
~~(1)~~	~~Includes the following: Incentive Plan, Employee Stock Purchase Plan, 1993 Interleaf Stock Option Plan and 1994 Interleaf Employee Stock Option Plan.~~

~~(2)~~	~~Includes the following: the 2000 Non-Officer Equity Incentive Plan (the “2000 Non-Officer Plan”) and non-plan grants.~~


~~ITEM 6.~~	*~~SELECTED CONSOLIDATED FINANCIAL DATA~~*

The selected consolidated financial data set forth below has been restated to reflect adjustments that are further discussed in the “Restatement” note in Item 7, “Management’s Discussion and Analysis,” below, and in Note 1 “Restatement” to our consolidated financial statements included in Part II Item 8 “Financial Statements and Supplementary Data”

~15~

Table of ~~this Form~~ Contents

~~10-K.~~COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

AMONG BROADVISION, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX

AND THE RDG INTERNET COMPOSITE INDEX

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The information below is derived from our consolidated financial statements and should be read in conjunction with ~~“Management’s~~"Management's Discussion and Analysis of Financial Condition and Results of ~~Operations”~~Operations", the Consolidated Financial Statements of BroadVision and Notes thereto, and other financial information included elsewhere in this Form 10-K. Historical results are not necessarily indicative of results that may be expected for future periods.

Years Ended December 31,

2005 2004 2003 2002 2001

(Restated)(1)
(In thousands, except per share amount)
Consolidated Statement of Operations Data:

Revenues:
Software licenses $ 14,721 $ 26,883 $ 30,230 $ 40,483 $ 101,480
Services 45,400 51,121 57,851 75,415 146,943

Total revenues 60,121 78,004 88,081 115,898 248,423
Cost of revenues:
Cost of software licenses (38 ) 1,303 2,561 8,144 9,895
Cost of services 21,931 24,978 25,708 38,898 97,639

Total cost of revenues 21,893 26,281 28,269 47,042 107,534

Gross profit 38,228 51,723 59,812 68,856 140,889
Operating expenses:
Research and development 13,831 18,024 21,067 41,432 78,677
Sales and marketing 16,208 27,340 26,394 48,918 139,799
General and administrative 9,479 9,538 9,790 16,288 42,311
Litigation settlement costs — — 4,250 — —
Goodwill and intangible amortization — — 886 3,548 211,216
Charge for acquired in-process technology — — — — 6,418
Impairment of assets — — — 3,129 —
Impairment of goodwill and other intangibles 31,368 — — — 336,379
Restructuring (credit) charge (462 ) (23,545 ) 35,356 110,449 153,284
Business combination charge 2,817 — — — —

Total operating expenses 73,241 31,357 97,743 223,764 968,084

Operating income (loss) (35,013 ) 20,366 (37,931 ) (154,908 ) (827,195 )
Other income (expense), net (6,564 ) (2,109 ) 2,899 (8,011 ) (6,928 )

Income (loss) before income taxes (41,577 ) 18,257 (35,032 ) (162,919 ) (834,123 )
Income tax benefit (provision) 2,611 309 (439 ) (7,603 ) (2,136 )

Net income (loss) $ (38,966 ) $ 18,566 $ (35,471 ) $ (170,522 ) $ (836,259 )

Net income (loss) per share:
Basic earnings (loss) per share $ (1.14 ) $ 0.55 $ (1.08 ) $ (5.32 ) $ (27.20 )

Shares used in computation — basic earnings (loss) per share 34,228 33,539 32,800 32,036 30,748

Diluted earnings (loss) per share $ (1.14 ) $ 0.54 $ (1.08 ) $ (5.32 ) $ (27.20 )

Shares used in computation — diluted earnings (loss) per share 34,228 34,321 32,800 32,036 30,748

~16~

As of December 31,

2005 2004 2003 2002 2001

(Restated)(1)
(In thousands)
Consolidated Balance Sheet Data:

Cash and cash equivalents $ 4,849 $ 41,851 $ 78,776 $ 77,386 $ 75,758
Working capital (deficit) (35,872 ) (20,273 ) 748 5,616 67,165
Total assets 49,942 144,653 195,082 240,136 392,417
Debt and capital leases, less current portion — 4,227 969 1,945 2,922
Accumulated deficit 1,225,075 1,186,109 (1,204,675 ) (1,169,204 ) (998,682 )
Total stockholders’ equity (deficit) (9,723 ) 28,341 7,950 41,633 203,147

Table of Contents

	Years Ended December 31,
	2006			2005			2004			2003			2002
	(In thousands, except per share amount)
Consolidated Statement of Operations Data:
Revenues:
Software licenses	$	15,215		$	14,721		$	26,883		$	30,230		$	40,483
Services		36,769			45,400			51,121			57,851			75,415
Total revenues		51,984			60,121			78,004			88,081			115,898
Cost of revenues:
Cost of (credit for) software licenses		258			(38	)		1,303			2,561			8,144
Cost of services		12,456			21,931			24,978			25,708			38,898
Total cost of revenues		12,714			21,893			26,281			28,269			47,042

Gross profit		39,270			38,228			51,723			59,812			68,856
Operating expenses:
Research and development		10,510			13,831			18,024			21,067			41,432
Sales and marketing		8,653			16,208			27,340			26,394			48,918
General and administrative		8,019			9,479			9,538			9,790			16,288
Litigation settlement costs		-			-			-			4,250			-
Goodwill and intangible amortization		-			-			-			886			3,548
Asset impairment		-			-			-			-			3,129
Goodwill impairment		-			31,368			-			-			-
Restructuring (credits), charges		(3,369	)		(462	)		(23,545	)		35,356			110,449
Business combination charges		-			2,817			-			-			-
Total operating expenses		23,813			73,241			31,357			97,743			223,764

Operating income (loss)		15,457			(35,013	)		20,366			(37,931	)		(154,908	)
Other income (expense), net		193			(6,564	)		(2,109	)		2,899			(8,011	)
Income (loss) before income taxes		15,650			(41,577	)		18,257			(35,032	)		(162,919	)
Income tax (expense) benefit		(634	)		2,611			309			(439	)		(7,603	)
Net income (loss)	$	15,016		$	(38,966	)	$	18,566		$	(35,471	)	$	(170,522	)
Net income (loss) per share:
Basic earnings (loss) per share	$	0.23		$	(1.14	)	$	0.55		$	(1.08	)	$	(5.32	)
Shares used in computation -- basic earnings (loss) per share		65,734			34,228			33,539			32,800			32,036
Diluted earnings (loss) per share	$	0.23		$	(1.14	)	$	0.54		$	(1.08	)	$	(5.32	)
Shares used in computation -- diluted earnings (loss) per share		65,734			34,228			34,321			32,800			32,036

	As of December 31,
	2006			2005			2004			2003			2002
	(In thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	37,003		$	4,849		$	41,851		$	78,776		$	77,386
Working capital (deficit)		18,955			(35,872	)		(20,273	)		748			5,616
Total assets		76,942			49,942			144,653			195,082			240,136
Debt and capital leases, less current portion		-			-			4,227			969			1,945
Accumulated deficit		(1,210,059	)		(1,225,075	)		(1,186,109	)		(1,204,675	)		(1,169,204	)
Total stockholders' equity (deficit)		43,254			(9,723	)		28,341			7,950			41,633


~~(1)~~	~~Certain information presented above has been restated for 2004. See Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations, below.~~


~~ITEM 7.~~	*~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~*

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

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

~~Certain information presented below~~

Overview

Since 1993, BroadVision has been ~~restated~~a pioneer and consistent innovator of e-business solutions. We deliver a combination of technologies and services into the global market that enable customers of all sizes to power mission-critical web initiatives that ultimately deliver high-value to their bottom line. Our offering consists of a robust framework for ~~fiscal year 2004. See Note 1~~personalization and self-service, modular applications and agile toolsets that customers use to ~~the Notes to our Consolidated Financial Statements. This discussion~~create e-commerce and ~~analysis gives effect to the restatement. Because the restatement for such periods is included in this Report on Form~~ ~~10-K,~~ ~~the Company does not anticipate amending its quarterly reports on Form~~ ~~10-Q~~ ~~for the quarters ended March 31, 2005, June 30, 2005 and September 30, 2005.~~

~~Overview~~

~~BroadVision solutions are designed to help~~portal solutions. We have more than 500 customers ~~increase revenues and reduce costs by moving interactions and transactions to personalized self-service via the web. Our integrated self-service application suite —~~- including ~~process, commerce, portal and content — offers rich functionality out of the box, and is easily configured for each customer’se-business~~ ~~environment.~~

~~Over 1,000 customers — including~~Audible.com, Baker Hughes, Cardinal Health, Citibank, Hilti, Japan Airlines, Renault, Sears, Sony, Standard Chartered Bank, Vodafone, U.S. Air Force, ~~Lockheed Martin, Netikos, Circuit City, Iberia L.A.E.~~Yomiuri Shinbun and ~~Vodafone — have licensed BroadVision solutions to power and personalize their mission-critical web initiatives.~~Xerox.

Worldwide demand for enterprise software has declined significantly over the past several years. The decline in venture capital spending has resulted in fewer new companies with funding to, among other things, build an on-line business. Established companies have scaled back, delayed or cancelled web-based initiatives. As a result of these reasons and others, in particular the selling challenges created by our deteriorating financial condition, we have seen significant declines in our revenue over the past five fiscal years.

Our objective is to further our position as a global supplier of web-based, self-service applications. This will require us to continue to build new functionality into our applications that offer our customers a compelling value proposition to license our products rather than design and build custom solutions.

We generate revenue from fees for licenses of our software products, and related maintenance, consulting services and customer training. We generally charge fees for licenses of our software products either based on the number of persons registered to use the product or based on the number of CPUs utilized by the machine on which the product is installed. Payment terms are generally 30 days from the date the products are delivered, the maintenance contract is booked or the consulting services are provided.

From 2001 to ~~date,~~2005, we ~~have~~ incurred significant losses and negative cash flows from operations. In fiscal years 2004 and 2005, we incurred significant cash usage related to the termination of excess real estate obligations, certain reductions in workforce and the execution and subsequent termination of an acquisition agreement. ~~See further discussion under “Background and Recent Events” below.~~ Although we generated net income in year 2006 and believe that our future cash flows will ~~be benefited in future periods by a number of~~benefit from these events, ~~we make no assurance about~~ our ability to generate profits or positive cash flows in future ~~periods.~~periods remains uncertain.

We strive to anticipate changes in the demand for our services and aggressively manage our labor force appropriately. ~~Through~~As part of our budgeting process, cross-functional management participates in the planning, reviewing and managing of our business plans. This process is intended to allow us to adjust our cost structures to changing market needs, competitive landscapes and economic factors. Our emphasis on cost control helps us manage our margins even if revenues generated fall short of ~~what we anticipated.~~our expectations.

~~Background and Recent Events~~

As a component of the settlement of one of the previous leases, we have a residual lease obligation beginning in January 2007 of approximately $9.1 million. We may make an additional cash payment of $4.5 million if we exercise an option to terminate this residual real estate obligation prior to the start of the lease term. This option to terminate the residual lease obligation, discounted to net present value, is accounted for in accordance with SFAS 146 and is part of the current restructuring accrual as of December 31, ~~2005.~~

~~In November 2004,~~2006, we ~~entered into~~are halfway through implementing a definitive agreement for the private placement of the Notes that were convertible, at the holders’ option, into common stock at a conversion price of $2.76 per share. The Notes bore interest at a rate of six percent per annum,24-month turnaround plan. To date under this plan we have implemented cost-cutting measures and we ~~were originally obligated~~have taken steps to ~~repay the principal amount of the initial $16.0 million of notes in 15 equal monthly installments of $1.1 million beginning in June 2005. Payments of future principal~~stabilize our customer base. In 2007, our focus under this plan will be on delivering new products and interest could have been made in either cash or, upon satisfaction of various conditions set forth in the Notes, shares of BroadVision common stock. However, because we did not satisfy the conditions required to make payments in stock, we were required to use cash to satisfy our payment obligations under the Notes. Certain principal payments that were due in the quarters ended September 30, 2005technologies and ~~December 31, 2005, were deferred at the election of the investors for a period of 18 months under the terms of the Notes.~~generating demand among existing and potential new customers.

accelerated repayment of all or any significant portion of such amount would have left us with insufficient working capital to conduct our business, and we did not have sufficient cash to meet such an accelerated repayment obligation. On October 25, 2005, we entered into an agreement with the noteholders under which the noteholders agreed not to require redemption of the Notes, including the 20% premium payable thereunder, prior to November 16, 2005. During the quarter ended December 31, 2005, we recorded a charge of $2.6 million in our Consolidated Statement of Operations, which represented the 20% increase in the redeemable debt premium.

In November 2005, the Notes were purchased by Vector Capital III, L.P. (“Vector III”), an entity affiliated with Vector Capital Corporation (“Vector”), and subsequently on November 18, 2005, the Notes were in turn purchased by Honu Holdings, LLC, a Delaware limited liability company controlled by Dr. Pehong Chen, our Chief Executive Officer and largest stockholder. See further discussion below. Certain principal payments that were due in the quarters ended September 30, 2005 and December 31, 2005, were deferred at the election of the investors for a period of eighteen months under the terms of the Notes.

On June 29, 2005, our Board of Directors approved a business restructuring plan, primarily consisting of headcount reductions, designed to adjust expenses to a level more consistent with anticipated revenues. The reduction included approximately 63 employees, or 22% of our workforce. We recorded severance charges of approximately $443,000 and $627,000 in the three-month periods ended September 30 and June 30, 2005, respectively.

On July 25, 2005, we entered into the Merger Agreement with Bravo Holdco and Bravo Merger Sub, LLC. Under the terms of the Merger Agreement, the holders of shares of BroadVision common stock that were outstanding immediately prior to the consummation of the Merger were to receive $0.84 in cash for each share of common stock at the time of the consummation of the Merger. The consummation of the Merger was conditioned upon, among other things, the adoption of the Merger Agreement by the holders of a majority of the outstanding shares of BroadVision common stock and other closing conditions. Although over 90% of the shares present in person or by proxy were in favor of the Merger Agreement, a quorum necessary to hold the stockholders’ meeting at which a vote to approve the Merger Agreement would be taken was not achieved, and therefore, in November 2005, we and Vector announced mutual termination of the Merger Agreement. In connection with the termination and pursuant to the Merger Agreement, we made a $989,666 expense reimbursement payment to a Vector subsidiary on January 17, 2006. In the three-month period ended December 31, 2005, we recorded a charge of approximately $1.8 million for costs associated with the proposed Merger and the termination of the Merger Agreement, all of which was paid in January 2006.

In November 2005, Honu acquired all Notes then outstanding. Including interest, the Notes represented $15.5 million in debt obligations as of December 15, 2005. In order to relieve us from the liquidity challenges presented by the Notes, Dr. Chen agreed to cancel all amounts owed under the Notes in exchange for 34,500,000 shares of BroadVision common stock, at an effective price per share of $0.45, a 25% discount to the December 20, 2005 closing price of BroadVision common stock, and $180,000 in cash that represented the portion of the accrued interest on the Notes that was not paid in stock. That exchange was completed in March 2006. The common share issuance, representing approximately 50% of the post-conversion shares outstanding, increased Dr. Chen’s ownership interest in BroadVision to approximately 59% of the total shares outstanding.

In February 2006, we announced a subscription rights offering to existing stockholders to sell a total of 178 million shares, or 5.9 shares for each share of BroadVision common stock held as of the record date of December 20, 2005, at an effective price per share of $0.45. The primary purpose of the rights offering iswas to allow the holders of BroadVision common stock on the record date an opportunity to further invest in BroadVision in order to maintain their proportionate interest in BroadVision common stock, at the same price per share as the per share price afforded to Dr. Chen in connection with ~~the Notes cancellation. Dr. Chen has waived any right to participate in the rights offering. Under the terms~~his acquisition of ~~the offering, each common stockholder as of December 20, 2005 will have the right to purchase approximately 5.9~~ shares of common stock in exchange for ~~each common share then held.~~the cancellation of the Notes. The rights offering ~~will be made only by means~~expired on November 28, 2006. Eligible participants exercised rights to purchase 36.4 million shares, resulting in $15.8 million in net proceeds. Dr. Chen's ownership was approximately 39% as a result of ~~a prospectus, a preliminary copy~~closing the rights offering in the fourth quarter of ~~which was filed with the Securities and Exchange Commission as part of a registration statement on February 3,~~ 2006.

In order to complete the issuance of shares to Dr. Chen without violating applicable listing standards, we ~~delivered to Nasdaq a notification of voluntary delisting of BroadVision~~voluntarily delisted our common stock from the ~~Nasdaq~~NASDAQ National Market effective prior to the opening of trading on March 8, 2006. We had previously received a notice from ~~Nasdaq~~NASDAQ stating that we were not in compliance with the minimum bid price rules applicable to stocks traded on ~~Nasdaq,~~NASDAQ, and that we had until March 6, 2006 to regain compliance. Quotations for BroadVision common stock are currently available through the ~~“Pink Sheets”~~"Pink Sheets" (www.pinksheets.com) under the trading symbol ~~“BVSN”~~"BVSN", and we anticipate that such quotations will continue to be available.

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In June 2006, William Meyer resigned as our Chief Financial Officer, a position Mr. Meyer had held since April 2003. Dr. Chen ~~will serve~~is currently serving as Chief Financial Officer on an interim basis until a permanent replacement is hired.

Critical Accounting Policies, Judgments and Estimates

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

During the previous years through December 31, 2005, we faced various liquidity challenges. During the year ended December 31, 2006, the following significant events occurred: approximately $20.5 million in convertible debt was exchanged for 34.5 million shares of common stock; we generated cash flow from operations of approximately $16 million; and we closed our rights offering and raised net proceeds of approximately $15.8 million. At December 31, 2006, our current assets exceeded our current liabilities by approximately $19 million. Our management believes that our cash resources at December 31, 2006 will be sufficient to fund operations through at least December 31, 2007. If our existing cash resources are not sufficient to meet our obligations, we will seek to raise additional capital through public or private equity financing or from other sources. If adequate funds are not available or are not available on acceptable terms as needed, we may be unable to pay our debts as they become due, develop our products, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements.

Revenue Recognition

Overview-- Our revenue consists of fees for licenses of our software products, maintenance, consulting services and customer training. We generally charge fees for licenses of our software products either based on the number of persons registered to use the product or based on the number of CPUs on which the product is installed. Licenses for software whereby fees charged are based upon the number of persons registered to use the product include licenses for development use and licenses for use in deployment of the customer's website. Licenses for software whereby fees charged are on a per-CPU basis differentiate between development and deployment usage. Our revenue recognition policies comply with the provisions of Statement of Position ("SOP") No. 97-2, Software Revenue Recognition ("SOP 97-2"), as amended; SOP No. 98-9, Software Revenue Recognition, With Respect to Certain Transactions ("SOP 98-9") and Staff Accounting Bulletin ("SAB") 104, Revenue Recognition ("SAB 104").

We apply the separation criteria in Emerging Issues Task Force ("EITF") 00-21, "Revenue Arrangements with Multiple Deliverables" ("EITF 00-21") to determine whether our arrangements with multiple deliverables should be treated as separate units of accounting. EITF 00-21 indicates that revenue recognized for any multiple-element contract is to be allocated to each element of the arrangement based on the relative fair value of each element. The determination of the fair value of each element is based on our analysis of objective evidence from comparable sales of the individual element.

Software License Revenue

We license our products through our direct sales force and indirectly through resellers and Application Service Providers ("ASP"). In general, software license revenues are recognized when a non-cancelable license agreement has been signed and the customer acknowledges an unconditional obligation to pay, the software product has been delivered, there are no uncertainties surrounding product acceptance, the fees are fixed and determinable and collection is reasonably expected. Delivery is considered to have occurred when title and risk of loss have been transferred to the customer, which generally occurs when media containing the licensed programs is provided to a common carrier. In case of electronic delivery, delivery occurs when the customer is given access to the licensed programs. For products that cannot be used without a licensing key, the delivery requirement is met when the licensing key is made available to the customer. If collectibility is not reasonably expected, revenue is recognized when the fee is collected. Subscription-based license revenues are recognized ratably over the subscription period. We enter into reseller arrangements that typically provide for sublicense fees payable to us based upon a percentage of list price. We do not grant resellers the right of return.

We recognize revenue using the residual method pursuant to the requirements of SOP No. 97-2, as amended by SOP No. 98-9. Revenues recognized from multiple-element software arrangements are allocated to each element of the arrangement based on the fair values of the elements, such as licenses for software products, maintenance, consulting services or customer training. The determination of fair value is based on vendor-specific objective evidence, which is specific to us. We limit our assessment of objective evidence for each element to either the price charged when the same element is sold separately or the price established by management having the relevant authority to do so, for an element not yet sold separately. If evidence of fair value of all undelivered elements exists but evidence does not exist for one or more delivered elements, then revenue is recognized using the residual method. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue.

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We record unearned revenue for software license agreements when cash has been received from the customer and the agreement does not qualify for revenue recognition under our revenue recognition policy. We record accounts receivable for software license agreements when the agreement qualifies for revenue recognition but cash or other consideration has not been received from the customer.

Services Revenue

Consulting services revenues and customer training revenues are recognized as such services are performed.

Maintenance revenues, which include revenues bundled with software license agreements that entitle the customers to technical support and future unspecified enhancements to our products, are deferred and recognized ratably over the related agreement period, generally twelve months.

Our consulting services, which consist of consulting, maintenance and training, are delivered through the BroadVision Global Services ("BVGS") organization. Services that we provide are not essential to the functionality of the software. We record reimbursement from our customers for out-of-pocket expenses as an increase to services revenues.

Receivable Reserves

Occasionally, our customers experience financial difficulty after we record the sale but before payment has been received. We maintain receivable reserves for estimated losses resulting from the inability of our customers to make required payments. Our normal payment terms are generally 30 to 90 days from invoice date. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional reserves may be required. Losses from customer receivables in the three-year period ended December 31, 2006, have not been significant. If all efforts to collect a receivable fail, and the receivable is considered uncollectible, we would write off against the receivable reserve.

Research and Development and Software Development Costs

Statement of Financial Accounting Standards ("SFAS") No. 86, Accounting for the Cost of Computer Software to be Sold, Leased or Otherwise Marketed, requires capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based on our product development process, technological feasibility is established upon the completion of a working model. To date, costs incurred by us between the completion of the working model and the point at which the product is ready for general release have been insignificant. Accordingly, we have charged all such costs to research and development expense in the period incurred.

Impairment Assessments

In the quarter ended September 30, 2005, we recognized a goodwill impairment charge of $13.2 million as an estimated impairment in accordance with the requirements of ~~Statement of Financial Accounting Standards No. 142,~~~~Goodwill and Other Intangible Assets~~(“SFAS ~~142”).~~142. As of September 30, 2005, we performed Step 1 under the provisions of SFAS 142 by determining that we have a single reporting unit and then comparing our net book value to the our market capitalization based upon the quoted market price of our stock. Based upon the results of Step 1 and as permitted under SFAS 142, we estimated the impairment charge under Step 2 by estimating the fair value of all other assets and liabilities of the reporting unit. Subsequent to the issuance of our third quarter financial statements, we obtained a third-party valuation report, completed Step 2 and recorded an adjustment to the original estimate (recognized an additional impairment charge) of $18.2 million in the quarter ended December 31, 2005. Further, as of December 31, 2006 and 2005, we performed a goodwill impairment analysis under Step 1. Because the fair value was determined to be greater than book value, Step 2 under SFAS 142 was not required, and therefore no additional impairment was necessary at December 31, 2006 and 2005.

Income Taxes and Deferred Tax Assets


	•	~~During the three years ended December 31, 2005, we maintained a revolving line of credit~~been recognized in the form of a loan and security agreement with a commercial lender. In June 2005, we entered into a $20 million renewed and amended loan and security agreement with the lender that made more stringent the requirements we must meet in order to access the credit facility. We were not in compliance with these new requirements as of December 31, 2005, and the loan and security agreement expired in February 2006. The agreement required us to maintain certain levels of unrestricted cash and cash equivalents (excluding equity investments), and to maintain certain levels on deposit with the lender. At December 31, 2004, $20.0 million was outstanding under the line of credit. As of December 31, 2005, there was no outstanding balance on the line of credit. Borrowings bear interest at the bank’s prime rate (7.25% as of December 31, 2005 and 5.25% as of December 31, 2004) plus up to 1.25% and were collateralized by all of our ~~assets. Interest was due monthly and principal was due at the expiration in February 2006.~~

	•	We have entered into term debt in the form of notes payable with the same lender. The term debt requires monthly payments of approximately $38,000 plus interest through October 2006, and monthly payments of approximately $2,000 for the five months ending March 2007. A portion of the term debt was utilized for an equipment line of credit. Principal and interest are due in monthly payments through maturity based on the terms of the facilities. Principal payments of $389,000 are due in 2006. As of December 31, 2005, the entire balance of $389,000 was classified as currently due.


	*~~Restatement~~*

~~As discussed more fully in Note 5 to our Consolidated Financial Statements contained in Item 8 of this Form~~ ~~10-K,~~ ~~subsequent to the issuance of the 2004~~ consolidated financial statements or tax returns. The measurement of current and deferred tax assets and liabilities is based on ~~clarifying SEC guidance issued in 2005, we made a determination that the convertible debentures entered into in 2004 included an embedded derivative that should be valued under the~~ provisions of ~~SFAS 133. We had previously determined that convertible debentures were conventional under~~ the ~~provisions of EITF~~ ~~00-19,~~~~Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock.~~ ~~Therefore, we have restated our operating results for the three-month period and year ended December 31, 2004, and for the three-month periods ended March 31, June 30 and September 30, 2005.~~

~~The following tables outline~~enacted tax law; the effects of ~~the restatements and amendments described above for the periods that have been previously reported (in thousands, except per share data).~~

~~As of and for the Twelve Months Ended:~~

December 31, 2004

Previously
Reported Restated

Interest expense, net $ (228 ) $ (629 )
Income (expense) from derivatives $ (753 ) $ (2,421 )
Net income $ 20,635 $ 18,566
Basic net income per share $ 0.62 $ 0.55
Diluted net income per share $ 0.60 $ 0.54
Total liabilities $ 114,243 $ 116,312
Total stockholders’ equity $ 30,410 $ 28,341

~~As of and for the Three Months Ended:~~

December 31, 2004 March 31, 2005 June 30, 2005 September 30, 2005

Previously Previously Previously Previously
Reported Restated Reported Restated Reported Restated Reported Restated

Interest expense, net $ (516 ) $ (917 ) $ (744 ) $ (1,723 ) $ (1,090 ) $ (2,532 ) $ (1,002 ) $ (2,073 )
Income (expense) from derivatives $ (753 ) $ (2,421 ) $ 2,517 $ 7,991 $ 997 $ 2,257 $ 698 $ 794
Net (loss) income $ (386 ) $ (2,455 ) $ 2,919 $ 7,413 $ (2,914 ) $ (3,095 ) $ (14,538 ) $ (15,512 )
Basic net (loss) income per share $ (0.01 ) $ (0.07 ) $ 0.09 $ 0.22 $ (0.09 ) $ (0.09 ) $ (0.42 ) $ (0.45 )
Diluted net (loss) income per share $ (0.01 ) $ (0.07 ) $ 0.07 $ 0.19 $ (0.09 ) $ (0.09 ) $ (0.42 ) $ (0.45 )
Total liabilities $ 114,243 $ 116,312 $ 85,099 $ 82,673 $ 75,424 $ 73,179 $ 50,963 $ 49,694
Total stockholders’ equity $ 30,410 $ 28,341 $ 33,743 $ 36,167 $ 30,959 $ 33,205 $ 16,480 $ 17,749

~~Critical Accounting Policies, Judgments and Estimates~~

~~This management’s discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared~~future changes in accordance with generally accepted accounting principles in the United States of America. In preparing these financial statements, we are required to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to doubtful accounts, product returns, investments, goodwill and intangible assets, income taxes and restructuring, as well as contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities thattax laws or rates are not ~~readily apparent from other sources. Actual results may differ from these estimates using different assumptions or conditions. We believe~~anticipated. The measurement of deferred tax assets is reduced, if necessary, by the ~~following critical accounting policies reflect the more significant judgments and estimates used in the preparation~~amount of ~~our consolidated financial statements.~~


	*~~Basis of Presentation~~*

~~The accompanying consolidated financial statements have been prepared~~any tax benefits that, based on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. We face liquidity challenges. At December 31, 2005, our current liabilities exceeded our current assets by approximately $35.9 million (negative working capital) resulting in a working capital ratio of approximately 0.35 to 1.0. Subsequent to December 31, 2005, our Chairman, Chief Executive Officer, converted the debt of $20.5 million to Common Stock as described in Note 5. This will improve our working capital. Our liquidity

situation has also improved since the end of 2005 for reasons that include the effects of operating expense reductions, accounts receivable collections and maintenance contract renewals. Based on our current liquidity position, our analysis of the components of our current assets and liabilities, our actual financial results for the first quarter of 2006 and our internal financial forecast for the balance of the year, we currently expectavailable evidence, is not expected to be able to fund our working capital requirements through at least the end of 2006 from our existing cash and cash equivalents and our anticipated cash flows from operations and subleases. Our Chairman, Chief Executive Officer and largest stockholder has committed to provide, upon our request at any time through December 31, 2006, up to $5 million of working capital support through cash, debt guarantees or a combination thereof on mutually satisfactory terms. Accordingly, no adjustments have been made to the carrying values or classification of the assets and liabilities in the accompanying financial statements to take account of any uncertainty as to our ability to continue as a going concern. If unanticipated events or circumstances occur, we may be required to seek additional capital and/or further reduce spending, which could have a material adverse effect on our ability to achieve our business objectives and continue as a going concern.realized.

We may seek to raise additional funds through private or public sales of securities, strategic relationships, bank debt, financing under leasing arrangements or otherwise. If additional funds are raised through the issuance of equity securities, the percentage ownership of our stockholders will be reduced, stockholders may experience additional dilution or such equity securities 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 as needed, we may be unable to pay our debts as they become due, develop our products, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements, which could have a material adverse effect on our business, financial condition and future operating results.


