Quarterly Report (10-q)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended September 30, 2019



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

For the transaction period from _________ to __________

Commission File Number 001-34205

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.)

460 Seaport Ct., Suite 102		94063
Redwood City, California
(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:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.0001 per share	BVSN	Nasdaq Capital Market

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 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☑	Smaller reporting company ☑
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑

As of October 25, 2019, the registrant had 5,061,018 shares of common stock outstanding.

BROADVISION, INC. AND SUBSIDIARIES

FORM 10-Q

Quarter Ended September 30, 2019

TABLE OF CONTENTS



PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
Condensed Consolidated Balance Sheets at September 30, 2019 (unaudited) and December 31, 2018	1
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2019 and 2018 (unaudited)	2
Condensed Consolidated Statements of Stockholders’ Equity for the nine months ended September 30, 2019 and 2018 (unaudited)	3
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 (unaudited)	4
Notes to Condensed Consolidated Financial Statements (unaudited)	5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3. Quantitative and Qualitative Disclosures About Market Risk	24
Item 4. Controls and Procedures	24

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	25
Item 1A.Risk Factors	26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3. Defaults Upon Senior Securities	38
Item 4. Mine Safety Disclosures	38
Item 5. Other Information	38
Item 6. Exhibits	39

SIGNATURES	40

EXHIBIT 31.1
EXHIBIT 32.1

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BROADVISION, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value amounts)



	September 30,		December 31,
	2019		2018
ASSETS		(unaudited)		(See Note 1)
Current assets:
Cash and cash equivalents	$	2,169	$	2,574
Accounts receivable, net of reserves of $63 and $193
as of September 30, 2019 and December 31, 2018, respectively		235		331
Accounts receivable related party (Note 7)		979		—
Operating lease right-of-use assets		60		—
Prepaids and other		544		692
Current assets of discontinued operations (Note 8)		—		145
Total current assets		3,987		3,742
Property and equipment, net		9		15
Investment in Vmoso, Inc. (Note 4)		1,497		—
Other assets		94		96
Total assets	$	5,587	$	3,853
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	452	$	215
Accrued expenses		530		607
Operating lease liabilities – current		58		—
Unearned revenues		670		321
Deferred maintenance		330		337
Current liabilities of discontinued operations (Note 8)		—		417
Total current liabilities		2,040		1,897
Other non-current liabilities		813		555
Total liabilities		2,853		2,452

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; 5,061 and 5,057 shares		—		—
issued and outstanding as of September 30, 2019 and December 31, 2018, respectively
Additional paid-in capital		1,272,009		1,271,949
Accumulated other comprehensive loss		(1,251)		(1,435)
Accumulated deficit		(1,268,024)		(1,269,113)
Total stockholders’ equity		2,734		1,401
Total liabilities and stockholders’ equity	$	5,587	$	3,853

See Accompanying Notes to Condensed Consolidated Financial Statements.

BROADVISION, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share amounts)

(Unaudited)



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Revenues:
Software licenses	$	284	$	285	$	964	$	1,199
Services		424		458		1,333		1,709
Total revenues		708		743		2,297		2,908
Cost of revenues:
Cost of software revenues		12		27		—		102
Cost of services		75		105		235		424
Total cost of revenues		87		132		235		526
Gross profit		621		611		2,062		2,382
Operating expenses:
Research and development		322		235		537		1,249
Sales and marketing		69		231		140		669
General and administrative		596		535		1,941		2,072
Total operating expenses		987		1,001		2,618		3,990
Operating loss		(366)		(390)		(556)		(1,608)
Interest income, net		4		13		12		49
Other income (loss), net		(190)		(72)		(174)		(223)
Loss before income taxes		(552)		(449)		(718)		(1,782)
Income tax expense		2		(2)		(15)		(4)
Net loss from continuing operations		(550)		(451)		(733)		(1,786)
Discontinued Operations:
Net loss from discontinued operations		(665)		(1,265)		(2,234)		(3,582)
Gain on deconsolidation of Vmoso, Inc.		2,349		—		2,349		—
Net income (loss) from discontinued operations		1,684		(1,265)		115		(3,582)
Net income (loss)		1,134		(1,716)		(618)		(5,368)
Net loss attributed to non-controlling interest		(529)		—		(1,707)		—
Net income (loss) attributed to BroadVision	$	1,663	$	(1,716)	$	1,089	$	(5,368)
Amounts attributed to controlling interest:
Net loss attributed to controlling interest from continuing operations	$	(467)	$	(1,716)	$	(519)	$	(5,368)
Net income attributed to controlling interest from discontinued operations		2,130		—		1,608		—
Net income (loss) attributed to BroadVision	$	1,663	$	(1,716)	$	1,089	$	(5,368)
Net loss per share attributed to continuing operations:
Basic	$	(0.11)	$	(0.09)	$	(0.15)	$	(0.36)
Diluted	$	(0.11)	$	(0.09)	$	(0.15)	$	(0.36)
Net income (loss) per share attributed to discontinued operations:
Basic	$	0.33	$	(0.25)	$	0.02	$	(0.72)
Diluted	$	0.33	$	(0.25)	$	0.02	$	(0.72)
Shares used in computing:
Weighted average shares, basic		5,034		4,998		5,018		4,997
Weighted average shares, diluted		5,044		4,998		5,037		4,997
Other comprehensive (loss) gain, net of tax:
Foreign currency translation adjustment		188		29		184		106
Comprehensive income		188		29		184		106
Comprehensive income (loss)	$	1,322	$	(1,687)	$	(434)	$	(5,262)

See Accompanying Notes to Condensed Consolidated Financial Statements.

BROADVISION, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, Unaudited)



	Common Stock
						Accumulated
				Additional		Other						Noncontrolling		Total
				Paid-in		Comprehensive		Accumulated				interest as of		Stockholders'
	Shares	Amount		Capital		Loss		Deficit		Total		September 29, 2019		Equity
Balances as of December 31, 2018	5,057	$	—	$	1,271,949	$	(1,435)	$	(1,269,113)	$	1,401	$	—	$	1,401
Contribution from noncontrolling interest					—		—		—		—		3,000		3,000
Net loss					—		—		(289)		(289)		(575)		(864)
Other comprehensive income					—		96		—		96		—		96
Stock-based compensation					18		—		—		18		—		18
Issuance of common stock under employee stock purchase plan	2		—		2		—		—		2		—		2
Balances as of March 31, 2019	5,059		—		1,271,969		(1,339)		(1,269,402)		1,228		2,425		3,653
Net loss					—		—		(285)		(285)		(602)		(887)
Other comprehensive loss					—		(100)		—		(100)		—		(100)
Stock-based compensation					19		—		—		19		—		19
Issuance of common stock under employee stock purchase plan	2		—		2		—				2		—		2
Balances as of June 30, 2019	5,061		—		1,271,990		(1,439)		(1,269,687)		864		1,823		2,687
Net income (loss)					—		—		1,663		1,663		(529)		1,134
Other comprehensive income					—		188		—		188				188
Stock-based compensation					19		—		—		19		—		19
Deconsolidation of Vmoso, Inc.					—		—		—		—		(1,294)		(1,294)
Balances as of September 30, 2019	5,061	$	—	$	1,272,009	$	(1,251)	$	(1,268,024)	$	2,734	$	—	$	2,734

Balances as of December 31, 2017	4,995	$	—	$	1,271,585	$	(1,558)	$	(1,262,718)	$	7,309	$	—	$	7,309
Net loss					—		—		(1,492)		(1,492)		—		(1,492)
Other comprehensive income					—		(182)		—		(182)		—		(182)
Stock-based compensation					126		—		—		126		—		126
Issuance of common stock under employee stock purchase plan	2		—		5		—		—		5		—		5
Cumulative effect of adoption of ASC 606					—		—		605		605		—		605
Balances as of March 31, 2018	4,997		—		1,271,716		(1,740)		(1,263,605)		6,371		—		6,371
Net loss					—		—		(2,160)		(2,160)		—		(2,160)
Other comprehensive loss					—		259		—		259		—		259
Stock-based compensation					107		—		—		107		—		107
Issuance of common stock under employee stock purchase plan	1		—		2		—		—		2		—		2
Balances as of June 30, 2018	4,998		—		1,271,825		(1,481)		(1,265,765)		4,579		—		4,579
Net loss					—		—		(1,714)		(1,714)		—		(1,714)
Other comprehensive loss					—		29		—		29		—		29
Stock-based compensation					67		—		—		67		—		67
Balances as of September 30, 2018	4,998	$	—	$	1,271,892	$	(1,452)	$	(1,267,479)	$	2,961	$	—	$	2,961

See Accompanying Notes to Condensed Consolidated Financial Statements.

BROADVISION, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, Unaudited)



	Nine Months Ended
	September 30,
	2019		2018
Cash flows from operating activities:
Net loss from continuing operations	$	(733)	$	(1,786)
Net income (loss) from discontinued operations		115		(3,582)
Total net loss		(618)		(5,368)
Adjustments to reconcile net loss to net cash used for operating activities:
Gain on deconsolidation of Vmoso, Inc.		(2,349)		—
Depreciation and amortization		6		17
Stock-based compensation		56		300
Provision (benefit) of receivable reserves		(90)		(77)
Accumulated effect on accounting changes		—		605
Changes in operating assets and liabilities:
Accounts receivable		313		950
Accounts receivable related party		(979)		—
Prepaids and other		148		14
Operating lease right-of-use assets		(60)		—
Other non-current assets		—		(9)
Accounts payable and accrued expenses		(98)		(659)
Operating lease liabilities - current		58		—
Unearned revenues and deferred maintenance		391		(1,108)
Other noncurrent liabilities		1,229		10
Net cash used for operating activities		(1,993)		(5,325)
Cash flows from investing activities:
Purchase of property and equipment		—		(1)
Deconsolidation of Vmoso, Inc. cash		(1,596)		—
Maturities of short term investments		—		1,000
Net cash (used for) provided by investing activities		(1,596)		999
Cash flows from financing activities:
Proceeds from issuance of common stock, net		3,000		9
Net cash provided by financing activities		3,000		9
Effect of exchange rates on cash and cash equivalents		184		106
Net decrease in cash and cash equivalents		(405)		(4,211)
Cash and cash equivalents at beginning of period		2,574		8,560
Cash and cash equivalents at end of period	$	2,169	$	4,349

See Accompanying Notes to Condensed Consolidated Financial Statements.

BROADVISION, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Organization and Summary of Significant Accounting Policies

BroadVision, Inc. 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.

