INCORPORATED BY REFERENCE



The information required by Part III of this Annual Report on Form 10-K is incorporated herein by reference to the Registrant’s definitive proxy statement relating to the 2016 Annual Meeting of Stockholders to be filed, or will be filed as an amendment to this Annual Report, with the U.S. Securities and Exchange Commission not later than 120 days after the end of the fiscal year to which this report relates.

 

 


 

 

BROADVISION, INC.

ANNUAL REPORT ON FORM 10-K

YEAR ENDED DECEMBER 31, 2014



TABLE OF CONTENTS







 

Part I

 

Item 1.     Business

1

Item 1A.    Risk Factors

6

Item 2.     Properties

13

Item 3.     Legal Proceedings

13

Item 4.     Mine Safety Disclosures

13



 

Part II

 

Item 5.     Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

14

Item 7.     Management's Discussion and Analysis of Financial Condition and Results of Operations

14

Item 8.     Financial Statements and Supplementary Data

20

Item 9.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

39

Item 9A.   Controls and Procedures

39

Item 9B.   Other Information

40



 

Part III

 

Item 10.   Directors, Executive Officers and Corporate Governance

41

Item 11.    Executive Compensation

41

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

41

Item 13.    Certain Relationships and Related Transactions, and Director Independence

41

Item 14.    Principal Accountant Fees and Services

41



 

Part IV

 

Item 15.    Exhibits and Financial Statement Schedules

41



 

SIGNATURES

42



 

EXHIBIT 21.1

 

EXHIBIT 23.1

 

EXHIBIT 31.1

 

EXHIBIT 31.2

 

EXHIBIT 32.1

 





References in this prospectus to "we", "us" and "our" refer to BroadVision, Inc. and its subsidiaries. BroadVision, Clearvale, the Clearvale logo, and Interleaf are our registered trademarks in the United States and/or other countries.  Trademarks, service marks and trade names of other companies appearing in this report are the property of their respective holders.

 

 

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CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES

LITIGATION REFORM ACT OF 1995



Certain statements set forth or incorporated by reference in this Form 10-K constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by words such as "may", "will", "should", "expect", "intend", "plan", "anticipate", "believe", "estimate", "predict", "potential" or similar terms. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks and other factors include those listed under "Risk Factors" and elsewhere in this document. These statements are only predictions based on our current expectations and projections about future events, and we cannot guarantee future results, levels of activity, performance or achievements.



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

 

Information regarding market and industry statistics contained in the "Business" section of this report is included based on information available to us that we believe is accurate. It is generally based on academic and other publications that are not produced for purposes of securities offerings or economic analysis.  







 

PART I, ITEM 1 TABLE OF CONTENTS (BUSINESS SECTION)

   

 

 

Overview and Industry Background

1

Software Products

1

Services

3

Customers

3

Sales and Marketing

3

Alliances

4

Competition

4

Intellectual Property and Other Proprietary Rights

5

Research and Development

5

Employees

5

Executive Officers

6



 

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  PART I


ITEM 1. BUSINESS



Overview and Industry Background



Our Business 

 

Since 1993, BroadVision has been a pioneer and consistent innovator of e-business solutions. We deliver a combination of technologies and services into the global market that enable customers of all sizes to power mission-critical e-business initiatives that ultimately deliver high-value to their bottom line. Our offering consists of a robust framework for secure, mobile and cloud-based collaboration, information sharing, and knowledge management, which enables our customers to deploy enterprise-class employee and customer engagement, knowledge management, and e-commerce solutions.

.  



Corporate Information 

 

We were incorporated in Delaware in 1993 and have been a publicly traded corporation since 1996. From 2001 to date, our annual revenue has declined and as of December 31, 2015, we had an accumulated deficit of approximately $1.2 billion. The majority of our accumulated deficit to date has resulted from non-cash charges associated with our 2000 acquisition of Interleaf, Inc. and restructuring charges related to excess real estate lease obligations.



The accompanying consolidated financial statements and related financial information contained herein for all periods presented have been retroactively restated to give effect to the stock split in accordance with U.S. generally accepted accounting principles ("U.S. GAAP").



                 Our principal executive offices are located at 1700 Seaport Boulevard, Suite 210, Redwood City, CA 94063. Our telephone number is (650) 331-1000. Our website address is www.broadvision.com. We make available free of charge through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to these reports as soon as reasonably practicable after filing, by providing a hyperlink to the Securities and Exchange Commission's website (www.sec.gov) directly to our reports. The contents of our website are not incorporated by reference into this report.



Industry Background

 

E-business has become an integral part of work life and organizations are looking for ways to reduce costs, improve productivity and increase revenues by moving their business onto mobile and cloud platforms. By providing a way to quickly assemble and engage employees and customers via mobile and cloud-based solutions organizations can deliver better engagement experiences to get more done with fewer resources.  A significant number of industry analysts have highlighted the ways in which organizations can reduce costs and improve customer satisfaction by implementing mobile and cloud solutions which can leverage key resources anytime and from anywhere. In addition to accelerating the response time to customers, e-business engagement applications also enable organizations to deliver higher quality services through more effective collaboration among providers of products and services.



Building on the solid foundation of BroadVision’s personalization and transaction management capabilities, BroadVision has introduced the Clearvale family of Enterprise Social Networking solutions to include engagement of partners, suppliers and customers through mobile and social technologies in order to meet our customers’ needs. In January 2016, BroadVision launched Vmoso, a mobile collaboration tool meeting industry standards of security which help enterprises safe guard and leverage corporate knowledge to increase productivity in internal and customer facing initiatives

 



Software Products

 

Our primary product offerings are software solutions. We also offer a toolkit, framework and library for extending our solutions. Our offerings have the following characteristics and advantages:





 

 

   

Track record -- Experience from over 1,000 implementations and over 20 years of experience.

   

Agility, extensibility and configurability -- Integrated tools for rapidly creating e-business applications with modular out-of-the-box capabilities and custom development.

   

Scalability -- Advanced load balancing and multi-layered caching for high concurrent users and transactions.

   

Personalization -- Session and event-based observations for dynamic and targeted navigation.

   

Secure transaction processing -- A wide range of commercial functions including order processing, discount, incentive, tax computation, shipping and handling charges, payment processing and order tracking.

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Multi-platform -- Support for major operating systems (Linux, Solaris, Windows, HP-UX, and AIX), application servers (WebLogic, WebSphere and JBoss) and databases (Oracle, Sybase, IBM, mySQL and SQL Server).

   

Low total cost of ownership -- Support for open source platforms in additional to commercial platforms.

   

Cloud  -- Hosted SaaS (Software-as-a-Service) with our Clearvale and Vmoso products for allowing customers to access enterprise-quality software without traditional IT overhead.

   

Mobile  -- Native mode application support for Apple iOS, Android as well as support for leading browsers which extends access of our cloud applications and services to most connected devices.  .

 

Solutions







 

 

   

1.

Business Agility Suite is a portal that provides personalized views of information and processes from diverse internal, external and legacy sources.  It supports collaboration both inside and outside the enterprise.  It manages web content throughout its lifecycle: creation, review, approval, version control, deployment, distribution and audit trail.

   

2.

Commerce Agility Suite is our e-commerce system for transacting business on the web, from lead generation, navigation, category management, incentive, shopping cart, order execution, to customer care.  It supports both Business-to-Business (B2B) and Business-to-Consumer (B2C) commerce.  Additionally, it has the full capabilities of our Business Agility Suite.

   

3.

Clearvale is our enterprise social network solution, aimed at revolutionizing enterprise knowledge flows.  Beyond individual social networks, it organizes multiple social networks into ecosystems, and manages them coherently.  It has three variations.  Clearvale Express is free, for entry-level capabilities; Clearvale Enterprise is for full capabilities.  We operate these two variations as SaaS over the cloud.   The third variation, Clearvale PaasPort is a platform for partners who want to resell our enterprise social network solution.

   

4.

Clear, formerly named CHRM, is a collaborative human resources management system.  It is a Portal-based human resources management system solution developed by our subsidiary BroadVision OnDemand, headquartered in Beijing, China, using our Kukini toolkit and Kona framework.  It facilitates collaboration by members of a customer’s organization in each phase of the HR management life cycle.

   

5.

QuickSilver is a high-end publishing system for large and complex documents.  Some typical uses are aircraft manuals, weapon system manuals and massive customizable insurance policies.   It supports multiple output formats, such as HTML, PDF and Postscript.  It also includes a complete XML authoring environment.



6.  