	*~~Revenue Recognition~~*

~~Overview~~ — Our revenue consists of fees for licenses of our software products, maintenance, consulting services and customer training. We generally charge fees for licenses of our software products either based on the number of persons registered to use the product or based on the number of CPUs on the machine on which the product is installed. Licenses for software whereby fees charged are based upon the number of persons registered to use the product include licenses for development use and licenses for use in deployment of the customer’s website. Licenses for software whereby fees charged are on a per-CPU basis do not differentiate between development and deployment usage. Our revenue recognition policies comply with the provisions of Statement of Position (“SOP”) No. 97-2,~~Software Revenue Recognition~~~~(“SOP~~ ~~97-2”),~~ ~~as amended; SOP No. 98-9,~~~~Software Revenue Recognition, With Respect to Certain Transactions~~~~(“SOP 98-9”) and SAB 104,~~~~Revenue Recognition~~~~(“SAB 104”)~~.

~~Software License Revenue~~ — We license our products through our direct sales force and indirectly through resellers. In general, software license revenues are recognized when a non-cancelable license agreement has been signed and the customer acknowledges an unconditional obligation to pay, the software product has been delivered, there are no uncertainties surrounding product acceptance, the fees are fixed and determinable and collection is considered probable. Delivery is considered to have occurred when title and risk of loss have been transferred to the customer, which generally occurs when media containing the licensed programs is provided to a common carrier. In case of electronic delivery, delivery occurs when the customer is given access to the licensed programs. For products that cannot be used without a licensing key, the delivery requirement is met when the licensing key is made available to the customer. If collectibility is not considered probable, revenue is recognized when the fee is collected. Subscription-based license revenues are recognized ratably over the subscription period. We enter into reseller arrangements that typically provide for sublicense fees payable to the us based upon a percentage of list price. Revenue generated under reseller agreements is recognized upon obtaining evidence of the resale of the license rights from the reseller to one or more end users and meeting all other revenue criteria. We do not grant resellers the right of return.

products, maintenance, consulting services or customer training. The determination of fair value is based on objective evidence, which is specific to us. We limit its assessment of objective evidence for each element to either the price charged when the same element is sold separately or the price established by management having the relevant authority to do so, for an element not yet sold separately. If evidence of fair value of all undelivered elements exists but evidence does not exist for one or more delivered elements, then revenue is recognized using the residual method. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue.

We record unearned revenue for software license agreements when cash has been received from the customer and the agreement does not qualify for revenue recognition. We record accounts receivable for software license agreements when the agreement qualifies for revenue recognition but cash or other consideration has not been received from the customer.

~~Services Revenue~~ ~~— Consulting services revenues and customer training revenues are generally recognized as such services are performed on apercentage-of~~-completion basis. Maintenance revenues, which include revenues bundled with software license agreements that entitle the customers to technical support and future unspecified enhancements to our products, are deferred and recognized ratably over the related agreement period, generally twelve months.

Our consulting services, which consist of consulting, maintenance and training, are delivered through the BroadVision Global Services (“BVGS”) organization. Services that we provide are not essential to the functionality of the software. We record reimbursement from our customers for~~out-of-pocket expenses as an increase to services revenues.~~


	*~~Allowances and Reserves~~*

We assess credit worthiness of significant customers in advance of revenue recognition based upon a combination of payment history and third-party credit reports. Occasionally, our customers experience financial difficulty after we record the revenue but before we are paid. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Our normal payment terms are 30 to 90 days from invoice date. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.


	*~~Research and Development and Software Development Costs~~*

~~Under the criteria set forth in the Statement of Financial Accounting Standards (SFAS) No. 86,~~~~Accounting for the Cost of Computer Software to be Sold, Leased or Otherwise Marketed~~, development costs incurred in the research and development of new software products are expensed as incurred until technological feasibility in the form of a working model has been established at which time such costs are capitalized and recorded at the lower of unamortized cost or net realizable value. The costs incurred subsequent to the establishment of a working model but prior to general release of the product have not been significant. To date, we have not capitalized any costs related to the development of software for external use.


	*~~Impairment Assessments~~*

We adopted SFAS 142 on January 1, 2002. Pursuant to SFAS 142, we are required to test goodwill for impairment upon adoption and annually or more often if events or changes in circumstances indicate that the asset might be impaired. While there was no accounting charge to record upon adoption, we concluded that, as of September 30, 2005, and December 31, 2005, based on the existence of impairment indicators including a decline in the market value of our common shares, we would be required to test goodwill for impairment. SFAS No. 142 provides for a two-step approach to determining whether and by how much goodwill has been impaired. Since we have only one reporting unit for purposes of applying SFAS No. 142, the first step requires a comparison of the fair value of BroadVision to our net book value. If the fair value is greater, then no impairment is deemed to have occurred. If the fair value is less, then the second step must be completed to determine the amount, if any, of actual impairment.

In the quarter ended September 30, 2005, we recognized a goodwill impairment charge of $13.2 million as an estimated impairment in accordance with the requirements of Statement of Financial Accounting Standards No. 142,~~Goodwill and Other Intangible Assets~~(“SFAS 142”). As of September 30, 2005, we performed Step 1 under the provisions of SFAS 142 by determining that we have a single reporting unit and then comparing our net book value to the our market capitalization based upon the quoted market price of our stock. Based upon the results of Step 1 and as permitted under SFAS 142, we estimated the impairment charge under Step 2 by estimating the fair value of all other assets and liabilities of the reporting unit. Subsequent to the issuance of our third quarter financial statements, we obtained a third-party valuation report, completed Step 2 and recorded an adjustment to the original estimate (recognized an additional impairment charge) of $18.2 million in the quarter ended December 31, 2005. Further, as of December 31, 2005, we performed a goodwill impairment analysis under Step 1. Because the fair value was determined to be greater than book value, Step 2 under SFAS 142 was not required, and therefore no additional impairment was necessary at December 31, 2005.


	*~~Deferred Tax Assets~~*

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


	*~~Accounting for Stock-Based Compensation~~*

Accounting for Stock-Based Compensation

Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS No. 123 (revised 2004), Share-Based Payment ("SFAS 123(R)"), using the modified-prospective transition method. Under the fair value recognition provisions of SFAS 123(R), share-based compensation cost is estimated at the grant date based on the fair value of the award and is recognized as expense, net of estimated pre-vesting forfeitures, ratably over the vesting period of the award.

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In addition, the adoption of SFAS 123R requires additional accounting related to the income tax effects and disclosure regarding the cash flow effects resulting from share-based payment arrangements. In January 2005, the SEC issued Staff Accounting Bulletin ("SAB") No. 107, which provides supplemental implementation guidance for SFAS 123R. We ~~apply APB~~selected the Black-Scholes option-pricing model as the most appropriate fair-value method for our awards. Calculating share-based compensation expense requires the input of highly subjective assumptions, including the expected term of the share-based awards, stock price volatility, and pre-vesting forfeitures. The assumptions used in calculating the fair value of stock-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our share-based compensation expense could be materially different in the future. In addition, we are required to estimate the expected pre-vesting forfeiture rate and only recognize expense for those shares expected to vest. If our actual forfeiture rate is materially different from our estimate, our share-based compensation expense could be significantly different from what we have recorded in the current period. The total amount of stock-based compensation expense recognized during the year ended December 31, 2006 was $950,000, of which $178,000 has been recorded in general and administrative expenses, $382,000 has been recorded in research and development expenses, $160,000 has been recorded in cost of services and $230,000 was recorded in sales and marketing expense.

On November 10, 2005, the FASB issued FASB Staff Position No. FAS 123(R)-3 "Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards" (FSP 123(R)-3). We adopted the alternative transition method provided in the FASB Staff Position for calculating the tax effects of stock-based compensation pursuant to SFAS 123R in the fourth quarter of fiscal 2006. The alternative transition method includes simplified methods to establish the beginning balance of the additional paid-in capital pool (APIC pool) related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the APIC pool and Consolidated Statements of Cash Flows of the tax effects of employee stock-based compensation awards that are outstanding upon adoption of SFAS 123R. The adoption did not have a material impact on our results of operations and financial condition.

Prior to January 1, 2006, we accounted for share-based payments to our employees and non-employee members of our board of directors under the recognition and measurement provisions of Accounting Principles Board ("APB") Opinion No. 25,Accounting forStock Issued to Employees,~~(“APB 25”)~~ and related ~~interpretations when accounting~~guidance, as permitted by SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS 123"), and amended by SFAS No. 148, Accounting for Stock-Based Compensation-Transitionand Disclosure ("SFAS 148"). We did not recognize any significant share-based employee compensation costs in our ~~stock option~~statements of operations prior to January 1, 2006, as options granted to employees and ~~stock purchase plans. In accordance with APB 25, we apply~~non-employee members of the ~~intrinsic value method in accounting for employee stock options. Accordingly, we~~board of directors generally ~~recognize no compensation expense with respect~~had an exercise price equal to ~~stock-based awards to employees.~~

~~During~~ the ~~three months ended March 31, 2004, we recorded a compensation credit of $19,000 as a result of granting common stock to a third party consultant. This credit was calculated based upon the market~~fair value of the underlying common stock on the date of grant.

~~We have determined~~ As required by SFAS 148, prior to the adoption of SFAS 123(R), we provided pro forma disclosure of net income (loss) applicable to common shareholders as if the fair-value-based method defined in SFAS No. 123 had been applied. In the pro forma information ~~regarding net loss and net loss per share as if~~for periods prior to 2006, we ~~had~~ accounted for ~~employee stock options under the fair value method~~pre-vesting forfeitures as ~~required by SFAS No. 123,~~~~Accounting~~they occurred. Our operating results for ~~Stock-Based Compensation~~~~(“SFAS 123”). The fair value of these stock-based awards~~prior periods have not been restated.

Further details related to ~~employees was estimated using the Black-Scholes option pricing model. Had compensation cost for~~ our ~~stock option plan~~Stock Benefit Plans and ~~employee stock purchase plan been determined consistent with SFAS 123,~~ our ~~reported net income (loss) and~~

~~net income (loss) per share would have been changed to the amounts indicated below (in thousands, except per share data):~~

Years Ended December 31,

2005 2004 2003

(Restated)
Net income (loss), as reported $ (38,966 ) $ 18,566 $ (35,471 )
Add: Stock-based compensation (income) expense included in reported net loss, net of related tax effects — (19 ) 342
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (2,263 ) (4,545 ) (9,275 )

Pro forma net income (loss) $ (41,229 ) $ 14,002 $ (44,404 )

Net income (loss) per share:
Basic — as reported $ (1.14 ) $ 0.55 $ (1.08 )

Basic — pro forma $ (1.20 ) $ 0.42 $ (1.35 )

Diluted — as reported $ (1.14 ) $ 0.54 $ (1.08 )

Diluted — pro forma $ (1.20 ) $ 0.41 $ (1.35 )

In December 2004, the FASB issued SFAS 123(R), which replaces SFAS 123 and supersedes APB 25. SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values beginning with the first interim or annual period beginning after June 15, 2005, with early adoption ~~encouraged. In March 2006, the SEC released SEC Staff Accounting Bulletin No. 107,~~~~Share Based Payment~~~~(“SAB 107”). SAB 107 provides the SEC Staff’s position regarding the application~~ of SFAS 123(R) and certain SEC rules and regulations, and also provides the Staff’s views regarding the valuation of share-based payment arrangements for public companies. The pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative to financial statement recognition. Under SFAS 123(R), we must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. The transition methods include prospective and retroactive adoption options. We adopted SFAS 123(R), utilizing the modified prospective method,123R are provided in the first quarter of fiscal 2006, and such adoption will require us to record compensation expense in our 2006 consolidated financials statements and forward based upon the fair value of future stock option grants using the Black-Scholes model and the vesting in those periods. The impact on future operating results and financial condition will be affected by changes in our stock price, as well as assumptions regarding a number of complex and subjective variables and the related tax impact. These variables include, but are not limitedNote 9 Stockholders' Equity (Deficit) to our ~~stock price volatility and employee stock option exercise behaviors.~~

~~In anticipation of the pending reporting requirements under the accounting standard referenced above, our Board of Directors, on November 29, 2005, unanimously approved accelerating the vesting ofout-of~~-the-money, unvested stock options held by current employees, including executive officers, and Board members. The acceleration applied only to those options with an exercise price of $1.13 per share or higher. The closing market price of our common stock on November 28, 2005, the last full trading day before the date of the

~~acceleration, was $0.72 per share. The following table summarizes the options for which vesting was accelerated:~~

Aggregate Number Weighted
of Common Shares Average
Issuable Under Exercise
Accelerated Stock Price per
Options Share

Total Non-Employee Directors 122,181 $ 2.98
Total Named Executive Officers 391,886 2.87

Total Directors and Named Executive Officers(1) 514,067 2.89
Total All Other Employees 610,707 2.97

Total(2) 1,124,774 2.94


~~(1)~~	~~Consists of current executive officers named in the Summary Compensation Table in the Company’s 2005 Proxy Statement filed with the Securities and Exchange Commission on April 22, 2005.~~

~~(2)~~	~~The accelerated options represent approximately 22% of total outstanding options.~~

The decision to accelerate vesting of these options was made to avoid recognizing compensation cost in the statement of operations as required under the provisions of SFAS 123(R), which was effective as of January 1, 2006.


	*~~Reverse Stock Splits~~*

On July 24, 2002, we announced that our Board of Directors had approved a one-for-nine reverse split of BroadVision common stock. The reverse split was effective on July 29, 2002. Each nine shares of outstanding Broad Vision common stock automatically converted into one share of common stock. BroadVision common stock began trading on a post-split basis at the opening of trading on the Nasdaq National Market on July 30, 2002.

~~The accompanying~~ consolidated financial ~~statements and related financial information contained herein have been retroactively restated to give effect for the July 2002 reverse split.~~statements.


	*~~Restructuring Charges~~*

Restructuring Charges

Through December 31, ~~2005,~~2006, we have approved restructuring plans to, among other things, reduce our workforce and consolidate facilities. Restructuring and asset impairment charges were taken to align our cost structure with changing market conditions and to create a more efficient organization. Our restructuring charges are comprised primarily of: ~~(1)~~(i) severance and benefits termination costs related to the reduction of our workforce; ~~(2)~~(ii) lease termination costs and/or costs associated with permanently vacating our facilities; ~~(3)~~(iii) other incremental costs incurred as a direct result of the restructuring plan; and ~~(4)~~(iv) impairment costs related to certain long-lived assets abandoned. We account for each of these costs in accordance with SAB 100~~Restructuring and Impairment Charges.~~.

Severance and Termination ~~Costs~~Costs.. We account for severance and benefits termination costs as follows:


	•	~~For exit or disposal activities initiated on or prior to December 31, 2002, we account for costs in accordance with EITF Issue No. 94-3,~~~~Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)~~~~(“EITF~~ ~~94-3”).~~ Accordingly, we record the liability related to these termination costs when the following conditions have been met: (1) management with the appropriate level of authority approves a termination plan that commits us to such plan and establishes the benefits the employees will receive upon termination; (2) the benefit arrangement is communicated to the employees in sufficient detail to enable the employees to determine the termination benefits; (3) the plan specifically identifies the number of employees to be terminated, their locations and their job classifications; and (4) the period of time to implement the plan does not indicate changes to the plan are likely.

l For exit or disposal activities initiated on or prior to December 31, 2002, we account for costs in accordance with EITF 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring) ("EITF 94-3"). Accordingly, we record the liability related to these termination costs when the following conditions have been met: (i) management with the appropriate level of authority approves a termination plan that commits us to such plan and establishes the benefits the employees will receive upon termination; (ii) the benefit arrangement is communicated to the employees in sufficient detail to enable the employees to determine the termination benefits; (iii) the plan specifically identifies the number of employees to be terminated, their locations and their job classifications; and (iv) the period of time to implement the plan does not indicate changes to the plan are likely.


	•	~~For exit or disposal activities initiated after December 31, 2002, we account for costs in accordance with SFAS No. 146,~~~~Accounting For Costs Associated with Exit Activities~~(“SFAS 146”). SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. This differs from EITF ~~94-3,~~ ~~which required that a liability for an exit cost be recognized at the date of an entity’s commitment to an exit plan.~~

l For exit or disposal activities initiated after December 31, 2002, we account for costs in accordance with SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities ("SFAS 146"). SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. This differed from EITF 94-3, which required that a liability for an exit cost be recognized at the date of an entity's commitment to an exit plan.

Excess Facilities ~~Costs~~Costs.. We account for excess facilities costs as follows:


	•	~~For exit or disposal activities initiated on or prior to December 31, 2002, we account for lease termination and/or abandonment costs in accordance with EITF Issue No. 88-10,~~~~Costs Associated with Lease Modification or Termination~~~~(“EITF 88-10”). Accordingly, we recorded the costs associated with lease termination and/or abandonment when the leased property had no substantive future use or benefit to us.~~

	•	For exit or disposal activities initiated after December 31, 2002, we account for lease termination and/or abandonment costs in accordance with SFAS 146, which requires that a liability for such costs be recognized and measured initially at fair value on the cease use date of the facility.

l For exit or disposal activities initiated on or prior to December 31, 2002, we account for lease termination and/or abandonment costs in accordance with EITF 88-10, Costs Associated with Lease Modification or Termination. Accordingly, we recorded the costs associated with lease termination and/or abandonment when the leased property had no substantive future use or benefit to us.

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l For exit or disposal activities initiated after December 31, 2002, we account for lease termination and/or abandonment costs in accordance with SFAS 146, which requires that a liability for such costs be recognized and measured initially at fair value on the cease use date of the facility.

Severance and termination costs and excess facilities costs we record under these provisions are not associated with nor do they benefit continuing activities.

Inherent in the estimation of the costs related to our restructuring efforts are assessments related to the most likely expected outcome of the significant actions to accomplish the restructuring. In determining the charges related to the restructurings to date, the majority of estimates made by management have related to charges for excess facilities. In determining the charges for excess facilities, we were required to estimate future sublease income, future net operating expenses of the facilities, and brokerage commissions, among other expenses. The most significant of these estimates have related to the timing and extent of future sublease income in which ~~reduced~~to reduce our lease obligations. We based our estimates of sublease income, in part, on the opinions of independent real estate experts, current market conditions and rental rates, an assessment of the time period over which reasonable estimates could be made, the status of negotiations with potential subtenants, and the location of the respective facility, among other factors. We have recorded the low-end of a range of assumptions modeled for restructuring charges, in accordance with SFAS 5. Adjustments to the facilities accrual will be required if actual lease exit costs or sublease income differ from amounts currently expected. We will review the status of restructuring activities on a quarterly basis and, if appropriate, record changes to our restructuring obligations in current operations based on ~~management’s~~management's most current estimates.

~~As mentioned above,~~

During 2006 we ~~have based our excess facilities~~recorded restructuring credit of $3.4 million primarily due to a $4.5 million accrual ~~in part, upon estimates of future sublease income. We have used~~reversal related to the following factors, among others, in making such estimates: opinions of independent real estate experts, current market conditions and rental rates, an assessment of the time period over which reasonable estimates could be made, the status of negotiations with potential subtenants, and the location of the respective facilities. We recorded the low-endbuy-out option of a range of assumptions modeled for restructuring charges, in accordance with SFAS 5. Adjustments to the facilities accrual will be required if actual sublease income differs from amounts currently expected. We will review the status of restructuring activities on a quarterly basis and, if appropriate, record changes to our restructuring obligations in current operations based on management’s most current estimates.


	*~~Legal Matters~~*

Our current estimated range of liability related to pending litigation is based on claims for which it is probable that a liability has been incurred and we can estimate the amount and range of loss. We have

recorded the minimum estimated liability related to those claims, where there is a range of loss. We do not believe the ultimate resolution of these matters will have a material adverse impact on our financial position or results of operations. As additional information becomes available, we will assess the potential liability related to its pending litigation and revise our estimates, if necessary.

~~On June 10, 2004, MetLife filed a complaint in the Superior Court of the State of California, County of Los Angeles, naming us as a defendant. The complaint alleged~~new space that we were liable for unlawful detainer of premises leased from the plaintiff. MetLife thereafter filed a First Amended Complaint alleging that we no longer held possession of the premises but were in breach of the lease. In February 2005, MetLife reached agreement with usdecided to occupy and executed documents regarding a settlement of the pending lawsuit under which we paid MetLife an aggregate of $1.9 million in consideration for termination of the lease, dismissal of the lawsuit and in full settlement of approximately $3.1 million of past and future lease obligations. This amount was accrued as a component of the restructuring accrual, and paid in three installment payments in February, May and September 2005.have sub-leased out excess facility space.

On January 7, 2005, we announced that we had reached agreement with the SEC to settle administrative proceedings in connection with the restatement of our financial results for the third quarter of fiscal 2001. There were no fines or financial penalties associated with the settlement. Without admitting or denying any wrongdoing, we consented to the SEC’s entry of an administrative order that included findings that we issued a false and misleading earnings press release and misleading quarterly report. The order requires that we cease and desist from committing or causing violations of specified provisions of the federal securities laws. The SEC found that a former executive in charge of professional services who left BroadVision in 2002 was responsible for the improper accounting. The restatement concerned revenue related to one software license agreement. Following receipt of payment in full by the customer, we recognized revenue on that agreement in its entirety in the third quarter of 2001. We subsequently determined that the revenue should instead be recognized ratably over the four-year life of the agreement, and announced on April 1, 2002 that we were restating our financial statements for the third quarter of 2001 to effect this change. We have been accounting for the revenue ratably in all periods since the third quarter of 2001.

On July 28, 2005, our representatives received copies of four complaints relating to purported class action lawsuits, each filed by an alleged holder of shares of BroadVision common stock and each filed in California Superior Court for the county of San Mateo. These complaints were captioned~~Gary Goberville, et al., vs. Pehong Chen, et al., Civ 448490,~~~~Cookie Schwartz, et al., vs. BroadVision, Inc., et al.~~~~, Civ 448516,~~~~Leon Kotovich, et al., vs. BroadVision, Inc., et al.~~~~, Civ 448518 and~~~~Anthony Noblett, et al., vs. BroadVision, Inc., et al.~~, Civ 448519. Each claim named our directors and us as defendants, and alleged that the director defendants violated their fiduciary duties to stockholders by, among other things, failing to maximize our value and ignoring, or failing to adequately protect against, certain purported conflicts of interest. Each complaint sought, among other things, injunctive relief and damages in an unspecified amount. On September 21, 2005, plaintiff Goberville filed an amended complaint alleging that defendants caused materially misleading information regarding a proposed merger to be disseminated to our stockholders. On October 20, 2005, the Court ordered consolidation of the four pending actions pursuant to the parties’ stipulation. In light of the termination of the Merger Agreement with an affiliate of Vector in November 2005, the plaintiffs in the four above entitled actions agreed to dismiss, without prejudice, their complaints against our directors and us on December 9, 2005.

~~Statement~~Statements of Operations as a Percent of Total Revenues

The following table sets forth certain items reflected in our consolidated statements of operations expressed as a percent of total revenues for the periods indicated.

Years Ended
December 31,

2005 2004 2003

(Restated)
Revenues:
Software licenses 24 % 34 % 34 %
Services 76 66 66

Total revenues 100 100 100
Cost of revenues:
Cost of software licenses — 2 3
Cost of services 36 32 29

Total cost of revenues 36 34 32

Gross profit 64 66 68
Operating expenses:
Research and development 23 23 24
Sales and marketing 27 35 30
General and administrative 16 12 11
Litigation settlement costs — — 5
Goodwill and intangible write-offs and amortization 52 — 1
Restructuring (reversals) charges (1 ) (30 ) 40
Business combination charges 5 — —

Total operating expenses 122 40 111

Operating income (loss) (58 ) 26 (43 )
Other (expense) income, net (11 ) (3 ) 3

Income (loss) before provision (benefit) for income taxes (69 ) 23 (40 )
Benefit (provision) for income taxes 4 1 —

Net income (loss) (65 )% 24 % (40 )%

	Year Ended December 31,
	2006			2005			2004
Revenues:
Software licenses		29	%		24	%		34	%
Services		71			76			66
Total revenues		100			100			100
Cost of revenues:
Cost of software licenses		-			-			2
Cost of services		24			36			32
Total cost of revenues		24			36			34

Gross profit		76			64			66
Operating expenses:
Research and development		20			23			23
Sales and marketing		17			27			35
General and administrative		15			16			12
Goodwill impairment		-			52			-
Restructuring (credits), charges		(6	)		(1	)		(30	)
Business combination charges		-			5			-
Total operating expenses		46			122			40

Operating income (loss)		30			(58	)		26
Other (expense) income, net		-			(11	)		(3	)
Income (loss) before income taxes		30			(69	)		23
Income taxes (expense) benefit		(1	)		4			1
Net income (loss)		29	%		(65	)%		24	%

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Table of Contents

Results of Operations

Software % Services % Total %

(Dollars in thousands)
Year Ended December 31, 2005:

Americas $ 7,615 52 $ 26,713 59 $ 34,328 57
Europe 4,918 33 15,310 34 20,228 34
Asia/ Pacific 2,188 15 3,377 7 5,565 9

Total $ 14,721 100 $ 45,400 100 $ 60,121 100

Year Ended December 31, 2004:

Americas $ 9,545 36 $ 27,733 54 $ 37,278 48
Europe 13,894 52 19,427 38 33,321 43
Asia/ Pacific 3,444 12 3,961 8 7,405 9

Total $ 26,883 100 $ 51,121 100 $ 78,004 100

Year Ended December 31, 2003:

Americas $ 14,435 48 $ 30,700 53 $ 45,135 51
Europe 11,725 39 23,733 41 35,458 40
Asia/ Pacific 4,070 13 3,418 6 7,488 9

Total $ 30,230 100 % $ 57,851 100 % $ 88,081 100 %


	*~~Revenues~~*

	Software Licenses		%			Services		%			Total		%
	(Dollars in thousands)
*Year Ended December 31, 2006:*
Americas	$	10,186		67		$	20,790		57		$	30,976		60
Europe		3,025		20			11,505		31			14,530		28
Asia/ Pacific		2,004		13			4,474		12			6,478		12
Total	$	15,215		100		$	36,769		100		$	51,984		100
*Year Ended December 31, 2005:*
Americas	$	7,615		52		$	26,713		59		$	34,328		57
Europe		4,918		33			15,310		34			20,228		34
Asia/ Pacific		2,188		15			3,377		7			5,565		9
Total	$	14,721		100		$	45,400		100		$	60,121		100
*Year Ended December 31, 2004:*
Americas	$	9,545		36		$	27,733		54		$	37,278		48
Europe		13,894		52			19,427		38			33,321		43
Asia/ Pacific		3,444		12			3,961		8			7,405		9
Total	$	26,883		100	%	$	51,121		100	%	$	78,004		100	%

Total revenues for the year ended December 31, 2004 were $78.0 million, down $10.1 million, or 11%, from $88.1 million for the prior year. This decline consisted of a decrease in software license revenue of $3.3 million, or 11%, and a decrease in services revenue of $6.7 million, or 12%. The fiscal 2004 decrease in software license revenues was primarily attributable to continued weakness in the information technology market due to economic uncertainties throughout 2004. The decrease in services revenue consisted of decreases in both maintenance and support ($4.6 million) and consulting services revenue ($2.1 million). These decreases were a result of a corresponding decline in software license revenues and of weak economic conditions during the fiscal year.

Total revenues for the year ended December 31, 2003 were $88.1 million, down $27.8 million, or 24%, from $115.9 million for the prior year. This decline consisted of a decrease in software license revenue of $10.3 million, or 25%, and a decrease in services revenue of $17.6 million, or 23%. The fiscal 2003 decrease in software license revenues was primarily attributable to continued weakness in the information technology market due to economic uncertainties throughout 2003. The decrease in services revenue consisted of decreases in both maintenance and support ($2.9 million) and consulting services revenue ($14.7 million). These decreases were a result of a corresponding decline in software license revenues and of weak economic conditions during the fiscal year.

	Years Ended December 31,
	2006		%			2005			%			2004		%
	(Dollars in thousands)
Cost of (credit for) software licenses(1)	$	258		2	%	$	(38	)		-	%	$	1,303		5	%
Cost of services(2)		12,456		34			21,931			48			24,978		49

Total cost of revenues(3)	$	12,714		24	%	$	21,893			36	%	$	26,281		34	%


~~(1)~~	~~Percentage is calculated based on total software license revenues for the period indicated.~~

~~(2)~~	~~Percentage is calculated based on total services revenues for the period indicated.~~

~~(3)~~	~~Percentage is calculated based on total revenues for the period indicated.~~

(1) Percentage is calculated based on total software license revenues for the period indicated.

(2) Percentage is calculated based on total services revenues for the period indicated.

(3) Percentage is calculated based on total revenues for the period indicated.

~23~

Table of Contents

Cost of ~~(credit for)~~software licenses for the year ended December 31, 2006, increased $0.3 million, or over 100%, on a year-over-year basis. This increase is primarily a result of increased license revenues.

Credit for software licenses for the year ended December 31, 2005, decreased $1.3 million, or over 100%, on a year-over-year basis. ~~Cost of software licenses as a percent of license revenues was 0% in 2005 as compared to 5% in 2004. The~~This decrease ~~in absolute dollars~~ is primarily a result of decreased license revenues, a decreased proportion of license revenues generated from royalty-bearing products and certain credits related to accruals determined to no longer be necessary.

Cost of ~~software licenses~~services for the year ended December 31, ~~2004,~~2006 decreased ~~$1.3~~$9.5 million, or ~~49%~~43%, on a year-over-year basis. ~~Cost of software licenses as a percent of license revenues~~This decrease was ~~5% in 2004 as compared to 8% in 2003. The decrease in absolute dollars is a~~the result of ~~decreased license revenues.~~the reduction in consulting headcount, the consolidation of our facilities, and less services revenue.

Cost of software licenses for the year ended December 31, 2003 decreased $5.6 million, or 69%, on a year-over-year basis. Cost of software licenses as a percent of license revenues was 8% in 2003 as compared to 20% in 2002. The decrease in absolute dollars is a result of decreased license revenues, including revenue generated from our products that embed or include third-party products. During the fourth quarter of fiscal year 2002, we recorded a provision of $3.2 million related to prepaid royalties for software we no longer intended to utilize.