Except where specifically noted or the context otherwise requires, the use of terms such as the “Company”, “BroadVision,” “we” and “our” in these Notes to Condensed Consolidated Financial Statements refers to BroadVision, Inc. and its subsidiaries.

Basis of Presentation and Principles of Consolidation

The condensed consolidated financial results and related information as of and for the three and nine months ended September 30, 2019 and 2018 are unaudited. The Condensed Consolidated Balance Sheet at December 31, 2018 has been derived from the audited consolidated financial statements as of that date but does not necessarily reflect all of the disclosures previously reported in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The unaudited Condensed Consolidated Financial Statements should be reviewed in conjunction with the audited consolidated financial statements and related notes contained in our 2018 Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on April 1, 2019, as amended.

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions in Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, these statements do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of interim financial information have been included. Operating results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the remainder of the year ending December 31, 2019 or any future interim period. The condensed consolidated financial statements include our accounts and those of our wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in the consolidation.

On January 2, 2019, we entered into a Series A Preferred Stock Purchase Agreement with Vmoso, Inc., a Delaware corporation (“VMSO”), for the purchase of 745,000 shares of VMSO’s Series A Preferred Stock for a purchase price comprising the contribution of our intellectual property and other net assets. This transaction was considered a common control transaction, and the assets and liabilities were transferred to VMSO at carrying value and resulted in no gain or loss. The contributed assets represent substantially all of the intellectual property and other assets relating to our Clearvale and Vmoso platforms, including our Clearvale and Vmoso products and customer relationships and our My Vmoso Network (“MVN”) development project. VMSO will continue the commercialization of the Clearvale and Vmoso products and the development of MVN.

Following the completion of VMSO’s sale of Class 1 Common Stock described below, the shares of Series A Preferred Stock owned by the Company represent approximately 19.9% of the total number of shares of VMSO’s capital stock outstanding. The rights, preferences and privileges of VMSO’s Series A Preferred Stock include a liquidation preference of $1.00 per share in addition to participating rights proportionate to the number of shares held. The fair value of the VMSO Series A Preferred Stock held by the Company upon completion of VMSO’s sale of Class 1 Common Stock described below was 33.3% of VMSO.

On January 2, 2019, Dr. Pehong Chen, our and VMSO’s President and Chief Executive Officer and our largest stockholder, purchased 3,000,000 shares of VMSO’s Class 1 Common Stock, representing approximately 80.1% of the total number of shares of VMSO’s capital stock outstanding after such purchase, for a purchase price of $3,000,000 in cash pursuant to a Class 1 Common Stock Purchase Agreement between Dr. Chen and VMSO. The fair value of Dr. Chen’s non-controlling interest in VMSO upon completion of VMSO’s sale of Class 1 Common Stock was 66.7% of VMSO.

On January 2, 2019, we entered into a Services and Facilities Agreement (“SFA”), with VMSO, the terms of which provide for the payment of certain fees to us by VMSO, in exchange for the contribution of our expertise, resources, services, as well as the limited use of our facilities in VMSO’s business and operations. The SFA was initially effective as of January 1, 2019 and was amended and restated on September 30, 2019 (“the A&R SFA”). The A&R SFA substantially reduced the nature and number of services that we provide to VMSO, and instead, committed us to provide VMSO with only certain back-office services relating primarily to finance, human resources, information technology and infrastructure support, as well as a limited right to use and occupy our facilities in Redwood City, California, in exchange for

fees generally intended to permit us to recover the cost to us of providing VMSO with such services, facilities and equipment, with a nominal profit margin. The A&R SFA provides both parties with the flexibility to expand the scope of the agreement to cover any additional services by mutual agreement, as well as any services that are ancillary, incidental to, or necessary for the performance of the services contemplated by the A&R SFA. Since the execution of the initial SFA, we have acted as a reseller of VMSO’s Clearvale and Vmoso products, and we expect to continue to do so, with the A&R SFA contemplating our potential future execution of a formal Reseller Margin Arrangement with VMSO. The A&R SFA does not contemplate or result in a change in our ownership share of VMSO. The term of the A&R SFA shall continue until June 30, 2020, unless earlier terminated by either party, at any time, upon 30 days’ written notice and shall be renewable upon written consent from both parties.

The Company consolidates variable interest entities (“VIEs”) in which it holds a variable interest and for which the Company is determined to be the primary beneficiary.

Concurrent with the execution of the A&R SFA on September 30, 2019, the Company also terminated employees whose sole function was to support VMSO and its products and product development efforts: Vmoso, Clearvale, and MVN. As a result of the A&R SFA, the Company no longer controlled the management of VMSO, prompting and permitting the Company to deconsolidate VMSO as a variable interest entity effective as of September 30, 2019. Refer to Note 8. Discontinued Operations, for additional details on the deconsolidation of VMSO. As part of the deconsolidation of VMSO on September 30, 2019, the Company recorded its investment in VMSO at fair value of $1.5 million as of September 30, 2019 on the Condensed Consolidated Balance Sheet under the “Investment in Vmoso, Inc.” caption, removed the assets and liabilities of VMSO from the Condensed Consolidated Balance Sheet at net carrying value of $0.4 million, removed the noncontrolling interest in VMSO of $1.3 million from the Condensed Consolidated Balance Sheet and recorded a $2.3 million gain on deconsolidation of VMSO. The Condensed Consolidated Statements of Comprehensive Income (Loss), Stockholders’ Equity, and Cash Flows include the operating results, changes in stockholders’ equity, and cash flows of VMSO through September 29, 2019 prior to deconsolidation on September 30, 2019.

On October 29, 2019, we entered into an amendment to the A&R SFA with VMSO (the “SFA Amendment”), which further clarified the permitted limited use of our facilities, added certain billable financial services that we would provide to VMSO through at least the end of 2019, and provided us with the ability to incur, pay, and be reimbursed for certain expenses on VMSO’s behalf during the term of the A&R SFA.

The assets and liabilities, operating results, and cash flows related to Vmoso and Clearvale products and MVN product development are presented as discontinued operations, separate from our continuing operations, for all periods presented in these interim Condensed Consolidated Financial Statements and footnotes, unless otherwise indicated. Refer to Note 8. Discontinued Operations, for details on the income and major components of assets and liabilities of our discontinued operations.

Use of Estimates

The preparation of Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make certain assumptions and estimates that affect reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, including those related to receivable reserves, stock-based compensation, investments, impairment assessments and income taxes, valuation of equity instruments, 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.

Liquidity

The accompanying Condensed Consolidated Financial Statements have been prepared assuming the Company will continue as a going concern. During the nine months ended September 30, 2019, the Company had a net loss of $0.7 million from continuing operations and net cash used for operations of $2.0 million, and at September 30, 2019, the Company had working capital of $1.9 million. The Company has implemented cost reduction plans commencing the second half of 2017 to reduce the Company’s cash needs and reduced the cost of its operations by approximately $5 million in 2018, and by an additional approximately $3.3 million in the nine months ended September 30, 2019. The Company believes its cash and cash equivalents as of September 30, 2019, will be sufficient to fund operations for at least twelve months from the date of issuance of these Condensed Consolidated Financial Statements.

However, further cost reduction may result in voluntary departures of highly skilled technical and managerial personnel, which would have a material adverse effect on our business, internal controls, financial condition and results of operations. We expect to opportunistically 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 current 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. The outcome of these matters cannot be predicted at this time. Our ability to continue as a going concern is dependent upon our ability to successfully accomplish these plans and secure sources of financing and/or reduce costs and ultimately attain profitable operations.

Stock-Based Compensation

The following table sets forth the components of the total stock-based compensation expense recognized in our Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2019 and 2018 (in thousands):



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Total	2019		2018		2019		2018
Cost of services	$	—	$	13	$	—	$	38
Research and development		—		4		—		26
Sales and marketing		2		10		10		37
General and administrative		17		7		46		73
Total stock-based compensation attributed to continuing operations		19		34		56		174
Total stock-based compensation attributed to discontinued operations		—		33		—		126
Total stock-based compensation	$	19	$	67	$	56	$	300

Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities on the condensed consolidated balance sheets. As of September 30, 2019 and December 31, 2018, the Company did not have finance leases.

ROU assets and operating lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The ROU asset also includes any lease payments made and excludes lease incentives. The lease terms may include options to extend or terminate the lease when it is reasonably certain to be exercised. Operating leases are recognized on a straight-line basis over the lease term.

Net Income (Loss) Per Share

Basic net income (loss) per share is computed using the weighted-average number of shares of common stock outstanding, excluding the effects of any potentially dilutive securities. Diluted net income (loss) per share is computed using the weighted-average number of shares of common stock outstanding and, when dilutive, common equivalent shares from outstanding stock options and awards using the treasury stock method.

The following table sets forth the basic and diluted net income (loss) per share computational data for the periods presented (in thousands, except per share amounts):



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Net loss attributable to continuing operations		(550)		(451)		(733)		(1,786)
Net income (loss) attributable to discontinued operations		1,684		(1,265)		115		(3,582)
Net income (loss)	$	1,134	$	(1,716)	$	(618)	$	(5,368)
Net loss per share attributed to continuing operations:
Basic	$	(0.11)	$	(0.09)	$	(0.15)	$	(0.36)
Diluted	$	(0.11)	$	(0.09)	$	(0.15)	$	(0.36)
Net income (loss) per share attributed to discontinued operations:
Basic	$	0.33	$	(0.25)	$	0.02	$	(0.72)
Diluted	$	0.33	$	(0.25)	$	0.02	$	(0.72)
Shares used in computing:
Weighted average shares, basic		5,034		4,998		5,018		4,997
Weighted-average common equivalent shares from outstanding common stock options and awards		10		—		19		—
Weighted average shares, diluted		5,044		4,998		5,037		4,997

Legal Proceedings

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

Foreign Currency Translations

The functional currencies of all foreign subsidiaries are the local currencies of their respective countries. Assets and liabilities of these subsidiaries are translated into U.S. dollars at the balance sheet date. Income and expense items are translated at average exchange rates for the periods presented. Foreign exchange gains and losses resulting from the remeasurement of foreign currency assets and liabilities are included as other income (expense), net in the Condensed Consolidated Statements of Comprehensive Loss. The translation adjustment was a gain of $184,000 and $106,000 for the nine months ended September 30, 2019 and 2018, respectively. These amounts are included in the accumulated other comprehensive income (loss) account in the Condensed Consolidated Balance Sheets.