Vmoso is a cloud application for conducting virtual enterprise communication, mobile workgroup collaboration, and social business engagement. It unifies five workplace activities in one platform: email, instant messaging, content sharing, workflow, and social networking. It empowers users and their extended organizations to communicate and collaborate whenever, wherever and on whatever device they choose; allowing for greater productivity in less time and at lower cost



 

 



Vmoso Developer Kit



The Vmoso Developer Kit allows developers to easily leverage Vmoso’s open APIs to create rich interfaces, plugins and extensions to the Vmoso mobile communication and collaboration application.





Developer Toolkit: Kukini



Kukini is a visual workbench for designing, implementing and deploying e-business applications rapidly.  It facilitates effective collaboration of people with different skills.  Its resulting applications run with a customer's J2EE application environment of choice, and leverage our Kona framework and services library.



Framework: Kona

 

Kona is the common J2EE-based infrastructure underlying our Business Agility Suite, Commerce Agility Suite and Clear solutions.  It provides a standard-based and portable environment across many operating systems, application servers and databases.  It comes with rich APIs, schemas and utilities needed for building scalable and robust e-business applications.  It allows modular services to be easily added and configured, for extension and integration with other systems.  We often refer to Kukini and Kona together as K2.



Library of Services

 

These services are modular building blocks that extend the capabilities of our various frameworks.   Some of the services are pre-packaged into our applications and platforms.







 

 



a.

Portal Services for organizing and presenting information with navigation hierarchy, content categorization, personalization, and plugable portlets for integration.

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b.

Commerce Services for transacting business on the web with catalog management, pricing, shopping cart, checkout and order management capabilities.



c.

Process Services for transforming people-intensive processes and collaborations into web-based self-service applications rapidly.



d.

Content Services for managing web content throughout its lifecycle: creation, review, approval, version control, deployment, distribution and audit trail.



e.

Staging Services for moving content from multiple development environments to production environment.



f.

Search for full-text and field searching of online content and referenced external files with relevance ranking.  It also supports query searches using a broad spectrum of search operators



g.

Unified Stream Services for unification and integration of information from various sources presented in time and sort preferences



h.

Notification/Push Services: Event driven services utilized to deliver notifications via various messaging platforms.



i.

Migration Services data moving across platforms.



Services

 

We provide a full spectrum of global consulting services to customers to realize the value from their investment in BroadVision’s solutions. This includes: business consulting; implementation services; integration and package services; upgrade and migration services; and performance tuning. In addition we also enable our partners so that they can offer these services to their end customers.



Vmoso Enterprise Transformation (VET)



Vmoso Enterprise Transformation, or VET, is a proprietary implementation approach for the Vmoso collaborative solution. When you enroll in VET, our BroadVision Global Services representative will take you through a process of planning, establishing and refining your communication, collaboration and engagement practices. This is an iterative process to instill new habits and ways of working that supports the way you are currently working—it’s gradual transformation, not a dramatic shift. This can lead to an empowered and organized workforce, engaged and delighted customers, and a productive organization with an improved bottom line.



Education Services



 BroadVision offers a comprehensive range of in-depth, focused training courses and self-study materials for both customers and partners to develop the knowledge they need to properly install, implement, and fully leverage the features of BroadVision’s solutions. Backed up by train-the-trainer programs for in-house deployment and online testing to validate training effectiveness.

 

Support and Maintenance Services

 

We offer a tiered support and maintenance program to better serve the needs of our global customer base. Standard Support provides technical assistance during regular business hours; Enterprise Support is designed for customers with mission-critical environments, providing customers with access to support experts 24 hours a day, 7 days a week; and Personalized Support assigns a specific individual to a customer along with other customer specified support services, including on-site support engineers. We have technical support centers in North America, Europe and Asia. Under our standard maintenance agreement, we provide telephone support and upgrade rights to new releases, including patch releases (as necessary) and product enhancements (when and if available).

 

Customers

 

For the year ended December 31, 2015, no customer accounted for more than 10% of our total revenues. For the year ended December 31, 2014,  one government entity accounted for more than 10% of our total revenues. We do not believe that the loss of any single customer would have a material adverse effect on our business or results of operations.

 

Sales and Marketing

 

We market our products primarily through a direct sales organization with operations in North America, Europe and Asia/Pacific. On December 31, 2015, our direct sales organization included 18 sales representatives, managers and sales support personnel.

 

We have sales offices located throughout the world to support the sales and marketing of our products. In support of the Americas organizations, offices located in the United States are in California and Massachusetts.  Offices for our Europe region are located in Italy.  Our sales and marketing offices in the Asia Pacific/Japan/India region are located in India, China, Taiwan, and Japan.

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We derive a significant portion of our revenue from our operations outside North America. In the twelve months ended December 31, 2015, approximately 59% of our revenues were derived from international sales. In the twelve months ended December 31, 2014, approximately 55% 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.

 

Initial sales activities typically involve discussion and review of the potential business value associated with the implementation of a BroadVision solution, a demonstration of our applications capabilities online or at the prospect's site, followed by one or more detailed technical reviews. The sales process usually involves collaboration with the prospective customer in order to specify the scope of the solution. Our Global Services Organization helps customers to customize, develop and deploy their e-business solutions.

 

As of December 31, 2015,  we had 6 employees engaged in a variety of marketing activities, including product planning, marketing material development, public relations, identifying potential customers, establishing and maintaining close relationships with recognized industry analysts and maintaining our website.

 

Alliances

 

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



Clearvale Reseller Partners



In late 2010 we introduced Clearvale PaasPort, a channel program that enables partners to resell, customize and add value to our Clearvale Enterprise Social Networking solutions.



Consulting Partners



Our systems integration and consulting services partners deliver strategic business solutions to our global customers. These partners offer deployment experience, strong vertical market expertise, and process-based solutions. We structure our contractual arrangements with these consulting partners to motivate them to develop an expertise in our technology and sell our products and services to potential customers, thus enabling us to extend the reach of our products and services.



Technology/OEM Partners



Our technology partners include Value-Added Resellers (VAR) and Independent Software Vendors (ISV) who build and deploy BroadVision-based vertical and horizontal software solutions. Revenue generated from technology/OEM partners in recent years has not been significant. 



Competition

 

If we fail to compete successfully with current or future competitors, we may lose market share. The market for e-business is intensely competitive. Our customers' requirements and the technology available to satisfy those requirements will continually change. We expect competition in this market to intensify. Our primary competition currently includes:

 



   

in-house development efforts by prospective customers or partners;

   

other vendors of application software or application development platforms and tools directed at interactive commerce and portal applications, such as  JDA, IBM Corporation, Microsoft, Oracle and SAP. 

   

other vendors of enterprise social networking and collaboration platforms or solutions, such as Microsoft’s SharePoint, Jive Software, Salesforce Chatter and Slack.

   

web content developers that develop custom software or integrate other application software into custom solutions.

 

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



   

depth and breadth of functionality offered;

   

availability of knowledgeable developers;

   

time required for application deployment;

   

reliance on industry standards;

   

product reliability;

   

proven track record;

   

scalability;

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maintainability;

   

product quality;

   

price; and

   

technical support.



Compared to us, many of these competitors and other current and future competitors may have longer operating histories and significantly greater financial, technical, sales, marketing and other resources. As a result, they may be able to respond more quickly to new or changing opportunities, technologies and customer requirements. Many of these companies can use their greater name recognition and more extensive customer base to gain market share. Competitors may be able to undertake more extensive promotional activities, adopt more aggressive pricing policies and offer more attractive terms to purchasers. Current and potential competitors may bundle their products to discourage users from purchasing our products. In addition, competitors have established or may establish cooperative relationships among themselves or with third parties to enhance their products. Accordingly, it is possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share. Competitive pressures may make it difficult for us to acquire and retain customers.

 

Intellectual Property and Other Proprietary Rights

 

Our success and ability to compete are dependent to a significant degree on our proprietary technology. We hold a U.S. patent, issued January 28, 2014, on the unique concepts and features in our online solution that allows subscribers to connect with other people and share tasks and content. We also hold a patent issued in 2004 on mechanisms for translating between a word processing document and an XML file. Although we hold these patents, they may not provide an adequate level of intellectual property protection. In addition, litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity. We cannot guarantee that infringement or other claims will not be asserted or prosecuted against us in the future, whether resulting from our intellectual property or licenses from third parties. Claims or litigation, whether successful or unsuccessful, could result in substantial costs and diversions of resources, either of which could harm our business.

 

We also rely on copyright, trademark, service mark, trade secret laws and contractual restrictions to protect our proprietary rights in products and services. We have registered "BroadVision", "Clearvale", the Clearvale logo and "Interleaf" as trademarks in the United States and/or 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, partners 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.