Cost of services for the year ended December 31, 2005 decreased $3.0 million, or 12%, on a year-over-year basis. ~~Cost of services as a percent of services revenues was 48% in 2005 as compared to 49% in 2004. The~~This decrease ~~in absolute dollar terms~~ was the result of the reduction in consulting headcount and third-party consultant costs that occurred during the 2005 fiscal year. The decrease as a percent of services revenue is due to certain staffing efficiencies gained during the year.

Cost of services for the year ended December 31, 2004 decreased $0.7 million, or 3%, on a year-over-year basis. Cost of services as a percent of services revenues was 49% in 2004 as compared to 44% in 2003. The decrease in absolute dollar terms during 2004 as compared to 2003 was the result of reductions in consulting headcount and third-party consultant costs that occurred during the 2004 fiscal year. The increase as a percent of services revenue is due to higher outsourcing costs, due in part to turnover in senior project positions.

Cost of services for the year ended December 31, 2003 decreased $13.2 million, or 34%, on a year-over-year basis. Cost of services as a percent of services revenues was 44% in 2003 as compared to 52% in 2002. The decreases in absolute dollar terms and as a percentage of revenue during 2003 as compared to 2002 were the result of reductions in consulting headcount and third-party consultant costs that occurred during the 2003 fiscal year.

The number of total consulting employees was 27 as of December 31, 2006, 50 as of December 31, 2005, and 77 as of December 31, ~~2004, and 98 as of December 31, 2003.~~2004.

Operating Expenses

Operating expenses consist of the following:


	•	~~Research and development expenses~~consist primarily of salaries, employee-related benefit costs and consulting fees incurred in association with the development of our products. Costs incurred for the research and development of new software products are expensed as incurred until such time that technological feasibility, in the form of a working model, is established at which time such costs are capitalized and recorded at the lower of unamortized cost or net realizable value. The costs incurred subsequent to the establishment of a working model but prior to general release of the product have not been significant. To date, we have not capitalized any costs related to the development of software for external use.

	•	~~Sales and marketing expenses~~consist primarily of salaries, employee-related benefit costs, commissions and other incentive compensation, travel and entertainment and marketing program-related expenditures such as collateral materials, trade shows, public relations, advertising and creative services.

	•	~~General and administrative expenses~~~~consist primarily of salaries, employee-related benefit costs, provisions and credits related to uncollectible accounts receivable and professional service fees.~~

	•	~~Litigation settlement costs~~~~consist of costs incurred to settle pending or threatened litigation matters.~~

	•	~~Goodwill and intangible write-offs and amortization~~represents costs to write-off or amortize goodwill and other intangible assets. As of January 1, 2002, we no longer amortize goodwill or the assembled workforce as we have identified the assembled workforce as an intangible asset that does not meet the criteria of a recognizable intangible asset as defined by SFAS 142.

	•	~~Restructuring (reversals) charges~~~~represent costs incurred to restructure our operations. These charges, including charges for excess facilities, severance and certain non-cash items, were recorded under the provisions of EITF~~ ~~94-3,~~ ~~and SFAS 146.~~

	•	~~Business combination charges~~~~represent costs incurred in connection with merger or acquisition activity.~~

l Research and development expenses consist primarily of salaries, employee-related benefit costs and consulting fees incurred in association with the development of our products. Costs incurred for the research and development of new software products are expensed as incurred until such time that technological feasibility, in the form of a working model, is established at which time such costs are capitalized and recorded at the lower of unamortized cost or net realizable value. The costs incurred subsequent to the establishment of a working model but prior to general release of the product have not been significant. To date, we have not capitalized any costs related to the development of software for external use.

l Sales and marketing expenses consist primarily of salaries, employee-related benefit costs, commissions and other incentive compensation, travel and entertainment and marketing program-related expenditures such as collateral materials, trade shows, public relations, advertising and creative services.

l General and administrative expenses consist primarily of salaries, employee-related benefit costs, provisions and credits related to uncollectible accounts receivable and professional service fees.

l Goodwill and intangible write-offs and amortization represents costs to write-off or amortize goodwill and other intangible assets. As of January 1, 2002, we no longer amortize goodwill or the assembled workforce as we have identified the assembled workforce as an intangible asset that does not meet the criteria of a recognizable intangible asset as defined by SFAS 142.

l Restructuring (reversals) charges represent costs incurred to restructure our operations. These charges, including charges for excess facilities, severance and certain non-cash items, were recorded under the provisions of EITF 94-3, and SFAS 146.

l Business combination charges represent costs incurred in connection with merger or acquisition activity.

A summary of operating expenses is set forth in the following table (dollars in thousands, percentages are based on total revenues):

Years Ended December 31,

2005 % 2004 % 2003 %

Research and development $ 13,831 23 % $ 18,024 23 % $ 21,067 24 %
Sales and marketing 16,208 27 27,340 35 26,394 30
General and administrative 9,479 16 9,538 12 9,790 11
Litigation settlement costs — — — — 4,250 5
Goodwill write-offs and amortization 31,368 52 — — 886 1
Restructuring (reversals) charges (462 ) (1 ) (23,545 ) (30 ) 35,356 40
Business combination charges 2,817 5 — — — —

Total operating expenses $ 73,241 122 % $ 31,357 40 % $ 97,743 111 %

Years Ended December 31,

2006

%

2005

%

2004

%

Research and development $ 10,510 20 % $ 13,831 23 % $ 18,024 23 %
Sales and marketing 8,653 17 16,208 27 27,340 35
General and administrative 8,019 15 9,479 16 9,538 12
Goodwill impairment - - 31,368 52 - -
Restructuring (credits), net (3,369 ) (6 ) (462 ) (1 ) (23,545 ) (30 )
Business combination charges - - 2,817 5 - -
Total operating expenses $ 23,813 46 % $ 73,241 122 % $ 31,357 40 %

Research and development. Research and development expenses decreased $3.3 million, or 24% in 2006 compared to 2005 and $4.2 million, or 23%, in 2005 compared to ~~2004, $3.0 million, or 14%, in 2004 compared to 2003, and $20.4 million, or 49%, in 2003 compared to 2002. The decreases in all years were~~2004. Each decrease was primarily attributable to reductions in staffing levels

resulting in decreased salary and salary related costs, as well as other cost-cutting efforts taken as part of our restructuring plan, such as the consolidation of facilities.

Sales and marketing. Sales and marketing expenses decreased $7.6 million, or 47% in 2006 compared to 2005 and decreased $11.1 million, or 41% in 2005 compared to 2004, increased $1.0 million, or 4%, in 2004 compared to 2003, and decreased $22.5 million, or 46%, in 2003 compared to 2002. Sales and marketing expenses increased in 2004 due to the launch of our latest product, BroadVision Process. In 2005 and 2003, sales and marketing expenses decreased2004. These decreases are primarily due to decreased salary expense as a result of reductions in force, decreased variable compensation due to lower revenues, and decreased facility, travel and marketing program costs as a result of various cost-cutting actions.

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General and administrative. General and administrative expenses decreased $1.5 million, or 15% in 2006 compared to 2005, due to a $1.5 million decrease in labor-related expenses and a receipt of a $700,000 (net of expense) property tax refund in 2006, offset by $860,000 in additional accounting fees. Net general and administrative expenses decreased less than 1% in 2005 as compared to 2004. Costs as a percentage of revenue increased in 2005 due to continued Sarbanes-Oxley compliance costs and a significant number of SEC filings. ~~General and administrative expenses decreased $250,000, or 3%, in 2004 compared to 2003, and $6.5 million, or 40%, in 2003 compared to 2002.~~ The decreases in ~~both years were~~2005 was primarily attributable to decreases in salary expenses as a result of reductions in force, professional services expenses as a result of cost cutting measures, reserves of accounts receivable due to better than expected collection efforts and declining accounts receivable balances, and continued facilities consolidations.

~~Litigation settlement costs.~~ ~~During the third quarter of 2003, we settled outstanding litigation, which resulted in a charge of $4.3 million. The settlement involved payments for past royalties~~

Goodwill impairment and ~~certain legal expenses and license fees that were due and payable in future periods. These payments did not have a material effect on our business, financial condition or results of operations.~~

~~Goodwill write-offs and~~ amortization. On April 14, 2000, we acquired all of the outstanding common stock of Interleaf, Inc. in a transaction accounted for as a purchase business combination. As a result of this transaction, we recorded goodwill and other intangible assets of $794.7 million. Amortization of recognizable intangible assets related to the Interleaf transaction was $3.5 million in 2002. In the third quarter of 2005, we determined that an impairment of the goodwill had occurred, and therefore we recorded a write-off of $13.2 million as an estimated impairment amount. In the fourth quarter of 2005, we recorded an additional charge of $18.2 million related to a revision of that estimate. ~~See further discussion below.~~Since the fair value of these assets as of December 31, 2006 was determined to be greater than book value, we determined that no additional impairment or amortization was necessary in 2006.

Restructuring ~~(reversals) charges.~~ ~~We approved~~credit, net During 2006 we recorded a restructuring ~~plans~~credit of $3.4 million primarily due to ~~among other things, reduce our workforce and consolidate facilities. These restructuring and asset impairment charges were taken~~a $4.5 million accrual reversal related to ~~align our cost structure with changing market conditions and~~the buy-out option of a new space that we decided not to ~~create a more efficient organization.~~exercise. In addition, we have sub-leased out excess facility space. In fiscal 2005, we recorded a restructuring credit of $462,000, primarily due to an additional sublease entered into for a portion of our headquarters facility. In fiscal 2004, we reached agreement with several landlords to extinguish approximately $155.0 million of obligations related to excess facility leases, which contributed to a pre-tax net restructuring credit during the year of $23.5 million. ~~Pretax charges of $35.4 million were recorded during the year ended December 31, 2003.~~ During each period, we recorded an amount in the low-end of a range of assumptions modeled for the restructuring charges, in accordance with SFAS No. 5,Accounting for Contingencies. Adjustments to the restructuring reserves will be made in future periods, if necessary, based upon the then current actual events and circumstances.

~~Business combination charges.~~ ~~We recorded business combination charges of $2.8 million in the year ended December 31,2005, related to the termination of the merger agreement with a wholly-owned subsidiary of Vector.~~

The following table summarizes the restructuring accrual activity recorded during the three-years ended December 31, ~~2005~~2006 (in thousands):

Severance
and Facilities/Excess
Benefits Assets Total

Accrual balances, December 31, 2002 $ 1,504 $ 94,691 $ 96,195
Restructuring charges 1,509 33,847 35,356
Cash payments (2,342 ) (23,829 ) (26,171 )

Accrual balances, December 31, 2003 671 104,709 105,380
Restructuring charges 1,114 (24,659 ) (23,545 )
Cash payments (961 ) (46,711 ) (47,672 )

Accrual balances, December 31, 2004 824 33,339 34,163
Restructuring charges (credits) 1,006 (1,468 ) (462 )
Cash payments (1,414 ) (25,032 ) (26,446 )

Accrual balances, December 31, 2005 $ 416 $ 6,839 $ 7,255

The severance and benefits accrual for each period included severance, payroll taxes and COBRA benefits related to restructuring plans implemented prior to the balance sheet date. The facilities/excess assets accrual for each period included future minimum lease payments, fees and expenses, net of estimated sublease income and planned company occupancy, and related leasehold improvement amounts payable subsequent to the balance sheet date for which the provisions of EITF ~~94-3~~ or SFAS 146, as applicable, were satisfied. See further discussion below. In determining estimated future sublease income, the following factors were considered, among others: opinions of independent real estate experts, current market conditions and rental rates, an assessment of the time period over which reasonable estimates could be made, the status of negotiations with potential subtenants, and the location of the respective facilities.

	Severance
	and			Facilities/Excess
	Benefits				Assets			Total

Accrual balances, December 31, 2003	$	671			$	104,709		$	105,380
Restructuring charges (credits)		1,114				(24,659	)		(23,545	)
Cash payments		(961	)			(46,711	)		(47,672	)
Accrual balances, December 31, 2004		824				33,339			34,163
Restructuring charges (credits)		1,006				(1,468	)		(462	)
Cash payments		(1,414	)			(25,032	)		(26,446	)
Accrual balances, December 31, 2005		416				6,839			7,255
Restructuring charges (credits)		348				(3,717	)		(3,369	)
Cash payments		(417	)			(907	)		(1,324	)
Accrual balances, December 31, 2006	$	347			$	2,215		$	2,562

~~The nature~~

Business combination charges. We recorded business combination charges of ~~the charges and credits in 2005 were as follows:~~


	•	~~Severance and benefits~~ — On June 29, 2005, our Board of Directors approved a business restructuring plan, primarily consisting of headcount reductions, designed to adjust expenses to a level more consistent with anticipated revenues. The reduction included approximately 63 employees, or 22% of our workforce. We recorded severance charges of approximately $1.0$2.8 million in the year ended December 31, 2005, related to workforce reductions as a component of our restructuring plans executed during the year. We estimate that the accrual as of December 31, 2005 of $416,000 will be paid in full by December 31, 2006.

	•	~~Facilities/excess assets~~ — During the twelve months ended December 31, 2005, we recorded a facilities-related restructuring credit of $1.5 million. During the third and fourth quarters of 2004 and the first quarter of 2005, we reached agreements with certain landlords to extinguish future real estate obligations. We made cash payments of $25.0 million during the twelve months ended December 31, 2005 related to these agreements.

~~The nature of the charges and credits in 2004 were as follows:~~


	•	~~Severance and benefits~~ ~~— We recorded a charge of $1.1 million during the twelve months ended December 31, 2004, related to workforce reductions as a component of the our restructuring plans executed during the year.~~

	•	~~Facilities/excess assets~~ — During the twelve months ended December 31, 2004, we recorded a facilities-related restructuring credit of $24.7 million. During the third and fourth quarters of 2004, we reached agreements with certain landlords to extinguish approximately $155.0 million of future real estate obligations. We made cash payments of $19.0 million during the third quarter and $1.7 million during the fourth quarter. Standby letters of credit of $21.9 million were issued on our behalf from

financial institutions as of December 31, 2004, in favor of the landlords to secure the fiscal 2005 payments. Accordingly, $21.9 million, along with additional letters of credit securing other long-term leases of $2.3 million, has been included in restricted cash in the accompanying Consolidated Balance Sheets at December 31, 2004. We also transferred ownership of certain furniture, fixtures, and leasehold improvements with a net book value of $8.5 million to the previous landlords.


	As a component of the settlement of one of the previous leases, we have a residual lease obligation beginning in 2007 of approximately $9.1 million. We may make an additional cash payment of $4.5 million if we exercise an option to terminate this residual real estate obligation prior to the commencement of the lease term (January 2007). This option to terminate the residual lease obligation is accounted for in accordance with SFAS 146 and is a part of the facilities related restructuring credit of $24.6 million recorded in fiscal 2004.

	In connection with one of the buyout transactions, we issued to the landlord a five-year warrant to purchase approximately 700,000 shares of our common stock at an exercise price of $5.00 per share, exercisable beginning in August 2005.

	~~The nature of the charges in 2003 is as follows:~~


	•	~~Severance and benefits~~ ~~— The $1.5 million charge in fiscal 2003 related to workforce reductions as a component of our restructuring plans executed during the year.~~

	•	~~Facilities/excess assets~~ — During the twelve months ended December 31, 2003, we recorded a facilities-related restructuring charge of $33.8 million. This charge related to our revisions of estimates with respect to the planned future occupancy and anticipated future subleases. These revisions were necessary due to a reduction in our planned future space needs and a further decline in the market for commercial real estate. We estimated future sublease timing and rates based upon current market indicators and information obtained from a third party real estate expert.

~~As of~~ December 31, 2005, ~~the total restructuring accrual of $7.2 million consisted of the following (in millions):~~

Non-
Current Current Total

Severance and Termination $ 0.4 $ — $ 0.4
Excess Facilities 5.1 1.7 6.8

Total $ 5.5 $ 1.7 $ 7.2

We estimate that the severance and termination accrual will be paid in full by December 31, 2006. We expect to pay the excess facilities amounts related to restructured or abandoned leased space as follows (in millions):

Total Future
Payments

Years Ending December 31,

2006 $ 5.1
2007 0.7
2008 0.4
2009 0.4
2010 0.2

Total minimum facilities payments $ 6.8

Of this excess facilities accrual, $4.2 million relates to payments due in fiscal 2006 under lease termination agreements, and $2.6 million relates to future minimum lease payments, fees and expenses, net of estimated sublease income and planned company occupancy.

~~Activity~~ related to the ~~restructuring plans prior to January 1, 2003 is accounted for in accordance with EITF~~ ~~94-3.~~ Activity after January 1, 2003 is accounted for in accordance with SFAS 146, with the exception of amounts that were the result of changes in assumptions to restructuring plans that were initiated prior to January 1, 2003.

~~The following table summarizes the activity related to the restructuring plans initiated after January 1, 2003, and accounted for in accordance with FAS 146 (in thousands):~~

Amounts
Charged to
Accrued Restructuring Amounts Accrued
Restructuring Costs and Paid or Restructuring
Costs, Beginning Other Written Off Costs, Ending

Year Ended December 31, 2005:

Lease cancellations and commitments $ 21,824 $ (821 ) $ (16,815 ) $ 4,188
Termination payments to employees and related costs 365 1,006 (1,266 ) 105

$ 22,189 $ 185 $ (18,081 ) $ 4,293

Year Ended December 31, 2004:

Lease cancellations and commitments $ 21,683 $ 9,594 $ (9,453 ) $ 21,824
Termination payments to employees and related costs 242 1,114 (991 ) 365
Write-off on disposal of assets and related costs — (1,193 ) 1,193 —

$ 21,925 $ 9,515 $ (9,251 ) $ 22,189

~~The following table summarizes the activity related to the restructuring plans initiated prior to January 1, 2003, and accounted for in accordance with EITF~~ ~~94-3~~ ~~(in thousands):~~

Amounts Amounts
Accrued Charged to Reversed to Amounts
Restructuring Restructuring Restructuring Paid or Accrued
Costs, Costs and Costs and Written Restructuring
Beginning Other Other Off Costs, Ending

Year Ended December 31, 2005:

Lease cancellations and commitments $ 11,515 $ — $ (647 ) $ (8,217 ) $ 2,651
Termination payments to employees and related costs 459 — — (148 ) 311

$ 11,974 $ — $ (647 ) $ (8,365 ) $ 2,962

Year Ended December 31, 2004:

Lease cancellations and commitments $ 83,026 $ (32,584 ) $ — $ (38,927 ) $ 11,515
Termination payments to employees and related costs 429 — — 30 459
Write-off on disposal of assets and related costs — (477 ) — 477 —

$ 83,455 $ (33,061 ) $ — $ (38,420 ) $ 11,974

Year Ended December 31, 2003:

Lease cancellations and commitments $ 94,691 $ 11,649 $ — $ (23,314 ) $ 83,026
Termination payments to employees and related costs 1,425 41 — (1,037 ) 429
Write-off on disposal of assets and related costs 79 (41 ) (26 ) (12 ) —

$ 96,195 $ 11,649 $ (26 ) $ (24,363 ) $ 83,455


	~~Goodwill and intangible write-offs~~

In the quarter ended September 30, 2005, we recognized a goodwill impairment charge of $13.2 million as an estimated impairment in accordance with the requirements of Statement of Financial Accounting Standards No. 142,~~Goodwill and Other Intangible Assets~~(“SFAS 142”). As of September 30, 2005, we performed Step 1 under the provisions of SFAS 142 by determining that we have a single reporting unit and then comparing our net book value to the our market capitalization based upon the quoted market pricetermination of our ~~stock. Based upon the results~~merger agreement with a wholly owned subsidiary of Step 1 and as permitted under SFAS 142, we estimated the impairment charge under Step 2 by estimating the fair value of all other assets and liabilities of the reporting unit. Subsequent to the issuance of our third quarter financial statements, we obtained a third-party valuation report, completed Step 2 and recorded an adjustment to the original estimate (recognized an additional impairment charge) of $18.2 million in the quarter ended December 31, 2005. Further, as of December 31, 2005, we performed a goodwill impairment analysis under Step 1. Because the fair value was determined to be greater than book value, Step 2 under SFAS 142 was not required, and therefore no additional impairment was necessary at December 31, 2005.Vector Capital Corporation.

Other Income (Expense), net

Other income (expense), net, consists of the following (dollars in thousands, percentages are based upon total revenues): for the indicated periods:

Years Ended December 31,

2005 %(1) 2004 %(1) 2003 %(1)

Interest (expense) income, net $ (10,094 ) (17 )% $ (629 ) (1 )% $ 803 1 %
Income (expense) from derivatives 11,346 19 (2,421 ) (3 ) — —
Loss on debt extinguishment (6,967 ) (12 ) — — — —
Other income (expense), net (849 ) (1 ) 941 1 2,096 2

	Years Ended December 31,
	2006			%			2005			%			2004			%
Interest income (expense), net	$	638			1	%	$	(10,094	)		(17	)%	$	(629	)		(1	)%
Income (expense) from derivatives		(1,333	)		(3	)		11,346			19			(2,421	)		(3	)
Loss on debt extinguishment		-			-			(6,967	)		(12	)		-			-
Other (expense) income, net		888			2			(849	)		(1	)		941			1
Total other income (expense), net	$	193					$	(6,564	)				$	(2,109	)

~~(1) Percentage is calculated based on total revenues for the period indicated.~~

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Table of Contents

Net interest income (expense) ~~income~~ includes interest income on invested funds, less interest on the face amount of the Notes and on bank debt and the amortization of the discount on the Notes. In 2006, we generated $638,000 net interest income due to positive cash from operating activities and cash received from the rights offering. Net interest expense decreased by $10.7 million in 2006 as compared to 2005 due to the pay-off the convertible debt. Net (expense) interest increased by $9.5 million in 2005 as compared to 2004 due to the following factors: 1) we issued the Notes in November 2004 that were outstanding for the majority of fiscal year 2005, significantly increasing the amount of interest expense for the year, and 2) we recorded a $2.6 million charge related to the 20% premium agreed to during the fourth quarter and the resulting revaluation of the Notes. ~~Income (expense)~~

Expense from derivatives in 2006 was ~~generated~~from the revaluation of the warrants issued in connection with the Notes and the real estate buyout. Income from derivatives in 2005 included $4.6 million from the revaluation of the warrants issued in connection with the Notes and the real estate buyout and $6.7 million from the revaluation of the embedded derivatives related to the ~~Notes and~~Notes. Expense from derivatives in 2004 included $0.7 million from the revaluation of the warrants issued in connection with the Notes and the real estate buyout and $1.7 million from the revaluation of the embedded derivatives related to the Notes. ~~The loss~~

Loss on debt extinguishment of $7.0 million in 2005 was recorded upon the agreement to exchange the Notes for common stock and the presumed cancellation and reissuance of the Notes at the fair value of the underlying shares to be exchanged. ~~Net other income (expense) declined by $1.8~~On the agreement date, the carrying value included Note face value of $15.4 million ~~in 2005 due to lower gains on equity investments and penalties paid to the holders~~less discount of ~~the Notes pending effectiveness~~$1.9 million. The value of the underlying ~~registration statement.~~shares was $20.7 million less accrued interest of $165,000.

In October 2005, we inadvertently did not make timely payment of the $201,000 third quarter interest payment due under the Notes. Lack of timely payment became an event of default on October 8, 2005 after non-payment continued for a period of over five business days. We made the third quarter interest payment promptly after discovery of the nonpayment, on October 14, 2005. The event of default permitted each noteholder to require us to redeem 120% of all or any portion of the amounts outstanding under the applicable Note by delivering to us notice of such redemption, which redemption was required under the Notes to be paid within five business days after receipt of such redemption notice. If all of the noteholders had elected such redemption, we would have been obligated to pay within five business days after receipt of such election approximately $15.5 million in unpaid principal and interest. The accelerated repayment of all or any significant portion of such amount would have left us with insufficient working capital to conduct our business, and we did not have sufficient cash to meet such an accelerated repayment obligation. During the quarter ended December 31, 2005, we recorded a charge of $2.6 million in our Consolidated Statement of Operations, which represented the 20% increase in the redeemable debt premium.

Interest income (expense), net, decreased from $803,000 of income in 2003 to $629,000 of expense in 2004, as our cash balance decreased and we issued the Notes in November 2004, which increased our fiscal 2004 interest expense.

Net other (expense) income ~~declined by $1.2 million~~increased from expense of $849,000 in ~~2004 from 2003~~2005 to income of $888,000 in 2006. The change is mainly due to ~~lower gains on equity investments and fewer write-offs~~reversal of $850,000 accrued liabilities ~~deemed~~that we are no longer ~~required.~~subject to.


	*~~Income Taxes~~*

Income Taxes

We recorded income tax provisions (benefits) ~~provisions~~ of $634,000, ($2.6 million), and ($309,000)~~, and $439,000~~ for the years ended December 31, 2006, 2005 and 2004, respectively. For the year ended December 31, 2006, the tax provision mainly relates to foreign and ~~2003, respectively.~~federal income taxes. The tax benefit from fiscal 2005 was primarily due to tax accruals determined to be no longer required. For the year ended December 31, 2004, the tax benefit relates primarily to the income tax accruals decreasing during the fiscal year. Partially offsetting the reduction in accruals were tax provisions related to foreign withholding taxes and state income taxes. ~~For~~

Liquidity and Capital Resources

Background and Overview

During the previous years through December 31, 2005, we faced various liquidity challenges. During the year ended December 31, ~~2003,~~2006, the ~~tax provision mainly relates to foreign withholding taxes~~following significant events occurred: approximately $20.5 million in convertible debt was exchanged for 34.5 million shares of common stock; we generated cash flow from operations of approximately $16.0 million; and ~~state income taxes.~~


	*~~Liquidity and Capital Resources~~*


	*~~Background and Overview~~*

~~The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization~~we closed our rights offering and raised net proceeds of ~~assets and the settlement of liabilities in the normal course of business. We face liquidity challenges.~~approximately $15.8 million. At December 31, ~~2005,~~2006, our current assets exceeded our current liabilities ~~exceeded our current assets~~ by approximately ~~$35.9 million (negative working capital) resulting in a working capital ratio of approximately 0.35 to 1.0. On a pro forma basis after giving effect to the stock-for-debt exchange~~$19 million. Our management believes that ~~occurred in March 2006, our current liabilities exceeded our current assets~~cash resources at December 31, 2005, by approximately $15.3 million resulting in a working capital ratio of approximately 0.56 to 1.0. However, our liquidity situation has improved since the end of 2005 for reasons that include the effects of operating expense reductions, accounts receivable collections and maintenance contract renewals. Based on our current liquidity position, our analysis of the components of our current assets and liabilities, our actual financial results for the first quarter of 2006 ~~and our internal financial forecast for the balance of the year, we currently expect to~~will be ~~able~~sufficient to fund ~~our working capital requirements~~operations through at least ~~the end of 2006 from~~December 31, 2007. If our existing cash ~~and cash equivalents and our anticipated cash flows from operations and subleases. Accordingly, no adjustments have been made~~resources are not sufficient to ~~the carrying values or classification of the assets and liabilities in the accompanying financial statements to take account of any uncertainty as to our ability to continue as a going concern.~~

~~Despite our expectations as to our ability to fund our working capital requirements,~~meet its obligations, we could experience unforeseen circumstances, such as an economic downturn, difficulties in retaining customers and/or key employees due to going concern issues or other factors, or less than anticipated cash flows from operations and subleases, that could increase our use of available cash and require us to seek additional financing. We may find it necessary to seek 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. Our Chairman, Chief Executive Officer and largest stockholder has committed to provide, upon our request at any time through December 31, 2006, up to $5 million of working capital support through cash, debt guarantees or a combination thereof on mutually satisfactory terms. However, we currently do not have any bank loan agreement or other similar financing arrangement in place that would entitle us to borrow additional funds, and there can be no assurance that we will ~~be able to generate sufficient cash from ongoing operations, the pending rights offering or from any other source in order to fund our future working capital requirements.~~

~~We may~~ seek to raise additional ~~funds~~capital through public or private equity financing or public sales of securities, strategic relationships, bank debt, financing under leasing arrangements or otherwise. If additional funds are raised through the issuance of equity securities, the percentage ownership of our stockholders will be reduced, stockholders may experience additional dilution or such equity securities may have rights, preferences or privileges senior to those of the holders of BroadVision common stock. We expect that obtaining additional financing on acceptable terms would be difficult, at best.from other sources. If adequate funds are not available or are not available on acceptable terms as needed, we may be unable to pay our debts as they become due, develop our products, take advantage of future opportunities or respond to competitive pressures or unanticipated ~~requirements, which could have a material adverse effect on our business, financial condition and future operating results.~~requirements.

Our consolidated balance sheet strengthened considerably throughout 2006. As of December 31, ~~2005,~~2006, we had $37.0 million of cash, ~~cash equivalents, and restricted cash and investments totaled $4.8 million, which~~with no long-term debt borrowings. This represents a ~~decrease~~671% increase from the prior year's starting cash position of ~~$37.1~~$4.8 million. Positive cash flow from business operations and rights offering each contributed approximately half of the $32.2 million cash generated during 2006.

2006 full-year revenues of $52.0 million were down 13% from 2005 revenues of $60.1 million, due primarily to declines in consulting revenues mentioned above, which were down 37%. Maintenance revenues were down 6%; license revenues up a modest 4%. The most significant change was the year-over-year decline in consulting revenues, which can be attributable to a lagging effect caused by declining license revenues in prior quarters. Since consulting projects tend to trail licenses by 6 to 12 months, as our licenses went down during the turbulent 2005, its lagging effect finally caught up with us in the second half of 2006. However, on a more positive note, this decline was more than offset by corresponding cost savings in both direct headcount and contractor expenses. As a result, consulting services actually generated fairly decent positive margins compared to many prior higher-revenue quarters.

We were vigilant about our expense control throughout 2006, with a sharp focus on achieving strong operating results and profit margins. 2006 full-year expenses were $37.0 million, as compared to 2005 equivalents of $99.1 million. As a ~~balance~~result, 2006 net income were $15.0 million, or $0.23 per share. This compares to 2005 net losses of ~~$41.9~~$39.0 million, ~~on December 31, 2004. This decrease was primarily attributable to the payment~~or $(1.14) per share.