Comprehensive Income (Loss)

Comprehensive income (loss) includes net income (loss) and other comprehensive gains and losses, which primarily consists of foreign currency translation adjustments. Total comprehensive income (loss) is presented in the accompanying Condensed Consolidated Statements of Comprehensive Income (Loss). Total accumulated other comprehensive loss is displayed as a separate component of stockholders’ equity in the accompanying Condensed Consolidated Balance Sheets. The accumulated balances of other comprehensive loss consist of the following, net of taxes (in thousands):



	Accumulated
	Other
	Comprehensive
	Loss
Balance, December 31, 2018	$	(1,435)
Net change during period		184
Balance, September 30, 2019	$	(1,251)

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncement

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), which requires the recognition of an asset and liability for lease arrangements longer than twelve months. The Company adopted the new accounting standard on January 1, 2019, using the modified retrospective method and elected the package of practical expedients for expired or existing contracts, which allowed the Company not to reassess (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs. The Company recorded right-of-use assets of $120,000 in “Operating lease right-of-use assets” on the Company's Condensed Consolidated Balance Sheet, and lease liabilities of $120,000 in aggregate in “Operating lease liabilities – current” and “other non-current liabilities” on the Company’s Condensed Consolidated Balance Sheet on the adoption date. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

Recently Issued Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326). This ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. ASU 2016-13 is effective for the Company in the first quarter of fiscal 2023. Entities may early adopt the ASU in their fiscal years beginning after December 15, 2018. The Company does not believe this ASU will have a material impact on its Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13), which modifies the disclosure requirements on fair value measurements. ASU 2018-13 is effective for the Company in the first quarter of fiscal 2020. Early adoption is permitted. The Company does not believe this ASU will have a material impact on its Consolidated Financial Statements.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. ASU 2018-15 clarifies the accounting for implementation costs in cloud computing arrangements. ASU 2018-15 is effective for the Company in the first quarter of fiscal 2020. Early adoption is permitted. The Company does not believe this ASU will have a material impact on its Consolidated Financial Statements.

Note 2. Revenues

Revenue Accounting Policies

Our revenues consist of fees for licenses of our software products, maintenance, consulting services and training. Revenues are recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. The transaction price is generally in the form of a fixed fee at contract inception without variable consideration. We allocate the transaction price to each distinct performance obligation based on the relative estimated standalone selling prices for each performance obligation. We then look to how control transfers to the customer in order to determine the timing of revenue recognition.

The following is a description of principal activities from which we generate revenues:

Software License Revenues – Products with Non-Ratably Recognized Revenue

Licenses for software products with non-ratably recognized revenues (such as QuickSilver) provide the customer with a right to use the software as it exists when made available to the customer. Customers may purchase perpetual licenses or subscribe to licenses, which provide customers with the same functionality and differ mainly in the duration over which the customer benefits from the software. Revenues from such software licenses are recognized upfront at the point in time when the software is made available to the customer, which is consistent with the timing of the payments received from the customer. We do not grant a right of return for these software products.

Maintenance Revenues

Maintenance revenues, which include revenues that are allocated from software license agreements that entitle the customers to technical support and future unspecified enhancements to our products, are recognized ratably over the related agreement period, which time

period is generally twelve months. Customer payments are usually received annually in advance, which are recorded as deferred revenues and are recognized as revenues as we perform our obligations under these agreements.

Consulting Services Revenues

Consulting services revenues and training revenues are recognized as such services are performed based on time and cost incurred. 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.

Significant Judgments

Our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Judgment is also required to determine the timing of the recognition, as well as the standalone selling price for each distinct performance obligation. In instances where the standalone selling price is not directly observable, such as when we do not sell the product or service separately, we determine such standalone selling price using information that may include market conditions and other observable inputs.

Practical Expedients and Exemptions

We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within sales and marketing expenses.

Disaggregation of Revenues

The following table provides information about disaggregated revenues from continuing operations by geographical region, major product line and timing of revenue recognition (in thousands):


	Nine months ended September 30, 2019
Geographic region:	Software Licenses - Non-hosted		Maintenance		Professional Services		Total
Americas	$	909	$	651	$	3	$	1,563
Europe		54		480		3		537
Asia/Pacific		1		158		38		197
Total revenues	$	964	$	1,289	$	44	$	2,297

	Nine months ended September 30, 2018
Geographic region:	Software Licenses - Non-hosted		Maintenance		Professional Services		Total
Americas	$	1,082	$	592	$	24	$	1,698
Europe		115		548		71		734
Asia/Pacific		2		179		295		476
Total revenues	$	1,199	$	1,319	$	390	$	2,908


	Nine months ended September 30, 2019
Timing of revenue recognition:	Software Licenses - Non-hosted		Maintenance		Professional Services		Total
Transferred at a point in time	$	964	$	—	$	—	$	964
Transferred over time		—		1,289		44		1,333
Total revenues	$	964	$	1,289	$	44	$	2,297


	Nine months ended September 30, 2018
Timing of revenue recognition:	Software Licenses - Non-hosted		Maintenance		Professional Services		Total
Transferred at a point in time	$	1,199	$	—	$	—	$	1,199
Transferred over time		—		1,319		390		1,709
Total revenues	$	1,199	$	1,319	$	390	$	2,908

Contract Balances

The following table provides information about receivables, contract assets and deferred revenues from contracts with customers from continuing operations. Deferred revenues include unearned revenues and deferred maintenance (in thousands):



	Nine months ended September 30, 2019
	Balance at beginning of period		Increases		Decreases		Balance at end of period
Receivables	$	331	$	1,920	$	2,016	$	235
Unearned and deferred revenues including current and non-current	$	792	$	2,861	$	2,256	$	1,397


	Nine months ended September 30, 2018
	Balance at beginning of period		Increases		Decreases		Balance at end of period
Receivables	$	1,089	$	2,631	$	3,500	$	220
Unearned and deferred revenues including current and non-current		1,913		1,520		2,518		915

We receive payments from customers based upon contractual billing schedules; accounts receivables are recorded when the right to consideration becomes unconditional. Contract assets include amounts related to our contractual right to consideration for completed performance obligations not yet invoiced. Deferred revenues include payments received in advance of performance under the contract and are realized with the associated revenues recognized under the contract, which is generally within a year. Increases to deferred revenues were mainly a result of additional upfront payments received during the period, whereas decreases to unearned and deferred revenues were due to performance obligations satisfied.

Note 3. Selected Condensed Consolidated Balance Sheet Detail

Other current assets at September 30, 2019 and December 31, 2018 consisted of the following (in thousands):



	September 30,		December 31,
	2019		2018
	(unaudited)
VAT receivable	$	240	$	480
Other		304		212
Total Prepaids and other	$	544	$	692

Accrued expenses at September 30, 2019 and December 31, 2018 consisted of the following (in thousands):



	September 30,		December 31,
	2019		2018
	(unaudited)
Employee benefits	$	279	$	169
Income tax		1		24
Sales and other taxes		116		287
Commissions and bonuses		33		18
Other		101		109
Total accrued expenses	$	530	$	607

Other non-current liabilities at September 30, 2019 and December 31, 2018 consisted of the following (in thousands):



	September 30,		December 31,
	2019		2018
	(unaudited)
Deferred maintenance and unearned revenues	$	396	$	133
Other		417		422
Total other non-current liabilities	$	813	$	555

Note 4. Fair Value of Financial Instruments

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

Level 1 - Quoted prices in active markets for identical assets or liabilities;

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

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.

Effective September 30, 2019, the Company completed its deconsolidation of VMSO. The Company retained its investment of 19.9% of VMSO after deconsolidation, which the Company valued at approximately $1.5 million as of September 30, 2019. The Company used Level 3 inputs in its fair market valuation of the investment in VMSO on September 30, 2019. Refer to Note 8. Discontinued Operations, for details regarding the Company’s investment in VMSO. The Company measures the following financial assets at fair value on a recurring basis. The fair value of these financial assets as of September 30, 2019 and December 31, 2018 (in thousands) were as follows:



			Fair Value at Reporting Date Using
				Quoted
				Prices in
				Active		Significant
				Markets for		Other		Significant
				Identical		Observable		Unobservable
	September 30,			Assets		Inputs		Inputs
	2019			(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents:
Cash	$	1,734		$	1,734	$	—	$	—
Money market funds		435			435		—		—
Total cash and cash equivalents		2,169			2,169		—		—
Investment in Vmoso, Inc.		1,497			—		—		1,497
Total	$	3,666		$	2,169	$	—	$	1,497

			Fair Value at Reporting Date Using
				Quoted
				Prices in
				Active		Significant
				Markets for		Other		Significant
				Identical		Observable		Unobservable
	December 31,			Assets		Inputs		Inputs
	2018			(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents:
Cash	$	1,628		$	1,628	$	—	$	—
Money market funds		946			946		—		—
Total cash and cash equivalents	$	2,574		$	2,574	$	—	$	—

Level 2 securities are priced using quoted market prices for similar instruments, nonbinding market prices that are corroborated by observable market data, or discounted cash flow techniques. Level 3 securities were priced using a calibration option pricing model to determine the fair value.

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

Note 5. Commitments and Contingencies

Warranties and Indemnification

We provide a warranty to our perpetual license customers that our software will perform substantially in accordance with the documentation we provide with the software, typically for a period of 90 days following receipt of the software. Historically, costs related to these warranties have been immaterial. Accordingly, we have not recorded any warranty liabilities as of September 30, 2019 and December 31, 2018, respectively.

Our perpetual software license agreements typically provide for indemnification of customers for intellectual property infringement claims caused by use of a current release of our software consistent with the terms of the license agreement. The term of these indemnification clauses is generally perpetual. The potential future payments we could be required to make under these indemnification clauses are generally limited to the amount the customer paid for the software. Historically, costs related to these indemnification provisions have been immaterial. We also maintain liability insurance that limits our exposure to any indemnification claims that may arise. As a result, we believe the potential liability of these indemnification clauses is minimal. Accordingly, we did not record any liabilities for these agreements as of September 30, 2019 and December 31, 2018, respectively.

We entered into agreements whereby we indemnify our officers and directors for certain events or occurrences while the officer is, or was, serving in such capacity. The term of the indemnification period is for so long as such officer or director is subject to an indemnifiable event by reason of the fact that such person was serving in such capacity. The maximum potential amount of future payments we could be required to make under these indemnification agreements may be unlimited; however, we have a director and officer insurance policy that limits our exposure to such claims and enables us to recover a portion of any future amounts paid. As a result of our insurance policy coverage, we believe the estimated fair value of these indemnification agreements is insignificant. Accordingly, we have no liabilities recorded for these agreements as of either September 30, 2019 or December 31, 2018. We assess the need for an indemnification reserve on a quarterly basis and there can be no guarantee that an indemnification reserve will not become necessary in the future.