Research and Development

 

As of December 31, 2015, we had 86 employees dedicated to research and development. Our research and development expenses consist primarily of salaries, employee-related benefit costs and consulting fees incurred in association with the development of our products. Research and development expenses are expensed as incurred. Our future success depends, in part, upon our ability to develop new products and new versions of our products with new and expanded features. We believe that continued investment in our technology is important for our future growth, and as a result, we expect to incur material research and development expenses for the foreseeable future.



Research and development expenses were $7.2 million for the year ended December 31, 2015 and $7.3  million for the year ended December 31, 2014.



Employees

 

As of December 31, 2015, we employed a total of 156 full-time employees, of whom 48 are based in North America, 19 in Europe and 89 in Asia. Of these full-time employees, 24 are in sales and marketing, 86 are in product development, 22 are in global services and client support, and 24 are in operations, administration and finance.

 

We believe that our future success depends on attracting and retaining highly skilled personnel. We may be unable to attract and retain high-caliber employees. Our employees are not represented by any collective bargaining unit. We have never experienced a work stoppage and consider our employee relations to be good.

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Executive Officers

 

                   Our executive officers and their ages and positions as of December 31, 2015 are in the table below.

 

5

 

 

 

 

Name

   

Age

   

Position

Pehong Chen

   

58

   

Chairman, President and Chief Executive Officer

Peter Chu

   

52

   

Chief Financial Officer and Vice President Strategy and Product Management

 

Pehong Chen has served as our Chairman of the Board, Chief Executive Officer and President since our incorporation in May 1993. From 1992 to 1993, Dr. Chen served as the Vice President of Multimedia Technology at Sybase, a supplier of client-server software products. Dr. Chen founded and, from 1989 to 1992, served as President of Gain Technology, a provider of multimedia applications development systems, which was acquired by Sybase. He received a B.S. in Computer Science from National Taiwan University, an M.S. in Computer Science from Indiana University and a Ph.D. in Computer Science from the University of California at Berkeley.



Peter Chu was appointed our Chief Financial Officer in July 2014. Mr. Chu also served as our Vice President of Strategy, Product Management. Mr. Chu joined the Company in October 2011. Prior to joining BroadVision, Mr. Chu was a Managing Partner at AsiaTech Ventures and Senior Advisor at Inspirior, LLC for over a decade. Mr. Chu holds a BSEE from Stanford University and an MBA from Harvard University.



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 a large portion of our revenue from legacy products, including Business Agility Suite, Commerce Agility Suite and QuickSilver. 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 our ability to sustain our legacy business. If we fail to deliver the product enhancements that customers want, or if competitors overtake our legacy customers, demand for our legacy products and services, and our revenue, may decline.

 

We continue to introduce 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 entered into the business of Enterprise Social Networking, with the initial release of Clearvale in 2009.  We announced the integration of Clearvale’s social and mobile capabilities into our legacy products, as BroadVision 9 in 2013. We have been actively enhancing Clearvale, by adding new functions and editions.  We have spent significant resources in developing these offerings and training our employees to implement, support, operate, sell and market the offerings.  In February 2015 we launched our newest communication and collaboration offering, Vmoso. To date our Clearvale and BroadVision 9 offerings only contributed to a minor portion of our revenue and our Vmoso offering has generated no revenue. We do not yet know whether any of these new offerings will grow into a significant business line, and if so, whether sales of these new offerings will be sufficient for us to offset the costs of development, implementation, support, operation, sales and marketing. 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. 



We have 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, BroadVision has offered perpetual software licenses, with customers responsible for the IT equipment needed for running BroadVision software.   The Clear,  Clearvale and Vmoso products, on the other hand, 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.  Our SaaS operations rely upon a distributed computing infrastructure platform for business operations, or what is commonly referred to as a cloud computing service. We have designed our software and computer systems so as to utilize data

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processing, storage capabilities and other services provided by cloud computing service providers. Currently, our worldwide cloud service providers include leading cloud infrastructure providers such as Amazon. Any disruption of or interference with our use of cloud computing services would impact our operations and our business would be adversely impacted. BroadVision has limited 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.   BroadVision has limited 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 our Cloud hosting operation.  Clearvale and Vmoso allow customers to use basic functions for free, a popular business practice in our industry.   If we do not have enough customers upgrading to for-fee premium packages, 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 competitor's prices or price reductions, and we may fail to win customers that choose to purchase an information technology solution as part of a broader software and services package. As a result, we may be unable to compete successfully with current or new competitors.

  

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 December 31, 2015, we had an accumulated deficit of approximately $1.2 billion.

 

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.

 

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.

 

7


 

 



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; and

 

 

costs associated with litigation, regulatory compliance and other corporate events such as operational reorganizations.



As a result of these factors, we believe that quarter-to-quarter comparisons of our revenue and operating results are not necessarily meaningful, and that these comparisons are not accurate indicators of future performance. Because our staffing and operating expenses are based on anticipated revenue levels, and because a high percentage of our costs are fixed, small variations in the timing of the recognition of specific revenue could cause significant variations in operating results from quarter to quarter. If we were unable to adjust spending in a timely manner to compensate for any revenue shortfall, any significant revenue shortfall would likely have an immediate negative effect on our operating results. If our operating results in one or more future quarters fail to meet the expectations of securities analysts or investors, we would expect to experience an immediate and significant decline in the trading price of our stock.

 

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 can 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.

8


 

 



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 short-term investments through at least December 31, 2016. 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. Our internal control over financial reporting has been designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. For example, on March 31, 2016, we announced that we were delaying the filing of this Annual Report on Form 10-K for the year ended December 31, 2015 pending completion of a review of information we had uncovered regarding potential irregularities relating to a cash account at one of our European subsidiaries. Subsequent to the discovery of such irregularities, we undertook an investigation. The results of this investigation concluded that a former employee of one of our wholly-owned German subsidiaries, Interleaf Germany, fraudulently misappropriated funds from us and falsified records to conceal the theft from 2009 through the fourth quarter of 2015. Based on this investigation, we determined that the cumulative amount of misappropriated funds over the seven-year period was $570,000 based on the December 31, 2015 exchange rate of $1.086 USD to $1 EUR. As a result, we have recorded a $570,000 adjustment to each of our cash balance as of December 31, 2015 and other loss, net, for the year ended December 31, 2015. Based on the amount involved and nature of the fraudulent misappropriation, we determined that the fraudulent activity did not have a material impact on any of our previously issued consolidated financial statements and therefore a restatement of our consolidated financial statements as of and for each of the years in the six-year period ended December 31, 2014 was not required. Since the misappropriation was perpetrated by means of concealment and forgeries that circumvented controls and procedures that we had in place that our management believes were effective in, and designed to, provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles, our management concluded that we maintained effective internal control over financial reporting despite the fraudulent misappropriation.



We have terminated the employee, and are seeking to recover funds from him. If we are successful in recovering any amounts, they will be recorded as recoveries in future periods when they are received.  To prevent such fraudulent activity in the future we are implementing enhancements to our control procedures; however, as demonstrated by the fraudulent misappropriation, which occurred even though the results of our investigation led us to determine that effective internal control over financial reporting was maintained, we cannot assure you that our controls and procedures will prevent all errors or fraud, or that any related losses would be recoverable. We also cannot assure you that similar circumstances will not arise in the future that will cause us to delay the filing of our periodic consolidated financial reports and, if we are unable to produce accurate or timely consolidated financial statements, we may be subject to adverse regulatory consequences, including sanctions or investigations by the Securities and Exchange Commission, our stock price may be adversely affected, our reputation may suffer and we may be unable to maintain compliance with the Nasdaq Global Market continued listing requirementsFurther, our independent registered public accounting firm did not perform an evaluation of our internal control over financial reporting during the impacted periods in accordance with the provisions of the Sarbanes-Oxley Act. In light of the fraudulent activities that were identified as a result of the limited procedures performed, it is possible that, had our independent registered public accounting firm performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act, additional instances of fraud, or significant deficiencies or material weaknesses, may have been identified.

 

In addition, 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 the region

9


 

 

in which we compete consists of many established companies that can offer more lucrative compensation packages. 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.

  

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.

 

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 year ended December 31, 2015, approximately 59% 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.

          

               Our international sales growth could be limited if we are unable to establish additional foreign operations, expand international sales channel management and support, hire additional personnel, customize products for local markets and develop relationships with international service providers, distributors and system integrators. Even if we are able to successfully expand our international operations, we may not succeed in maintaining or expanding international market demand for our products.