~26~

Table of ~~lease settlement obligations, payments of debt-related obligations and net cash used for operations during the year ended December 31, 2005.~~Contents

The following table represents our liquidity at December 31, ~~2005~~2006 and ~~2004~~2005 (dollars in thousands):

December 31,

2005 2004

(Restated)
Cash and cash equivalents $ 4,849 $ 41,851
Restricted cash and investments, current portion $ — $ 21,933
Restricted cash and investments, net of current portion $ 1,997 $ 2,323
Working capital deficit $ (35,872 ) $ (20,273 )
Working capital ratio 0.35 0.80

During the third and fourth quarters of 2004 and the first quarter of 2005, we reached agreements with certain landlords to extinguish approximately $155.0 million of future real estate obligations. We made cash buyout payments of $20.7 million in 2004 and $25.0 million in 2005. In addition, we issued to one of the landlords a five-year warrant to purchase approximately 700,000 shares of BroadVision common stock at an exercise price of $5.00 per share, exercisable beginning in August 2005. As a component of the settlement of one of the previous leases, we have a residual lease obligation beginning in January 2007 of approximately $9.1 million. We may make an additional cash payment of $4.5 million if we exercise an option to terminate this residual real estate obligation prior to the start of the lease term. This option to terminate the residual lease obligation, discounted to net present value, is accounted for in accordance with SFAS 146 and is part of the current restructuring accrual as of December 31, 2005.

In November 2004, we entered into a definitive agreement for the private placement of up to $20.0 million of senior secured convertible notes (the “Notes”) to five institutional investors. Under the terms of the definitive agreement, we issued an initial

	December 31,
	2006		2005
Cash and cash equivalents	$	37,003	$	4,849
Restricted cash, current portion	$	997	$	-
Restricted cash, net of current portion	$	1,000	$	1,997
Working capital (deficit)	$	18,955	$	(35,872	)
Working capital ratio		1.63		(0.35	)

Cash Provided By (Used For) Operating Activities

Cash flow from operating activities was $16.0 million of Notes that were convertible, at the holders’ option, into common stock at a conversion price of $2.76 per share, subject to adjustment in certain defined circumstances. The Notes bore interest at a rate of six percent per annum, and we were originally obligated to repay the principal amount of the initial $16.0 million of notes in 15 equal monthly installments of $1.1 million beginning in June 2005. Payments of future principal and interest could have been made in either cash or, upon satisfaction of various conditions set forth in the Notes, shares of BroadVision common stock. However, because we did not satisfy the conditions required to make payments in stock, we were required to use cash to satisfy our payment obligations under the Notes. Certain principal payments that were due in the quarters ended September 30, 2005 and December 31, 2005, were deferred at the election of the investors for ~~a period of 18 months under the terms of the Notes.~~

In October 2005, we inadvertently did not make timely payment of the third quarter interest payment due under the Notes of approximately $201,000 that was due on October 1, 2005. Lack of timely payment became an event of default on October 8, 2005 after non-payment continued for a period of over five business days. We made the third quarter interest payment promptly after discovery of the nonpayment, on October 14, 2005. The event of default permitted each noteholder to require us to redeem 120% of all or any portion of the amounts outstanding under the applicable Note by delivering to us notice of such redemption, which redemption was required under the Notes to be paid within five business days after receipt of such redemption notice. If all of the noteholders had elected such redemption, we would have been obligated to pay within five business days after receipt of such election approximately $15.5 million in unpaid principal and interest. The accelerated repayment of all or any significant portion of such amount would have left us with insufficient working capital to conduct our business, and we did not have sufficient cash to meet such an accelerated repayment obligation. On October 25, 2005, we entered into an agreement with the noteholders under which the noteholders agreed not to require redemption of the Notes, including the 20% premium payable thereunder, prior to November 16, 2005. During the quarter ended December 31, 2005, we recorded a charge of $2.6 million in our Consolidated Statement of Operations, which represented the 20% increase in the redeemable debt premium.

~~In November 2005, the Notes were purchased by Vector III, an entity affiliated with Vector, and subsequently on November 18, 2005, the Notes were in turn purchased by Honu Holdings, LLC, a~~

~~Delaware limited liability company controlled by Dr. Pehong Chen, our Chief Executive Officer and largest stockholder. See further discussion below.~~

In November 2005, Honu acquired all Notes then outstanding. Including interest, the Notes represented $15.5 million in debt obligations as of December 15, 2005. In order to relieve us from the liquidity challenges presented by the Notes, Dr. Chen agreed to cancel all amounts owed under the Notes in exchange for 34,500,000 shares of BroadVision common stock, at an effective price per share of $0.45, a 25% discount to the December 20, 2005 closing price of BroadVision common stock, and $180,000 in cash that represented the portion of the accrued interest on the Notes that was not paid in stock. That exchange was completed in Marchfiscal 2006. ~~The common share issuance, representing approximately 50% of the post-conversion shares outstanding, increased Dr. Chen’s ownership interest in BroadVision to 58.7% of the total shares outstanding.~~

~~We have maintained various credit facilities with a commercial lender, each of which we are in default of at December 31, 2005:~~


	•	During the three years ended December 31, 2005, we maintained a revolving line of credit in the form of a loan and security agreement with a commercial lender. In June 2005, we entered into a $20 million renewed and amended loan and security agreement with the lender that made more stringent the requirements we must meet in order to access the credit facility. We were not in compliance with these new requirements as of December 31, 2005, and the loan and security agreement expired in February 2006. The agreement required us to maintain certain levels of unrestricted cash and cash equivalents (excluding equity investments), and to maintain certain levels on deposit with the lender. At December 31, 2004, $20.0 million was outstanding under the line of credit. As of December 31, 2005, there was no outstanding balance on the line of credit. Borrowings bear interest at the bank’s prime rate (7.25% as of December 31, 2005 and 5.25% as of December 31, 2004) plus up to 1.25% and were collateralized by all of our assets. Interest was due monthly and principal was due at the expiration in February 2006.

	•	We have entered into term debt in the form of notes payable with the same lender. The term debt requires monthly payments of approximately $38,000 plus interest through October 2006, and monthly payments of approximately $2,000 for the five months ending March 2007. A portion of the term debt was utilized for an equipment line of credit. Principal and interest are due in monthly payments through maturity based on the terms of the facilities. Principal payments of $389,000 are due in 2006. As of December 31, 2005, the entire balance of $389,000 was classified as currently due.

Commitments totaling $2.0 million in the form of standby letters of credit were issued on our behalf from financial institutions as of December 31, 2005, primarily in favor of our various landlords to secure obligations under our facility leases. Accordingly, $2.0 million was presented as long-term restricted cash in the accompanying Consolidated Balance Sheet at December 31, 2005.

Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. The conversion feature of the Notes and the warrants issued in connection with the Notes were both considered

derivative financial investments as of December 31, 2005 and December 31, 2004. The value of these derivative instruments is based upon the fair value of our common stock. We place our investments in instruments that meet high credit quality standards and the amount of credit exposure to any one issue, issuer and type of instrument is limited. Our interest rate risk related to borrowings historically has been minimal as interest expense related to adjustable rate borrowings has been immaterial for years ended December 31, 2005 and 2004.


	~~Cash Used For Operating Activities~~

Cash used for operating activities was $37.9 million ~~$41.9 million,~~ and ~~$23.1~~$41.9 million for fiscal years 2005, and 2004, respectively. Net cash provided by operating activities in 2006 was primarily due to the $12.3 million profit (excluding restructuring credit) generated from sales margin improvement and ~~2003, respectively.~~ our company-wide cost reduction efforts. In addition, we recognized a $3.4 million restructuring credit resulting from our effort of subleasing the excess facilities. Also impacting cash flows from operations in fiscal 2006 was an additional $5.3 million in collection of accounts receivable and unearned revenue and deferred maintenance, partially offset by a decrease in accounts payable and accrued expenses of $4.3 million.

Net cash used in operating activities in 2005 was primarily due to $25.0 million of lease and buyout payments associated with long-term lease obligations from agreements signed during fiscal 2004. Also impacting cash flows from operations in fiscal 2005 was a $2.0 million reversal of income tax accruals, a decrease in accounts payable and accrued expenses of $7.0 million, a decrease in the restructuring accrual of $26.9 million (mostly related to the settlement of long-term lease obligations), a decrease in unearned revenue and deferred maintenance of $3.9 million and a gain of $11.3 million on revaluation of embedded derivatives related to the Notes and the related warrants, partially offset by $9.4 million of amortization of discount and revaluation of the Notes, a loss on debt extinguishment of $7.0 million and a decrease in accounts receivable of $2.4 million.

Net cash used for operating activities of $41.9 million in 2004 was largely due to buyout payments to settle long-term lease obligations. As a result of the settlement of future lease obligations during the third and fourth quarters of fiscal 2004, we paid $20.7 million in cash to extinguish future lease obligations. Also impacting cash flows from operations in fiscal 2004 was a net loss of $6.3 million (before restructuring credits related to real estate transactions), a $1.5 million release of doubtful accounts and reserves and a $7.0 million decline in unearned revenue and deferred maintenance. There were also several non-cash items, including non-cash depreciation and amortization expense of $3.7 million, a non-cash restructuring reversal of $24.9 million, non-cash losses of $2.4 million from the revaluation of the conversion feature of the Notes and the related warrants, non-cash discount amortization related to the Notes of $401,000 and changes to balance sheet accounts, including a decrease in accounts receivable, prepaid expenses and other current assets of $5.0 million and a decrease in accounts payable and accrued expenses of $2.2 million.

~~Net cash used for operating~~

Cash Provided By (Used For) Investing Activities

Cash provided by investing activities ~~for~~in fiscal ~~2003~~2006 was $180,000, primarily ~~due to the net loss~~as a result of ~~$35.5 million adjusted for certain non-cash items such as depreciation expense, amortization~~sales of ~~prepaid royalties~~cost method investment of $426,000 and ~~amortization of intangibles. Decreases in accounts payable and accrued expenses of $8.1 million and in unearned revenues and deferred maintenance of $11.7 million contributed to the use of cash,~~ offset by ~~decreases in other noncurrent assets~~capital expenditures of ~~$1.9 million, in accounts receivable of $8.3 million and in prepaids and other of $1.6 million and an increase in the restructuring reserves of $7.5 million.~~


	~~Cash Provided By (Used For) Investing Activities~~

$246,000. Cash provided by investing activities in fiscal 2005 was $23.8 million, primarily as a result of transfers from restricted cash and proceeds from dividends received related to equity investments. Cash used for investing activities in fiscal 2004 was $3.8 million, primarily as a result of transfers to restricted cash. ~~Cash provided by investing activities of $22.0 million~~

Capital expenditures were $246,000 for fiscal ~~2003 primarily consisted of net sales/maturities of investments.~~

~~Capital expenditures were~~2006, $142,000 for fiscal 2005, and $730,000 for fiscal ~~2004, and $131,000 for fiscal 2003.~~2004. Our capital expenditures have consisted of purchases of operating resources to manage our operations and included computer hardware and software, office furniture and fixtures and leasehold improvements.


	~~Cash Provided By Financing Activities~~

Cash Provided By (Used For) Financing Activities

Cash provided by financing activities was $15.9 million in fiscal 2006. In November 2006, we closed the rights offering, which provided $15.8 million in net proceeds after issuance costs. Cash used for financing activities in fiscal 2005 was $23.2 million, primarily due to the repayment of borrowings under our bank line of credit and Notes payments. Cash provided by financing activities was $8.9 million in fiscal ~~2004, and $2.5 million for fiscal 2003.~~2004. In November 2004, we issued the Notes and a

related warrant to five institutional investors, which provided $14.9 million in net proceeds after issuance costs. Offsetting this in fiscal 2004 was a $7.0 million reduction in bank borrowings and bank term debt principal payments of ~~$900,000 in fiscal 2004. In fiscal 2003, cash provided by financing activities consisted mostly of proceeds from borrowings under our line of credit facility.~~$900,000.


	~~Leases and Other Contractual Obligations~~

Leases and Other Contractual Obligations

We lease our headquarters and other facilities under non-cancelable operating lease agreements expiring ~~through the year~~ 2012. Under the terms of the agreements, we are required to pay lease costs, property taxes, insurance, and normal maintenance costs.

~27~

Table of Contents

We expect to incur significant operating expenses for the foreseeable future in order to execute our business plan. A summary of total future minimum lease payments as of December 31, ~~2005,~~2006, under non-cancelable operating lease ~~agreements, net of amounts under non-cancelable sublease~~ agreements is as follows (in millions):

Operating
Leases

Years Ending December 31,

2006 $ 3.5
2007 3.9
2008 2.1
2009 2.1
2010 and thereafter 4.1

Total minimum lease payments $ 15.7

		Operating
		Leases
Years Ending December 31,
2007		$	2.7
2008			1.7
2009			1.7
2010			1.2
2011 and thereafter			1.7

	Total minimum lease payments	$	9.0

As of December 31, ~~2005,~~2006, we have accrued ~~$6.8~~$2.2 million of estimated future facilities costs as a restructuring accrual. This accrual includes the above minimum lease payments that are related to excess and abandoned space under lease and certain lease related allowances, fees and expenses, partially offset by estimated future sublease income (See Note 8 in the Notes to Consolidated Financial Statements).


	~~Factors That May Affect Future Liquidity~~

Factors That May Affect Future Liquidity

The following table summarizes our contractual obligations as of December 31, ~~2005~~2006 and the effect such obligations are expected to have on our liquidity and cash flows in future years. Restricted cash represents the collateral for our letters of credit.

Less Than 1-3 4-5 Over
Total 1 Year Years Years 5 Years

(In millions)
Letters of credit $ 2.0 $ — $ 1.0 $ — $ 1.0
Non-cancelable operating leases 6.8 5.1 1.5 0.2 —

$ 8.8 $ 5.1 $ 2.5 $ 0.2 $ 1.0

			Less Than		1-3		4-5		Over
	Total		1 Year		Years		Years		5 Years
	(In millions)
Letters of credit	$	2.0	$	1.0	$	-	$	-	$	1.0
Non-cancelable operating leases		2.2		0.9		1.1		0.2		-
	$	4.2	$	1.9	$	1.1	$	0.2	$	1.0

We anticipate that future operating expenses and cash payments under operating leases will constitute a material use of our existing cash resources. As a result, our net cash flows will depend heavily on the level of future revenues, ~~our ability to further restructure operations successfully~~ and our ability to manage infrastructure costs.

Quarterly Results of Operations

The following tables set forth certain unaudited condensed consolidated statement of operations data for the eight quarters ended December 31, ~~2005,~~2006, as well as that data expressed as a percentage of our total revenues for the periods indicated.

This data has been derived from unaudited condensed consolidated financial statements that, in the opinion of management, include all adjustments consisting only of normal recurring adjustments, necessary for a fair presentation of such information when read in conjunction with the Consolidated Financial Statements and Notes thereto.

The unaudited quarterly information should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in this Form 10-K. We believe that~~period-to-period~~ period-to-period comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of future performance.

Three Months Ended

Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, Sep 30, Jun 30, Mar 31,
2005 2005 2005 2005 2004 2004 2004 2004

(As restated) (As restated) (As restated) (As restated)
(In thousands)
(Unaudited)
Statement of Operations Data:
Revenues:
Software licenses $ 3,780 $ 3,134 $ 3,391 $ 4,416 $ 7,292 $ 4,654 $ 7,097 $ 7,840
Services 10,383 10,943 12,123 11,951 12,471 12,570 13,031 13,049

Total revenues 14,163 14,077 15,514 16,367 19,763 17,224 20,128 20,889
Cost of revenues:
Cost of software licenses 99 106 (186 ) (57 ) 156 256 313 578
Cost of services 4,696 5,641 5,614 5,980 6,008 6,391 6,302 6,277

Total cost of revenues 4,795 5,747 5,428 5,923 6,164 6,647 6,615 6,855

Gross profit 9,368 8,330 10,086 10,444 13,599 10,577 13,513 14,034
Operating expenses:
Research and development 2,494 3,095 3,955 4,287 4,027 4,600 4,509 4,888
Sales and marketing 2,389 2,948 5,060 5,811 6,974 6,020 7,480 6,866
General and administrative 1,953 2,162 2,829 2,535 2,386 2,335 2,400 2,417
Goodwill and intangible write-offs 18,170 13,198 — — — — — —
Restructuring (reversals) charges (312 ) 245 309 (704 ) 660 (25,454 ) 679 570
Business combination charges 1,840 977 — — — — — —

Total operating expenses (credits) 26,534 22,625 12,153 11,929 14,047 (12,499 ) 15,068 14,741

Operating income (loss) (17,166 ) (14,295 ) (2,067 ) (1,485 ) (448 ) 23,076 (1,555 ) (707 )
Other income (expense), net (10,714 ) (1,757 ) (959 ) 6,866 (2,457 ) 315 57 (24 )
Benefit (provision) for income taxes 109 540 (70 ) 2,032 450 (11 ) 6 (136 )

Net (loss) income $ (27,771 ) $ (15,512 ) $ (3,096 ) $ 7,413 $ (2,455 ) $ 23,380 $ (1,492 ) $ (867 )

Basic net (loss) income per share $ (0.81 ) $ (0.45 ) $ (0.09 ) $ 0.22 $ (0.07 ) $ 0.70 $ (0.04 ) $ (0.03 )

Dilute net (loss) income per share $ (0.81 ) $ (0.45 ) $ (0.09 ) $ 0.19 $ (0.07 ) $ 0.69 $ (0.04 ) $ (0.03 )

Shares used in computing basic net (loss) income per share 34,430 34,320 34,181 33,971 33,768 33,599 33,476 33,300

Shares used in computing diluted net (loss) income per share 34,430 34,320 34,181 39,968 33,768 34,052 33,476 33,300

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	Three Months Ended
	Dec 31,			Sep 30,			Jun 30,			Mar 31,			Dec 31,			Sep 30,			Jun 30,			Mar 31,
	2006			2006			2006			2006			2005			2005			2005			2005
	(In thousands)
	(Unaudited)
Statement of Operations Data:
Revenues:
Software licenses	$	3,956		$	4,750		$	3,627		$	2,882		$	3,780		$	3,134		$	3,391		$	4,416
Services		9,090			8,835			9,102			9,742			10,383			10,943			12,123			11,951
Total revenues		13,046			13,585			12,729			12,624			14,163			14,077			15,514			16,367
Cost of revenues:
Cost of (credit for) software licenses		32			22			142			62			99			106			(186	)		(57	)
Cost of services		2,173			2,729			3,496			4,058			4,696			5,641			5,614			5,980
Total cost of revenues		2,205			2,751			3,638			4,120			4,795			5,747			5,428			5,923
Gross profit		10,841			10,834			9,091			8,504			9,368			8,330			10,086			10,444
Operating expenses:
Research and development		2,708			2,766			2,405			2,631			2,494			3,095			3,955			4,287
Sales and marketing		2,529			1,761			1,982			2,381			2,389			2,948			5,060			5,811
General and administrative		613			2,429			3,239			1,738			1,953			2,162			2,829			2,535
Goodwill impairment		-			-			-			-			18,170			13,198			-			-
Restructuring (credits), charges		(1,966	)		(1,878	)		(15	)		490			(312	)		245			309			(704	)
Business combination charges		-			-			-			-			1,840			977			-			-
Total operating expenses		3,884			5,078			7,611			7,240			26,534			22,625			12,153			11,929

Operating income (loss)		6,957			5,756			1,480			1,264			(17,166	)		(14,295	)		(2,067	)		(1,485	)
Other income (expense), net		248			(163	)		335			(227	)		(10,714	)		(1,757	)		(959	)		6,866
Income taxes (expense) benefit		(185	)		(228	)		(65	)		(156	)		109			540			(70	)		2,032
Net income (loss)	$	7,020		$	5,365		$	1,750		$	881		$	(27,771	)	$	(15,512	)	$	(3,096	)	$	7,413
Basic net income (loss) per share	$	0.09		$	0.08		$	0.03		$	0.02		$	(0.81	)	$	(0.45	)	$	(0.09	)	$	0.22
Diluted net income (loss) per share	$	0.09		$	0.08		$	0.03		$	0.02		$	(0.81	)	$	(0.45	)	$	(0.09	)	$	0.19
Shares used in computing basic net income (loss) per share		80,878			69,489			69,151			42,958			34,430			34,320			34,181			33,971
Shares used in computing diluted net income (loss) per share		80,878			69,489			69,151			43,068			34,430			34,320			34,181			39,968

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As a Percent of Revenue

	Three Months Ended
	Dec 31,			Sep 30,			Jun 30,			Mar 31,			Dec 31,			Sep 30,			Jun 30,			Mar 31,
	2006			2006			2006			2006			2005			2005			2005			2005
	(In thousands)
	(Umaudited)
Statement of Operations Data:
Revenues:
Software licenses		30	%		35	%		28	%		23	%		27	%		22	%		22	%		27	%
Services		70			65			72			77			73			78			78			73
Total revenues		100			100			100			100			100			100			100			100
Cost of revenues:
Cost of (credit for) software licenses		-			-			1			-			1			1			(1	)		(1	)
Cost of services		17			20			27			32			33			40			36			37
Total cost of revenues		17			20			28			32			34			41			35			36
Gross profit		83			80			72			68			66			59			65			64
Operating expenses:
Research and development		21			20			19			21			18			22			25			26
Sales and marketing		19			13			16			19			17			21			33			36
General and administrative		5			18			25			14			14			15			18			15
Goodwill impairment		-			-			-			-			128			94			-			-
Restructuring (credits), charges		(15	)		(14	)		-			4			(2	)		2			2			(4	)
Business combination charges		-			-			-			-			13			7			-			-
Total operating expenses		30			37			60			58			188			161			78			73
Operating income (loss)		53			43			12			10			(122	)		(102	)		(13	)		(9	)
Other income (expense), net		-			(3	)		2			(3	)		(75	)		(8	)		(7	)		54
Net income (loss)		53	%		40	%		14	%		7	%		(197	)%		(110	)%		(20	)%		45	%

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. It is likely that our operating results in one or more future quarters may be below the expectations of securities analysts and investors. In that event, the trading price of our common stock almost certainly would decline.

RECENT ACCOUNTING PRONOUNCEMENTS

In ~~December 2004,~~June 2006, the ~~FASB issued SFAS~~EITF reached a consensus on Issue No. ~~123(R), which replaces SFAS 123,~~06-3, How Taxes Collected from Customers and ~~supersedes APB 25. SFAS 123(R) requires all share-based payments~~Remitted to ~~employees, including grants of employee stock options, to be recognized~~Governmental Authorities Should Be Presented in the ~~financial statements based~~Income Statement". The scope of EITF 06-3 includes sales, use, value added and some excise taxes that are assessed by a governmental authority on ~~their fair values beginning with the first interim~~specific revenue-producing transactions between a seller and customer. EITF 06-3 states that a company should disclose its accounting policy (i.e., gross or annual period beginning after June 15, 2005, with early adoption encouraged. In March 2006, the SEC released SEC Staff Accounting Bulletin No. 107, Share Based Payment (“SAB 107”). SAB 107 provides the SEC Staff’s positionnet presentation) regarding the ~~application~~presentation of ~~SFAS 123(R)~~taxes within its scope, and ~~certain SEC rules and regulations, and also provides the Staff’s views regarding the valuation of share-based payment arrangements for public companies. The pro forma~~if significant, these disclosures ~~previously permitted under SFAS 123 no longer will~~should be an alternative to financial statement recognition. Under SFAS 123(R), we must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. The transition methods include prospective and retroactive adoption options. We adopted SFAS 123(R), utilizing the modified prospective method, in the first quarter of fiscal 2006, and such adoption will require us to record compensation expense in its 2006 consolidated financials statements and forward based upon the fair value of future stock option grants using the Black-Scholes model

and the vesting in those periods. The impact on future operating results and financial condition will be affected by changes in its stock price, as well as assumptions regarding a number of complex and subjective variables and the related tax impact. These variables include, but are not limited to, stock price volatility and employee stock option exercise behaviors.

~~In December 2004, the FASB issued SFAS No. 153 (SFAS 153),~~~~“Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions.”~~~~SFAS 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29,~~~~“Accounting for Nonmonetary Transactions”~~, and replaces it with an exception for exchanges that do not have commercial substance. SFAS 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for periods beginning after June 15, 2005. We do not expect that adoption of SFAS 153 will have a material effect on our consolidated financial position, consolidated results of operations, or liquidity.

~~In March 2005, the FASB issued Interpretation No. (FIN) 47,~~~~Accounting for Conditional Asset Retirement Obligations~~(“FIN 47”), to clarify the requirement to record liabilities stemming from a legal obligation to clean up and retire fixed assets, such as a plant or factory, when an asset retirement depends on a future event. We evaluated the requirements of FIN 47 and concluded that the application of FIN 47 does not have a material impact on its results of operations or financial position.

~~In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154,~~~~Accounting Changes and Error Corrections a replacement of APB Opinion No. 20 and FASB Statement No. 3~~~~(“SFAS 154”) that establishes new standards on accounting for changes in accounting principles. Pursuant to the new rules, all such changes must be accounted for by retrospective application~~applied retrospectively to the financial statements ~~of the prior~~for all periods unless it is impracticable to do so. SFAS 154 completely replaces Accounting Principles Bulletin (APB) Opinion 20 and SFAS 3, though it carries forward the guidance in those pronouncements with respect to accounting for changes in estimates, changes in the reporting entity, and the correction of errors. This statementpresented. EITF 06-3 is effective for ~~accounting for changes~~interim and ~~corrections of errors made in fiscal years~~annual reporting periods beginning after December 15, ~~2005. We do not anticipate that the adoption of this statement will have a material impact on consolidated financial position, consolidated results of operations or liquidity.~~

~~In June 2005, the Emerging Issues Task Force (EITF) issued No. 05-06,~~~~Determining the Amortization Period for Leasehold Improvements~~~~(“EITF~~ ~~05-6”).~~2006. The pronouncement requires that leasehold improvements acquired in a business combination or purchase, significantly after the inception of the lease, be amortized over the lesser of the useful life of the asset or the lease term that includes reasonably assured lease renewals as determined on the date of the acquisition of the leasehold improvement. This pronouncement should be applied prospectively effective January 1, 2006. We do not expect the adoption of EITF ~~05-6~~06-3 is not expected to have a material effect on ~~our consolidated~~the Company's financial position, results of operations or cash flows.

In July 2005, the Financial Accounting Standards Board (FASB) issued an Exposure Draft of a proposed Interpretation “Accounting for Uncertain Tax Positions — an interpretation of FASB Statement No. 109.” Under the proposed Interpretation, a company would recognize in its financial statements its best estimate of the benefit of a tax position, only if the tax position is considered probable of being sustained on audit based solely on the technical merits of the tax position. In evaluating whether the probable recognition threshold has been met, the proposed Interpretation would require the presumption that the tax position will be evaluated during an audit by taxing authorities. The proposed Interpretation would be effective as of the beginning of the first fiscal year ending after December 15, 2006, with a cumulative effect of a change in accounting principle to be recorded upon the initial adoption. The proposed Interpretation would apply to all tax positions and only benefits from tax positions that meet the probable recognition threshold at or after the effective date would be recognized. We are currently analyzing the proposed Interpretation and have not determined its potential impact on our Consolidated Financial Statements. While the rules in the final Interpretation cannot be predicted with certainty, there is risk that the final Interpretation could result in a cumulative effect charge to earnings upon adoption, increases in future effective tax rates, and/or increases in future interperiod effective tax rate volatility.

~~In February~~ 2006, the FASB issued ~~Statement of Financial Accounting Standards~~FASB Interpretation No. ~~155,~~48 Accounting for ~~Certain Hybrid Financial Instruments, an amendment~~Uncertainty in Income Taxes ("FIN No.48"), which prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return. Additionally, FIN No. 48 provides guidance on the derecognition, classification, accounting in interim periods and disclosure requirements for uncertain tax positions. The accounting provisions of ~~FASB Statements~~FIN No. ~~133 and 140(“SFAS 155”). SFAS 155 amends SFAS 133 and SFAS No. 140,~~~~Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities~~, to, among other things, clarify or amend provisions regarding the fair value measurement of financial instruments with embedded derivatives and the recording of interests in securitized financial assets. SFAS 15548 will be effective for ~~all~~fiscal years beginning after December 15, 2006. The Company is in the process of determining the effect, if any, that the adoption of FIN No. 48 will have on its financial ~~instruments acquired~~statements.

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In September 2006, the SEC issued SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. SAB No. 108 provides guidance on how prior year misstatements should be taken into consideration when quantifying misstatements in current year financial statements for purposes of determining whether the current year's financial statements are materially misstated. SAB No. 108 is effective for fiscal years ending on or ~~issued~~ after ~~January 1, 2007. We are~~November 15, 2006. The Company is currently ~~analyzing SFAS 155 and have not determined its potential~~in the process of evaluating the impact of SAB No. 108 on our ~~Consolidated Financial Statements.~~financial position and results of operations.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 establishes a framework for measuring the fair value of assets and liabilities. This framework is intended to provide increased consistency in how fair value determinations are made under various existing accounting standards which permit, or in some cases require, estimates of fair market value. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the reporting entity has not yet issued financial statements for that fiscal year, including any financial statements for an interim period within that fiscal year. The Company is currently in the process of evaluating the impact of SFAS No. 157 on our financial position and results of operations.


~~ITEM 7A.~~	*~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~*

On December 21, 2006, the FASB issued FASB Staff Position ("FSP") EITF 00-19-2, Accounting for Registration Payment Arrangements. This FSP addresses how to account for registration payment arrangements and clarifies that a financial instrument subject to a registration payment arrangement should be accounted for in accordance with other generally accepted accounting principles ("GAAP") without regard to the contingent obligation to transfer consideration pursuant to the registration payment arrangement. This accounting pronouncement further clarifies that a liability for liquidated damages resulting from registration statement obligations should be recorded in accordance with SFAS No. 5, Accounting for Contingencies, when the payment of liquidated damages becomes probable and can be reasonably estimated. This FSP is effective for companies with fiscal years ending on or after December 15, 2006. The Company is currently assessing the impact that this FSP may have in its financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. We had no derivative financial instruments as of December 31, ~~2005~~2006 and ~~2004.~~2005. We place our investments in instruments that meet high credit quality standards and the amount of credit exposure to any one issue, issuer and type of instrument is limited.