Leases

We lease our headquarters facility and our other facilities under noncancelable operating lease agreements each of which will expire at various dates during or before June 2020. We recognize the rent expense on a straight line basis over the lease period. Under the terms of our lease agreements, we are required to pay property taxes, insurance and normal maintenance costs.

On January 1, 2019, we recorded right-of-use assets of $120,000 in “Operating lease right-of-use assets” on our condensed consolidated balance sheet, and as of September 30, 2019, we had related lease liabilities of $58,000 in aggregate in “Operating lease liabilities – current” and zero in “Other non-current liabilities” on our condensed consolidated balance sheet.

Supplemental cash flow information related to operating leases is as follows (dollars in thousands):



	Nine Months Ended
	September 30, 2019
Cash payments for operating leases	$	66



	September 30, 2019
Weighted-average remaining lease term		0.75
Weighted-average discount rate		12%

Future minimum non-cancelable payments under operating leases as of September 30, 2019, were as follows (in thousands):



	Operating Leases
Remainder of 2019	$	41
2020		45
Total future lease payments	$	86
Less imputed interest		9
Present value of lease liabilities	$	77

During the three months ended September 30, 2019 and 2018, the Company recorded operating lease cost of $56,000 and $114,000, respectively, and during the nine months ended September 30, 2019 and 2018, the Company recorded operating lease cost of $169,000 and $768,000, respectively. As of September 30, 2019, the Company had no leases that have not yet commenced, except for a new lease commencing mid-November 2019 for new premises in Woburn, MA, which has a minimum commitment of 12.5 months at a total cost of $13,000.

Note 6. Geographic, Segment and Significant Customer Information

We operate in one segment: electronic business solutions. The disaggregated revenue information regarding types of revenues from continuing operations is as follows (in thousands):



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Software licenses
Non-hosted licenses	$	284	$	286	$	964	$	1,199
Services
Consulting services		7		37		44		390
Maintenance		417		420		1,289		1,319
Total revenues from continuing operations	$	708	$	743	$	2,297	$	2,908

We currently operate in three primary geographical territories: North and South America (Americas); Europe, Middle East and Africa (Europe); and Asia, Pacific and Japan (Asia/Pacific).

Disaggregated financial information regarding our geographic revenues from continuing operations is as follows (in thousands):



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Revenues:	2019		2018		2019		2018
Americas	$	475	$	462	$	1,563	$	1,698
Europe		174		215		537		734
Asia/Pacific		59		66		197		476
Total revenues from continuing operations	$	708	$	743	$	2,297	$	2,908

For the three and nine months ended September 30, 2019, Express Scripts accounted for more than 10% of our revenues from continuing operations. For the three and nine months ended September 30, 2018, Express Scripts accounted for 10% or more of our revenues from continuing operations.

Note 7. Related Party Transactions

BVD and BVOD

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 Chairman, President, Chief Executive Officer, Interim Chief Financial Officer and largest stockholder and in which our former Chief Financial Officer, 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 no longer 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 was the sole owner of BroadVision On Demand, a Chinese entity (“BVOD”). We invested approximately $9.0 million in BVOD (directly and through BVD and BVB) from 2007 through 2016. In 2014 we began making payments directly to BVOD for certain labor outsourcing services; however, we discontinued our BVOD operations during the fourth quarter of 2018 and did not pay BVOD for such services in subsequent periods. We made aggregate payments to BVOD of zero and $1.3 million (based on the RMB to USD exchange rates on the applicable dates of payment) for such services in the nine months ended September 30, 2019 and 2018, respectively. These payments in part covered services rendered outside of the applicable years. 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 May 2019, BVOD was liquidated and BVOD’s bank account was closed. The funds totaling $21,000 were transferred by the bank to Dr. Pehong Chen, our and VMSO’s President and Chief Executive Officer, who subsequently transferred such amount to the Company during the third quarter of 2019.

VMSO

As discussed in Note 1 above, on January 2, 2019, we entered into a Series A Preferred Stock Purchase Agreement with VMSO for the purchase of 745,000 shares of VMSO’s Series A Preferred Stock for a purchase price comprising the contribution of our intellectual property and other net assets valued by our board of directors at $745,000. The contributed assets represent substantially all of the intellectual property and other assets relating to the Clearvale and Vmoso platforms, including the Clearvale and Vmoso products and customer relationships and our MVN development project. VMSO will continue the commercialization of the Clearvale and Vmoso products and the development of MVN.

Upon inception this transaction was considered a common control transaction, and the assets and liabilities were transferred to VMSO at carrying value and resulted in no gain or loss.

Following the completion of VMSO’s sale of Class 1 Common Stock described below, the shares of Series A Preferred Stock owned by our Company represent approximately 19.9% of the total number of shares of VMSO’s capital stock outstanding. The rights, preferences and privileges of VMSO’s Series A Preferred Stock include a liquidation preference of $1.00 per share.

On January 2, 2019, Dr. Chen, our and VMSO’s President and Chief Executive Officer and our largest stockholder, purchased 3,000,000 shares of VSMO’s Class 1 Common Stock, representing approximately 80.1% of the total number of shares of VMSO’s capital stock outstanding after such purchase, for a purchase price of $3,000,000 in cash pursuant to a Class 1 Common Stock Purchase Agreement between Dr. Chen and VMSO.

On January 2, 2019, we entered into the SFA with VMSO, the terms of which provide for the payment of certain fees to us by VMSO, in exchange for the contribution of our expertise, resources, services, as well as the limited use of our facilities in VMSO’s business and operations. The SFA was initially effective as of January 1, 2019 and was amended and restated by the A&R SFA on September 30, 2019. The A&R SFA substantially reduced the nature and number of services that we provide to VMSO, and instead, committed us to provide VMSO with only certain back-office services relating primarily to finance, human resources, information technology and infrastructure support, as well as a limited right to use and occupy our facilities in Redwood City, California, in exchange for fees generally intended to permit us to recover the cost to us of providing VMSO with such services, facilities and equipment, with a nominal profit margin. Since the execution of the initial SFA, we have acted as a reseller of VMSO’s Clearvale and Vmoso products, and we expect to continue to do so, with the A&R SFA contemplating our potential future execution of a formal Reseller Margin Arrangement with VMSO. The A&R SFA does not contemplate or result in a change in our ownership share of VMSO. The term of the A&R SFA shall continue until June 30, 2020, unless earlier terminated by either party, at any time, upon 30 days’ written notice, and shall be renewable upon written consent from both parties.

Concurrent with the execution of the A&R SFA on September 30, 2019, the Company terminated employees whose sole function was to support VMSO and its products and product development efforts: Vmoso, Clearvale, and MVN. As a result of the A&R SFA, the Company no longer controlled the management of VMSO and is no longer the primary beneficiary of VMSO, prompting and permitting the Company to deconsolidate VMSO as a variable interest entity effective as of September 30, 2019. Refer to Note 8. Discontinued Operations, for additional details on the deconsolidation of VMSO. As part of the deconsolidation of VMSO on September 30, 2019, the Company recorded its investment in VMSO at fair value of $1.5 million as of September 30, 2019 on the Condensed Consolidated Balance Sheet under the “Investment in Vmoso, Inc.” caption, removed the assets and liabilities of VMSO at net carrying value of $0.4 million, removed the noncontrolling interest in VMSO of $1.3 million from the Condensed Consolidated Balance Sheet, and recognized a $2.3 million gain on deconsolidation of VMSO. Refer to Note 8. Discontinued Operations for details of the accounting for the deconsolidation.

As of September 30, 2019, we had a net account receivable from related party due from VMSO of $1.0 million for services performed and received during the nine months ended September 30, 2019 under the SFA prior to the amendment and restatement and transactions related to resale of VMSO products. In addition, during the nine months ended September 30, 2019, we had a deferred cost of revenues of $0.2 million related to the resale of VMSO products and intercompany profits between the Company and VMSO were nominal.

On October 29, 2019, we entered into the SFA Amendment, which further clarified the permitted limited use of our facilities, added certain billable financial services that we would provide to VMSO through at least the end of 2019, and provided us with the ability to incur, pay and be reimbursed for certain expenses on VMSO’s behalf during the term of the A&R SFA.

Note 8. Discontinued Operations

Management decided to cease its development and commercialization of Vmoso, Clearvale, and MVN in December 2018. As a result of this decision, VMSO was formed and in January 2019 the intellectual property and customer accounts and relationships associated with Vmoso, Clearvale and MVN were contributed by BroadVision to VMSO. The actions taken on September 30, 2019 to no longer control the management of VMSO described in Note 1 (the entry into the A&R SFA and the termination of VMSO supporting employees) resulted in the deconsolidation of VMSO by the Company. As a result, the Company has determined that the asset group associated with the Vmoso and Clearvale products and MVN product development should be reported as discontinued operations effective September 30, 2019.

In recording the deconsolidation of VMSO from the Company’s Condensed Consolidated Financial Statements, the Company removed the net carrying amount of assets and liabilities of VMSO of $0.4 million and the noncontrolling interest in VMSO of $1.3 million from the Condensed Consolidated Balance Sheet, recorded its investment in VMSO at its fair value of $1.5 million as of September 30, 2019 on its Condensed Consolidated Balance Sheet, and recognized a gain on the deconsolidation of VMSO of $2.3 million. Included in the carrying amount of assets deconsolidated was $1.6 million of cash and investments held by VMSO.

The assets and liabilities, operating results, and cash flows of VMSO are presented as discontinued operations, separate from our continuing operations, for all periods presented in these interim Condensed Consolidated Financial Statements and footnotes, unless otherwise indicated.

On October 29, 2019, we entered into the SFA Amendment, which further clarified the permitted limited use of the our facilities, added certain billable financial services that we would provide to VMSO through at least the end of 2019, and provided us with the ability to incur, pay, and be reimbursed for certain expenses on VMSO’s behalf during the term of the A&R SFA.