 

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

 

Our success and ability to compete are dependent to a significant degree on our proprietary technology. We hold a U.S. patent, issued January 2014, on the unique concepts and features of our online solution that allows subscribers to connect with other people and share tasks and content and a U.S. patent issued in 2004 on mechanisms for translating between a word processing document and an XML file. 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. Third parties have claimed and may claim in the future that 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", "Clearvale", the Clearvale logo and "Interleaf" as trademarks in the

10


 

 

United States and/or 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, partners 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 operations 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 is 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 3rd-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 originally from IONA Technologies PLC; J2EE from Oracle and JBoss; 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.



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 or use an application 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 and application users while preventing the distribution of any of their personal data beyond that specific web site or application, privacy concerns may nevertheless cause visitors to resist providing the personal data necessary to support this profiling capability. The mere perception by

11


 

 

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. 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. While we adhere to the privacy policies published with our solutions, 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.  In addition, the European Union is in the process of proposing reforms to its existing data protection legal framework, which may result in a greater compliance burden for companies with customers in Europe. 

 

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 adequate back-up and redundant systems for both customer-used service and internal IT. A disaster could severely harm our business because our service and operation 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. These systems are vulnerable to damage from fire, floods, earthquakes, power loss, acts of terrorism, telecommunications failures and similar events. We also have significantly reduced our workforce since 2000, 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.

  

We are subject to foreign currency exchange risk.

 

A total of 59% and 55% of our fiscal year 2015 and 2014 revenues, respectively, were derived from international operations. Our revenues outside the United States may be adversely affected by fluctuations in foreign currency exchange rates. In addition, a total of 49% of our cash and cash equivalents as well as investments are denominated in foreign currencies as of December 31, 2015. A discussion of the financial impact of exchange rate fluctuations and the ways and extent to which we may attempt to address any impact is contained in Management’s Discussion of Financial Condition and Results of Operations. We do not engage in any hedging activities in order to manage any potential adverse financial impact resulting from unfavorable changes in foreign currency exchange rates. We cannot predict with any certainty changes in foreign currency exchange rates or the degree to which we can address these risks.

 

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 December 31, 2015, Dr. Pehong Chen, our Chairman and Chief Executive Officer (“CEO”), beneficially owned approximately 1.6 million shares of our common stock, which represents approximately 33% of the outstanding common stock as of such date. As a result, Dr. Chen exerts substantial control over all matters coming to a vote of our stockholders, including with respect to:



 

 

the composition of our board of directors and, through it, any determination with respect to our business direction and policies, including the appointment and removal of officers; 

 

 

any determinations with respect to mergers and other business combinations; 

 

 

our acquisition or disposition of assets; 

 

 

our financing activities; and 

 

 

the payment of dividends on our capital stock. 

 

This control by Dr. Chen could depress the market price of our common stock or delay or prevent a change in control of BroadVision.

 

Our stock price has been highly volatile.

 

The trading price of BroadVision common stock has been highly volatile, especially since the beginning of fiscal year 2012. The trading price of BroadVision common stock ranged from $5.30 per share to $15.30 per share between January 1, 2014 and December 31, 2015. Our stock price is subject to wide fluctuations in response to a variety of factors, including:

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quarterly variations in operating results;

 

 

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, enterprise social networking 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 has often been instituted against that company. Litigation could result in substantial costs and a diversion of management's attention and resources. 

 

ITEM 2. PROPERTIES

 

As of December 31, 2015, we leased approximately 30,969 square feet of office space, consisting of



·

Our headquarters of 16,399 square feet at Pacific Shores Center in Redwood City, California, used for research and development, technical support, sales, marketing, consulting, training and administration;

·

Beijing, China office of 8,414 square feet used primarily for research and development, sales, marketing and customer services; and

·

Small regional offices used primarily for sales, marketing and customer services in Waltham, MA; Rome and Milan, Italy; Tokyo, Japan; Taipei, Taiwan; and Bangalore, India.

 

We fully occupied all of our leased office spaces as of December 31, 2015We believe our facilities are suitable for their respective uses and are adequate to support our current and anticipated volume of business.

 

ITEM 3. LEGAL PROCEEDINGS 



We are subject from time to time to various legal actions and other claims arising in the ordinary course of business. We are not presently a party to any material legal proceedings.



ITEM 4. MINE SAFETY DISCLOSURES



Not applicable.

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PART II



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



Until our delisting on March 8, 2006, our common stock had been quoted on the NASDAQ National Market. From March 8, 2006 to May 24, 2007, our common stock was quoted on the Pink Sheets®. From May 25, 2007 to October 24, 2008, our common stock was trading on the OTC Bulletin Board. Effective as of the open of trading on October 27, 2008, we effected a one-for-twenty-five reverse split of our common stock.  Effective as of November 10, 2008, we have transferred the quotation of our common stock from the OTC Bulletin Board to the NASDAQ Global Market under the trading symbol "BVSN".  The following table shows high and low sale prices per share of our common stock as reported on the NASDAQ Global Market:

 





 

 

 

 

 

 

 



 

High

 

Low

 

Fiscal Year 2015

 

 

 

 

 

 

 

First Quarter

 

$

6.53 

 

$

5.51 

 

Second Quarter

 

 

6.19 

 

 

5.43 

 

Third Quarter

 

 

6.12 

 

 

5.30 

 

Fourth Quarter

 

 

6.39 

 

 

5.71 

 

Fiscal Year 2014

 

 

 

 

 

 

 

First Quarter

 

 

15.30 

 

$

9.51 

 

Second Quarter

 

 

11.30 

 

 

8.52 

 

Third Quarter

 

 

10.32 

 

 

8.62 

 

Fourth Quarter

 

 

8.95 

 

 

5.47 

 



 

 

 

 

 

 

 

 As of April 8,  2016, there were 215 holders (not including beneficial holders of common stock held in street name) of record of BroadVision common stock. On April 12, 2016, the closing price reported on the NASDAQ Global Market for BroadVision common stock was $6.99 per share. 



             We have never declared or paid cash dividends on our common stock, and currently do not plan to pay any cash dividends in the foreseeable future.

 

Unregistered Sales of Equity Securities



None.



Issuer Purchases of Equity Securities



None.



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

 

You should read this discussion and analysis in conjunction with our Consolidated Financial Statements and the related Notes appearing elsewhere in this report. In addition to the historical consolidated information, the following discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the "safe harbor" created by those sections. These forward-looking statements are generally identified by words such as "expect", "anticipate", "intend", "believe", "hope", "assume", "estimate", "plan", "will" and other similar words and expressions. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in the forward-looking statements as a result of certain factors. Factors that could cause or contribute to differences include those discussed below and elsewhere in this Form 10-K, particularly in Item 1A, "Risk Factors." We undertake no obligation to publicly release any revisions to the forward-looking statements or to reflect events and circumstances after the date of this document.



Overview

 

          Since 1993, BroadVision has been a pioneer and consistent innovator of e-business solutions. We deliver a combination of technologies and services into the global market that enable customers of all sizes to power mission-critical web, cloud and mobile  

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initiatives that ultimately deliver high-value to their bottom line. Our offering consists of a robust framework for personalization and self-service, modular applications and agile toolsets that customers use to create e-commerce, portal solutions, Enterprise Social Networks (ESN), and collaboration and knowledge management solutions. Most recently, we have added mobile and cloud capabilities to our platforms to enable our customers for rapid deployment of robust, secure, and scalable solutions.



Our objective is to further our position as a global supplier of innovative e-business solutions with the addition of enterprise collaboration and engagement solutions such as our mobile and cloud-based Vmoso, a collaboration and knowledge management product, and Clearvale, an ESN product.  Together with our legacy Business Agility Suite, Commerce Agility Suite and QuickSilver solutions, our new enterprise collaboration and engagement solutions will enhance the communication,  collaboration and knowledge management capabilities of organizations with their customers, partners and employees to improve productivity and efficiency.  



We generate revenue from fees for licenses of our software products and related maintenance, consulting services and customer training. We generally charge fees for licenses of our software products based on (1) the number of persons registered to use the product; (2) the number of CPUs utilized by the machines on which the product is installed; or (3) usage of Cloud or SaaS. Payment terms are generally 30 to 60 days from the date the software products are delivered, the maintenance or subscription contracts are booked, or the consulting services are provided.



We generated net income in years 2007 and 2009; and net loss in years 2008, 2010, 2011, 2012, 2013, 2014 and 2015. Our ability to generate profits or positive cash flows in future periods remains uncertain. 