	*~~Cash and Cash Equivalents, Short-Term Investments, Long-Term Investments~~*

Cash and Cash Equivalents, and Restricted Cash

We consider all debt and equity securities with remaining maturities of three months or less at the date of purchase to be cash equivalents. Short-term cash investments consist of debt and equity securities that have a remaining maturity of less than one year as of the date of the balance sheet. Cash and cash ~~investments~~equivalents that serve as collateral for financial instruments such as letters of credit are classified as ~~restricted.~~restricted cash. Restricted cash in which the underlying instrument has a term of greater than twelve months from the balance sheet date are classified as non-current.

Management determines the appropriate classification of cash investments at the time of purchase and evaluates such designation as of each balance sheet date. All cash investments to date have been classified as available-for-sale and carried at fair value with related unrealized gains or losses reported as other comprehensive income (loss), net of tax. Total realized gains during fiscal years 2006 and 2005 were $426,000 and ~~2004 were~~ $1.4 million, ~~and $573,000,~~ respectively. Our cash and cash equivalents, ~~short-term investments~~ and ~~long-term investments~~restricted cash consisted of the following as of December 31, ~~2005~~2006 and ~~2004~~2005 (in thousands):

Classified on Balance Sheet as:

Restricted Restricted
Purchase/ Gross Gross Cash and Cash and Cash and
Amortized Unrealized Unrealized Aggregate Cash Investments, Investments,
Cost Gains Losses Fair Value Equivalents Current Non-Current

As of December 31, 2005:
Cash and certificates of deposits $ 6,027 $ — $ — $ 6,027 $ 4,030 $ — $ 1,997
Money market 819 — — 819 819 — —

Total $ 6,846 $ — $ — $ 6,846 $ 4,849 $ — $ 1,997

As of December 31, 2004:
Cash and certificates of deposits $ 55,240 $ — $ — $ 55,240 $ 30,984 $ 21,933 $ 2,323
Money market 10,867 — — 10,867 10,867 — —

Total $ 66,107 $ — $ — $ 66,107 $ 41,851 $ 21,933 $ 2,323


	*~~Concentrations of Credit Risk~~*

									Classified on Consolidated Balance Sheet as:
	Purchase/		Gross		Gross				Cash and		Restricted		Restricted
	Amortized		Unrealized		Unrealized		Aggregate		Cash		Cash,		Cash,
	Cost		Gains		Losses		Fair Value		Equivalents		Current		Non-Current
As of December 31, 2006:
Cash and certificates of deposits	$	17,827	$	-	$	-	$	17,827	$	15,830	$	997	$	1,000
Money market		21,173		-		-		21,173		21,173		-		-

Total	$	39,000	$	-	$	-	$	39,000	$	37,003	$	997	$	1,000

As of December 31, 2005:
Cash and certificates of deposits	$	6,027	$	-	$	-	$	6,027	$	4,030	$	-	$	1,997
Money market		819		-		-		819		819		-		-

Total	$	6,846	$	-	$	-	$	6,846	$	4,849	$	-	$	1,997

Concentrations of Credit Risk

Financial ~~assets~~instruments that potentially subject us to ~~significant~~ concentrations of credit risk consist ~~principally~~primarily of cash and cash equivalents ~~short-term investments,~~ and ~~trade~~ accounts receivable. We ~~maintain~~place our cash and cash equivalents ~~and short-term investments~~ with ~~four separate financial~~high-quality institutions. ~~We market and sell our products throughout the world and perform~~Our management performs ongoing credit evaluations of our ~~customers. We maintain reserves~~customers and requires certain of these customers to provide security deposits or letters of credit.

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Cash deposits in foreign countries of approximately $9.0 million are subject to local banking laws and may bear higher or lower risk than cash deposited in the United States. As part of our cash and investment management processes, we perform periodic evaluations of the credit standing of the financial institutions we use and we have not sustained any credit losses from instruments held at these financial institutions. From time to time, our financial instruments maintained in our foreign subsidiaries may be subject to political risks or instability that may arise in foreign countries where we operate.

At December 31, 2006 and 2005, one customer accounted for ~~potential credit losses.~~13 % and 16 % of our accounts receivable balance, respectively. For the years ended December 31, 2006, 2005, ~~2004,~~ and ~~2003,~~2004, no customer accounted for 10% or more ~~than 10%~~ of our total ~~revenue.~~revenues.


	*~~Fair Value of Financial Instruments~~*

Fair Value of Financial Instruments

Our financial instruments consist of cash ~~and cash~~ equivalents, ~~short-term investments, restricted cash and investments, long-term investments, equity investments,~~ accounts receivable, accounts payable and debt. We do not have any derivative financial instruments. We believe the reported carrying amounts of ~~our~~its financial instruments approximates fair value, based upon the short maturity of cash equivalents, ~~short-term investments,~~ accounts receivable and payable, and based on the current rates available to it on similar debt issues.


	*~~Foreign Currency~~*

Foreign Currency

We license our products and maintain significant operations in foreign countries. Fluctuations in the value of foreign currencies, principally the Euro and British Pound, relative to the United States dollar have impacted our operating results in the past and may do so in the future. We expect that international ~~license,~~licenses, maintenance and consulting revenues will continue to account for a significant portion of our total revenues in the future. We pay the expenses of our international operations in local currencies and do not currently engage in hedging transactions with respect to such obligations.


	*~~Equity Investments~~*

Equity Investments

Our equity investments consist of equity investments in public and non-public companies that are accounted for under either the cost method of accounting or the equity method of accounting. Equity investments are accounted for under the cost method of accounting when we have a minority interest and do not have the ability to exercise significant influence. These investments are classified as available for sale and are carried at fair value when readily determinable market values exist or at cost when such market values do not exist. Adjustments to fair value are recorded as a component of other comprehensive income unless the investments are considered permanently impaired in which case the adjustment is recorded as a component of other income (expense), net in the consolidated statement of operations. Equity investments are accounted for under the equity method of accounting when we have a minority interest and have the ability to exercise significant influence. These investments are classified as available for sale and are carried at cost with periodic adjustments to carrying value for equity in net income (loss) of the equity investee. Such adjustments are recorded as a component of other income, net. Any decline in value of our investments, which is other than a temporary decline, is charged to earnings during the period in which the impairment occurs. The total fair value of our cost-method, long-term equity investments in public and non-public companies as of December 31, 2004 was $574,000. These investments were liquidated in 2005 and a net gain of $17,000 was recorded. In 2006, we received approximately $426,000 cash related to the investments we made in the past. Those investments were accounted for under the lower of cost or market method and were written off in prior years. The gain is reported under "Other Income (Expense), net" in the accompanying Consolidated Statements of Operations.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


~~ITEM 8.~~	*~~FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA~~*

The following consolidated financial statements and the related notes thereto of BroadVision, Inc. and the Reports of Independent Registered Public Accounting Firms are filed as a part of this Form 10-K.

~~10-K.~~~32~

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

BroadVision, Inc.

We have audited the accompanying consolidated balance sheet of BroadVision, Inc. and its subsidiaries as of December 31, 2006 and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for the year then ended. Our audit also included the 2006 financial data in the financial statement schedule listed in the Index at Item 15(a)2. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements audited by us present fairly, in all material respects, the consolidated financial position of BroadVision, Inc. and its subsidiaries at December 31, 2006, and the consolidated results of their operations and their cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule for the year ended December 31, 2006, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As also discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for share based compensation when it adopted SFAS No. 123 (revised 2004), "Share-Based Payments" in accounting for its employee stock-based compensation, applying the modified prospective method effective January 1, 2006.

/s/ Odenberg, Ullakko, Muranishi & Co. LLP

San Francisco, California

March 26, 2007

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To The Board of Directors and Stockholders of BroadVision, Inc.:

We have audited the accompanying consolidated balance ~~sheets~~sheet of BroadVision, Inc. (the ~~“Company”~~"Company") and its subsidiaries as of December 31, 2005 and the related consolidated statements of operations, ~~stockholders’~~stockholders' equity (deficit) and comprehensive income (loss), and cash flows for the year then ended. We have also audited the financial ~~statements~~statement schedule as of and for the year ended December ~~31, 2005~~31,2005 listed in the accompanying index at ~~Item~~item 15(a)2. These financial statements and financial statement schedule are the responsibility of the ~~Company’s~~Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our ~~audits.~~audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements ~~and financial statement schedule~~ are free of material misstatement. We were not engaged to perform an audit of the ~~Company’s~~Company's internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purposes of expressing an opinion on the effectiveness of the ~~Company’s~~Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of BroadVision, Inc. at December 31, 2005 and the consolidated results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein as of and for the year ended December 31, 2005.


	~~/s/ STONEFIELD JOSEPHSON, INC.~~

/s/ STONEFIELD JOSEPHSON, INC.

Irvine, California

May 26, 2006

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To The Board of Directors and Stockholders of

BroadVision, Inc. ~~and Subsidiaries:~~

We have audited the accompanying consolidated ~~balance sheet of BroadVision, Inc. (the “Company”) as of December 31, 2004, and the related consolidated~~ statements of operations, ~~stockholders’~~stockholders' equity (deficit) and comprehensive income (loss), and cash flows of BroadVision, Inc. (the "Company") for ~~each of~~ the ~~two years in the period~~year ended December 31, 2004. We have also audited the financial statement schedule as of and for ~~each of~~ the ~~years~~year ended December 31, 2004 ~~and 2003~~ listed in the accompanying index at Item 15(a) 2. These financial statements and schedule are the responsibility of the ~~Company’s~~Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our ~~audits.~~audit.

We conducted our ~~audits~~audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and schedule are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and schedule. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and schedule. We believe that our ~~audits provide~~audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the ~~financial position~~results of operations and cash flows of BroadVision, Inc. ~~at December 31, 2004, and~~for the ~~results of its operations and its cash flows for each of the two years in the period~~year ended December 31, 2004, in conformity with accounting principles generally accepted in the United States.

Also, in our opinion, the financial statement schedule as of and for ~~each of~~ the ~~years~~year ended December 31, 2004, ~~and 2003,~~ presents fairly, in all material respects, the information set forth therein.

/s/ BDO SEIDMAN, LLP

San Jose, California

March 11, 2005, except for the matters affecting the 2004 consolidated financial statements

described in the Restatement discussion in Note 1 to the ~~Company’s~~consolidated financial statements ~~as of December 31, 2004~~ and

the Convertible Debentures discussion in Note 5 to the consolidated financial statements included

in the Annual Report on Form 10-K for the year ~~then~~ ended ~~have been restated.~~December 31, 2005 (not presented herein),

as to which the date is May 26, 2006


	~~/s/ BDO SEIDMAN, LLP~~


~~San Jose, California~~
March 11, 2005, except for the matters affecting the 2004 consolidated financial statements described in the Restatement discussion in Note 1 and the Convertible Debentures discussion in Note 5, as to which the date is May 26, 2006

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BROADVISION, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31,

2005 2004

(Restated,
See Note 1)
(In thousands, except
per share amounts)
ASSETS
Current assets:
Cash and cash equivalents $ 4,849 $ 41,851
Accounts receivable, less receivable reserves of $731 and $1,409 as of December 31, 2005 and 2004, respectively 12,640 14,370
Restricted cash and investments, current portion — 21,933
Prepaids and other 1,914 2,232

Total current assets 19,403 80,386
Property and equipment, net 2,334 3,566
Restricted cash and investments, net of current portion 1,997 2,323
Equity investments — 574
Goodwill 25,066 56,434
Other assets 1,142 1,370

Total assets $ 49,942 $ 144,653

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Current portion of bank borrowings $ 389 $ 20,637
Current portion of convertible debentures — 10,214
Current portion of convertible debentures due to related party 20,535 —
Accounts payable 4,396 7,470
Accrued expenses 16,090 40,745
Warrant liability 277 4,899
Unearned revenue 2,678 3,573
Deferred maintenance 10,910 13,121

Total current liabilities 55,275 100,659
Convertible debentures, net of current portion — 3,837
Bank borrowings, net of current portion — 390
Other non-current liabilities 4,390 11,426

Total liabilities 59,665 116,312
Commitments and contingencies
Stockholders’ equity (deficit):
Convertible preferred stock, $0.0001 par value; 10,000 shares authorized; none issued and outstanding — —
Common stock, $0.0001 par value; 2,000,000 shares authorized; 34,522 and 33,951 shares issued and outstanding as of December 31, 2005 and 2004, respectively 3 3
Additional paid-in capital 1,215,256 1,214,619
Accumulated other comprehensive income (loss) 93 (172 )
Accumulated deficit (1,225,075 ) (1,186,109 )

Total stockholders’ equity (deficit) (9,723 ) 28,341

Total liabilities and stockholders’ equity (deficit) $ 49,942 $ 144,653

(in thousands, except par value amounts)

	December 31,
	2006			2005
ASSETS
Current assets:
Cash and cash equivalents	$	37,003		$	4,849
Accounts receivable, less receivable reserves of $1,141 and $731 as of December 31, 2006 and 2005, respectively		10,106			12,640
Restricted cash		997			-
Prepaids and other		1,108			1,914
Total current assets		49,214			19,403
Property and equipment, net		1,144			2,334
Restricted cash, net of current portion		1,000			1,997
Goodwill		25,066			25,066
Other assets		518			1,142
Total assets	$	76,942		$	49,942

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	1,249		$	4,396
Accrued expenses		10,538			16,090
Warrant liability		1,610			277
Unearned revenue		6,278			2,678
Deferred maintenance		10,584			10,910
Current portion of bank borrowings		-			389
Current portion of convertible debentures due to related party		-			20,535
Total current liabilities		30,259			55,275
Other non-current liabilities		3,429			4,390
Total liabilities		33,688			59,665

Commitments and contingencies		-			-
Stockholders' equity (deficit):
Convertible preferred stock, $0.0001 par value; 10,000 shares authorized; none issued and outstanding		-			-
Common stock, $0.0001 par value; 2,000,000 shares authorized; 106,523 and 34,522 shares issued and outstanding as of December 31, 2006 and 2005, respectively		10			3
Additional paid-in capital		1,253,135			1,215,256
Accumulated other comprehensive income		168			93
Accumulated deficit		(1,210,059	)		(1,225,075	)
Total stockholders' equity (deficit)		43,254			(9,723	)
Total liabilities and stockholders' equity (deficit)	$	76,942		$	49,942

The accompanying notes are an integral part of these consolidated financial statements

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BROADVISION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

	Years Ended December 31,
	2006			2005			2004
Revenues:
Software licenses	$	15,215		$	14,721		$	26,883
Services		36,769			45,400			51,121
Total revenues		51,984			60,121			78,004
Cost of revenues:
Cost of (credit for) software licenses		258			(38	)		1,303
Cost of services		12,456			21,931			24,978
Total cost of revenues		12,714			21,893			26,281

Gross profit		39,270			38,228			51,723
Operating expenses:
Research and development		10,510			13,831			18,024
Sales and marketing		8,653			16,208			27,340
General and administrative		8,019			9,479			9,538
Goodwill impairment		-			31,368			-
Restructuring (credits), net		(3,369	)		(462	)		(23,545	)
Business combination charges		-			2,817			-
Total operating expenses		23,813			73,241			31,357

Operating income (loss)		15,457			(35,013	)		20,366
Other income (expense):
Interest income (expense), net		638			(10,094	)		(629	)
(Expense) income from derivatives		(1,333	)		11,346			(2,421	)
Loss on debt extinguishment		-		��	(6,967	)		-
Other income (expense), net		888			(849	)		941
Total other income (expense)		193			(6,564	)		(2,109	)

Income (loss) before income taxes		15,650			(41,577	)		18,257
Income taxes (expense) benefit		(634	)		2,611			309
Net income (loss)	$	15,016		$	(38,966	)	$	18,566
Basic net income (loss) per share	$	0.23		$	(1.14	)	$	0.55
Diluted net income (loss) per share	$	0.23		$	(1.14	)	$	0.54
Shares used in computing basic net income (loss) per share		65,734			34,228			33,539
Shares used in computing diluted net income (loss) per share		65,734			34,228			34,321

The accompanying notes are an integral part of these consolidated financial statements

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BROADVISION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

AND COMPREHENSIVE INCOME (LOSS)

(in thousands)

	Common Stock
								Accumulated									Total
					Additional			Other									Stockholders'
					Paid-in			Comprehensive			Accumulated			Comprehensive			Equity
	Shares		Amount		Capital			Income (Loss)			Deficit			Income (Loss)			(Deficit)
Balances as of December 31, 2003		33,198	$	3	$	1,212,671		$	(49	)	$	(1,204,675	)				$	7,950
Comprehensive income:
Net income		-		-		-			-			18,566		$	18,566			18,566
Foreign currency translations		-		-		-			(116	)		-			(116	)		(116	)
Unrealized investment gain, less reclassification adjustment for gains (losses) included in net income		-		-		-			49			-			49			49
Reclassification adjustment		-		-		56			(56	)		-			-			-
Total comprehensive income														$	18,499
Issuance of common stock under employee stock purchase plan		443		-		1,296			-			-						1,296
Issuance of common stock from exercise of options		304		-		615			-			-						615
Stock-based compensation charge (reversal)		6		-		(19	)		-			-						(19	)
Balances as of December 31, 2004		33,951		3		1,214,619			(172	)		(1,186,109	)					28,341
Comprehensive loss:
Net loss		-		-		-			-			(38,966	)	$	(38,966	)		(38,966	)
Foreign currency translations		-		-		-			265			-			265			265
Total comprehensive loss														$	(38,701	)
Issuance of common stock under employee stock purchase plan		516		-		512			-			-						512
Issuance of common stock from exercise of options		55		-		125			-			-						125
Balances as of December 31, 2005		34,522		3		1,215,256			93			(1,225,075	)					(9,723	)
Comprehensive income:
Net income		-		-		-			-			15,016		$	15,016			15,016
Foreign currency translations		-		-		-			75			-			75			75
Total comprehensive income														$	15,091
Exchange of debt to common stock		34,500		3		20,698			-			-						20,701
Stock-based compensation		-		-		950			-			-						950
Issuance of common stock under employee stock purchase plan		931		-		383			-			-						383
Issuance of common stock from rights offering, net of issuance costs		36,380		4		15,822			-			-						15,826
Issuance of common stock from exercise of options		190		-		26			-			-						26
Balances as of December 31, 2006		106,523	$	10	$	1,253,135		$	168		$	(1,210,059	)				$	43,254

The accompanying notes are an integral part of these consolidated financial statements.

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BROADVISION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~CASH FLOWS

Years Ended December 31,

2005 2004 2003

(Restated,
See Note 1)
(In thousands, except per share amounts)
Revenues:
Software licenses $ 14,721 $ 26,883 $ 30,230
Services 45,400 51,121 57,851

Total revenues 60,121 78,004 88,081
Cost of revenues:
Cost of (credit for) software licenses (38 ) 1,303 2,561
Cost of services 21,931 24,978 25,708

Total cost of revenues 21,893 26,281 28,269

Gross profit 38,228 51,723 59,812
Operating expenses:
Research and development 13,831 18,024 21,067
Sales and marketing 16,208 27,340 26,394
General and administrative 9,479 9,538 9,790
Litigation settlement costs — — 4,250
Goodwill write-offs and amortization 31,368 — 886
Restructuring (reversals) charges (462 ) (23,545 ) 35,356
Business combination charges 2,817 — —

Total operating expenses 73,241 31,357 97,743

Operating (loss) income (35,013 ) 20,366 (37,931 )
Interest (expense) income, net (10,094 ) (629 ) 803
Income (expense) from derivatives 11,346 (2,421 ) —
Loss on debt extinguishment (6,967 ) — —
Other income (expense), net (849 ) 941 2,096

Income (loss) before benefit (provision) for income taxes (41,577 ) 18,257 (35,032 )
Benefit (provision) for income taxes 2,611 309 (439 )

Net income (loss) $ (38,966 ) $ 18,566 $ (35,471 )

Basic net income (loss) per share $ (1.14 ) $ 0.55 $ (1.08 )

Diluted net income (loss) per share $ (1.14 ) $ 0.54 $ (1.08 )

Shares used in computing basic net income (loss) per share 34,228 33,539 32,800

Shares used in computing diluted net income (loss) per share 34,228 34,321 32,800

(in thousands)

	Years Ended December 31,
	2006			2005			2004
Cash flows from operating activities:
Net income (loss)	$	15,016		$	(38,966	)	$	18,566
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Depreciation and amortization		1,385			1,231			3,672
Stock-based compensation charge (reversal)		950			-			(19	)
Provision for (reversal of) receivable reserves		487			(678	)		(1,466	)
Amortization of prepaid royalties		36			70			613
(Gain) loss on cost method investments		(426	)		(1,117	)		517
Loss on sale or abandonment of fixed assets		51			117			-
Impairment of assets		-			-			(96	)
Goodwill impairment		-			31,368			-
Loss on debt extinguishment		-			6,967			-
Restructuring (credit)/charge		(3,369	)		-			(24,855	)
Loss (gain) on revaluation of embedded derivatives and warrants		1,333			(11,346	)		2,422
Amortization of discount and revaluation of convertible notes		-			9,422			401
Changes in operating assets and liabilities:
Accounts receivable		2,047			2,408			2,476
Prepaids and other		787			248			2,501
Other non-current assets		607			228			600
Accounts payable and accrued expenses		(4,272	)		(6,970	)		(2,237	)
Restructuring accrual		(1,323	)		(26,908	)		(37,788	)
Unearned revenue and deferred maintenance		3,274			(3,921	)		(6,989	)
Other non-current liabilities		(530	)		(54	)		(168	)
Net cash provided by (used for) operating activities		16,053			(37,901	)		(41,850	)
Cash flows from investing activities:
Purchase of property and equipment		(246	)		(142	)		(730	)
Proceeds from sale of assets		-			26			-
Purchase of long-term investments		-			-			(100	)
Sales/maturity of long-term investments		-			-			624
Proceeds from sale of cost method investments		426			590			-
Transfer (to) from restricted cash/investments		-			22,259			(4,428	)
Proceeds from dividends on equity investments		-			1,101			795
Net cash provided by (used for) investing activities		180			23,834			(3,839	)
Cash flows from financing activities:
Proceeds from bank line of credit and term debt borrowings		-			35,000			89,076
Repayments of bank line of credit and term debt borrowings		(389	)		(55,638	)		(96,994	)
Proceeds from issuance of convertible debt, net		-			-			14,887
Repayment of convertible debt		-			(3,199	)		-
Proceeds from rights offering, net		15,826			-			-
Proceeds from issuance of common stock, net		409			637			1,911
Net cash provided by (used for) financing activities		15,846			(23,200	)		8,880
Effect of exchange rates on cash and cash equivalents		75			265			(116	)
Net increase (decrease) in cash and cash equivalents		32,154			(37,002	)		(36,925	)
Cash and cash equivalents, beginning of year		4,849			41,851			78,776
Cash and cash equivalents, end of year	$	37,003		$	4,849		$	41,851

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Table of Contents

Supplemental cash flows disclosures:
Cash paid for interest	$	364	$	873		$	99
Cash paid (refunded) for income taxes	$	502	$	(445	)	$	426
Supplemental information of noncash financing and investing activities:
Exchange of convertible debt to common stock	$	20,535	$	-		$	-
Conversion of accrued interest to common stock	$	166	$	-		$	-

The accompanying notes are an integral part of these consolidated financial ~~statements.~~statements

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BROADVISION, INC. AND SUBSIDIARIES

~~CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)~~

~~AND COMPREHENSIVE INCOME (LOSS)~~

Common Stock
Accumulated Total
Additional Other Stockholders’
Paid-in Comprehensive Accumulated Comprehensive Equity
Shares Amount Capital Income (Loss) Deficit Income (Loss) (Deficit)

(In thousands)
Balances as of December 31, 2002
32,439 $ 3 $ 1,210,797 $ 37 $ (1,169,204 ) $ 41,633
Comprehensive income:
Net loss — — — — (35,471 ) $ (35,471 ) (35,471 )
Unrealized investment gain, less reclassification adjustment for gains (losses) included in net loss — — — (86 ) — (86 ) (86 )

Total comprehensive loss $ (35,557 )

Issuance of common stock under employee stock purchase plan 365 — 863 — — 863
Issuance of common stock from exercise of options 369 — 669 — — 669
Stock-based compensation charge 25 — 342 — — 342

Balances as of December 31, 2003
33,198 $ 3 $ 1,212,671 $ (49 ) $ (1,204,675 ) $ 7,950
Comprehensive income:
Net income (restated, see Note 1) — — — — 18,566 $ 18,566 18,566
Foreign currency translations — — — (116 ) — (116 ) (116 )
Unrealized investment gain, less reclassification adjustment for gains (losses) included in net income — — — 49 — 49 49
Reclassification adjustment — — 56 (56 ) — — —

Total comprehensive income (restated, see Note 1) $ 18,499

Issuance of common stock under employee stock purchase plan 443 — 1,296 — — 1,296
Issuance of common stock from exercise of options 304 — 615 — — 615
Stock-based compensation charge (reversal) 6 — (19 ) — — (19 )

Balances as of December 31, 2004 (restated, see Note 1)
33,951 3 1,214,619 (172 ) (1,186,109 ) 28,341
Comprehensive loss:
Net loss — — — — (38,966 ) $ (38,966 ) (38,966 )
Foreign currency translations — — — 265 — 265 265

Total comprehensive loss $ (38,701 )

Issuance of common stock under employee stock purchase plan 516 — 512 — — 512
Issuance of common stock from exercise of options 55 — 125 — — 125

Balances as of December 31, 2005
34,522 $ 3 $ 1,215,256 $ 93 $ (1,225,075 ) $ (9,723 )

~~The accompanying notes are an integral part of these consolidated financial statements.~~

~~BROADVISION, INC. AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

Years Ended December 31,

2005 2004 2003

(Restated,
See Note 1)
(In thousands)
Cash flows from operating activities:

Net income (loss) $ (38,966 ) $ 18,566 $ (35,471 )
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization 1,231 3,672 11,261
Stock-based compensation charge (reversal) — (19 ) 342
Provision for (release of) doubtful accounts and reserves (678 ) (1,466 ) (812 )
Amortization of prepaid royalties 70 613 1,167
(Gain) loss on cost method investments (1,117 ) 517 385
Loss on sale or abandonment of fixed assets 117 — —
Impairment of assets — (96 ) —
Amortization and write-offs of goodwill and other intangibles 31,368 — 886
Loss on debt extinguishment 6,967 — —
Non-cash restructuring reversals — (24,855 ) (457 )
(Gain) loss on revaluation of embedded derivatives and warrants (11,346 ) 2,422 —
Amortization of discount and revaluation of convertible notes 9,422 401 —
Changes in operating assets and liabilities, net of effects from acquired business:
Accounts receivable 2,408 2,476 8,349
Prepaid expenses and other current assets 248 2,501 1,621
Other non-current assets 228 600 1,909
Accounts payable and accrued expenses (6,970 ) (2,237 ) (8,135 )
Restructuring accrual (26,908 ) (37,788 ) 7,489
Unearned revenue and deferred maintenance (3,921 ) (6,989 ) (11,653 )
Other non-current liabilities (54 ) (168 ) —

Net cash used for operating activities (37,901 ) (41,850 ) (23,119 )
Cash flows from investing activities:

Purchase of property and equipment (142 ) (730 ) (131 )
Proceeds from sale of assets 26 — 186
Sales/maturity of short-term investments — — 27,342
Purchase of short-term investments — — (2,917 )
Purchase of long-term investments — (100 ) (2,729 )
Sales/maturity of long-term investments — 624 3,403
Proceeds from sale of cost method investments 590 — —
Transfer (to) from restricted cash/investments 22,259 (4,428 ) (3,123 )
Proceeds from dividends on equity investments 1,101 795 —

Net cash provided by (used for) investing activities 23,834 (3,839 ) 22,031
Cash flows from financing activities:

Proceeds from bank line of credit and term debt borrowings 35,000 89,076 2,000
Repayments of bank line of credit and term debt borrowings (55,638 ) (96,994 ) (1,051 )
Proceeds from issuance of convertible debt, net — 14,887 —
Repayment of convertible debt (3,199 ) — —
Proceeds from issuance of common stock, net 637 1,911 1,529

Net cash (used in) provided by financing activities (23,200 ) 8,880 2,478
Effect of exchange rates on cash and cash equivalents 265 (116 ) —

Net (decrease) increase in cash and cash equivalents (37,002 ) (36,925 ) 1,390
Cash and cash equivalents, beginning of year 41,851 78,776 77,386

Cash and cash equivalents, end of year $ 4,849 $ 41,851 $ 78,776

Supplemental cash flow disclosures:

Cash paid for interest $ 873 $ 99 $ 199

Cash (refunded) paid for income taxes $ (445 ) $ 426 $ 1,263

~~The accompanying notes are an integral part of these consolidated financial statements.~~

~~BROADVISION, INC. AND SUBSIDIARIES~~

Notes to Consolidated Financial Statements

~~December 31, 2005~~

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


	*~~Nature of Business~~*

Nature of Business

BroadVision, Inc. (collectively with its subsidiaries, "BroadVision" or the ~~“Company”~~"Company") was incorporated in the state of Delaware on May 13, 1993 and has been a ~~publicly-traded~~publicly traded corporation since 1996. BroadVision develops, markets, and supports enterprise portal applications that enable companies to unify theire-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.

~~As discussed in Note 9, in September~~

During the previous years through December 31, 2005, the Company ~~received a notice from~~faced various liquidity challenges. During the Listing Qualifications Department of The Nasdaq Stock Market stating that it was not in compliance with the Minimum Bid Price Rule, and that it would be provided 180 calendar days (or until March 6, 2006) to regain compliance. Because of this non-compliance and in order to complete the share issuance for the stock for debt exchange without violating applicable listing standards, the Company delivered to Nasdaq a notification of voluntarily delisting of its common stock from the Nasdaq National Market, and its common stock was delisted from the Nasdaq National Market effective March 8, 2006. Accordingly, the last day of trading on the Nasdaq National Market was March 7, 2006. Quotations for BroadVision’s common stock are currently available through the “Pink Sheets” under the trading symbol “BVSN”, and the Company anticipates that such quotations will continue to be available.