The income from discontinued operations amounts as reported on our condensed consolidated statements of operations were comprised of the following (in thousands):



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Major classes of line items consisting of pretax income from discontinued operations:
Revenues	$	182	$	221	$	592	$	902
Cost of revenues		1		40		3		3
Operating expenses:
Research and development		634		1,169		2,093		3,612
Sales and marketing		241		277		752		869
General and administrative		—		—		—		—
Loss before income taxes of discontinued operations		(694)		(1,265)		(2,256)		(3,582)
Other income (loss), net		29		—		23		—
Gain on deconsolidation of Vmoso, Inc.		2,349		—		2,349		—
Total pretax income (loss) from discontinued operations		1,684		(1,265)		116		(3,582)
Income tax expense (benefit) related to discontinued operations		—		—		—		—
Net income (loss) from discontinued operations as presented in the condensed consolidated statements of comprehensive income (loss)		1,684		(1,265)		116		(3,582)
Net loss attributable to non-controlling interest		(446)		—		(1,492)		—
Net income (loss) from discontinued operations attributed to BroadVision	$	2,130	$	(1,265)	$	1,608	$	(3,582)

The major components of assets and liabilities of our discontinued operations were as follows:



		September 30,		December 31,
(in thousands)		2019		2018
Carrying amounts of major classes of assets and liabilities of discontinued operations:
Current assets:
Accounts receivable	$	—	$	145
Total current assets of discontinued operations	$	—	$	145

Current liabilities:
Accounts Payable	$	—	$	41
Accrued expenses		—		248
Unearned revenues		—		128
Total current liabilities of discontinued operations	$	—	$	417

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

This report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, which are subject to the "safe harbor" created by those sections. Forward-looking statements include all statements that are not historical facts, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations. The words "expect," "anticipate," "intend," "believe," "hope," "assume," "estimate," "plan," "will" and other similar words and expressions. These forward-looking statements, including those described in the section titled “Risk Factors” included under Part II, Item 1A below. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. 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 initiatives that ultimately deliver high-value to their bottom line. Our offering consists of a robust framework for personalization and self-service, modular applications and agile toolsets that customers use to create e-commerce and portal solutions.

Our objective is to further our position as a global supplier of innovative e-business solutions with our Business Agility Suite, Commerce Agility Suite and QuickSilver solutions, which are designed to enhance the online business engagements of organizations with their customers, partners and employees to improve productivity and efficiency.

We generate revenues from fees for licenses or access and use 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; or (2) the number of CPUs utilized by the machines on which the product is installed. Payment terms are generally 30 to 60 days from the date that the software products are delivered, the maintenance or subscription contracts are booked, or the consulting services are provided.

We have not generated net income since 2009. Our ability to generate profits or positive cash flows in future periods remains uncertain.

Our key operational challenge is the maturity of our major revenue-generating products. We expect that the decline in our legacy revenues will continue to dominate our overall financial performance until a significant installed base of new product revenues is established.

Recent Developments

VMSO Financing and Deconsolidation

The A&R SFA substantially reduced the nature and number of services that we provide to VMSO, and instead, committed us to provide VMSO with only certain back-office services relating primarily to finance, human resources, information technology and infrastructure support, as well as a limited right to use and occupy our facilities in Redwood City, California in exchange for fees generally intended to permit us to recover the cost to us of providing VMSO with such services, facilities and equipment, with a nominal profit margin. VMSO now holds all of the intellectual property and other assets related to the Clearvale and Vmoso platforms, including the Clearvale and Vmoso products and customer relationships and the MVN development project.

Since we controlled the management of VMSO through September 29, 2019 and had the obligation to absorb the losses of, and receive benefits from, VMSO through the Services and Facilities Agreement, we identified the Company as the primary beneficiary of the VMSO variable interest entity. We therefore consolidated VMSO’s financial results with ours through September 29, 2019. Such activities include management of VMSO’s product development, product launch, operations, budgeting, policies and procedures. In addition, the Company had the obligation to absorb losses or the right to receive benefits that could potentially be significant to VMSO on the basis of the income allocations and cash distributions provided by contractual voting rights, given the purpose, design and structure of VMSO.

Concurrent with the amendment to the SFA on September 30, 2019, we terminated employees whose sole function was to support VMSO and its products and product development efforts: Vmoso, Clearvale, and MVN. As of September 30, 2019, we determined that the Company is no longer considered the primary beneficiary of the VMSO variable interest entity since we no longer control the management of VMSO according to the terms of the A&R SFA. On September 30, 2019, we recorded our investment in VMSO at fair value as of September 30, 2019 on the Condensed Consolidated Balance Sheet under the “Investment in Vmoso, Inc.” caption, removed the carrying value of VMSO assets and liabilities and the noncontrolling interest in VMSO from the Condensed Consolidated Balance Sheet, and recorded a $2.3 million gain on deconsolidation of VMSO.

In addition, as of September 30, 2019, we determined that the asset group associated with the Vmoso and Clearvale products and the MyVmoso Network development project should be considered to be discontinued operations. Since the execution of the initial SFA, we have acted as a reseller of VMSO’s Clearvale and Vmoso products, and we expect to continue to do so, with the A&R SFA contemplating the potential future execution of a formal Reseller Margin Arrangement with VMSO. As of September 30, 2019, we had a net account receivable from related party due from VMSO of $1.0 million for services performed and received during the nine months ended September 30, 2019 under the SFA prior to amendment and restatement, and transactions related to resale of VMSO products. In addition, during the nine months ended September 30, 2019, we had a deferred cost of revenues of $0.2 million related to the resale of VMSO products and intercompany profits between the Company and VMSO were nominal.

Results of Operations

As previously discussed, the results of operations related to the asset group including the Vmoso and Clearvale products and the MVN development project have been reclassified from continuing operations to income (loss) from discontinued operations for all periods presented. The following table sets forth certain items reflected in our Condensed Consolidated Statements of Comprehensive Income (Loss), including only continuing operations, expressed as a percent of total revenues for the periods indicated:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Revenues:
Software licenses	40	%	38	%	42	%	41	%
Services	60		62		58		59
Total revenues	100		100		100		100
Cost of revenues:
Cost of software revenues	2		4		—		3
Cost of services	11		14		10		15
Total cost of revenues	12		18		10		18
Gross profit	88		82		90		82
Operating expenses:
Research and development	45		32		23		43
Sales and marketing	11		30		6		23
General and administrative	84		72		85		71
Total operating expenses	140		134		114		137
Operating loss	(52)		(52)		(24)		(55)
Interest income, net	1		2		1		2
Other income (expense), net	(27)		(10)		(8)		(8)
Loss before provision for income taxes	(78)		(60)		(31)		(61)
Provision for income taxes	—		(1)		(1)		—
Net loss attributed to continuing operations	(78)		(61)		(32)		(61)
Discontinued operations:
Loss from discontinued operations	(94)		(170)		(97)		(123)
Gain on the deconsolidation of Vmoso, Inc.	332		—		102		—
Net income (loss) attributed to discontinued operations	238		(170)		5		(123)
Net loss	160	%	(231)	%	(27)	%	(185)	%

Revenues (from continuing operations). License revenues from the sales of software licenses for the three months ended September 30, 2019 were $0.3 million, which remained flat when compared to the same period in 2018. License revenues from the sales of software licenses for the nine months ended September 30, 2019 were $1.0 million, a decrease of $0.2 million, or 20%, from $1.2 million for the nine months ended September 30, 2018. Services revenues consist of maintenance revenues and consulting services revenues. Maintenance revenues, which is generally derived from maintenance contracts sold with initial customer licenses and from subsequent contract renewals, were $0.4 million in the three months ended September 30, 2019, and approximately $0.4 million for the same period in 2018. Maintenance revenues remained relatively flat at $1.3 million for the nine months ended September 30, 2019 and 2018. Consulting service revenues was primarily related to services in connection with our licensed software. Consulting service revenues for both the three months ended September 30, 2019 and 2018 were de minimis. Consulting service revenues for the nine months ended September 30, 2019 were de minimis, a decrease of $0.4 million, from the nine months ended September 30, 2018. The decline in license and services revenues primarily reflect a decline of our legacy business.

Cost of software revenues (from continuing operations). The cost of software revenues in both the three months ended September 30, 2019 and 2018 was de minimis. Cost of software revenues includes net costs of product media, duplication, packaging, and other manufacturing costs as well as royalties payable to third parties for software that is either embedded in or bundled and sold with, our products. Cost of software licenses in the nine months ended September 30, 2019 was de minimis, and $0.1 million in the nine months ended September 30, 2018.

Cost of services (from continuing operations). 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 was $0.1 million for

both the three months ended September 30, 2019 and 2018. Cost of services was $0.2 million for the nine months ended September 30, 2019, a decrease of $0.2 million, or 50% from $0.4 million for the nine months ended September 30, 2018. The decrease in cost of services for the nine months ended September 30, 2019 was primarily due to reductions in employee-related wages and stock-based compensation arising from headcount reductions, and a reduction in rent expense associated with the relocation of our corporate office.

Research and development (from continuing operations). 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 were $0.3 million for the three months ended September 30, 2019, an increase of $0.1 million from $0.2 million for the three months ended September 30, 2018. Research and development expenses were $0.5 million for the nine months ended September 30, 2019, a decrease of $0.7 million, or approximately 58%, from $1.2 million for the nine months ended September 30, 2018. The decrease in research and development expenses in the nine month period was primarily due to a reduction in employee-related salary and wages, fringe benefits, and stock-based compensation expense arising from headcount reductions, the discontinuation of our BVOD operations, a reduction in third-party consultant fees incurred on consulting projects, and a reduction in rent expense associated with lower office rent costs.

Sales and marketing (from continuing operations). 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 were $0.1 million for the three months ended September 30, 2019, a decrease of $0.1 million, or approximately 50%, from $0.2 million for the three months ended September 30, 2018. Sales and marketing expenses were $0.1 million for the nine months ended September 30, 2019, a decrease of $0.6 million, or approximately 86%, from $0.7 million for the nine months ended September 30, 2018. The decrease in sales and marketing expense was primarily due to a reduction in employee-related salary and wages, commissions, and stock-based compensation arising from headcount reductions, a reduction in third-party consultant fees incurred on consulting projects, and a reduction in rent expense associated lower rent 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. All general and administrative expenses are considered continuing operations. Our general and administrative expenses were $0.6 million for the three months ended September 30, 2019, an increase of $0.1 million, or 20% from $0.5 million for the three months ended September 30, 2018. The increase in general and administrative expense was primarily due to legal and consulting expenses in connection with the spin-off of VMSO. Our general and administrative expenses were $1.9 million for the nine months ended September 30, 2019, a decrease of $0.2 million, or approximately 9% from $2.1 million for the nine months ended September 30, 2018. The decrease in general and administrative expense was primarily due to a reduction in employee-related salary and wages and stock-based compensation expenses arising from headcount reductions and a reduction in rent expense associated with lower office costs.