     

Our operations in 2015 faced two challenges: maturity of our major revenue-generating legacy products, and competing in a crowded ESN solution space.  We continued to invest heavily in cloud-based, mobile, messaging and collaboration technologies, while continuing to support our legacy base.  Total 2015 revenues of $9.4 million were lower compared to total 2014 revenues of $13.6 million, with the decrease mainly in legacy revenue. We will continue to diligently invest in new technologies in an effort to  maintain our competitive advantages in the mobile communications and; collaboration and knowledge management spaces



Obligations to Related Parties



On November 14, 2008, BroadVision (Delaware) LLC, a Delaware limited liability company (“BVD”), which was then our wholly owned subsidiary, entered into a Share Purchase Agreement with CHRM LLC, a Delaware limited liability company, that is controlled by Dr. Pehong Chen, our CEO and largest stockholder and in which our CFO, Peter Chu holds a minority interest. We and CHRM LLC then entered into an Amended and Restated Operating Agreement of BroadVision (Delaware) LLC dated as of November 14, 2008 (the “BVD Operating Agreement”). Under these agreements, CHRM LLC received, in exchange for the assignment of certain intellectual property rights, 20 Class B Shares of BVD, representing the right to receive a portion of any distribution of Funds from “Capital Transactions” (as such term is defined in the BVD Operating Agreement), with the exact amount to be determined based on our and CHRM LLC’s capital account balances at the time of such distribution. A “capital transaction” under that agreement is any merger or sale of substantially all of the assets of BVD as a result of which the members of BVD will nolonger have an interest in BVD or the assets of BVD will be distributed to its members. Class B Shares do not participate in any profits of BVD except for net profits related to a “capital transaction,” in which case the net profits are allocated to the owners of Class A and Class B Shares in proportion to their respective number of shares. To the extent BVD’s losses do not exceed undistributed net profits accumulated since the date of issuance of Class B Shares, such losses are allocated to Class A Shares. To the extent net losses exceed the undistributed net profits accumulated since the date of issuance of Class B Shares, such excess is allocated to the owners of Class A and Class B Shares in proportion to their respective cumulative capital contributions less any return of capital, until allocation of such losses results in having the capital account balances equal to zero. Then, net losses are allocated to the owners of Class A and Class B Shares in proportion to their respective number of shares. Upon liquidation the net assets of BVD are distributed to the owners of Class A and Class B in proportion to their capital account balances.

 

BVD is the sole owner of BroadVision (Barbados) Limited (“BVB”) and BVB is the sole owner of BroadVision On Demand, a Chinese entity (“BVOD”). We have invested approximately $9.0 million in BVOD (directly and through BVD and BVB). In 2014 we began making payments directly to BVOD for certain labor outsourcing services and expect to continue to pay BVOD for such services at the rate of approximately $400,000 per quarter for the foreseeable future. We have a controlling voting interest in BVD. Pursuant to the terms of the BVD Operating Agreement, the Class B Shares held by CHRM LLC have no voting rights.

 

The 20 Class B Shares of BVD represent a non-controlling interest. We allocate profits and losses of BVD to the non-controlling interest under the Hypothetical Liquidation Book Value (“HLBV”) method. Under this method the profits and losses are allocated by reference to the profit sharing provisions in the BVD Operating Agreement assuming liquidation of BVD at its book value at the end of each reporting period. Profits and losses allocated to the balance of such interest under the HLBV method have not been material.

 

In April 2015, we executed a renewal contract with a third party of which Dr. Pehong Chen, our CEO and largest stockholder, is a board member. The total renewal license associated with that contract is $184,000.  In 2014, we executed a renewal contract with the

15


 

 

same customer with an associated value of $166,000. We recognized $176,000 and $164,000 of license revenue for the fiscal year 2015 and 2014, respectively.



RECENT ACCOUNTING PRONOUNCEMENTS



See Note 1 to the Consolidated Financial Statements for a full description of recent accounting pronouncements, including the expected dates of adoption and expected impacts on the results of operations and financial condition, which is incorporated herein by reference.

 

Critical Accounting Policies, Judgments and Estimates

 

This management's discussion and analysis of our financial condition and results of operations is based upon our Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP. In preparing these financial statements, we are required to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to receivable reserves, stock-based compensation, investments and income taxes, as well as contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates using different assumptions or conditions. We believe the following critical accounting policies reflect the more significant judgments and estimates used in the preparation of our Consolidated Financial Statements.

 

Revenue Recognition

 

Overview

 

Our revenue consists of fees for licenses of our software products, maintenance, consulting services and training.



Our revenue recognition policies comply with Accounting Standards Codification ASC 985-605, Software: Revenue Recognition, and Staff Accounting Bulletin SAB 104, Revenue Recognition. In October 2009, the Financial Accounting Standard Board  (FASB) amended the accounting standards in Accounting Standards Update ("ASU") 2009-13 (an update to ASC 605-25) ("ASU 2009-13") for certain multiple deliverable revenue arrangements to: 1) provide updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and how the consideration should be allocated; 2) require an entity to allocate revenue in an arrangement using best estimated selling price ("BESP") of deliverables if a vendor does not have VSOE of selling price or third-party evidence ("TPE") of selling price; and 3) eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method. We adopted ASU 2009-13 at the beginning of the first quarter of fiscal 2011. The application of these new accounting standards did not have a material impact on total net revenues for fiscal year 2011.



 We recognize revenue when all four of the following revenue recognition criteria have been met:





 

 

   

Persuasive evidence of an arrangement exists;

   

We have delivered the product or performed the service;

   

The fee is fixed or determinable; and

   

Collection is probable.



We qualify the second of the above listed criteria differently for different types of revenues, as follows.



Software License Revenue, Non-Subscription and Non-Hosted Products



Delivery of non-subscription and non-hosted software products is considered to have occurred when title to the physical media and risk of loss have been transferred to the customer, which generally occurs when media containing the licensed programs is provided to a common carrier. In case of electronic delivery, delivery occurs when the customer is given access to the licensed programs. For products that cannot be used without a licensing key, the delivery requirement is met when the licensing key is made available to the customer.  We do not grant a right of return for non-subscription or non-hosted software products.  We recognize revenue upon the delivery of our software.

 

Software License Revenue, Subscription Products or Hosted Products



Although we make our software available to the customer at a particular point in time, the delivery of subscription software products (such as QuickSilver) and hosted software products (such as Vmoso, Clearvale and Clear) is considered to have occurred ratably over the duration of the contract.  We recognize revenue ratably.

16


 

 



Services Revenues



Consulting services revenues and training revenues are recognized as such services are performed.  These services are not essential to the functionality of the software. We record reimbursement from our customers for out-of-pocket expenses as an increase to services revenues.



Maintenance revenue, which includes revenue that is derived from software license agreements that entitle the customers to technical support and future unspecified enhancements to our products, is recognized ratably over the related agreement period, which time period is generally twelve months.

  

Receivable Reserves

  

              Occasionally, our customers experience financial difficulty after we recognize the sale but before payment has been received. We maintain receivable reserves for estimated losses resulting from the inability of our customers to make required payments. Our normal payment terms are generally 30 to 90 days from the invoice date. If the financial condition of our customers were to deteriorate, resulting in their inability to make the contractual payments, additional reserves may be required. Losses from customer receivables in the two-year period ended December 31, 2015,  have not been significant. If all efforts to collect a receivable fail, and the receivable is considered uncollectible, we would write it off against the receivable reserve.



Research and Development and Software Development Costs

 

ASC 985-20, Costs of Software to be Sold, Leased, or Marketed ("ASC 985-20"), requires capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based on our product development process, technological feasibility is established upon the completion of a working model. To date, costs incurred by us between the completion of the working model and the point at which the product is ready for general release have been insignificant. Accordingly, we have charged all such costs to research and development expenses in the period incurred.

 

Income Taxes and Deferred Tax Assets



Income taxes are computed using an asset and liability approach in accordance with ASC 740-10, Income Taxes ("ASC 740-10"), which requires the recognition of taxes payable or refundable for the current year and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in our Consolidated Financial Statements or tax returns. The measurement of current and deferred tax assets and liabilities is based on provisions of the enacted tax law; the effects of future changes in tax laws or rates are not anticipated. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, is not expected to be realized.



We analyze our deferred tax assets with regard to potential realization. We have established a valuation allowance on our deferred tax assets to the extent that management has determined that it is more likely than not that some portion or all of the deferred tax asset will not be realized based upon the uncertainty of their realization. We consider the effects of estimated future taxable income, current economic conditions and ongoing prudent and feasible tax planning strategies in assessing the amount of the valuation allowance.

 

Stock-Based Compensation

 

We account for share-based payment arrangement in accordance with ASC 718-10, Compensation – Stock Compensation ("ASC 718-10"), using the modified-prospective transition method. Under ASC 718-10, share-based compensation cost is estimated at the grant date based on the fair value of the award and is recognized as expense, net of estimated pre-vesting forfeitures, ratably over the vesting period of the award.