	*~~Restatement~~*

As discussed more fully in Note 5, subsequent to the issuance of the 2004 consolidated financial statements, based on clarifying SEC guidance issued in 2005, the Company made a determination that the convertible debentures entered into in 2004 included an embedded derivative that should be valued under the provisions of SFAS 133. The Company had previously determined that convertible debentures were conventional under the provisions of EITF ~~00-19.~~ ~~Therefore, the Company has restated its operating results for the three-month period and~~ year ended December 31, ~~2004, and restated its operating results~~2006, the following significant events occurred: approximately $20.5 million in convertible debt was exchanged for ~~the three-month periods ended March 31, June 30 and September 30, 2005. See Notes 5 and 12.~~

~~The following tables outline the effects~~34.5 million shares of ~~the restatements described above for the periods that have been previously reported by~~common stock; the Company ~~(in thousands, except per share data).~~

~~As of and for the Twelve Months (Fiscal Year) Ended:~~

~~BROADVISION, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements — (Continued)~~

~~As of and for the Three Months Ended (unaudited):~~

December 31, 2004 March 31, 2005 June 30, 2005 September 30, 2005

Previously Previously Previously Previously
Reported Restated Reported Restated Reported Reported Restated Restated

Interest expense, net $ (516 ) $ (917 ) $ (744 ) $ (1,723 ) $ (1,090 ) $ (2,532 ) $ (1,002 ) $ (2,073 )
Income (expense) from derivatives $ (753 ) $ (2,421 ) $ 2,517 $ 7,991 $ 997 $ 2,257 $ 698 $ 794
Net (loss) income $ (386 ) $ (2,455 ) $ 2,918 $ 7,413 $ (2,914 ) $ (3,095 ) $ (14,538 ) $ (15,512 )
Basic net (loss) income per share $ (0.01 ) $ (0.07 ) $ 0.09 $ 0.22 $ (0.09 ) $ (0.09 ) $ (0.42 ) $ (0.45 )
Diluted net (loss) income per share $ (0.01 ) $ (0.07 ) $ 0.07 $ 0.19 $ (0.09 ) $ (0.09 ) $ (0.42 ) $ (0.45 )
Total liabilities $ 114,243 $ 116,312 $ 85,099 $ 82,673 $ 75,424 $ 73,179 $ 50,963 $ 49,674
Total stockholders’ equity $ 30,410 $ 28,341 $ 33,743 $ 36,167 $ 30,959 $ 33,205 $ 16,480 $ 17,749


	*~~Basis of Presentation~~*

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business. The Company faces liquidity challenges. At December 31, 2005, the Company’s current liabilities exceeded its current assets by approximately $35.9 million (negative working capital) resulting in a working capital ratio of approximately 0.35 to 1.0. Subsequent to December 31, 2005, the Company’s Chairman, Chief Executive Officer, converted the debt of $20.5 million to Common Stock as described in Note 5. This will improve the working capital of the Company. The Company’s liquidity situation has also improved since the end of 2005 for reasons that include the effects of operating expense reductions, accounts receivable collections and maintenance contract renewals. Based on the Company’s current liquidity position, the Company’s analysis of the components of its current assets and liabilities, the Company’s actual financial results for the first quarter of 2006 and the Company’s internal financial forecast for the balance of the year, the Company currently expects to be able to fund its working capital requirements through at least the end of 2006 from its existing cash and cash equivalents and its anticipatedgenerated cash flows from operations of approximately $16 million; and ~~subleases. The Company’s Chairman,~~the Company closed its rights offering and raised net proceeds of approximately $15.8 million. At December 31, 2006, the Company's current assets exceeded its current liabilities by approximately $19 million. Management believes that cash resources at December 31, 2006 will be sufficient to fund operations through at least December 31, 2007. If the Company's existing cash resources are not sufficient to meet its obligations, it will seek to raise additional capital through public or private equity financing or from other sources. If adequate funds are not available or are not available on acceptable terms as needed, we may be unable to pay our debts as they become due, develop our products, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements.

In June 2006, William Meyer resigned as the Company's Chief Financial Officer, a position Mr. Meyer had held since April 2003. Dr.Pehong Chen, the Company's Chief Executive Officer has also served as Chief Financial Officer since Mr. Meyer's resignation and ~~largest stockholder has committed~~will continue to ~~provide, upon the Company’s request at any time through December 31, 2006, up to $5 million~~serve in that capacity until a permanent replacement is hired.

~41~

Table of ~~working capital support through cash, debt guarantees or a combination thereof on mutually satisfactory terms. Accordingly, no adjustments have been made to the carrying values or classification~~Contents

Principles of the assets and liabilities in the accompanying financial statements to take account of any uncertainty as to the Company’s ability to continue as a going concern. If unanticipated events or circumstances occur, the Company may be required to seek additional capital and/or further reduce spending, which could have a material adverse effect on the Company’s ability to achieve its business objectives and continue as a going concern.Consolidation


	*~~Principles of Consolidation~~*

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. ~~In the Company’s opinion, the consolidated financial statements presented herein include all necessary adjustments, consisting~~

Use of ~~normal recurring adjustments, to fairly state the Company’s financial position, results of operations, and cash flows for the periods indicated.~~

~~BROADVISION, INC. AND SUBSIDIARIES~~Estimates

~~Notes to Consolidated Financial Statements — (Continued)~~


	*~~Use of Estimates~~*

The preparation of consolidated financial statements in conformity with ~~accounting principles~~U.S. generally accepted ~~in the United States of America~~accounting principles 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, the Company evaluates its estimates, including those related to ~~collectibility of customer~~doubtful accounts, ~~the value assigned to and estimated useful lives of long-lived assets, the realizability of~~stock-based compensation, investments, goodwill and ~~tax~~intangible assets, ~~contingent liabilities~~income taxes and ~~the valuation of equity securities.~~restructuring, as well as contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that the Company believes are ~~believed to be~~ reasonable, ~~under the circumstances,~~ the results of which form the basis for making judgments about the carrying values of assets and ~~liabilities.~~liabilities that are not readily apparent from other sources. Actual results ~~could~~may differ from ~~estimates.~~these estimates using different assumptions or conditions. The Company believes the following critical accounting policies reflect the more significant judgments and estimates used in the preparation of its consolidated financial statements.


	*~~Revenue Recognition~~*

Revenue Recognition


	~~Overview~~

Overview

The ~~Company’s~~Company's revenue consists of fees for licenses of ~~the Company’s~~its software products, ~~and related~~ maintenance, consulting services and customer training. The Company generally charges fees for licenses of its software products either based on the number of persons registered to use the product or based on the number of ~~Central Processing Units (“CPUs”) utilized by the machine~~CPUs on which the product is installed. Licenses for software whereby fees charged are based upon the number of persons registered to use the product ~~are differentiated between~~include licenses for development use and licenses for use in deployment of the ~~customer’s~~customer's website. Licenses for software whereby fees charged are on a per-CPU basis ~~do not~~ differentiate between development and deployment usage. The ~~Company’s~~Company's revenue recognition policies ~~are in accordance~~comply with the provisions of Statement of Position ~~(“SOP”~~("SOP") No. 97-2, Software Revenue Recognition (“("SOP ~~97-2”~~97-2"), as amended; SOP No. 98-9, Software Revenue Recognition, With Respect to Certain Transactions (“("SOP ~~98-9”~~98-9") and ~~SAB~~Staff Accounting Bulletin ("SAB") 104, Revenue Recognition (“("SAB ~~104”~~104"). The Company applies the separation criteria in Emerging Issues Task Force ("EITF") 00-21, "Revenue Arrangements with Multiple Deliverables" ("EITF 00-21") to determine whether its arrangements with multiple deliverables should be treated as separate units of accounting. EITF 00-21 indicates that revenue recognized for any multiple-element contract is to be allocated to each element of the arrangement based on the relative fair value of each element. The determination of the fair value of each element is based on the Company's analysis of objective evidence from comparable sales of the individual element.

Software License Revenue

The Company licenses its products through ~~its~~the Company's direct sales force and indirectly through ~~resellers.~~resellers and Application Service Providers ("ASP"). In general, software license revenues are recognized when a non-cancelable license agreement has been signed and the customer acknowledges an unconditional obligation to pay, the software product has been delivered, there are no uncertainties surrounding product acceptance, the fees are fixed and determinable and collection is ~~considered probable.~~reasonably expected. Delivery is considered to have occurred when title and risk of loss have been transferred to the customer, which generally occurs when media containing the licensed programs is provided to a common carrier. In case of electronic delivery, delivery occurs when the customer is given access to the licensed programs. For products that cannot be used without a licensing key, the delivery requirement is met when the licensing key is made available to the customer. If collectibility is not ~~considered probable,~~reasonably expected, revenue is recognized when the fee is collected. Subscription-based license revenues are recognized ratably over the subscription period. The Company enters into reseller arrangements that typically provide for sublicense fees payable to ~~the Company~~us based upon a percentage of list price. The Company does not grant ~~its~~ resellers the right of return. ~~Revenue generated under reseller agreements is recognized upon obtaining evidence of the resale of the license rights from the reseller to one or more end users and meeting all other revenue criteria.~~

The Company recognizes ~~license~~ revenue using the residual method pursuant to the requirements of SOP No. 97-2, as amended by SOP No. 98-9. Revenues recognized from multiple-element software arrangements are allocated to each element of the arrangement based on the fair values of the elements, such as licenses for software products, maintenance, consulting services or customer training. The determination of fair value is based on vendor-specific objective evidence, ~~generally as priced when sold separately,~~ which is specific to ~~the Company.~~us. The Company limits its assessment of objective evidence for each element to either the price charged when the same element is sold separately or the price established by management having the relevant authority to do so, for an element not yet sold separately. If evidence of fair value of all undelivered elements exists but evidence does not exist for one or more delivered elements, then revenue is recognized using the residual method.

~~BROADVISION, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements — (Continued)~~

Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue.

~42~

Table of Contents

The Company records unearned revenue for software license agreements when cash has been received from the customer and the agreement does not qualify for revenue recognition under the ~~Company’s~~Company's revenue recognition policy. The Company records accounts receivable for software license agreements when the agreement qualifies for revenue recognition but cash or other consideration has not been received from the customer.


	*~~Services Revenue~~*

Services Revenue

Consulting services revenues and customer training revenues are recognized as such services are performed. ~~Where applicable, work performed is determined based upon a cost-based,percentage-of-completion method. Revenues recognized in advance of customer billings are generally not significant.~~

Maintenance revenues, which include revenues bundled with software license agreements that entitle the customers to technical support and future unspecified enhancements to the ~~Company’s~~Company's products, are deferred and recognized ratably over the related agreement period, generally twelve months.

The ~~Company’s~~Company's consulting services, which consist of consulting, maintenance and training, are delivered through the BroadVision Global Services ~~(BVGS).~~("BVGS") organization. Services that the Company provides are not essential to the functionality of the software. ~~In accordance with EITF~~ ~~01-14,~~ ~~which the Company adopted as of January 1, 2002, the~~The Company records reimbursement ~~by its~~from the Company's customers for~~out-of-pocket~~ out-of-pocket expenses as an increase to services revenues.


	*~~Cash, Cash Equivalents and Short-Term Investments~~*

~~We consider~~ Cash, Cash Equivalents and Restricted Cash

The Company considers all debt and equity securities with remaining maturities of three months or less at the date of purchase to be cash equivalents. Short-term cash investments consist of debt and equity securities that have a remaining maturity of less than one year as of the date of the balance sheet. Cash and cash ~~investments~~equivalents that serve as collateral for financial instruments such as letters of credit are classified as ~~restricted.~~restricted cash. Restricted cash in which the underlying instrument has a term of greater than twelve months from the balance sheet date are classified as non-current. ~~A letter~~Letters of credit of $2.0 million secured by an equal amount of restricted cash is available to the landlord ~~and secures~~securing certain facilities leases as more fully described in Note 8.7.

Management determines the appropriate classification of cash investments at the time of purchase and evaluates such designation as of each balance sheet date. All cash investments to date have been classified as available-for-sale and carried at fair value with related unrealized gains or losses reported as other comprehensive income (loss), net of tax. Total ~~short-term and long-term investment unrealized gains (losses) was $49,000 as of December 31, 2003. Total~~ realized gains during fiscal years 2006 and 2005 were $426,000 and ~~2004 were~~ $1.4 million, ~~and $573,000,~~ respectively, and are included in other income in the accompanying Consolidated Statements of Operations.

~~BROADVISION, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements — (Continued)~~

~~Our~~The Company's cash and cash equivalents, ~~short-term investments~~ and ~~long-term investments~~restricted cash consisted of the following as of December 31, ~~2005~~2006 and ~~2004~~2005 (in thousands):

Classified on Balance Sheet as:

Restricted
Restricted Cash and
Purchase/ Gross Gross Cash and Cash and Investments,
Amortized Unrealized Unrealized Aggregate Cash Investments, Non-
Cost Gains Losses Fair Value Equivalents Current Current

As of December 31, 2005:
Cash and certificates of deposit $ 6,027 $ — $ — $ 6,027 $ 4,030 $ — $ 1,997
Money market 819 — — 819 819 — —

Total $ 6,846 $ — $ — $ 6,846 $ 4,849 $ — $ 1,997

As of December 31, 2004:
Cash and certificates of deposit $ 55,240 $ — $ — $ 55,240 $ 30,984 $ 21,933 $ 2,323
Money market 10,867 — — 10,867 10,867 — —

Total $ 66,107 $ — $ — $ 66,107 $ 41,851 $ 21,933 $ 2,323


	*~~Research and Development and Software Development Costs~~*

~~Under the criteria set forth in~~

									Classified on Consolidated Balance Sheet as:
	Purchase/		Gross		Gross				Cash and		Restricted		Restricted
	Amortized		Unrealized		Unrealized		Aggregate		Cash		Cash,		Cash,
	Cost		Gains		Losses		Fair Value		Equivalents		Current		Non-Current
As of December 31, 2006:
Cash and certificates of deposits	$	17,827	$	-	$	-	$	17,827	$	15,830	$	997	$	1,000
Money market		21,173						21,173		21,173		-		-
Total	$	39,000	$	-	$	-	$	39,000	$	37,003	$	997	$	1,000
As of December 31, 2005:
Cash and certificates of deposits	$	6,027	$	-	$	-	$	6,027	$	4,030	$	-	$	1,997
Money market		819		-		-		819		819		-		-
Total	$	6,846	$	-	$	-	$	6,846	$	4,849	$	-	$	1,997

Prepaid Royalties

Receivable Reserves

Concentrations of Credit Risk

Property and ~~revise its estimates, if necessary. Such revisions in the Company’s estimates of the potential liability could materially impact the Company’s results of operations and financial position.~~Equipment

Valuation of ~~Operations.~~Long-Lived Assets

Fair Value of Financial Instruments

In the quarter ended September 30, 2005, the Company recognized a goodwill impairment charge of $13.2 million as an estimated impairment in accordance with the requirements of SFAS 142. As of September 30, 2005, the Company performed Step 1 under the provisions of SFAS 142 by determining that it has a single reporting unit and then comparing its net book value to its market capitalization based upon the quoted market price of its stock. Based upon the results of Step 1 and as permitted under SFAS 142, the Company estimated the impairment charge under Step 2 by estimating the fair value of all other assets and liabilities of the reporting unit. Subsequent to the issuance of its third quarter financial statements, the Company obtained a third-party valuation report, completed Step 2 and recorded an adjustment to the original estimate of $18.2 million in the quarter ended December 31, 2005. Further, as of December 31, 2005, the Company performed a goodwill impairment analysis under Step 1. Because the fair value was determined to be greater than book value, Step 2 under SFAS 142 was not required, and therefore no additional impairment was necessary at December 31, 2005.

Employee Stock Benefit Plans

Stock-Based Compensation

The Company applies APB Opinion 25 and related interpretations when accounting for its stock option and stock purchase plans. In accordance with APB Opinion 25, it applies the intrinsic value method in accounting for employee stock options. Accordingly, the Company generally recognizes no compensation expense with respect to stock-based awards to employees.

	December 31, 2006
	For the Year Ended
Weighted average volatility		84.00	%
Expected dividends		0.00	%
Expected term (in years)		6.00
Risk free interest rate		4.79	%
Forfeiture rate		11.00	%

~46~

Table of Contents

	Aggregate
	Number of
	Common Shares
	Issuable Under		Weighted Average
	Accelerated Stock		Exercise Price
	Options		per Share
Total Non-Employee Directors		122,181	$	2.98
Total Named Executive Officers		391,886		2.87
Total Directors and Named Executive Officers		514,067		2.89
Total All Other Employees		610,707		2.97
Total		1,124,774		2.94

	Years Ended December 31,
	2005			2004
Net income (loss), as reported	$	(38,966	)	$	18,566
Add: Stock-based compensation (income) expense included in reported net income (loss), net of related tax effects		-			(19	)
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(2,666	)		(4,545	)
Pro forma net income (loss)	$	(41,632	)	$	14,002
Net income (loss) per share:
Basic --as reported	$	(1.14	)	$	0.55
Basic --pro forma	$	(1.22	)	$	0.42
Diluted --as reported	$	(1.14	)	$	0.54
Diluted --pro forma	$	(1.22	)	$	0.41

~~Notes to Consolidated Financial Statements — (Continued)~~

~~reported net income (loss) and net earnings (loss) per share would have been changed to the amounts indicated below (in thousands except per share data):~~

	Years Ended December 31,
	2005			2004
Expected life		7.40	years		3.50	years
Risk-free interest rate		4.12	%		3.61	%
Volatility		84.00	%		108.00	%


	*~~Reverse Stock Splits~~*

On July 24, 2002, the Company announced that its Board of Directors had approved a one-for-nine reverse split of its common stock. The reverse split was effective as of July 29, 2002. Each nine shares of outstanding common stock of the Company automatically converted into one share of common stock. The Company’s common stock began trading on a post-split basis at the opening of trading on the Nasdaq National Market on July 30, 2002.

~~The accompanying consolidated financial statements and related financial information contained herein have been retroactively restated to give effect for the July 2002 reverse stock split.~~

Earnings Per Share Information


	*~~Earnings Per Share Information~~*

Basic income (loss) per share is computed using the weighted-average number of shares of common stock outstanding, less shares subject to repurchase. Diluted income (loss) per share is computed using the weighted-average number of shares of common stock outstanding and, when dilutive, common equivalent shares from outstanding stock options and warrants using the treasury stock method. The following table sets forth the basic and diluted net income (loss) per share computational data for the periods ~~presented. Excluded from the computation of diluted loss~~presented (in thousands, except per share ~~for the years ended December 31, 2003, are 1,231,000 common~~

~~BROADVISION, INC. AND SUBSIDIARIES~~amounts):

~~Notes to Consolidated Financial Statements — (Continued)~~

~~share equivalents related to options and warrants to acquire shares of common stock because their effects would be anti-dilutive.~~

Years Ended December 31,

2005 2004 2003

(In thousands, except
per share amounts)
(Restated)
Net income (loss) $ (38,966 ) $ 18,566 $ (35,471 )

Weighted-average common shares outstanding to compute basic income (loss) per share 34,228 33,539 32,800
Weighted-average common equivalent shares from outstanding common stock options and warrants — 782 —

Total weighted-average common and common equivalent shares outstanding to compute diluted loss per share 34,228 34,321 32,800

Basic income (loss) per share $ (1.14 ) $ 0.55 $ (1.08 )

Diluted income (loss) per share $ (1.14 ) $ 0.54 $ (1.08 )

	Years Ended December 31,
	2006		2005			2004
Net income (loss)	$	15,016	$	(38,966	)	$	18,566
Weighted-average common shares outstanding used to compute basic income (loss) per share		65,734		34,228			33,539
Weighted-average common equivalent shares from outstanding common stock options and warrants		-		-			782
Total weighted-average common and common equivalent shares outstanding used to compute diluted loss per share		65,734		34,228			34,321
Basic income (loss) per share	$	0.23	$	(1.14	)	$	0.55
Diluted income (loss) per share	$	0.23	$	(1.14	)	$	0.54

In the years ended December 31, 2006 and 2005, 11,916,000 and ~~2003,~~ 6,802,000 ~~and 4,747,000~~ common shares, respectively, issuable upon the exercise of stock options and warrants were excluded from the above earnings per share calculations as their effect was anti-dilutive. In addition, in the year ended December 31, 2005, approximately 5.6 million common shares issuable upon conversion of the Notes were excluded from the above earnings per share calculation, as their effect was anti-dilutive.

~~Subsequent to December 31, 2005, the Company issued 34.5 million shares of common stock in connection with the cancellation of the Notes. See further discussion at Note 12.~~

Foreign Currency Transactions


	*~~Foreign Currency Transactions~~*

During fiscal 2004, the Company changed the functional currencies of all foreign subsidiaries from the U.S. dollar to the local currency of the respective countries. Assets and liabilities of these subsidiaries are translated into U.S. dollars at the balance sheet date. Income and expense items are translated at average exchange rates for the period. Foreign exchange gains and losses resulting from the remeasurement of foreign currency assets and liabilities are included inas other income (expense)~~, net~~ in the Consolidated Statements of Operations. ~~A translation loss of $116,000 was recorded in~~For the ~~year~~years ended December 31, ~~2004,~~2006, 2005, and a2004, translation gain of(loss) was $75,000, $265,000, ~~was recorded~~and ($116,000), respectively, and is included in the ~~year ended December 31, 2005.~~comprehensive income (loss) account in the consolidated statement of stockholder's equity (deficit).

Comprehensive Income (Loss)


	*~~Comprehensive Income (Loss)~~*

Comprehensive income (loss) includes net income (loss) and other comprehensive income (loss), which consists of unrealized gains and losses on available-for-sale securities and cumulative translation adjustments. Total comprehensive income (loss) is presented in the accompanying Consolidated Statement of ~~Stockholders’~~Stockholders' Equity (Deficit). Total accumulated other comprehensive income (loss) is displayed as a separate component of ~~stockholder’s~~stockholder's equity (deficit) in the accompanying Consolidated Balance Sheets. The

~~BROADVISION, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements — (Continued)~~

accumulated balances for each classification of other comprehensive income (loss) consist of the following, net of taxes (in thousands):

Unrealized Foreign Accumulated
Gain (Loss) in Currency Other
Available-for-Sale Translation Comprehensive
Securities and Other Income (Loss)

Balance, December 31, 2002 $ 37 $ — $ 37
Net change during period (86 ) — (86 )

Balance, December 31, 2003 (49 ) — (49 )
Net change during period 49 (172 ) (123 )

Balance, December 31, 2004 — (172 ) (172 )
Net change during period — 265 265

Balance, December 31, 2005 $ — $ 93 $ 93


	*~~Income Taxes and Deferred Tax Assets~~*

~48~

Table of Contents

	Unrealized			Foreign			Accumulated
	Gain (Loss) in			Currency			Other
	Available-for-Sale			Translation			Comprehensive
	Securities			and Other			Income (Loss)
Balance, December 31, 2003	$	(49	)	$	-		$	(49	)
Net change during the year		49			(172	)		(123	)
Balance, December 31, 2004		-			(172	)		(172	)
Net change during the year		-			265			265
Balance, December 31, 2005		-			93			93
Net change during the year		-			75			75
Balance, December 31, 2006	$	-		$	168		$	168

Income Taxes

Income taxes are computed using an asset and liability approach in accordance with SFAS No. 109, Accounting for Income Taxes, which requires the recognition of taxes payable or refundable for the current year and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in the ~~Company’s~~Company's consolidated financial statements or tax returns. The measurement of current and deferred tax assets and liabilities is based on provisions of the enacted tax law; the effects of future changes in tax laws or rates are not anticipated. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, ~~are~~is not expected to be realized.

The Company analyzes its deferred tax assets with regard to potential realization. The Company has established a valuation allowance on its deferred tax assets to the extent that management has determined that it is more likely than not that some portion or all of the deferred tax asset will not be realized based upon the uncertainty of their realization. The Company has considered estimated future taxable income and ongoing prudent and feasible tax planning strategies in assessing the amount of the valuation allowance.


	*~~Segment and Geographic Information~~*

Segment and Geographic Information

The Company operates in one segment, electronic commerce business solutions. The ~~Company’s~~Company's chief operating decision maker is considered to be the ~~Company’s~~Company's CEO. The CEO reviews financial information presented on a consolidated basis accompanied by disaggregated information about revenues by geographic region and by product for purposes of making operating decisions and assessing financial performance.


	*~~Reclassifications~~*

Reclassifications

Certain prior period balances have been reclassified to conform to the current period presentation.


	*~~New Accounting Pronouncements~~*

Recent Accounting Pronouncements

In ~~December 2004,~~June 2006, the ~~FASB issued SFAS 123(R), which replaces SFAS 123~~EITF reached a consensus on Issue No. 06-3, How Taxes Collected from Customers and ~~supersedes APB 25. SFAS 123(R) requires all share-based payments~~Remitted to ~~employees, including grants of employee stock options, to be recognized~~Governmental Authorities Should Be Presented in the ~~financial statements based~~Income Statement" ("EITF 06-3"). The scope of EITF 06-3 includes sales, use, value added and some excise taxes that are assessed by a governmental authority on ~~their fair values beginning with the first interim~~specific revenue-producing transactions between a seller and customer. EITF 06-3 states that a company should disclose its accounting policy (i.e., gross or ~~annual period beginning after June 15, 2005, with early adoption encouraged. In March 2006, the SEC released SEC Staff Accounting Bulletin No. 107,~~~~Share Based Payment~~~~(“SAB 107”). SAB 107 provides the SEC Staff’s position~~net presentation) regarding the ~~application~~presentation of ~~SFAS 123(R)~~taxes within its scope, and ~~certain SEC rules and regulations, and also provides the Staff’s views regarding the valuation of share-based payment arrangements for public companies. The pro~~

~~BROADVISION, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements — (Continued)~~

~~forma~~if significant, these disclosures ~~previously permitted under SFAS 123 no longer will~~should be an alternative to financial statement recognition. Under SFAS 123(R), the Company must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. The transition methods include prospective and retroactive adoption options. The Company adopted SFAS 123(R), utilizing the modified prospective method, in the first quarter of fiscal 2006, and such adoption will require the Company to record compensation expense in its 2006 consolidated financials statements and forward based upon the fair value of future stock option grants using the Black-Scholes model and the vesting in those periods. The impact on future operating results and financial condition will be affected by changes in its stock price, as well as assumptions regarding a number of complex and subjective variables and the related tax impact. These variables include, but are not limited to, the Company’s stock price volatility and employee stock option exercise behaviors.

~~In December 2004, the FASB issued SFAS No. 153 (SFAS 153),~~~~“Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions.”~~~~SFAS 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29,~~~~“Accounting for Nonmonetary Transactions”~~, and replaces it with an exception for exchanges that do not have commercial substance. SFAS 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for periods beginning after June 15, 2005. The Company does not expect that adoption of SFAS 153 will have a material effect on its consolidated financial position, consolidated results of operations, or liquidity.

~~In March 2005, the FASB issued Interpretation No. (FIN) 47,~~~~Accounting for Conditional Asset Retirement Obligations~~(“FIN 47”), to clarify the requirement to record liabilities stemming from a legal obligation to clean up and retire fixed assets, such as a plant or factory, when an asset retirement depends on a future event. The Company evaluated the requirements of FIN 47 and concluded that the application of FIN 47 does not have a material impact on its results of operations or financial position.

In May 2005, the FASB issued SFAS No. 154 that establishes new standards on accounting for changes in accounting principles. Pursuant to the new rules, all such changes must be accounted for by retrospective applicationapplied retrospectively to the financial statements ~~of the prior~~for all periods unless it is impracticable to do so. SFAS No. 154 completely replaces Accounting Principles Bulletin (APB) Opinion 20 and SFAS 3, though it carries forward the guidance in those pronouncements with respect to accounting for changes in estimates, changes in the reporting entity, and the correction of errors. This statementpresented. EITF 06-3 is effective for ~~accounting for changes~~interim and ~~corrections of errors made in fiscal years~~annual reporting periods beginning after December 15, ~~2005.~~2006. The adoption of ~~this statement did~~EITF 06-3 is not ~~have a material impact on the Company’s consolidated financial position, results of operations or liquidity.~~

~~In June 2005, the Emerging Issues Task Force (EITF) issued No. 05-06,~~~~Determining the Amortization Period for Leasehold Improvements~~~~(“EITF~~ ~~05-6”).~~ The pronouncement requires that leasehold improvements acquired in a business combination or purchase, significantly after the inception of the lease, be amortized over the lesser of the useful life of the asset or the lease term that includes reasonably assured lease renewals as determined on the date of the acquisition of the leasehold improvement. This pronouncement should be applied prospectively effective January 1, 2006. The Company does not expect the adoption of EITF ~~05-6~~expected to have a material effect on ~~its consolidated~~the Company's financial position, results of operations or cash flows.

In July ~~2005,~~2006, the ~~Financial~~ FASB issued FASB Interpretation No. 48 Accounting ~~Standards Board (FASB) issued an Exposure Draft of~~for Uncertainty in Income Taxes ("FIN No.48"), which prescribes a ~~proposed Interpretation “Accounting~~recognition threshold and measurement process for ~~Uncertain Tax Positions — an interpretation of FASB Statement No. 109.” Under~~recording in the ~~proposed Interpretation, a company would recognize in its~~ financial statements ~~its best estimate of the benefit of~~uncertain tax positions taken or expected to be taken in a tax ~~position, only if the tax position is considered probable of being sustained on audit based solely~~return. Additionally, FIN No. 48 provides guidance on the ~~technical merits~~derecognition, classification, accounting in interim periods and disclosure requirements for uncertain tax positions. The accounting provisions of ~~the tax position. In evaluating whether the probable recognition threshold has been met, the proposed Interpretation would require the presumption that the tax position~~FIN No. 48 will be ~~evaluated~~

~~BROADVISION, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements — (Continued)~~

~~during an audit by taxing authorities. The proposed Interpretation would be~~ effective ~~as of the~~for fiscal years beginning ~~of the first fiscal year ending~~ after December 15, 2006. The Company is in the process of determining the effect, if any, that the adoption of FIN No. 48 will have on its financial statements.