Interest income, net (from continuing operations). Net interest income includes interest income on investment funds. We generated $4,000 and $13,000 in interest income from our cash and cash equivalents during the three months ended September 30, 2019 and 2018, respectively. We generated $12,000 and $49,000 in interest income during the nine months ended September 30, 2019 and 2018, respectively.

Other income (expense), net. Other income (expense), net during the three months ended September 30, 2019, was $0.2 million in expense, net compared to $0.1 million in expense, net during the three months ended September 30, 2018. Other income (expense), net during both the nine months ended September 30, 2019 and 2018, was $0.2 million in expense, net. The variances between the periods were primarily due to losses from the remeasurement of the foreign currency exchange rate fluctuation on our Euro cash balances.

Income taxes. Income tax expense was de minimis for both the three months ended September 30, 2019 and 2018, and for the nine months ended September 30, 2019 and 2018.

Net (loss) from discontinued operations. Net loss from discontinued operations related to the Vmoso and Clearvale products, and MVN product developments excluding the gain on deconsolidation of VMSO during the three months ended September 30, 2019 was $0.7 million, a decrease of $0.6 million from $1.3 million for the three months ended September 30, 2018. Net loss from discontinued operations was $2.2 million for the nine months ended September 30, 2019, a decrease of $1.4 million, or approximately 39%, from $3.6 million for the nine months ended September 30, 2018. The decrease in net loss from discontinued operations in the nine month period was primarily due to a reduction in employee-related salary and wages, fringe benefits and stock-based compensation expense arising from headcount reductions, a reduction in third-party consultant fees incurred on consulting projects, and a reduction in rent expense associated with lower office rent costs.

Gain on deconsolidation of Vmoso, Inc. Gain on deconsolidation of VMSO during the three and nine months ended September 30, 2019, was $2.3 million compared to nil during the three and nine months ended September 30, 2018.

Liquidity and Capital Resources

Overview

During the nine months ended September 30, 2019, we had a net loss of $0.7 million from continuing operations a net gain of $0.1 million from discontinued operations, and net cash used for operating activities of $2.0 million. As of September 30, 2019, we had working capital of $1.9 million, and we had cash and cash equivalents of $2.2 million. Our cash and cash equivalents as of September 30, 2019 decreased $0.4 million compared to the balance as of December 31, 2018. This decrease was mainly due to our ongoing operating activities and the September 30, 2019 deconsolidation of VMSO cash and cash equivalents offset by our January 2019 VMSO financing. Our cash and cash equivalents may fluctuate during the remainder of fiscal 2019 due to various risks and uncertainties, including, but not limited to, the risks detailed in Part II, Item 1A titled “Risk Factors”.

Based on our current business plan, we believe that our existing cash and cash equivalents balances will be sufficient to meet our working capital and operating resource expenditure requirements for the twelve months from the date of issuance of the Condensed Consolidated Financial Statements. However, we could experience unforeseen circumstances, such as an economic downturn, difficulties in retaining customers and/or 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. In addition, we are in the process of requesting a certificate of U.S. tax residency in order to facilitate the repatriation of $0.5 million in cash and cash equivalents from our subsidiary in Japan to help fund our U.S. operations over the next twelve months.

Our future capital requirements will depend on many factors including growth or decline in customer accounts, the timing and extent of spending to support product development efforts and ongoing investments in our products and services, the introduction of new and enhanced products or services, features and functionality, and our ability to control expenses generally. We have implemented cost reduction plans since the second half of 2017 to reduce our cash needs and reduced the cost of our operations by approximately $5 million in 2018 and an additional $3.3 million in the nine months ended September 30, 2019. In January 2019, we completed the VMSO financing, pursuant to which VMSO raised $3 million in cash from our and VMSO’s President and Chief Executive Officer and our largest stockholder, Dr. Chen, and VMSO now holds all of the intellectual property and other assets related to the Clearvale and Vmoso platforms, and to MVN, reducing our exposure to future development and commercialization cost of Clearvale, Vmoso and MVN. However, further cost reductions may result in voluntary departures of highly skilled technical and managerial personnel from our company, which would have a material adverse effect on our business, internal controls, financial condition and results of operations. Our September 30, 2019 deconsolidation of VMSO resulted in $1.6 million of cash raised in the VMSO financing being deconsolidated. We expect to opportunistically 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 current 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. The outcome of these matters cannot be predicted at this time. Our ability to continue as a going concern is dependent upon our ability to successfully accomplish these plans and secure sources of financing and/or reduce costs and ultimately attain profitable operations.

The following table represents our liquidity at September 30, 2019 and December 31, 2018 (dollars in thousands):



	September 30,		December 31,
	2019		2018
Cash and cash equivalents	$	2,169	$	2,574
Working capital	$	1,947	$	1,845
Working capital ratio		1.95		1.97

Cash Used In Operating Activities

Cash used in operating activities was $2.0 million for the nine months ended September 30, 2019 and was primarily attributable to a $0.7 million operating loss from continuing operations and a $2.2 million net loss from discontinued operations related to the Vmoso and Clearvale products, and MVN product developments excluding a $2.3 million gain on the deconsolidation of VMSO, offset by noncash items and changes in operating assets and liabilities on September 30, 2019. Cash used in operating activities was $5.3 million for the nine months ended September 30, 2018 and was primarily attributable to a $5.4 million operating loss (of which $1.8 million was related to continuing operations and $3.6 million was related to discontinued operations) offset by other noncash items and changes in operating assets and liabilities.

Cash Provided by Investing Activities

Cash used in investing activities in the nine months ended September 30, 2019 was $1.6 million, consisting primarily of our deconsolidation of VMSO. Cash of $1.0 million was provided by investing activities in the nine months ended September 30, 2018, primarily related to the net maturities of short-term investments.

Cash Provided by Financing Activities

Cash provided by financing activities was $3.0 million and de minimis for the nine months ended September 30, 2019 and 2018, respectively. Cash provided by financing activities for the nine months ended September 30, 2019 was primarily attributable to our $3.0 million VMSO financing.

Leases and Other Contractual Obligations

As of September 30, 2019, we leased our headquarters facility and other facilities under noncancelable operating lease agreements each of which will expire at various dates during or before June 2020.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements in the third quarter of 2019 or in any prior periods.

Critical Accounting Policies, Estimates and Judgments

We had consolidated variable interest entities (VIEs) in which we held a variable interest and we were the primary beneficiary. We controlled the management of VMSO and had the obligation to absorb the losses of and receive benefits from VMSO. Accordingly, we had identified ourselves as the primary beneficiary of VMSO and consolidated VMSO in the first quarter of 2019, resulting in a non-controlling interest related to Dr. Chen, the holder of Class 1 common stock in VMSO through September 29, 2019. VMSO was deconsolidated on September 30, 2019, the effective date of the A&R SFA, when the Company determined that it was no longer the primary beneficiary of the VMSO variable interest entity.

We adopted the new accounting standard Accounting Standards Update No. 2016-02, Leases (Topic 842), on January 1, 2019, using the modified retrospective method and elected the package of practical expedients for expired or existing contracts, which allowed us not to reassess (1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs. We recorded a right-of-use asset in “Operating lease right-of-use assets” on our condensed consolidated balance sheet, and corresponding lease liabilities in “Operating lease liabilities – current” and “other non-current liabilities” on our condensed consolidated balance sheet on the adoption date. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

There have been no other material changes in our critical accounting policies, estimates and judgments during the three month period ended September 30, 2019 compared to the disclosures in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2018, other than as disclosed herein.

Recent Accounting Pronouncements

For information with respect to recent accounting pronouncements, if any, and the impact of these pronouncements on our Condensed Consolidated Financial Statements, if any, see Note 1 of the Notes to our Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting company, we are not required to provide the information required by this Item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Interim Chief Financial Officer, as of September 30, 2019, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based upon that evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that, due to the existence of the material weakness in our internal control over financial reporting described below, our disclosure controls and procedures were not effective as of September 30, 2019 to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Material Weakness in Internal Control Over Financial Reporting

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

In connection with the preparation of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, we discovered that we had: (a) incorrectly recorded intangible assets and a gain on transfer of intellectual property related to the establishment of Vmoso, Inc.’s business, a variable interest entity controlled by and consolidated with the Company for purposes of the Company’s condensed consolidated financial statements; and (b) had not properly allocated net losses and stockholders’ equity to the non-controlling interest of Vmoso, Inc. Accordingly, we restated our unaudited interim condensed consolidated financial statements for the quarter ended March 31, 2019 in an amendment to our previously filed Quarterly Report on Form 10-Q for that quarter. As a result, we have concluded that our disclosure controls and procedures were not effective as of March 31, 2019, June 30, 2019 and September 30, 2019. The material weakness in internal control over financial reporting primarily resulted from a deficiency in the operating effectiveness of key controls related to accounting and reporting for complex transactions and consolidation. The operating deficiencies were caused by insufficient technical accounting knowledge in the accounting team.

To address the identified material weakness, we have hired outside consultants to supplement management in the evaluation of technical accounting matters, including but not limited to consolidation matters. We implemented this added level of technical accounting support as an ongoing practice beginning with preparation of the condensed consolidated financial statements for the second quarter of 2019 to ensure the reliability of our financial reporting with respect to this quarterly report and future reports. Accordingly, we believe that the financial statements and other financial information included in this quarterly report, fairly present in all material respects our financial condition, results of operations and cash flows as of and for the periods presented.

If we fail to properly remediate the material weakness, or fail to properly identify or remediate any future weaknesses or deficiencies, or achieve and maintain effective internal control, our ability to produce accurate and timely financial statements could be impaired and investors could lose confidence in our financial statements.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, except, as described above, we have hired outside consultants to assist management in evaluating technical accounting matters to remediate the material weakness in our internal control over financial reporting described above.

Limitations on the Effectiveness of Controls

Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and our Chief Executive Officer and Interim Chief Financial Officer has concluded that our disclosure controls and procedures are effective at that reasonable assurance level. However, our management, including our Chief Executive Officer and Interim Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to

their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

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

Risks Related to Our Business and Industry

Our business currently depends on revenues related to BroadVision e-business solutions, and we expect that these revenues will continue to decline.

We generate a large portion of our revenues 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 revenues in the foreseeable future, particularly in light of our deconsolidation of VMSO effective September 30, 2019. We expect that our future financial performance, until we establish a significant installed base of new product revenues, will depend on our ability to sustain our legacy business, which we expect to continue to decline as the result of a decrease in market demand for these products and related products and services. 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 revenues, may further decline.

Following our VMSO financing in 2019, and deconsolidation of VMSO on September 30, 2019, our ability to benefit from the VMSO-owned Clearvale and Vmoso platforms and MVN initiatives has been significantly reduced.