 

We adopted the alternative transition method provided in ASC 718-10 for calculating the tax effects of stock-based compensation pursuant to ASC 718-10 in the fourth quarter of fiscal 2006. The alternative transition method includes simplified methods to establish the beginning balance of the additional paid-in capital pool ("APIC pool") related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the APIC pool and Consolidated Statements of Cash Flows of the tax effects of employee stock-based compensation awards that are outstanding upon adoption of ASC 718-10. The adoption did not have a material impact on our results of operations and financial condition.



Further details related to our Stock Benefit Plans and our adoption of ASC 718-10 are provided in Note 7 – Stockholders' Equity in the Notes to our Consolidated Financial Statements.

  

17


 

 

Statements of Comprehensive Loss as a Percentage of Total Revenues



The following table sets forth certain items reflected in our Consolidated Statements of Comprehensive Loss expressed as a percent of total revenues for the periods indicated.







 

 

 

 

 

 

 



 

Years Ended December 31,

 



 

2015

 

2014

 

Revenues:

 

 

 

 

 

 

 

Software licenses

 

47 

%

 

48 

%

 

Services

 

53 

 

 

52 

 

 

Total revenues

 

100 

 

 

100 

 

 

Cost of revenues:

 

 

 

 

 

 

 

Cost of software revenues

 

 

 

 

 

Cost of services

 

35 

 

 

32 

 

 

Total cost of revenues

 

37 

 

 

33 

 

 

Gross profit

 

63 

 

 

67 

 

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

76 

 

 

54 

 

 

Sales and marketing

 

52 

 

 

38 

 

 

General and administrative

 

37 

 

 

29 

 

 

Total operating expenses

 

165 

 

 

121 

 

 

Operating loss

 

(102)

 

 

(54)

 

 

Other loss, net

 

(19)

 

 

(15)

 

 

Loss before income taxes

 

(121)

 

 

(69)

 

 

Provision for income taxes

 

 -

 

 

(1)

 

 

Net loss

 

(121)

%

 

(70)

%

 



 

 

 

 

 

 

 

     Results of Operations



Revenues.     License revenue from the sales of software licenses for the year ended December 31, 2015 was $4.4 million, down $2.1 million, or 32% from $6.5 million for the year ended December 31, 2014. Maintenance revenue, which is generally derived from maintenance contracts sold with initial customer licenses and from subsequent contract renewals, for the year ended December 31, 2015 was $3.0 million, down $1.1 million, or 27% from $4.1 million for the year ended December 31, 2014.  Consulting revenue, which is generally related to services in connection with our licensed software, for the year ended December 31, 2015 was $2.0 million, down  $1.0 million, or 33% from $3.0 million for the year ended December 31, 2014. Total 2015 revenues of $9.4 million were lower compared to total 2014 revenues of $13.6 million, with the decrease mainly resulting from decreased legacy revenue. 



Cost of software licenses.    Cost of software licenses includes the net costs of our cloud hosting operation, 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 software licenses for the year ended December 31, 2015 was $152,000, up $3,000, from $149,000 for the year ended December 31, 2014. The increase was primarily due to higher usage in our cloud hosting operations.



Cost of services.    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.  Cost of services for the year ended December 31, 2015 was $3.3 million, down $1.1 million, or 25% from $4.4 million for the year ended December 31, 2014.  This decrease was mainly due to our overall cost reduction efforts in response to lower revenues.



 Research and development.    Research and development expenses consist primarily of salaries, employee-related benefit costs and consulting fees incurred in association with the development of our products. Research and development expenses for the year ended December 31, 2015 were $7.2 million, down $0.1 million, or 1% from $7.3 million for the year ended December 31, 2014.  Our decrease in research and development expenses in 2015 was mainly attributable to lower employee related costs.  



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Sales and marketing.    Sales and marketing expenses consist primarily of salaries, employee-related benefit costs, commissions and other incentive compensation, travel and entertainment and marketing program-related expenditures such as for collateral materials, trade shows, public relations, advertising and creative services. Sales and marketing expenses for the year ended December 31, 2015 were $4.9 million, down $0.3 million, or 6% from $5.2 million for the year ended December 31, 2014.   Sales and marketing expenses in 2015 decreased due to the reduction of employee related costs.



General and administrative.    General and administrative expenses consist primarily of salaries, employee-related benefit costs, provisions and credits related to uncollectible accounts receivable, professional service fees and legal fees.  General and administrative expenses for the year ended December 31, 2015 were $3.5 million, down 0.4 million, or 10% from 3.9 million for the year ended December 31, 2014. Our decrease in general and administrative expenses in 2015 was mainly resulted from lower employee related costs. 



Interest income, net.   Net interest income includes interest income on invested funds. We generated $76,000 in interest income for the year ended December 31, 2015 from our cash and cash equivalents as well as short-term investment balances in 2015,  up $22,000, or 41%, from $54,000 in interest income for the year ended December 31, 2014.  This increase was primarily due to the interest income resulting from tax refunds received by one of our foreign subsidiary in 2015.  

 

    Other loss, net.   Other loss, net was $1.8  million for the year ended December 31, 2015, down from  $2.0 million for the year ended December 31, 2014. In 2015 and 2014, other loss, net was primarily a result of unrealized currency rate fluctuations on our Euro assets, and a $570,000 increase related to adjustment recorded during 2015 pertaining to the fraudulent misappropriation of funds by a former employee of one of our German subsidiaries. 

 

    Provision for income taxes.   We recorded income tax expenses of $29,000 and $157,000 for the years ended December 31, 2015 and 2014, respectively. The tax expenses for 2015 and 2014 were primarily due to the foreign provision and foreign withholding taxes for such years.  



Liquidity and Capital Resources

 

Background and Overview

 

At December 31, 2015, our current assets exceeded our current liabilities by approximately $26.2 million. Our management believes that our cash and cash equivalents and short-term investments as of December 31, 2015 will be sufficient to fund operations through at least December 31, 2016.



As of December 31, 2015, we had $9.6 million of cash and $19.5 million of short-term investments, with no long-term debt borrowings.  The combined cash and short-term investment balances as of December 31, 2015 declined by $7.9 million compared to such balances as of December 31, 2014.  This decrease was mainly due to net cash used for operating activities, as described in the Consolidated Statement of Cash Flow during year 2015. 



We anticipate that our existing cash and cash equivalents and short-term investments will continue to be used primarily to fund our operating activities. 



The following table represents our liquidity indicators at December 31, 2015 and 2014 (dollars in thousands):

 





 

 

 

 

 

 

 



 

December 31,

 



 

2015

 

2014

 

Cash and cash equivalents

 

$

9,600 

 

$

24,941 

 

Short-term investments

 

$

19,531 

 

$

12,138 

 

Working capital

 

$

26,197 

 

$

36,045 

 

Working capital ratio

 

 

5.53 

 

 

7.63 

 

 

Cash Used for Operating Activities

 

Cash used for operating activities was $8.2 million for fiscal year 2015.  Net cash used by operating activities in this period consisted primarily of a $9.6 million operating loss, a $570,000 decrease related to the fraudulent misappropriation of funds by a former employee of one of our German subsidiaries and changes in operating assets and liabilities offset by noncash items during fiscal year 2015.



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Cash used for operating activities was $10.0 million for fiscal year 2014.  Net cash used by operating activities in this period consisted primarily of a $7.4 million operating loss, and changes in operating assets and liabilities offset by noncash items during fiscal year 2014.

 



Cash Used For Investing Activities

 

 Cash used for investing activities in fiscal year 2015was $7.4 million, primarily related to the net maturities of short-term investments in bonds and certificates of deposit. Cash used by investing activities in fiscal 2014 was $2.6 million, primarily related to the net maturities of short-term investments in bonds and certificates of deposit. 



Cash Provided By Financing Activities



Cash provided by financing activities was $275,000 in fiscal year  2015, primarily due to cash received in connection with employee purchases of common stock under the Employee Stock Purchase Plan. Cash provided by financing activities was $557,000 in fiscal year 2014, primarily attributable to cash received in connection with employee purchases of common stock under the Employee Stock Purchase Plan and employee exercise of stock options. 



Off-Balance Sheet Arrangements



As of December 31, 2015, we had no off-balance sheet arrangements (as defined in Item 303(a)(4)(ii) of Regulation S-K under the Securities Exchange Act of 1934, as amended) that create potential material risks for us and that are not recognized in our consolidated balance sheets as of December 31, 2015 and 2014.