In September 2006, ~~with a cumulative effect~~the SEC issued SAB No. 108, Considering the Effects of ~~a change~~Prior Year Misstatements when Quantifying Misstatements in ~~accounting principle to~~Current Year Financial Statements. SAB No. 108 provides guidance on how prior year misstatements should be ~~recorded upon~~taken into consideration when quantifying misstatements in current year financial statements for purposes of determining whether the ~~initial adoption. The proposed Interpretation would apply to all tax positions and only benefits from tax positions that meet the probable recognition threshold at~~current year's financial statements are materially misstated. SAB No. 108 is effective for fiscal years ending on or after ~~the effective date would be recognized.~~November 15, 2006. The Company is currently ~~analyzing~~in the ~~proposed Interpretation and has not determined its potential~~process of evaluating the impact of SAB No. 108 on its Consolidated Financial Statements. While the rules in the final Interpretation cannot be predicted with certainty, there is risk that the final Interpretation could result in a cumulative effect charge to earnings upon adoption, increases in future effective tax rates, and/or increases in future interperiod effective tax rate volatility.financial position and results of operations.

~~In February 2006, the FASB issued Statement of Financial Accounting Standards No. 155,~~~~Accounting for Certain Hybrid Financial Instruments, an amendment of FASB Statements No. 133 and 140~~~~(“SFAS 155”). SFAS 155 amends SFAS 133 and SFAS No. 140,~~~~Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities~~, to, among other things, clarify or amend provisions regarding the fair value measurement of financial instruments with embedded derivatives and the recording of interests in securitized financial assets. SFAS 155 will be effective for all financial instruments acquired or issued after January 1, 2007. The Company is currently analyzing SFAS 155 and has not determined its potential impact on its Consolidated Financial Statements.

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In ~~March~~September 2006, the FASB issued SFAS No. ~~156 (“FAS 156”), “Accounting~~157, Fair Value Measurements. SFAS No. 157 establishes a framework for Servicing of Financial Assets — An Amendment of FASB Statement No. 140.” Among other requirements, FAS 156 requires a company to recognize a servicing asset or servicing liability when it undertakes an obligation to service a financial asset by entering into a servicing contract under certain situations. Under FAS 156 an election can also be made for subsequent fair value measurement of servicing assets and servicing liabilities by class, thus simplifying the accounting and provide for income statement recognition of potential offsetting changes inmeasuring the fair value of ~~servicing~~ assets ~~servicing liabilities~~ and ~~related derivative instruments. The Statement will be effect~~liabilities. This framework is intended to provide increased consistency in how fair value determinations are made under various existing accounting standards which permit, or in some cases require, estimates of fair market value. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Earlier application is encouraged, provided that the ~~first~~reporting entity has not yet issued financial statements for that fiscal year, including any financial statements for an interim period within that ~~begins~~fiscal year. The Company is currently in the process of evaluating the impact of SFAS No. 157 on its financial position and results of operations.

On December 21, 2006, the FASB issued FASB Staff Position ("FSP") EITF 00-19-2, Accounting for Registration Payment Arrangements. This FSP addresses how to account for registration payment arrangements and clarifies that a financial instrument subject to a registration payment arrangement should be accounted for in accordance with other generally accepted accounting principles ("GAAP") without regard to the contingent obligation to transfer consideration pursuant to the registration payment arrangement. This accounting pronouncement further clarifies that a liability for liquidated damages resulting from registration statement obligations should be recorded in accordance with SFAS No. 5, Accounting for Contingencies, when the payment of liquidated damages becomes probable and can be reasonably estimated. This FSP is effective for companies with fiscal years ending on or after ~~September~~December 15, 2006. ~~We do not expect~~The Company is currently assessing the ~~adoption of FAS 156 to~~impact that this FSP may have ~~a material impact on our~~in its financial ~~position or results of operations.~~statements.

Note ~~2 — Property~~2---Property and Equipment

December 31,

2005 2004

(In thousands)
Furniture and fixtures $ 2,791 $ 4,036
Computer and software 32,705 49,258
Leasehold improvements 6,219 6,086

41,715 59,380
Less accumulated depreciation and amortization (39,381 ) (55,814 )

Total property and equipment, net $ 2,334 $ 3,566

Property and equipment are stated at cost and depreciated on a straight-line basis over their estimated useful lives (generally two years for software, three years for computer equipment and four years for furniture and fixtures). consisted of the following (in thousands):

	December 31,
	2006			2005
Furniture and fixtures	$	795		$	2,791
Computer and software		14,547			32,705
Leasehold improvements		5,007			6,219
		20,349			41,715
Less accumulated depreciation and amortization		(19,205	)		(39,381	)
Total property and equipment, net	$	1,144		$	2,334

Depreciation and amortization expense for the years ended December 31, 2006, 2005 and 2004 ~~and 2003~~ was $1.4 million, $1.2 million, and $3.7 million, respectively. In 2006, the Company retired $21.6 million in Property and ~~$11.3~~Equipment and wrote off $21.5 million ~~respectively.~~in accumulated depreciation. In 2005, the Company ~~reduced the cost and accumulated depreciation~~recorded a loss on sale or abandonment of ~~property and equipment by $17.9 million to write off fully-depreciated~~fixed assets ~~as a result~~ of ~~a detailed review of assets during the year.~~

$117,000. In 2004, the Company ~~transferred~~recorded asset impairments in connection with the settlements reached with several landlords for termination of leases, including transferring ownership of certain furniture, fixtures, and leasehold improvements with a net book value of $8.5 million to the previous ~~landlords as a part of a settlement relating to future real estate~~

~~BROADVISION, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements — (Continued)~~

obligations. The Company recorded asset impairments of approximately $515,000 during fiscal 2003 in connection with the Company’s restructuring plan, which is included in the Company’s restructuring charge recorded in the Company’s Consolidated Statement of Operations.

~~Note 3 — Goodwill~~landlords.

The Company adopted SFAS 142 on January 1, 2002. Pursuant to SFAS 142, the Company is required to test its goodwill for impairment upon adoption and annually or more often if events or changes in circumstances indicate that the asset might be impaired. SFAS No. 142 provides for a two-step approach to determining whether and by how much goodwill has been impaired. The first step requires a comparison of the fair value of the Company to its net book value. If the fair value is greater, then no impairment is deemed to have occurred. If the fair value is less, then the second step must be completed to determine the amount, if any, of actual impairment.

Note 3---Goodwill

In the quarter ended September 30, 2005, the Company recognized a goodwill impairment charge of $13.2 million as an estimated impairment in accordance with the requirements of ~~Statement of Financial Accounting Standards No. 142,~~~~Goodwill and Other Intangible Assets~~(“SFAS ~~142”).~~142. As of September 30, 2005, the Company performed Step 1 under the provisions of SFAS 142 by determining that itthe Company has a single reporting unit and then comparing ~~its~~our net book value to ~~its~~the Company's market capitalization based upon the quoted market price of ~~its~~our stock. Based upon the results of Step 1 and as permitted under SFAS 142, the Company estimated the impairment charge under Step 2 by estimating the fair value of all other assets and liabilities of the reporting unit. Subsequent to the issuance of ~~our~~its third quarter financial statements, the Company obtained a third-party valuation report, completed Step 2 and recorded an adjustment to the original estimate (recognized as an additional impairment charge) of $18.2 million in the quarter ended December 31, 2005. Further, as of December 31, 2006 and 2005, the Company performed a goodwill impairment analysis under Step 1. Because the fair value was determined to be greater than book value, Step 2 under SFAS 142 was not required, and therefore no additional impairment was necessary at December 31, 2006 and 2005.

The process of evaluating the potential impairment of goodwill is highly subjective and requires significant judgment. In estimating the fair value of the Company, the Company made estimates and judgments about future revenues and cash flows. The ~~Company’s~~Company's forecasts were based on assumptions that are consistent with the plans and estimates the Company is using to manage the business. Changes in these estimates could change the ~~Company’s~~Company's conclusion regarding impairment of goodwill and potentially result in a non-cash goodwill impairment charge in future periods.

~~Upon adoption of SFAS 141 and 142 in the year ended December 31, 2003,~~

From 2000 through 2006, the Company ~~no longer amortizes its non-technology based intangible asset, or assembled workforce. Amortization expense for completed technology intangibles was $886,000 in 2003. As~~has amortized and written off $742.0 million of ~~December 31, 2003, completed technology intangibles had been fully amortized.~~

~~BROADVISION, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements — (Continued)~~

~~Note 4 — Accrued Expenses~~the $767.0 million goodwill incurred as a result of a statutory merger involving a stock-for-stock exchange with another company.

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Note 4---Accrued Expenses

Accrued expenses consisted of the ~~following:~~following (in thousands):

December 31,

2005 2004

(In thousands)
Employee benefits $ 1,048 $ 1,253
Commissions and bonuses 533 1,334
Sales and other taxes 3,885 5,085
Restructuring 5,533 26,292
Other 5,091 6,781

Total accrued expenses $ 16,090 $ 40,745

December 31,

2006

2005

Employee benefits $ 961 $ 1,048
Commissions and bonuses 885 533
Sales and other taxes 2,000 2,595
Income tax and tax contingency reserves 1,378 1,290
Restructuring 1,272 5,533
Customer advances 654 216
Other 3,388 4,875
Total accrued expenses $ 10,538 $ 16,090

Note ~~5 — Bank~~5---Bank Borrowings, Convertible Debentures and Other Non-Current Liabilities


	*~~Bank Borrowings~~*

Bank Borrowings

Bank borrowings consist of the ~~following:~~following (In thousands) :

December 31,

2005 2004

(In thousands)
Revolving line of credit borrowings $ — $ 20,000
Term debt 389 1,027

Total bank borrowings 389 21,027
Less: Current portion of bank borrowings (389 ) (20,637 )

Bank borrowings, net of current portion $ — $ 390

~~We have~~

	December 31,
	2006		2005
Revolving line of credit borrowings	$	-	$	-
Term debt		-		389
Total bank borrowings		-		389
Less: Current portion of bank borrowings		-		(389	)
Bank borrowings, net of current portion	$	-	$	-

The Company has maintained various credit facilities with a commercial lender:

l
	•	~~During the three years ended~~At December 31, 2005, wethe Company maintained a revolving line of credit in the form of a loan and security agreement with a commercial ~~lender. In June 2005, we entered into a $20 million renewed and amended loan and security agreement with the~~ lender, that made more stringent the requirements we must meet in order to access the credit facility. We were not in compliance with these new requirements as of December 31, 2005, and the loan and security agreementwhich expired in February 2006. The agreement required us to maintain certain levels of unrestricted cash and cash equivalents (excluding equity investments), and to maintain certain levels on deposit with the lender. At December 31, 2004, $20.0 million was outstanding under the line of credit. As of December 31, ~~2005, there was no~~2006, the Company did not have any outstanding balance on the line of credit. Borrowings bear interest at the bank’s prime rate (7.25% as of December 31, 2005 and 5.25% as of December 31, 2004) plus up to 1.25% and were collateralized by all of our assets. Interest was due monthly and principal was due at the expiration in February 2006.borrowings under this credit facility.

l
	•	~~We have~~The Company has entered into term debt in the form of notes payable with the same lender. The term debt requires monthly payments of approximately $38,000 plus interest through October 2006, and monthly payments of approximately $2,000 for the five months ending March 2007. A portion of the term debt was utilized for an equipment line of credit. ~~Principal~~The note bears annual interest equal to the Prime Rate plus one and one-quarter percentage points (1.25%) and principal and interest are due in monthly payments through maturity based on the terms of the facilities. ~~Principal payments of $389,000 are due in 2006.~~ As of December 31, 2005, the entire balance of $389,000 was classified as currently due. The Company paid off the entire balance in the third quarter of 2006.

~~BROADVISION, INC. AND SUBSIDIARIES~~

~~Notes~~

Convertible Debentures Due to ~~Consolidated Financial Statements — (Continued)~~Related Party


	*~~Convertible Debentures~~*

Convertible debentures consisted of the ~~following:~~following (in thousands):

December 31,

2005 2004

(Restated)
(In thousands)
Convertible debentures, 6% coupon $ 20,535 $ 16,000
Discount on convertible debentures — (8,805 )
Embedded derivatives — 6,856

Convertible debentures, net of discount 20,535 14,051
Less: Current portion of convertible debentures (20,535 ) (10,214 )

Convertible debentures, net of current portion $ — $ 3,837

	December 31,
	2006		2005
Convertible debentures, 6% coupon	$	-	$	20,535
Less: Current portion of convertible debentures		-		(20,535	)
Convertible debentures, net of current portion	$	-	$	-

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In November 2004, the Company entered into a definitive agreement for the private placement of up to $20.0 million of senior secured convertible notes (the ~~“Notes”~~"Notes") to five institutional investors. Under the terms of the definitive agreement, the Company issued an initial $16.0 million of Notes that were convertible, at the ~~holders’~~holders' option, into common stock at a conversion price of $2.76 per share, subject to adjustment in certain defined circumstances, including dilutive equity issuances. The Notes bear interest at a rate of six percent per annum, and the Company was originally obligated to repay the principal amount of the initial $16.0 million of notes in 15 equal monthly installments of $1.1 million beginning in June 2005. Payments of future principal and interest could have been made in either cash or, upon satisfaction of various conditions set forth in the Notes, shares of BroadVision common stock based upon a price of 92% of the trading price of BroadVision common stock immediately prior to issuance. However, because wethe Company did not satisfy the conditions required to make payments in stock, ~~we were~~the Company was required to use cash to satisfy our payment obligations under the Notes. In connection with the Notes, the Company also issued rights to purchase an additional $4 million of convertible notes with the same terms as the Notes (the ~~“Additional~~"Additional Investment ~~Rights”~~Rights") through July 10, 2005. Certain principal payments that were due in the year ended December 31, 2005, were deferred at the election of the investors for a period of eighteen months under the terms of the Notes.

~~Upon issuance, the~~

The Company concluded that the Notes were ~~conventional~~non-conventional debt under the provisions of EITF 00-19, "~~00-19,~~“Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a ~~Company’s~~Company's Own ~~Stock”~~Stock", and therefore nothe embedded derivatives required valuation under SFAS 133,“ "Accounting for Derivative Instruments and Hedging ~~Activities”~~Activities". Subsequent to the issuance of the 2004 consolidated financial statements, based on clarifying SEC guidance issued in 2005, the Company concluded that the Notes were non-conventional under the provisions of EITF ~~00-19,~~ ~~and the conversion feature of the Notes (the “Conversion Feature”) should be valued under the provisions of SFAS 133 as embedded derivatives.~~ The ~~Company’s subsequent~~Company's determination was based upon certain provisions of the Notes under which the number of common shares into which the Notes were convertible was subject to adjustment, and therefore the number of issuable shares was not fixed. Further, although the settlement of the conversion option does not require physical settlement by delivery of registered shares, the Company is required to pay an effectiveness penalty of one percent (1%) per month upon failure to deliver registered shares. Because this penalty has no cap and therefore may exceed the difference in value between registered and unregistered shares as outlined under EITF 00-19, the Company concluded that the Conversion Feature and the Additional Investment Rights should be bifurcated as derivatives under SFAS 133 and recorded as liabilities on the date of issuance. Further, the Company subsequently determined that the Additional Investment Rights represent an additional derivative, which should be accounted for under SFAS 133. As discussed in Note 1, the accompanying financial statements for 2004 and certain interim periods in 2004 and 2005 have been restated to correct errors pertaining to the accounting for the foregoing derivative instruments.

~~BROADVISION, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements — (Continued)~~

In conjunction with the issuance of the Notes, the Company issued warrants to purchase 1,739,130 shares of common stock. ~~See Note 9.~~ The warrants were exercisable beginning in May 2005, have a strike price of $3.58 per share (subject to adjustment in certain defined circumstances), and have a five-year life. Pursuant to the terms of the warrants, as a result of certain stock issuances by the Company in March 2006 and November 2006, the number of shares of common stock underlying the warrants and the exercise price of the warrants were adjusted. As of December 31, 2006, the warrants were exercisable for 4.2 million shares of common stock at a strike price of $1.48 per share. The warrants have also been accounted for as a derivative under SFAS 133. (See Note 9).

The warrants, Conversion Feature and Additional Investment Rights were valued at the date of issuance using the Black-Scholes model. The $16.0 million proceeds from the issuance of the Notes were allocated as follows (in thousands).:

Convertible debentures, at face value $ 16,000
Less: Discount (9,629 )

Convertible debentures, net of discount 6,371
Embedded derivatives:
Conversion Feature 4,518
Additional Investment Rights 670
Warrants 2,906
Issuance costs 1,535

Total proceeds $ 16,000

Convertible debentures, at face value	$	16,000
Less: Discount		(9,629	)
Convertible debentures, net of discount		6,371
Embedded derivatives:
Conversion Feature		4,518
Additional Investment Rights		670
Warrants		2,906
Issuance costs		1,535
Total proceeds	$	16,000

The Company ~~is recording~~recorded the difference between the face value and discounted amount as additional interest expense over the estimated life of the debentures using the effective interest method. The warrants, the Conversion Feature and the Additional Investment Rights were revalued each reporting period under SFAS 133, with the resulting gains and losses recorded in the accompanying Consolidated Statements of Operations. In December 2005, the Notes were deemed to be extinguished and reissued. See further discussion below. Gains (losses) on the ~~revalution~~revaluation of the warrants (including the warrants from the real estate buyout discussed in Note 9) and the conversion feature were recorded as follows (in thousands):

Years Ended December 31,

2005 2004 2003

(Restated)
Warrants related to the Notes $ 3,337 $ (97 ) $ —
Warrants related to real estate buyout 1,285 (656 ) —
Conversion Feature 5,857 (1,471 ) —
Additional Investment Rights 867 (197 ) —

Income (expense) from derivatives $ 11,346 $ (2,421 ) $ —

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Table of Contents

	Years Ended December 31,
	2006			2005		2004
Warrants related to the Notes	$	(1,306	)	$	3,337	$	(97	)
Warrants related to real estate buyout		(27	)		1,285		(656	)
Conversion Feature		-			5,857		(1,471	)
Additional Investment Rights		-			867		(197	)
(Expense) income from derivatives	$	(1,333	)	$	11,346	$	(2,421	)

The following table includes the assumptions used to value the Conversion Feature and the Additional Investment Rights at issuance and at December 31, 2004:

Conversion Additional
Feature Investment Rights

At At
Dec. 31, At Dec. 31, At
2004 Issuance 2004 Issuance

Exercise price (per share) $ 2.76 $ 2.76 $ 2.76 $ 2.76
Contractual term (years) 1.58 1.72 0.66 0.52
Volatility 0.75 0.73 0.75 0.73
Risk-free interest rate 3.08 % 2.82 % 3.08 % 2.82 %

~~BROADVISION, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements — (Continued)~~

	Conversion						Additional
	Feature						Investment Rights
	At						At
	December 31,			At			December 31,			At
	2004			Issuance			2004			Issuance
Exercise price (per share)	$	2.76		$	2.76		$	2.76		$	2.76
Contractual term (years)		1.58			1.72			0.66			0.52
Volatility		0.75			0.73			0.75			0.73
Risk-free interest rate		3.08	%		2.82	%		3.08	%		2.82	%

The following table includes the assumptions used to value the warrants at issuance ~~at December 31,~~to a landlord in connection with a real estate buyout transaction in August 2004 and at December 31, ~~2005:~~2006, 2005 and 2004:

At Dec. 31
At
2005 2004 Issuance

Exercise price (per share) $ 3.58 $ 3.58 $ 3.58
Contractual term (years) 3.6 4.6 5.0
Volatility 0.84 1.08 1.12
Risk-free interest rate 4.28 % 3.62 % 3.79 %

	At Deccember 31,
										At
	2006			2005			2004			Issuance

Exercise price (per share)	$	5.00		$	5.00		$	5.00		$	5.00
Contractual term (years)		2.58			3.60			4.58			5.00
Volatility		0.87			0.84			1.08			1.12
Risk-free interest rate		4.70	%		4.28	%		3.62	%		3.79	%
Number of warrants		700,000			700,000			700,000			700,000

The following table includes the assumptions used to value the warrants at issuance to the convertible debenture investors in November 2004 and at December 31, 2006, 2005, and 2004:

	At December 31,
										At
	2006			2005			2004			Issuance
Exercise price (per share)	$	1.48		$	3.58		$	3.58		$	3.58
Contractual term (years)		3.33			3.60			4.60			5.00
Volatility		0.87			0.84			1.08			1.12
Risk-free interest rate		4.70	%		4.28	%		3.62	%		3.79	%
Number of warrants		4,206,811			1,739,130			1,739,130			1,739,130

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In October 2005, the Company inadvertently did not make timely payment of the third quarter interest payment due under the Notes of approximately $201,000 that was due on October 1, 2005. Lack of timely payment became an event of default on October 8, 2005 after non-payment continued for a period of over five business days. The Company made the third quarter interest payment promptly after discovery of the nonpayment, on October 14, 2005. The event of default permitted each noteholder to require the Company to redeem 120% of all or any portion of the amounts outstanding under the applicable Note by delivering to the Company notice of such redemption, which redemption is required under the Notes to be paid within five business days after receipt of such redemption notice. If all of the noteholders had elected such redemption, the Company would have been obligated to pay within five business days after receipt of such election approximately $15.5 million in unpaid principal and interest. The accelerated repayment of all or any significant portion of such amount would have left the Company with insufficient working capital to conduct its business, and the Company did not have sufficient cash to meet such an accelerated repayment obligation. During the quarter ended December 31, 2005, the Company recorded a charge of $2.6 million in its Consolidated Statement of Operations, which represented the 20% increase in the redeemable debt premium.

On October 25, 2005, the Company entered into an agreement with the noteholders under which the noteholders agreed not to require redemption of the Notes, including the 20% premium payable thereunder, prior to November 16, 2005.

In November 2005, the Notes were purchased by Vector III, an entity affiliated with Vector Capital Corporation, and subsequently on November 18, 2005, the Notes were in turn purchased by Honu Holdings, LLC, a Delaware limited liability company controlled by Dr. Pehong Chen, the ~~Company’s~~Company's President and Chief Executive Officer. On December 20, 2005, in order to relieve BroadVision from the liquidity challenges presented by the Notes, Dr. Chen agreed to cancel all amounts owed under the Notes in exchange for 34,500,000 shares of BroadVision common stock at an effective price per share of $0.45, representing a 25% discount to the December 20, 2005 closing price of BroadVision common stock of $0.60 per share. Because of the significant difference between the $0.45 per share exchange price and the $2.76 per share conversion price included in the Notes, the Company accounted for this transaction as a deemed extinguishment and reissuance of the Notes. A loss of $7.0 million was recorded in December 2005 under Accounting Principles Bulletin No. 26,Extinguishment of Debt, equal to fair value of the reissued Notes (which was determined to be the fair value of the underlying common shares into which the Notes were to be exchanged) less the carrying value of the extinguished Notes. The Notes ~~are~~were being carried at December 31, 2005, at fair value upon ~~reissuance.~~

~~The Notes~~reissuance and were cancelled and the related shares issued in March 2006. Upon conversion, the carrying value of the Notes was recorded as paid-in capital, and Dr. ~~Chen’s~~Chen's ownership of ~~our~~the Company's common shares increased to approximately 59% ~~(see~~. Dr. Chen's ownership subsequently decreased to approximately 39% as a result of closing the rights offering in the fourth quarter of 2006 (See Note ~~12)~~9).

~~BROADVISION, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements — (Continued)~~

Other Non-Current Liabilities


	*~~Other Non-Current Liabilities~~*

Other non-current liabilities consist of the ~~following:~~following (in thousands):

December 31,

2005 2004

(In thousands)
Restructuring $ 1,722 $ 7,871
Deferred maintenance and unearned revenue 2,334 3,148
Other 334 407

Total other non-current liabilities $ 4,390 $ 11,426

~~Note 6 — Income Taxes~~

	December 31,
	2006		2005
Restructuring	$	1,290	$	1,722
Deferred maintenance and unearned revenue		1,739		2,334
Other		400		334
Total other non-current liabilities	$	3,429	$	4,390

Note 6---Income Taxes

The components of (expense) benefit ~~(provision)~~ for income taxes are as follows (in thousands):

Years Ended December 31,

2005 2004 2003

Current:
Federal $ 660 $ — $ —
State (10 ) (110 ) (244 )
Foreign 1,961 419 (195 )

Total current 2,611 309 (439 )
Deferred:
Federal — — —
State — — —

Total deferred — — —

Income tax benefit (provision) $ 2,611 $ 309 $ (439 )

	Years Ended December 31,
	2006			2005			2004
Current:
Federal	$	(350	)	$	660		$	-
State		(75	)		(10	)		(110	)
Foreign		(209	)		1,961			419
Total current		(634	)		2,611			309
Deferred:
Federal		-			-			-
State		-			-			-
Total deferred		-			-			-
Income tax (expense) benefit	$	(634	)	$	2,611		$	309

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The differences between the (expense) benefit ~~(provision)~~ for income taxes computed at the federal statutory rate of 35% and the ~~Company’s~~Company's actual income tax (expense) benefit ~~(provision)~~ for the periods presented are as follows (in thousands):

Years Ended December 31,

2005 2004 2003

Expected income tax benefit (provision) $ 14,552 $ (6,390 ) $ 12,262
State income tax benefit (provision), net of federal tax benefit (provision) 662 (1,103 ) 1,683
California net operating loss reduction — — (1,186 )
Foreign taxes (264 ) (72 ) (663 )
Utilization of foreign net operating loss carryforwards 913 688 533
Valuation allowance changes affecting provision (575 ) 7,521 (11,546 )
Foreign losses not benefited (952 ) (322 ) (1,542 )
Non-deductible goodwill and intangible amortization (10,806 ) — (355 )
Tax credits — 32 351
Other (919 ) (45 ) 24

Benefit (provision) for income taxes $ 2,611 $ 309 $ (439 )

~~BROADVISION, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements — (Continued)~~

	Years Ended December 31,
	2006			2005			2004
Expected income tax (expense) benefit	$	(5,744	)	$	14,552		$	(6,390	)
State income tax (expense) benefit, net of federal tax (expense) benefit		(49	)		662			(1,103	)
Foreign taxes		(209	)		(264	)		(72	)
Utilization of foreign net operating loss carryforwards		-			913			688
Valuation allowance changes affecting provision		5,941			(575	)		7,521
Stock based compensation		(91	)		-			-
Foreign losses not benefited		(584	)		(952	)		(322	)
Non-deductible goodwill impairment		-			(10,806	)		-
Tax credits and other permanent items		114			-			32
Other		(12	)		(919	)		(45	)
(Expense) benefit for income taxes	$	(634	)	$	2,611		$	309

The individual components of the ~~Company’s~~Company's deferred tax assets and liabilities are as follows (in thousands):

December 31,

2005 2004

Deferred tax assets:
Depreciation and amortization $ 5,716 $ 11,701
Accrued liabilities 5,204 16,764
Capitalized research and development 2,748 4,748
Net operating losses 214,599 164,985
Tax credits 13,148 13,740
Unrealized loss on marketable securities 1,589 5,320

Total deferred tax assets 243,005 217,259
Less: valuation allowance (243,005 ) (217,259 )

Net deferred tax assets $ — $ —

	December 31,
	2006			2005
Deferred tax assets:
Depreciation and amortization	$	3,602		$	5,716
Accrued liabilities		4,751			5,204
Capitalized research and development		2,430			2,748
Net operating losses		211,331			214,599
Tax credits		13,946			13,148
Unrealized loss on marketable securities		1,589			1,589
Total deferred tax assets		237,649			243,005
Less: valuation allowance		(237,649	)		(243,005	)
Net deferred tax assets	$	-		$	-

The Company has provided a valuation allowance for all of its deferred tax assets as of December 31, ~~2005~~2006 and ~~2004,~~2005, due to the uncertainty regarding their future realization. The total valuation allowance ~~increased $25.7~~decreased $5.4 million from December 31, ~~2004~~2005 to December 31, ~~2005~~2006 due primarily to utilization of net operating ~~losses incurred.~~loss carryovers. As of December 31, ~~2005,~~2006, the Company had federal and state operating loss (NOL) carryforwards of approximately ~~$573.9~~$563.2 million and ~~$152.2~~$154.2 million, net of Section 382 of the Internal Revenue Code ("IRC") limitations respectively, available to offset future regular and alternative minimum taxable income. The NOL did not include a deduction from stock based compensation for which a benefit would be recorded in additional paid-in capital when realized which benefit was immaterial. In addition, the Company had federal and state research and development credit carryforwards of approximately ~~$11.1~~$11.2 million and ~~$3.0~~$3.3 million, respectively, available to offset future tax liabilities. The ~~Company’s~~Company's federal net operating loss and tax credit carryforwards expire in the tax years ~~2006~~2007 through ~~2025,~~2026, if not utilized. The state net operating loss carryforwards expire in the tax years ~~2006~~2007 through ~~2015.~~2016. The state research and development credits can be carried forward indefinitely.

Federal and state tax laws ~~limit~~impose substantial restrictions on the ~~use~~utilization of net operating loss and credit carryforwards in ~~certain situations where changes occur in~~ the ~~stock ownership~~event of ~~a company. The Company believes such~~ an ~~ownership change,~~"ownership change" for tax purposes, as defined ~~may have occurred and, accordingly, certain~~in IRC Section 382. Based on an IRC Section 382 study completed in February 2007, the Company determined that there were ownership changes during year 1998. Consequently, a portion of the ~~Company’s~~Company's tax carryforwards will expire before they can be fully utilized. Therefore, in 2006, the Company reduced its reported available federal ~~and state operating loss~~NOL carryforwards ~~may be limited in their annual usage.~~by approximately $5.3 million.