In January 2019, we purchased 745,000 shares of VMSO’s Series A preferred stock in exchange for our contribution to VMSO of assets representing all of the intellectual property and other assets relating to the Clearvale and Vmoso Platforms, including the Clearvale and Vmoso products and customer relationships and the MVN development project. Following the purchase, we owned Series A preferred shares of VMSO representing approximately 19.9% of outstanding shares of VMSO. In January 2019, VMSO raised $3 million from Dr. Chen, our and VMSO’s President and Chief Executive Officer and our largest stockholder, through the sale of Class 1 common shares of VMSO to Dr. Chen, representing approximately 80.1% of VMSO’s outstanding shares after such purchase. VMSO now holds all of the intellectual property and other assets related to the Clearvale and Vmoso platforms, including the current Clearvale and Vmoso products and customer relationships and the MVN development project. We initially consolidated VMSO through September 29, 2019 with our financial results for purposes of U.S. GAAP as it was under common control with us. However, we took actions effective September 30, 2019 to no longer control the management of VMSO (the entry into the A&R SFA and the termination of VMSO supporting employees), which resulted in our deconsolidation of VMSO and treatment of the asset group associated with the Vmoso and Clearvale products and MVN product development as discontinued operations effective September 30, 2019. As a result, our share of the potential upside from, but also our exposure to the development and commercialization costs, of Clearvale, Vmoso and MVN has been significantly reduced.

Our business will be harmed if we are not successful in creating new products, services and technologies and selling these offerings to our existing customers and new customers.

We may spend significant resources in developing new offerings and training our employees to implement, support, operate, sell and market new offerings. We do not yet know whether any 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 may perform extensive testing of any products and technologies, their broad-based implementation may require more support than we anticipate, which could further increase our expenses. If sales of any 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 face liquidity challenges and will 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 through the next twelve months. However, we could experience unforeseen circumstances, such as an economic downturn, difficulties in retaining customers and/or 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. In addition, some of our cash is held by our foreign subsidiaries.

We have implemented cost reduction plans since the second half of 2017 to reduce our cash needs and reduced the cost of our operations by approximately $5 million in 2018 and an additional $3.3 million in the nine months ended September 30, 2019. In January 2019, we completed the VMSO financing, pursuant to which VMSO raised $3 million in cash from our and VMSO’s President and Chief Executive Officer and our largest stockholder, Dr. Chen, in exchange for our contribution to VMSO of certain intellectual property assets. We note that further cost reductions may result in voluntary departures of highly skilled technical and managerial personnel from our company, which would have a material adverse effect on our business, internal controls, financial condition and results of operations. 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 current 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. If adequate funds are not available or are not available on acceptable terms, we may be unable to pay our liabilities 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. The outcome of these matters cannot be predicted at this time. Our ability to continue as a going concern is dependent upon our ability to successfully accomplish these plans and secure sources of financing and/or reduce costs and ultimately attain profitable operations.

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 mobile, cloud-computing, social and enterprise solutions. Failure to be competitive could cause our revenues 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 September 30, 2019, we had an accumulated deficit of approximately $1.3 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 revenues do not increase or if we fail to maintain our expenses at an amount less than our projected revenues, 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.

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 revenues 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 revenues 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 revenues 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.

We identified a material weakness in our internal controls over financial reporting, which resulted in the restatement of our financial statements for the first quarter of 2019. If we fail to properly identify or remediate this or any future weaknesses or deficiencies, or are unable to maintain effective 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 and investors could lose confidence in our financial statements.

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, in connection with the preparation of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, we became aware of deficiencies in the effectiveness of our controls that led to the following errors in our March 31, 2019 condensed consolidated financial statements: (i) an overstatement of total assets and understatement of net losses by recording a $745,000 intangible asset from the transfer of our intellectual property to VMSO in the Condensed Consolidated Balance Sheet and recognizing a $745,000 non-cash gain on the transaction, which was reported as a component of other income, net in the Condensed Consolidated Statement of Comprehensive Income (Loss) and (ii) a misstatement of net losses allocated to the non-controlling interest from VMSO, our previously consolidated VIE, and the associated allocation of stockholders’ equity to the non-controlling interest and overstatement of total stockholders’ equity by $745,000. We corrected these errors and restated our historical unaudited interim condensed consolidated financial statements as of March 31, 2019 by filing an amended Quarterly Report on Form 10-Q on August 15, 2019 and stockholders should no longer rely on the financial statements included in the original Form 10-Q filed on May 15, 2019. However the lack of proper controls led us to conclude that we had a material weaknesses in internal control over financial reporting as defined in Public Company Accounting Oversight Board Auditing Standard No. 5 and that our disclosure controls and procedures were not effective as of March 31, 2019, June 30, 2019 and September 30, 2019. To address the material weaknesses, we have hired outside consultants to assist management in evaluating technical accounting matters, including but not limited to consolidation matters. We implemented this added level of technical accounting support as an ongoing practice beginning with preparation of the condensed consolidated financial statements for the second quarter of 2019 to ensure the reliability of our financial reporting with respect to this quarterly report and future reports. If we fail to properly remediate the material weakness, or fail to properly identify or remediate any future weaknesses or deficiencies, or achieve and maintain effective internal control, our ability to produce accurate and timely financial statements could be impaired and investors could lose confidence in our financial statements.

In addition, we delayed the filing of our Annual Report on Form 10-K for the year ended December 31, 2015, in connection with our discovery that a former employee of one of our wholly-owned German subsidiaries, Interleaf Germany, had fraudulently misappropriated funds from us and falsified records to conceal the theft. Further, our independent registered public accounting firm did not perform, nor were they required to 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, as a smaller reporting company, our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal control over financial reporting so long as we remain a smaller reporting company, which could increase the likelihood of undiscovered errors in our internal controls or reported financial statements as compared to issuers whose independent registered public accounting firms have provided such attestations.

We cannot assure you that our controls and procedures will prevent all errors or fraud, or that any related losses would be recoverable, or that our remedial measures will be sufficient to address the material weakness described above. 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 required to restate our financial statements as we did with those for the first quarter of 2019, we may be subject to adverse regulatory consequences, including sanctions or investigations by the SEC, our stock price may be adversely affected, our reputation may suffer and we may be unable to maintain compliance with the Nasdaq Capital Market continued listing requirements. In particular, restatements may have the effect of eroding investor confidence in our company, our financial reporting and our accounting practices and processes, and could negatively impact the trading price of our common stock. In addition, restatements may make it more difficult for us to raise capital on acceptable terms, if at all, and would likely increase the cost of such capital, and could expose us to liability, including the risk of litigation by shareholders and increased scrutiny of regulatory authorities.

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. In particular, in March 2018, Peter Chu resigned as our Chief Financial Officer and we do not yet have a replacement for him. The market for skilled accounting and finance personnel is competitive and we may have continued difficulty in retaining our staff because the region 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.

Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the U.S.

We prepare our financial statements in conformity with accounting principles generally accepted in the U.S. These accounting principles are subject to interpretation by the FASB and the SEC. A change in these policies or interpretations could have a significant effect on our reported financial results, may retroactively affect previously reported results, could cause unexpected financial reporting fluctuations, and may require us to make costly changes to our operational processes and accounting systems. For example, on January 1, 2018, we adopted a new revenue recognition standard, Topic 606, which was issued by FASB in May 2014. We adopted Topic 606 applying the modified retrospective method to all contracts that were not completed as of such date, which resulted in a net decrease of $0.6 million to our opening accumulated deficit as of January 1, 2018. In addition, effective January 1, 2018, we began to recognize a portion of the arrangement fees allocated to our QuickSilver software licenses as revenues upon delivery resulting in revenues for these QuickSilver arrangements generally being recorded in an earlier period than prior to the adoption of Topic 606. Since results for our reporting periods beginning on or after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with the historic accounting under Topic 605, this may cause financial reporting fluctuations that are not reflective of changes in our actual operating results.

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. Revenues 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 revenues from our operations outside North America. In the quarter ended September 30, 2019, approximately 32% of our revenues from continuing were derived from international sales. If we are unable to manage or grow our existing international operations, we may not generate sufficient revenues 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 in January 2004, on elements of the BroadVision platform, which covers mechanisms for translating between a word processing document and an XML file. Although we hold this patent, it 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" 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 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.

Cyber-attacks and other malicious Internet-based activity continue to increase generally in our industry. 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 cloud-based solutions from Amazon Web Services; relational database management systems from Oracle; Microsoft and MySQL; 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 use of open source software could negatively affect our ability to sell our products and subject us to possible litigation.

We use open source software in our products and may continue to use open source software in the future. We may face claims from others claiming ownership of, or seeking to enforce the terms of, an open source license, including by demanding release of the open source software, derivative works, or our proprietary source code that was developed using such software. These claims could also result in litigation, require us to purchase a costly license, or require us to devote additional research and development resources to change our platform, any of which would have a negative effect on our business and operating results. In addition, if the license terms for the open source software we utilize change, we may be forced to reengineer or discontinue our products or incur additional costs. We cannot be certain that we have not incorporated open source software in our products in a manner that is inconsistent with our policies.

Our officers, and highly skilled technical and managerial personnel are critical to our business, and they may not remain with us.

Our performance substantially depends on the performance of our management team. 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 highly skilled technical and managerial personnel, particularly our founder, Chief Executive Officer, President and Interim Chief Financial Officer, Dr. Pehong Chen, could cause us to incur increased operating expenses and divert senior management resources in searching for replacements. Effective as of March 7, 2018, Peter Chu resigned as our Chief Financial Officer and Vice President of Strategy and Product Management. In connection with Mr. Chu’s resignation, Dr. Chen was appointed as our Interim Chief Financial Officer. As a result of this change, Dr. Chen has taken on substantially more responsibility for the management of our business and of our financial reporting, which has resulted in greater workload demands and could divert his attention away from certain key areas of our business. Changes in our organization as a result of Mr. Chu’s departure may have a disruptive impact on our ability to implement our strategy and could have a material adverse effect on our business, internal controls, financial condition and results of operations. Management transition inherently causes some loss of institutional knowledge, which can negatively affect strategy and execution. Until we find and integrate a replacement for Mr. Chu, and unless his replacement is able to succeed in the position, we may be unable to successfully manage and grow our business, and our results of operations, internal controls and financial condition could suffer as a result. The loss of the services of our officers or other personnel 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 reduced our workforce significantly, and implemented 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 (web or mobile) 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 applications and volunteer information in response to survey questions or to application forms 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 online users to prevent the distribution of any of their personal data beyond that specific web site or application services, privacy concerns may nevertheless cause visitors to resist providing the personal data necessary to support this profiling capability. The mere perception by prospective customers that substantial security and privacy concerns exist among online users, whether or not valid, may indirectly inhibit market acceptance of our products.