Leases and Other Contractual Obligations

 

We lease our headquarters and other facilities under non-cancelable operating lease agreements expiring 2018. Under the terms of the agreements, we are required to pay lease costs, property taxes, insurance, and normal maintenance costs.

 

We expect to incur significant operating expenses for the foreseeable future in order to execute our business plan.  As of December 31, 2015, total future minimum lease payments are $2.1 million under non-cancelable operating lease agreements.

  

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The following Consolidated Financial Statements and the related Notes thereto of BroadVision, Inc. and the Report of the Company’s Independent Registered Public Accounting Firm are filed as a part of this Form 10-K.

 

20


 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

Board of Directors and Stockholders of

BroadVision, Inc.

 

We have audited the accompanying consolidated balance sheets of BroadVision, Inc. as of December 31, 2015 and 2014  and the related consolidated statements of comprehensive loss, stockholders' equity, and cash flows for each of the two years in the period ended December 31, 2015. In connection with our audits of the financial statements, we have also audited the financial statement schedule listed in item 15(a)2.  These financial statements and schedule are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements and schedule based on our audits. 

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and schedule.  We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of BroadVision, Inc. as of December 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.  Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.







/s/ OUM & Co. LLP

San Francisco, California

April 14,  2016





 

21


 

 

BROADVISION, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except par value amounts)









 

 

 

 

 

 



 

 

 

 

 

 



 

December 31,



 

2015

 

2014

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

9,600 

 

$

24,941 

Short-term investments

 

 

19,531 

 

 

12,138 

Accounts receivable, net of reserves of $135 and $213 as of December 31, 2015 and 2014, respectively

 

 

1,751 

 

 

3,286 

Prepaids and other

 

 

1,098 

 

 

1,119 

Total current asset

 

 

31,980 

 

 

41,484 

Property and equipment, net

 

 

87 

 

 

148 

Other assets

 

 

143 

 

 

194 

Total assets

 

$

32,210 

 

$

41,826 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

551 

 

$

482 

Accrued expenses

 

 

2,161 

 

 

2,292 

Unearned revenue

 

 

1,518 

 

 

1,638 

Deferred maintenance

 

 

1,553 

 

 

1,027 

Total current liabilities

 

 

5,783 

 

 

5,439 

Other non-current liabilities

 

 

918 

 

 

774 

Total liabilities

 

 

6,701 

 

 

6,213 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

Stockholders' 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; 4,895 and 4,832 shares issued and outstanding as of December 31, 2015 and 2014, respectively

 

 

 -

 

 

 -

Additional paid-in capital

 

 

1,269,582 

 

 

1,268,243 

Accumulated other comprehensive loss

 

 

(739)

 

 

(733)

Accumulated deficit

 

 

(1,243,334)

 

 

(1,231,897)

Total stockholders' equity

 

 

25,509 

 

 

35,613 

Total liabilities and stockholders' equity

 

$

32,210 

 

$

41,826 



 

 

 

 

 

 



The accompanying Notes are an integral part of these Consolidated Financial Statements

 

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BROADVISION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands, except per share amounts)







 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

Years Ended December 31,

 



 

2015

 

2014

 

Revenues:

 

 

 

 

 

 

 

Software licenses

 

$

4,414 

 

$

6,495 

 

Services

 

 

5,028 

 

 

7,090 

 

Total revenues

 

 

9,442 

 

 

13,585 

 

Cost of revenues:

 

 

 

 

 

 

 

Cost of software revenues

 

 

152 

 

 

149 

 

Cost of services

 

 

3,341 

 

 

4,406 

 

Total cost of revenues

 

 

3,493 

 

 

4,555 

 

Gross profit

 

 

5,949 

 

 

9,030 

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

 

7,219 

 

 

7,311 

 

Sales and marketing

 

 

4,889 

 

 

5,214 

 

General and administrative

 

 

3,501 

 

 

3,902 

 

Total operating expenses

 

 

15,609 

 

 

16,427 

 

Operating loss

 

 

(9,660)

 

 

(7,397)

 

Other income (loss):

 

 

 

 

 

 

 

Interest income, net

 

 

76 

 

 

54 

 

Other loss, net

 

 

(1,824)

 

 

(1,981)

 

Total other loss

 

 

(1,748)

 

 

(1,927)

 

Loss before income taxes

 

 

(11,408)

 

 

(9,324)

 

Provision for income taxes

 

 

(29)

 

 

(157)

 

Net loss

 

 

(11,437)

 

 

(9,481)

 

Other comprehensive (loss) income, net of tax:

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(6)

 

 

123 

 

Comprehensive loss

 

$

(11,443)

 

$

(9,358)

 

Earnings per share, basic and diluted:

 

 

 

 

 

 

 

Basic and diluted loss per share

 

$

(2.36)

 

$

(1.98)

 

Shares used in computing:

 

 

 

 

 

 

 

Weighted average shares-basic and diluted

 

 

4,857 

 

 

4,799 

 



The accompanying Notes are an integral part of these Consolidated Financial Statements

 

23


 

 

BROADVISION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands)









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Common Stock

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 



 

 

 

 

 

 

 

Additional

 

Other

 

 

 

 

Total

 



 

 

 

 

 

 

 

Paid-in

 

Comprehensive

 

Accumulated

 

Stockholders'

 



 

Shares

 

Amount

 

Capital

 

Loss

 

Deficit

 

Equity

 

Balances as of December 31, 2013

 

 

4,754 

 

$

 -

 

$

1,266,686 

 

$

(856)

 

$

(1,222,416)

 

$

43,414 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,481)

 

 

(9,481)

 

Other comprehensive (loss) income

 

 

 

 

 

 

 

 

 

 

 

123 

 

 

 

 

 

123 

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,000 

 

 

 

 

 

 

 

 

1,000 

 

Issuance of common stock from restricted stock awards

 

 

 

 

 

 

 

 -

 

 

 

 

 

 

 

 

 -

 

Issuance of common stock under employee stock purchase plan

 

 

47 

 

 

 

 

 

332 

 

 

 

 

 

 

 

 

332 

 

Issuance of common stock from exercise of options

 

 

24 

 

 

 

 

 

225 

 

 

 

 

 

 

 

 

225 

 

Balances as of December 31, 2014

 

 

4,832 

 

 

 -

 

 

1,268,243 

 

 

(733)

 

 

(1,231,897)

 

 

35,613 

 

Net loss

 

 

 

 

 

 -

 

 

 

 

 

 

 

 

(11,437)

 

 

(11,437)

 

Other comprehensive (loss) income

 

 

 

 

 

 

 

 

 

 

 

(6)

 

 

 

 

 

(6)

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,064 

 

 

 

 

 

 

 

 

1,064 

 

Issuance of common stock from restricted stock awards

 

 

 

 

 -

 

 

 -

 

 

 

 

 

 

 

 

 -

 

Issuance of common stock under employee stock purchase plan

 

 

54 

 

 

 -

 

 

275 

 

 

 

 

 

 

 

 

275 

 

Balances as of December 31, 2015

 

 

4,895 

 

$

 -

 

$

1,269,582 

 

$

(739)

 

$

(1,243,334)

 

$

25,509 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



The accompanying Notes are an integral part of these Consolidated Financial Statements

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BROADVISION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)







 

 

 

 

 

 

 



 

Years Ended December 31,

 



 

2015

 

2014

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

 

$

(11,437)

 

$

(9,481)

 

Adjustments to reconcile net loss to net cash used for operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

77 

 

 

118 

 

Stock-based compensation

 

 

1,064 

 

 

1,000 

 

Other

 

 

(9)

 

 

63 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

1,544 

 

 

184 

 

Prepaids and other

 

 

21 

 

 

119 

 

Other non-current assets

 

 

51 

 

 

 

Accounts payable and accrued expenses

 

 

(62)

 

 

(155)

 

Unearned revenue and deferred maintenance

 

 

406 

 

 

(1,824)

 

Other noncurrent liabilities

 

 

144 

 

 

(4)

 

Net cash used for operating activities

 

 

(8,201)

 

 

(9,978)

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(16)

 

 

(24)

 

Purchase of short-term investment

 

 

(21,931)

 

 

(12,310)

 

Maturities of short-term investment

 

 

14,538 

 

 

9,708 

 

Net cash used for investing activities

 

 

(7,409)

 

 

(2,626)

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from issuance of common stock, net

 

 

275 

 

 

332 

 

Proceeds from exercise of common stock options, net

 

 

 -

 

 

225 

 

Net cash provided by financing activities

 

 

275 

 

 

557 

 

Effect of exchange rates on cash and cash equivalents

 

 

(6)

 

 

123 

 

Net decrease in cash and cash equivalents

 

 

(15,341)

 

 

(11,924)

 

Cash and cash equivalents at beginning of year

 

 

24,941 

 

 

36,865 

 

Cash and cash equivalents at end of year

 

$

9,600 

 

$

24,941 

 



 

 

 

 

 

 

 

Supplemental Cash flows disclosures:

 

 

 

 

 

 

 

Cash paid (refund) for income taxes

 

$

 

$

(138)

 



 

 

 

 

 

 

 

The accompanying Notes are an integral part of these Consolidated Financial Statements

25


 

 

BROADVISION, INC. AND SUBSIDIARIES



Notes to Consolidated Financial Statements



Note 1---Organization and Summary of Significant Accounting Policies



 Nature of Business

 

BroadVision, Inc. (collectively with its subsidiaries, "BroadVision" or "we") was incorporated in the state of Delaware on May 13, 1993 and has been a publicly traded corporation since 1996. We develop, market, and support enterprise portal applications that enable companies to unify their e-business infrastructure and conduct both interactions and transactions with employees, partners, and customers through a personalized self-service model that increases revenues, reduces costs, and improves productivity.



 Principles of Consolidation 

 

The accompanying Consolidated Financial Statements include our and our subsidiaries’ accounts. All significant intercompany accounts and transactions have been eliminated in consolidation.



 Use of Estimates 



The preparation of 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 the reasonableness of our estimates, including those related to receivable reserves, stock-based compensation, investments and income taxes, as well as contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates using different assumptions or conditions. We believe the following significant accounting policies reflect the more significant judgments and estimates used in the preparation of our Consolidated Financial Statements.



 Revenue Recognition



Overview



Our revenue consists of fees for licenses of our software products, maintenance, consulting services and training.



Our revenue recognition policies comply with Accounting Standards Codification ASC 985-605, Software: Revenue Recognition, and Staff Accounting Bulletin SAB 104, Revenue Recognition. In October 2009, the FASB amended the accounting standards in Accounting Standards Update ("ASU") 2009-13 (an update to ASC 605-25) ("ASU 2009-13") for certain multiple deliverable revenue arrangements to: 1) provide updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and how the consideration should be allocated; 2) require an entity to allocate revenue in an arrangement using best estimated selling price ("BESP") of deliverables if a vendor does not have VSOE of selling price or third-party evidence ("TPE") of selling price; and 3) eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method. We adopted ASU 2009-13 at the beginning of the first quarter of fiscal 2011. The application of these new accounting standards did not have a material impact on total net revenues for fiscal year 2011.



 We recognize revenue when all four of the following revenue recognition criteria have been met:





 

 

   

Persuasive evidence of an arrangement exists;

   

We have delivered the product or performed the service;

   

The fee is fixed or determinable; and

   

Collection is probable.



 We qualify the second of the above listed criteria differently for different types of revenues, as follows.



Software License Revenue, Non-Subscription and Non-Hosted Products



Delivery of non-subscription and non-hosted software products is considered to have occurred when title to the physical media and risk of loss have been transferred to the customer, which generally occurs when media containing the licensed programs is provided to a common carrier. In case of electronic delivery, delivery occurs when the customer is given access to the licensed programs. For products that cannot be used without a licensing key, the delivery requirement is met when the licensing key is made available to the

26


 

 

customer.  We do not grant a right of return for non-subscription or non-hosted software products.  We recognize revenue upon delivery of our software.



Software License Revenue, Subscription Products or Hosted Products



Although we made the software available to the customer at a particular point in time, the delivery of subscription software products (such as QuickSilver) and hosted software products (such as Vmoso, Clearvale and Clear) is considered to have occurred ratably over the duration of the contract.  We recognize revenue ratably over the contract periods.  



Services Revenues



Consulting services revenues and training revenues are recognized as such services are performed.  These services are not essential to the functionality of the software. We record reimbursements from our customers for out-of-pocket expenses as an increase to services revenues.



Maintenance revenue, which includes revenue that is derived from software license agreements that entitle the customers to technical support and future unspecified enhancements to our products, is recognized ratably over the related agreement period, which time period is generally twelve months.

 

Cash and Cash Equivalents, and Short-term Investments



We consider all debt with remaining maturities of three months or less at the date of purchase to be cash equivalents. Short-term investments consist of debt that has a remaining maturity of less than one year as of the date of the balance sheet.



Management determines the appropriate classification of short-term investments at the time of purchase and evaluates such designation as of each balance sheet date. All short-term investments to date have been classified as held-to-maturity and carried at amortized cost, which approximates fair market value, on our Consolidated Balance Sheets. Our held-to-maturity securities did not have any gross unrealized gains and losses as of December 31, 2015 and 2014, respectively.  Our short-term investments’ contractual maturities occur before December 2016.  Total interest income during fiscal years 2015 and 2014 was $76,000 and $54,000, respectively.

  

Research and Development and Software Development Costs

 

ASC 985-20, Cost of Software to be Sold, Leased, or Marketed ("ASC 985-20"), requires capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based on our product development process, technological feasibility is established upon the completion of a working model. To date, costs incurred by us from the completion of the working model to the point at which the product is ready for general release have been insignificant. Accordingly, we have charged all such costs to research and development expenses in the period incurred.

 

 Advertising Costs

 

Advertising costs are expensed as incurred. Advertising expense, which is included in sales and marketing expense in the accompanying Consolidated Statements of Comprehensive Loss, amounted to $22,000 and $1,000 in 2015 and 2014, respectively.



Receivable Reserves

 

                 Occasionally, our customers experience financial difficulty after we recognize the revenue but before payment has been received. We maintain receivable reserves for estimated losses resulting from the inability of our customers to make required payments. Our normal payment terms are generally 30 to 90 days from the invoice date. If the financial condition of our customers were to deteriorate, resulting in their inability to make the contractual payments, additional reserves may be required. Losses from customer receivables in the two-year period ended December 31, 2015, have not been significant. If all efforts to collect a receivable fail, and the receivable is considered uncollectible, such receivable would be written off against the receivable reserve.

 

Concentrations of Credit Risk



Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments, and accounts receivable. We maintain our cash and cash equivalents and short-term investments with high-quality institutions. Our management performs ongoing credit evaluations of our customers and requires certain of these customers to provide security deposits or letters of credit. 



Cash deposits and cash equivalents in foreign countries of approximately $3.4 million and $4.8 million on December 31, 2015 and 2014, respectively, are subject to local banking laws and may bear higher or lower risk than cash deposited in the United States. As part of our cash and investment management processes, we perform periodic evaluations of the credit standing of the financial

27


 

 

institutions and we have not sustained any credit losses from instruments held at these financial institutions. From time to time, our financial instruments maintained in our foreign subsidiaries may be subject to political risks or instability that may arise in foreign countries where we operate.

 

For the year ended December 31, 2015,  no customer accounted for more than 10% of our total revenues. For the year ended December 31, 2014,  one  government entity accounted for 11% of our total revenues.  



Property and Equipment



Property and equipment are stated at cost and depreciated on a straight-line basis over their estimated useful lives (generally two years for software, three years for computer equipment and four years for furniture and fixtures). Leasehold improvements are amortized over the lesser of the remaining life of the lease term or their estimated useful lives.



Maintenance and repairs are charged to operations as incurred. When assets are retired or otherwise disposed of, the cost and accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is reflected in operations in the period realized.



Fair Value of Financial Instruments

 

                We adopted the provisions of ASC 820-10, Fair Value Measurement ("ASC 820-10 ").  ASC 820-10 establishes a framework for measuring fair value and requires disclosures about fair value measurements by establishing a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:



   

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 measure the following financial assets at fair value on a recurring basis. The fair value of these financial assets as of December 31, 2015 and 2014 (in thousands) were as follows





 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

Fair Value at  Reporting Date Using

 



 

 

 

 

Quoted

 

 

 

 

 

 

 



 

 

 

 

Prices in

 

 

 

 

 

 

 



 

 

 

 

Active

 

 

Significant

 

 

Significant

 



 

 

 

 

Markets for

 

 

Other

 

 

 

 



 

 

 

 

Identical

 

 

Observable

 

Unobservable

 



 

December 31,

 

Assets

 

 

Inputs

 

Inputs

 



 

2015

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

8,909 

 

$

8,909 

 

$

 -

 

$

 -

 

Money market funds

 

 

691 

 

 

691 

 

 

 -

 

 

 -

 

Total cash and cash equivalents

 

$

9,600 

 

$

9,600 

 

$

 -

 

$

 -

 

Fixed income securities