In addition, new laws and regulations could heighten privacy concerns by requiring businesses to notify online 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 (the “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 collection and use of personal data in the European Union, previously governed by the provisions of the Data Protection Directive, were replaced with the General Data Protection Regulation (the “GDPR”) in May 2018. The GDPR imposes several requirements relating to the collection, use, processing and transfer of personal data, such as requirements for using consent or other legal grounds to process personal data, providing information to individuals about how their personal data is used, maintaining adequate security and data protection measures, giving data breach notifications, complying with individuals’ requests to access, correct or delete their personal data and using third party processors of personal data. The GDPR also maintains the European Union’s strict rules limiting the transfer of personal data out of the European Economic Area. Failure to comply with the requirements of the GDPR and the applicable national data protection laws of the European Union Member States may result in fines and other administrative penalties. The GDPR introduced substantial potential fines for violations and increase our responsibility and liability in relation to personal data that we process. To comply with the GDPR we are required to put in place additional technical and administrative measures and controls mechanisms. This may be onerous and failure to comply with the GDPR may adversely affect our business, financial condition, results of operations and prospects.

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

We may not have adequate back-up and redundant systems for both customer-used service and internal information technology. A natural or manmade 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 resides on or near known earthquake fault zones. These systems are vulnerable to damage from fire, floods, earthquakes, power loss, cyber-attacks, 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 32% and 42% of our revenues from continuing operations for the nine months ended September 30, 2019 and 2018, respectively, were derived from international operations for which we transact business in foreign currencies. International revenues and expenses denominated in foreign currencies translate into higher or lower revenues and expenses in U.S. Dollars as the U.S. Dollar weakens or strengthens against such other currencies. Substantially all of the revenues of our international operations are received, and substantially all expenses are incurred, in currencies other than the U.S. Dollar, which increases or decreases the related U.S. Dollar-reported revenues and expenses depending on the fluctuations in foreign currency exchange rates. These fluctuations could cause our revenues outside the United States and other results of operations to differ from our expectations or the expectations of our investors. Additionally, such foreign currency exchange rate fluctuations could make it more difficult to detect underlying trends in our business and results of operations. In addition, a total of 54% of our cash and cash equivalents were denominated in foreign currencies as of September 30, 2019. Accordingly, changes in the value of foreign currencies relative to the U.S. Dollar can affect our operating results due to transactional and translational re-measurements that are reflected in our results of operations. To the extent that fluctuations in currency exchange rates cause our results of operations to differ from our expectations or the expectations of our investors, the trading price of our common stock could be adversely affected.

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.

We expect to repatriate cash and cash equivalents from our foreign subsidiaries back to the U.S., which could subject us to increased tax liabilities.

As of September 30, 2019, our foreign subsidiaries held $1.2 million, or 54%, of our cash and cash equivalents. While we currently intend that a large proportion of the cash and cash equivalents held by these foreign subsidiaries will be indefinitely retained by our foreign subsidiaries in order to fund working capital requirements, we are in the process of requesting a certificate of U.S. tax residency in order to facilitate the repatriation of $0.5 million in cash and cash equivalents from our subsidiary in Japan to help fund our U.S. operations over the next twelve months. In addition, we may in the future repatriate additional sums to fund our U.S. operations or for the purpose of making certain strategic investments in the United States or otherwise. The repatriation of such amounts to the United States could result in a significant incremental tax liability in the period in which the decision to repatriate occurs, as we may be required to pay U.S. tax, net of any applicable foreign tax credits, and withholding taxes of the applicable foreign country upon repatriation. For example, if we are unable to

obtain a U.S. tax residency certificate for Japan, we may not be able to repatriate the funds held by our Japan subsidiary as planned without being subjected to increased tax liabilities. Payment of any incremental tax liability would reduce the cash available to us to fund our operations or to make such strategic investment in the United States or otherwise. Further, we cannot assure you that the countries in which we currently operate will not adopt or adversely change policies limiting repatriation of earnings in the future.

Our business could be negatively affected as a result of actions of activist stockholders.

The actions of activist stockholders could adversely affect our business. Specifically, responding to common actions of an activist stockholder, including without limitation public proposals, requests to pursue a strategic combination or other transaction or other special requests, could disrupt our operations, be costly and time-consuming or divert the attention of our management and employees. In addition, perceived uncertainties as to our future direction in relation to the actions of an activist stockholder may result in the loss of potential business opportunities or the perception that we are unstable as a company, which may be exploited by our competitors and make it more difficult to attract and retain personnel as well as consumers and service providers. Actions of an activist stockholder may also cause fluctuations in our stock price based on speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business.

Weakened global economic conditions or tariffs and other trade restrictions may harm our industry, business, and results of operations.

We derive revenues from clients in many countries, and our overall performance depends in part on worldwide economic conditions. Global financial developments and downturns seemingly unrelated to us, our products or our industry may harm us. The United States and other key international economies have been impacted by falling demand for a variety of goods and services, restricted credit, poor liquidity, reduced corporate profitability, volatility in credit, equity and foreign exchange markets, bankruptcies, and overall uncertainty with respect to the economy. The revenue growth and potential profitability of our business depends on demand for our products generally. Historically, during economic downturns there have been reductions in spending on technology systems as well as pressure for extended billing terms and other financial concessions, which would negatively affect our operating results. These conditions affect the rate of technology spending and could adversely affect our customers’ ability or willingness to purchase our products, delay prospective customers’ purchasing decisions, reduce the value or duration of their subscriptions, or affect renewal rates, all of which could harm our operating results.

Additionally, the current U.S. presidential administration has called for substantial changes to foreign trade policy and has raised the possibility of imposing significant increases in tariffs on international trade. We also rely on various U.S. corporate tax provisions related to international commerce. If we are subject to new regulations, or if restrictions and tariffs increase our operating costs in the future, and we are not able to recapture those costs from our customers, or if such initiatives regulations, restrictions and tariffs make it more difficult for us to compete in overseas markets, our business, financial condition and results of operations could be adversely impacted.

Risks Related to BroadVision Common Stock

We did not meet the requirements for continued listing on the Nasdaq Capital Market during the second quarter of 2019, and our common stock could be delisted from trading in the future, which would adversely affect the liquidity of our common stock and our ability to raise additional capital.

On April 8, 2019, we received a letter from the Listing Qualifications Department of The Nasdaq Stock Market (“Nasdaq”) indicating that we no longer complied with the minimum stockholders’ equity requirement under Nasdaq Listing Rule 5550(b)(1) for continued listing on The Nasdaq Capital Market because our stockholders’ equity of $1,401,000 as reported in our Annual Report on Form 10-K for the year ended December 31, 2018 was below the required minimum of $2,500,000, and we did not meet the alternatives of market value of listed securities or net income from continuing operations.

As of March 31, 2019, our stockholders’ equity was $4.4 million. As a result on May 22, 2019, we received a letter from Nasdaq notifying us that we had regained compliance with the minimum stockholders’ equity requirement under Nasdaq Listing Rule 5550(b)(1) for continued listing and that Nasdaq considers the matter closed. However, if in future periods, our stockholders’ equity again falls below $2.5 million, or if we fail to satisfy another Nasdaq requirement for continued listing, such as a minimum bid price of $1.00, Nasdaq staff may take formal action and determine that we are no longer suitable for listing and may commence delisting procedures. As of September 30, 2019, our stockholders’ equity was $2.7 million. Any delisting of our common stock from the Nasdaq Capital Market would make it more difficult for our stockholders to sell our stock in the public market and would likely result in decreased liquidity and increased volatility for our common stock. It would also materially and adversely affect our business by making it more difficult to access additional capital from investors who prefer to purchase shares listed on an actively traded market.

One stockholder beneficially owns a substantial portion of the outstanding BroadVision common stock, and as a result exerts substantial control over us.

As of September 30, 2019, Dr. Pehong Chen, our Chairman, President, Chief Executive Officer and Interim Chief Financial Officer, beneficially owned approximately 1.6 million shares of our common stock, which represents approximately 32% 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 high and low price of BroadVision common stock on the Nasdaq Stock Market ranged from $4.50 per share to $0.74 per share between October 1, 2017 and September 30, 2019. Our stock price is subject to wide fluctuations in response to a variety of factors, including:

quarterly variations in operating results;

announcements of technological innovations;

announcements of new software or services by us or our competitors;

changes in financial estimates by securities analysts;

low trading volume on the Nasdaq Stock 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, such as the class action lawsuits filed against us and certain of our officers and directors in early 2001 has often been instituted against that company. Litigation could result in substantial costs and a diversion of management's attention and resources.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits



Exhibits Number	Description
3.1	Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.3 to Amendment No. 2 to the Company's Registration Statement on Form S-1 filed on May 29, 1996 (File No. 333-03844)).
3.2	Certificate of Amendment of Certificate of Incorporation (incorporated by reference to Exhibit 4.6 to the Company's Form 10-K for the fiscal year ended December 31, 2006 filed on March 27, 2007 (File No. 000-28252)).
3.3	Certificate of Amendment of Certificate of Incorporation (incorporated by reference to Exhibit 3.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, filed on November 6, 2008 (File No. 000-28252)).
3.4	Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on October 16, 2008 (File No. 000-28252)).
10.1¥	Amended and Restated Services and Facilities Agreement, dated September 30, 2019, by and between BroadVision, Inc. and Vmoso, Inc., as amended.
31.1	Certification of the Chief Executive Officer and Interim Chief Financial Officer of BroadVision pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1(1)	Certification of the Chief Executive Officer and Interim Chief Financial Officer of BroadVision pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	The following materials from BroadVision, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at September 30, 2019 and December 31, 2018, (ii) Condensed Consolidated Statement of Comprehensive Loss for the three and nine months ended September 30, 2019 and 2018, (iii) Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2019 and 2018, and (iv) Notes to Condensed Consolidated Financial Statements.
¥	Portions of this exhibit have been omitted for confidentiality purposes.
(1)	The certifications attached as Exhibit 32.1 accompany this Quarterly Report on Form 10-Q are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of BroadVision, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	BROADVISION, INC.


Date: November 19, 2019	By:	/s/ Pehong Chen
		Pehong Chen
		President, Chief Executive Officer and Interim Chief Financial Officer

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