In accordance with SFAS 5, the Company maintains reserves for estimated income tax exposures for many jurisdictions when the exposure item becomes probable and estimable. Exposures are settled primarily through the settlement of audits within each individual tax jurisdiction or the closing of a statute of limitation. Exposures can also be affected by changes in applicable tax law or other factors, which may cause management to believe a revision of past estimates is appropriate. Management believes that an appropriate liability has been established for income tax exposures; however, actual results may differ materially from these estimates. As of December 31, 2006 and 2005, the Company has recorded tax contingency reserves of approximately $1.3 million, which is included as a component of Accrued Expenses in the accompanying Consolidated Balance Sheet.

~~Those earnings~~

~55~

Table of Contents

Earnings from foreign subsidiaries are considered to be permanently reinvested and, accordingly, no provision for U.S. federal and state taxes has been provided thereon. Upon repatriation of those earnings in the form of dividends or otherwise, the Company may be subject to U.S. income taxes or withholding taxes payable to the foreign country or both. It is not practical to estimate the amount of unrecognized deferred U.S. taxes on those undistributed earnings.

~~BROADVISION, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements — (Continued)~~

Note ~~7 — Commitments~~7---Commitments and Contingencies


	*~~Warranties and Indemnification~~*

Warranties and Indemnification

The Company provides a warranty to its customers that its software will perform substantially in accordance with documentation, typically for a period of 90 days following receipt of the software. ~~The Company also indemnifies certain customers from third-party claims of intellectual property infringement relating to the use of its products.~~ Historically, costs related to these ~~guarantees~~warranties have ~~not~~ been ~~significant and~~immaterial. Accordingly, the Company ~~is unable to estimate the maximum potential impact~~has not recorded any warranty liabilities as of ~~these guarantees on its future results of operations.~~December 31, 2006 and 2005.

~~Our~~

The Company's software license agreements typically provide for indemnification of customers for intellectual property infringement ~~claims. To date, no such~~ claims caused by use of a current release of the Company's software consistent with the terms of the Agreement. The term of these indemnification clauses is generally perpetual. The potential future payments the Company could be required to make under these indemnification clauses is generally limited to the amount the customer paid for the software. Historically, costs related to these indemnifications provisions have been ~~filed against us.~~immaterial. The Company also maintains liability insurance that limits the Company's exposure. As a result, the Company believes the potential liability resulting from these indemnification clauses is minimal. Accordingly, the Company has not recorded any liabilities for these agreements as of December 31, 2006 and 2005.

The Company has agreements whereby it indemnifies its 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 the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a director and officer insurance policy that limits its exposure and enables the Company to recover a portion of any future amounts paid. As a result of the ~~Company’s~~Company's insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is insignificant. Accordingly, the Company has no liabilities recorded for these agreements as of ~~either~~ December 31, ~~2005~~2006 or ~~2004.~~2005. The Company assesses 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~~*

Leases

The Company leases its headquarters facility and its other facilities under noncancelable operating lease agreements expiring through the year 2012. Under the terms of the agreements, the Company is required to pay property taxes, insurance and normal maintenance costs.

A summary of total future minimum lease payments under noncancelable operating lease agreements ~~net of amounts under non-cancelable sublease agreements,~~ is as follows (in millions):

Total Future
Payments

Years ending December 31,

2006 $ 3.5
2007 3.9
2008 2.1
2009 2.1
2010 and thereafter 4.1

Total minimum facilities payments $ 15.7

		Total Future
		Payments
Years ending December 31,
2007		$	2.7
2008			1.7
2009			1.7
2010			1.2
2011 and thereafter			1.7
	Total minimum facilities payments	$	9.0

These future minimum lease payments ~~are net of~~exclude approximately ~~$1.7~~$1.3 million of sublease income to be received under non-cancelable sublease agreements. As of December 31, ~~2005, we have~~2006, The Company has accrued ~~$6.8~~$2.2 million of estimated future facilities costs as a restructuring accrual. Included in this accrual is a Company purchase right of $4.5 million (discounted to its $4.2 million present value) that, upon exercise by the Company, would terminate approximately $9.1 million of future lease obligations through June 2012. See Note 8.

~~BROADVISION, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements — (Continued)~~

Rent expense for the years ended December 31, 2006, 2005 and 2004 was $2,315,000, $3,187,000, and ~~2003 was $3,187,000,~~ $4,162,000, ~~and $4,606,000,~~ respectively.


	*~~Equity Investments~~*

In January 2000, the Company entered into a limited partnership agreement with a venture capital firm under which it was obligated to contribute capital based upon the periodic funding requirements. The total capital commitment was $2.0 million, Standby Letter of which $1.1 million had been contributed through December 31, 2003. In September 2004, the Company sold its interest in the partnership agreement for approximately $576,000 in cash and recorded a loss of approximately $230,000. That loss is included in “Other Income (Expense), net” in the accompanying Consolidated Statement of Operations. As a result of this sale, the Company’s obligation to make future capital contributions has been extinguished.Credit Commitments


	*~~Standby Letter of Credit Commitments~~*

Commitments totaling $2.0 ~~million and $24.3~~ million in the form of standby letters of credit were issued on the ~~Company’s~~Company's behalf from financial institutions as of December 31, ~~2005~~2006 and ~~2004, respectively,~~2005, in favor of the ~~Company’s~~Company's various landlords to secure obligations under the ~~Company’s~~Company's facility leases.


	*~~Legal Proceedings~~*

On June 10, 2004, Metropolitan Life Insurance Company (“MetLife”) filed a complaint in the Superior Court of the State of California, County of Los Angeles, naming the Company as a defendant. The complaint alleged that the Company was liable for unlawful detainer of premises leased from the plaintiff. The plaintiff thereafter filed a First Amended Complaint alleging that the Company no longer held possession of the premises but was in breach of the lease. In February 2005, MetLife and the Company reached agreement and executed documents regarding a settlement of the pending lawsuit under which the Company will pay MetLife an aggregate of $1,927,500 in consideration for termination of the lease, dismissal of the lawsuit and in full settlement of approximately $3.1 million of past and future lease obligations. This amount was accrued as a component of the restructuring accrual, and paid in three installment payments in February, May, and September 2005.

~~On January 7, 2005, we announced that we had reached agreement with the SEC to settle administrative proceedings in connection with the restatement~~

~56~

Table of our financial results for the third quarter of fiscal 2001. There were no fines or financial penalties associated with the settlement. Without admitting or denying any wrongdoing, we consented to the SEC’s entry of an administrative order that included findings that we issued a false and misleading earnings press release and misleading quarterly report. The order requires that we cease and desist from committing or causing violations of specified provisions of the federal securities laws. The SEC found that a former executive in charge of professional services who left BroadVision in 2002 was responsible for the improper accounting. The restatement concerned revenue related to one software license agreement. Following receipt of payment in full by the customer, we recognized revenue on that agreement in its entirety in the third quarter of 2001. We subsequently determined that the revenue should instead be recognized ratably over the four-year life of the agreement, and announced on April 1, 2002 that we were restating our financial statements for the third quarter of 2001 to effect this change. We have been accounting for the revenue ratably in all periods since the third quarter of 2001.Contents

~~BROADVISION, INC. AND SUBSIDIARIES~~ Legal Proceedings

~~Notes to Consolidated Financial Statements — (Continued)~~

the director defendants violated their fiduciary duties to stockholders by, among other things, failing to maximize our value and ignoring, or failing to adequately protect against, certain purported conflicts of interest. Each complaint seeks, among other things, injunctive relief and damages in an unspecified amount. On September 21, plaintiff Goberville filed an amended complaint alleging that defendants caused materially misleading information regarding a proposed merger to be disseminated to the Company’s stockholders. On October 20, 2005, the Court ordered consolidation of the four pending actions pursuant to the parties’ stipulation. In light of the termination of the Merger Agreement with an affiliate of Vector on December 2, 2005, the plaintiffs in the four above entitled actions agreed to dismiss, without prejudice, their complaints against our directors and BroadVision, Inc. on December 9, 2005.

The Company is ~~also~~ subject from time to time to various legal actions and other claims ~~and legal actions~~ arising in the ordinary course of business. ~~In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters~~The Company is not ~~expected~~presently a party to ~~have a~~any material ~~effect on the Company’s business, financial condition or results of operations. Although management currently believes that the outcome of other outstanding~~ legal proceedings, claims and litigation involving the Company will not have a material adverse effect on its business, results of operations or financial condition, litigation is inherently uncertain, and there can be no assurance that existing or future litigation will not have a material adverse effect on the Company’s business, results of operations or financial condition.proceedings.

Note ~~8 — Restructuring~~8---Restructuring

Through December 31, 2005, the Company has approved restructuring plans to, among other things, reduce its workforce and consolidate facilities. These restructuring and asset impairment charges were taken to align our cost structure with changing market conditions and to create a more efficient organization. Our restructuring charges are comprised primarily of: (1) severance and benefits termination costs related to the reduction of our workforce; (2) lease termination costs and/or costs associated with permanently vacating our facilities; (3) other incremental costs incurred as a direct result of the restructuring plan; and (4) impairment costs related to certain long-lived assets abandoned. We account for each of these costs in accordance with SAB 100,~~Restructuring and Impairment Charges.~~ ~~Restructuring charges are not associated with nor do they benefit continuing activities.~~

~~Severance and Termination Costs~~. ~~We account for severance and benefits termination costs as follows:~~


	•	~~For exit or disposal activities initiated on or prior to December 31, 2002, we account for costs in accordance with EITF~~ ~~94-3~~. Accordingly, we record the liability related to these termination costs when the following conditions have been met: (1) management with the appropriate level of authority approves a termination plan that commits us to such plan and establishes the benefits the employees will receive upon termination; (2) the benefit arrangement is communicated to the employees in sufficient detail to enable the employees to determine the termination benefits; (3) the plan specifically identifies the number of employees to be terminated, their locations and their job classifications; and (4) the period of time to implement the plan does not indicate changes to the plan are likely.

	•	For exit or disposal activities initiated after December 31, 2002, we account for costs in accordance with SFAS No. 146. SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. This differs from EITF ~~94-3,~~ ~~which required that a liability for an exit cost be recognized at the date of an entity’s commitment to an exit plan.~~

~~Excess Facilities Costs~~. ~~We account for excess facilities costs as follows:~~


	•	~~For exit or disposal activities initiated on or prior to December 31, 2002, we account for lease termination and/or abandonment costs in accordance with EITF Issue No. 88-10. Accordingly, we~~

~~BROADVISION, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements — (Continued)~~


		~~recorded the costs associated with lease termination and/or abandonment when the leased property had no substantive future use or benefit to us.~~

	•	For exit or disposal activities initiated after December 31, 2002, we account for lease termination and/or abandonment costs in accordance with SFAS 146, which requires that a liability for such costs be recognized and measured initially at fair value on the cease use date of the facility.

Inherent in the estimation of the costs related to our restructuring efforts are assessments related to the most likely expected outcome of the significant actions to accomplish the restructuring. In determining the charges related to the restructurings to date, the majority of estimates made by management have related to charges for excess facilities. In determining the charges for excess facilities, we were required to estimate future sublease income, future net operating expenses of the facilities, and brokerage commissions, among other expenses. The most significant of these estimates have related to the timing and extent of future sublease income in which to reduce our lease obligations. We based our estimates of sublease income, in part, on the opinions of independent real estate experts, current market conditions and rental rates, an assessment of the time period over which reasonable estimates could be made, the status of negotiations with potential subtenants, and the location of the respective facility, among other factors. We have recorded the low-end of a range of assumptions modeled for restructuring charges, in accordance with SFAS 5. Adjustments to the facilities accrual will be required if actual lease exit costs or sublease income differ from amounts currently expected. We will review the status of restructuring activities on a quarterly basis and, if appropriate, record changes to our restructuring obligations in current operations based on management’s most current estimates.

The following table summarizes the restructuring accrual activity recorded during the three-years ended December 31, ~~2005~~2006 (in thousands):

Severance
and Facilities/
Benefits Excess Assets Total

Accrual balances, December 31, 2002 $ 1,504 $ 94,691 $ 96,195
Restructuring charges 1,509 33,847 35,356
Cash payments (2,342 ) (23,829 ) (26,171 )

Accrual balances, December 31, 2003 671 104,709 105,380
Restructuring charges (credits) 1,114 (24,659 ) (23,545 )
Cash payments (961 ) (46,711 ) (47,672 )

Accrual balances, December 31, 2004 824 33,339 34,163
Restructuring charges (credits) 1,006 (1,468 ) (462 )
Cash payments (1,414 ) (25,032 ) (26,446 )

Accrual balances, December 31, 2005 $ 416 $ 6,839 $ 7,255

	Severance
	and			Facilities/
	Benefits			Excess Assets			Total
Accrual balances, December 31, 2003	$	671		$	104,709		$	105,380
Restructuring charges (credits)		1,114			(24,659	)		(23,545	)
Cash payments		(961	)		(46,711	)		(47,672	)
Accrual balances, December 31, 2004		824			33,339			34,163
Restructuring charges (credits)		1,006			(1,468	)		(462	)
Cash payments		(1,414	)		(25,032	)		(26,446	)

Accrual balances, December 31, 2005		416			6,839			7,255
Restructuring charges (credits)		348			(3,717	)		(3,369	)
Cash payments		(417	)		(907	)		(1,324	)
Accrual balances, December 31, 2006	$	347		$	2,215		$	2,562

The severance and benefits accrual for each period includes severance, payroll taxes and COBRA benefits related to restructuring plans implemented prior to the balance sheet date. The facilities/excess assets accrual for each period included future minimum lease payments, fees and expenses, net of estimated sublease income and planned company occupancy, and related leasehold improvement amounts payable subsequent to the balance sheet date for which the provisions of EITF 94-3 or SFAS 146, as applicable, were satisfied. See further discussion below. In determining estimated future sublease income, the following factors were considered, among others: opinions of independent real estate experts, current market conditions and rental rates, an assessment of the time period over which reasonable estimates could be made, the status of negotiations with potential subtenants, and the location of the respective facilities.

~~BROADVISION, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements — (Continued)~~The nature of the charges and credits in 2006 were as follows:

Severance and benefits -- During the year ended December 31, 2006, the Company recorded $348,000 severance charges related to the approved Work Reduction Plan. Due to the strict European labor law the Company was not able to recognize severance charges to 3 employees until 2006. The Company estimates that the accrual as of December 31, 2006 of $347,000 will be paid in full by December 31, 2007.

Facilities/excess assets -- During the year ended December 31, 2006, the Company recorded a facilities-related restructuring credit of $3.7 million. In the third quarter of 2006, the Company did not exercise a $4.5 million option to buy out the residual lease obligation entered in 2004 and the buyout option expired. Therefore, the Company reversed the 2004 accrual in the third quarter of 2006. In the fourth quarter of 2006, the Company subleased 22,500 square feet of excess space and adjusted the restructuring accrual accordingly. The Company made cash payments of $0.9 million during the year ended December 31, 2006 related to these agreements.

The nature of the charges and credits in 2005 were as follows:

l
	•	Severance and benefits — --- On June 29, 2005, ~~our~~the Company's Board of Directors approved a business restructuring plan, primarily consisting of headcount reductions, designed to adjust expenses to a level more consistent with anticipated revenues. The reduction included approximately 63 employees, or 22% of ~~our~~the Company's workforce. WeThe Company recorded severance charges of approximately $1.1 million in the year ended December 31, 2005, related to workforce reductions as a component of the ~~Company’s~~Company's restructuring plans executed during the year. ~~The Company estimates that the accrual as of December 31, 2005 of $416,000 will be paid in full by December 31, 2006.~~


l	•	Facilities/excess assets —--- During the ~~twelve months~~year ended December 31, 2005, the Company recorded a facilities-related restructuring credit of $1.5 million. During the third and fourth quarters of 2004 and the first quarter of 2005, the Company reached agreements with certain landlords to extinguish future real estate obligations. In addition, the Company entered into subleases in 2005 in excess of those anticipated. The Company made cash payments of $25.0 million during the twelve months ended December 31, 2005 related to buyout agreements. AThe Company has a letter of credit of $2.0 million secured by an equal amount of restricted cash ~~is available~~ to the landlord ~~and secures certain~~securing facilities leases as more fully described in Note 8.

The nature of the charges and credits in 2004 were as follows:

l
	•	Severance and ~~benefits~~ — benefits---The Company recorded a related charge of $1.1 million during the ~~twelve months~~year ended December 31, 2004, related to workforce reductions as a component of the ~~Company’s~~Company's restructuring plans executed during the year. The accrual as of December 31, 2004, was paid in full by December 31, 2005.

~57~

Table of Contents


l	•	Facilities/excess ~~assets~~ — assets---During the ~~twelve months~~year ended December 31, 2004, the Company recorded a facilities-related restructuring credit of $24.7 million. During the third and fourth quarters of 2004, the Company reached agreements with certain landlords to extinguish approximately $155 million of future real estate obligations. The Company made cash payments of $19.0 million during the third quarter of fiscal 2004, $1.7 million during the fourth quarter of fiscal 2004 and $21.9 million in fiscal 2005. Standby letters of credit of $21.9 million were issued on our behalf from financial institutions as of December 31, 2004, in favor of the landlords to secure the fiscal 2005 payments. Accordingly, $21.9 million, along with additional letters of credit securing other long-term leases of $2.3 million, has been included in restricted cash in the accompanying Consolidated Balance Sheets at December 31, 2004. The Company also transferred ownership of certain furniture, fixtures, and leasehold improvements with a net book value of $8.5 million to the previous landlords.


	As a component of the settlement of one of the previous leases, the Company has a residual lease obligation beginning in 2007 of approximately $9.1 million. The Company may make an additional cash payment of $4.5 million if it exercises an option to terminate this residual real estate obligation prior to the commencement of the lease term (January 2007). This option to terminate the residual lease obligation is accounted for in accordance with SFAS 146 and is a part of the restructuring credit of $24.6 million recorded in fiscal 2004.

	In connection with one of the buyout transactions, the Company issued to the landlord a five-year warrant to purchase approximately 700,000 shares of its common stock at an exercise price of $5.00 per share, exercisable beginning in August 2005. See Note 9.

~~The nature~~ of the ~~charges~~settlement of one of the previous leases, the Company has a residual lease obligation beginning in ~~2003~~2007 of approximately $9.0 million. The Company would have made an additional cash payment of $4.5 million had it exercised an option to terminate this residual real estate obligation prior to the commencement of the lease term (January 2007). This option to terminate the residual lease obligation is ~~as follows:~~accounted for in accordance with SFAS 146 and is a part of the restructuring credit of $24.6 million recorded in fiscal 2004. As discussed above, in the third quarter of 2006, the Company did not exercise the $4.5 million option to buy out the residual lease obligation, and the buy-out option expired. In connection with one of the buyout transactions, the Company issued to the landlord a five-year warrant to purchase approximately 700,000 shares of its common stock at an exercise price of $5.00 per share, exercisable beginning in August 2005. See Note 9.


	•	~~Severance and benefits~~ ~~— The $1.5 million charge in fiscal 2003 related to workforce reductions as a component of the Company’s restructuring plans executed during the year.~~

~~BROADVISION, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements — (Continued)~~


	•	~~Facilities/excess assets~~ — During the twelve months ended December 31, 2003, the Company recorded a facilities-related restructuring charge of $33.8 million. This charge related to the Company’s revisions of estimates with respect to the planned future occupancy and anticipated future subleases. These revisions were necessary due to a reduction in planned future BroadVision space needs and a further decline in the market for commercial real estate. The Company estimated future sublease timing and rates based upon current market indicators and information obtained from a third party real estate expert.

As of December 31, ~~2005,~~2006, the total restructuring accrual of ~~$7.2~~$2.6 million consisted of the following (in millions):

Non-
Current Current Total

Severance and termination $ 0.4 $ — $ 0.4
Excess facilities 5.1 1.7 6.8

Total $ 5.5 $ 1.7 $ 7.2

			Non-
	Current		Current		Total
Severance and termination	$	0.4	$	-	$	0.4
Excess facilities		0.9		1.3		2.2
Total	$	1.3	$	1.3	$	2.6

The Company estimates that the ~~$0.4 million~~$400,000 severance and termination accrual will be paid in full by December 31, ~~2006.~~2007. It expects to pay the excess facilities amounts related to restructured or abandoned leased space as follows (in millions):

Total Future
Payments

Years Ending December 31,

2006 $ 5.1
2007 0.7
2008 0.4
2009 0.4
2010 0.2

Total minimum facilities payments $ 6.8

~~BROADVISION, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements — (Continued)~~

	Total Future
	Payments
Years Ending December 31,
2007	$	0.9
2008		0.4
2009		0.5
2010		0.2
2011		0.2
Total minimum facilities payments	$	2.2

The following table summarizes the activity related to the restructuring plans initiated after January 1, 2003, and accounted for in accordance with FAS 146 (in thousands):

Amounts
Accrued Charged to Amounts
Restructuring Restructuring Paid or Accrued
Costs, Costs and Written Restructuring
Beginning Other Off Costs, Ending

Year Ended December 31, 2005:

Lease cancellations and commitments $ 21,824 $ (821 ) $ (16,815 ) $ 4,188
Termination payments to employees and related costs 365 1,006 (1,266 ) 105
Write-off on disposal of assets and related costs — — — —

$ 22,189 $ 185 $ (18,081 ) $ 4,293

Year Ended December 31, 2004:

Lease cancellations and commitments $ 21,683 $ 9,594 $ (9,453 ) $ 21,824
Termination payments to employees and related costs 242 1,114 (991 ) 365
Write-off on disposal of assets and related costs — (1,193 ) 1,193 —

$ 21,925 $ 9,515 $ (9,251 ) $ 22,189

~~BROADVISION, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements — (Continued)~~

			Amounts			Amounts
			Charged to			Reversed to
	Accrued		Restructuring			Restructuring			Amounts			Accrued
	Restructuring		Costs and			Costs and			Paid or			Restructuring
	Costs, Beginning		Other			Other			Written Off			Costs, Ending
Year Ended December 31, 2006:
Lease cancellations and commitments	$	4,188	$	389		$	(4,500	)	$	-		$	77
Termination payments to employees and related costs		105		348			-			(453	)		-
	$	4,293	$	737		$	(4,500	)	$	(453	)	$	77
Year Ended December 31, 2005:
Lease cancellations and commitments	$	21,824	$	(821	)	$	-		$	(16,815	)	$	4,188
Termination payments to employees and related costs		365		1,006			-			(1,266	)		105
	$	22,189	$	185		$	-		$	(18,081	)	$	4,293
Year Ended December 31, 2004:
Lease cancellations and commitments	$	21,683	$	9,594		$	-		$	(9,453	)	$	21,824
Termination payments to employees and related costs		242		1,114			-			(991	)		365
Write-off on disposal of assets and related costs		-		(1,193	)		-			1,193			-
	$	21,925	$	9,515		$	-		$	(9,251	)	$	22,189

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The following table summarizes the activity related to the restructuring plans initiated prior to January 1, 2003, and accounted for in accordance with EITF 94-3 (in thousands):

Amounts Amounts
Accrued Charged to Reversed to Amounts
Restructuring Restructuring Restructuring Paid or Accrued
Costs, Costs and Costs and Written Restructuring
Beginning Other Other Off Costs, Ending

Year Ended December 31, 2005:

Lease cancellations and commitments $ 11,515 — $ (647 ) $ (8,217 ) $ 2,651
Termination payments to employees and related costs 459 — — (148 ) 311
Write-off on disposal of assets and related costs — — —

$ 11,974 $ (647 ) $ (8,365 ) $ 2,962

Year Ended December 31, 2004:

Lease cancellations and commitments $ 83,026 $ (32,584 ) $ — $ (38,927 ) $ 11,515
Termination payments to employees and related costs 429 — — 30 459
Write-off on disposal of assets and related costs — (477 ) — 477 —

$ 83,455 $ (33,061 ) $ — $ (38,420 ) $ 11,974

Year Ended December 31, 2003:

Lease cancellations and commitments $ 94,691 $ 11,649 $ — $ (23,314 ) $ 83,026
Termination payments to employees and related costs 1,425 41 — (1,037 ) 429
Write-off on disposal of assets and related costs 79 (41 ) (26 ) (12 ) —

$ 96,195 $ 11,649 $ (26 ) $ (24,363 ) $ 83,455

Amounts

Amounts

Accrued

Charged to

Reversed to

Amounts

Restructuring

Restructuring

Restructuring

Paid or

Accrued

Costs,

Costs and

Costs and

Written

Restructuring

Beginning

Other

Other

Off

Costs, Ending

Year Ended December 31, 2006:

Lease cancellations and commitments $ 2,651 $ 394 $ - $ (907 ) $ 2,138
Termination payments to employees and related costs 311 - - 36 347
$ 2,962 $ 394 $ - $ (871 ) $ 2,485
Year Ended December 31, 2005:

Lease cancellations and commitments $ 11,515 $ - $ (647 ) $ (8,217 ) $ 2,651
Termination payments to employees and related costs 459 - - (148 ) 311
$ 11,974
$
- $ (647 ) $ (8,365 ) $ 2,962
Year Ended December 31, 2004:

Lease cancellations and commitments $ 83,026 $ (32,584 ) $ - $ (38,927 ) $ 11,515
Termination payments to employees and related costs 429 - - 30 459
Write-off on disposal of assets and related costs -
(477
) -

477 -
$ 83,455 $ (33,061
)
$ - $ (38,420 ) $ 11,974

Note ~~9 — Stockholders’~~9---Stockholders' Equity (Deficit)


	*~~Convertible Preferred Stock~~*

Convertible Preferred Stock

As of December 31, ~~2005,~~2006, there were no outstanding shares of convertible preferred stock. The Board of Directors and the stockholders have authorized ~~the issuance of~~ 10,000,000 shares of convertible preferred ~~stock.~~

~~BROADVISION, INC. AND SUBSIDIARIES~~stock that is available for issuance.

~~Notes to Consolidated Financial Statements — (Continued)~~

Warrants


	*~~Warrants~~*

As of December 31, ~~2005,~~2006, the following warrants to purchase the ~~Company’s~~Company's common stock were outstanding (dollars in thousands, except share and per share data):

Fair Value at
Dec. 31,
Price per
Description Shares Share 2005 2004

Issued to landlord in real estate buyout transaction in August 2004 700,000 $ 5.00 $ 51 $ 1,337
Issued to convertible debenture investors in November 2004 1,739,130 3.58 226 3,562
Others issued in connection with revenue transactions in 1997 and 2000 9,628 Various — —

Total shares and fair value and average price per share 2,448,758 4.71 $ 277 $ 5,899

					Fair Value at
					December 31,
			Price per
Description	Shares		Share		2006		2005
Issued to landlord in real estate buyout transaction in August 2004		700,000	$	5.00	$	79	$	51
Issued to convertible debenture investors in November 2004		4,206,811		1.48		1,531		226
Others issued in connection with revenue transactions in 1997 and 2000		4,798		Various		-		-
Total shares and fair value and average price per share		4,911,609		2.04	$	1,610	$	277

The warrant issued in connection with the real estate transaction has a term of five years, and is exercisable beginning in August 2005. The warrant issued in connection with the convertible debentures also has a term of five years and is exercisable beginning in May 2005. Under an anti-dilution provision of the debt warrants and as triggered by the debt to equity exchange of the Notes and the rights offering, the warrant was reissued in March ~~2006. See Note 12 for subsequent event discussion.~~2006 and November 2006, respectively.

In accordance with EITF 00-19, the warrants have been included as a short-term liability and were originally valued at fair value on the date of issuance. During ~~fiscal~~year 2006, the Company recorded charges related to the change in fair value of the warrants of approximately $1.3 million. During year 2005, the Company recorded credits related to the change in fair value of the warrants of approximately $4.6 ~~million. During fiscal 2004, the Company recorded charges related to the change in fair value from the date of issuance of the 2004 warrants to December 31, 2004, of $754,000.~~million (Note 5). These amounts are included as a component of Other Income (Expense), net, in the accompanying Consolidated Statement of Operations. If the warrants are exercised prior to their termination, their carrying value will be transferred to stockholders' equity.


	*~~Common Stock~~*

~~On July 24, 2002,~~

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Common Stock

In November 2004, the Company entered into a definitive agreement for the private placement of the Notes that were convertible, at the holders' option, into common stock at a conversion price of $2.76 per share. The Notes bore interest at a rate of six percent per annum, and the Company was originally obligated to repay the principal amount of the initial $16.0 million of notes in 15 equal monthly installments of $1.1 million beginning in June 2005. In November 2005, Honu Holdings, LLC, a Delaware limited liability company controlled by Dr. Pehong Chen, the Company's Chief Executive Officer and largest stockholder, acquired all Notes then outstanding. Including interest, the Notes represented $15.5 million in debt obligations as of December 15, 2005. In order to relieve the Company from the liquidity challenges presented by the Notes, Dr. Chen agreed to cancel all amounts owed under the Notes in exchange for 34,500,000 shares of BroadVision common stock, at an effective price per share of $0.45, a 25% discount to the December 20, 2005 closing price of BroadVision common stock, and $180,000 in cash that represented the portion of the accrued interest on the Notes that was not paid in stock. That exchange was completed in March 2006 and was reported as an increase in additional paid-in capital of approximately $20.7 million.

In February 2006, the Company announced ~~that its Board~~a subscription rights offering to existing stockholders to sell a total of ~~Directors had approved a one-for-nine reverse split~~178 million shares, or 5.9 shares for each share of ~~its common stock. The reverse split was effective July 29, 2002. Each nine shares of outstanding~~BroadVision common stock held as of the ~~Company automatically converted into one~~record date of December 20, 2005, at effective price per share of $0.45. The primary purpose of the rights offering was to allow the holders of BroadVision common ~~stock.~~stock an opportunity to further invest in BroadVision in order to maintain their proportionate interest in BroadVision common stock, at the same price per share as the conversion price afforded to Dr. Chen in the Notes conversion. Dr. Chen waived any right to participate in the rights offering. The ~~accompanying consolidated financial statements~~rights offering will be made only by means of a prospectus, a preliminary copy of which was filed with the Securities and ~~related financial information contained herein have been retroactively restated~~Exchange Commission as part of a registration statement on February 3, 2006.

The Company's rights offering expired on November 28, 2006. Eligible participants exercised rights to ~~give effect~~purchase approximately 36.4 million shares, resulting in $15.8 million in net proceeds for ~~this stock split.~~the Company.

In September 2005, the Company received a notice from the Listing Qualifications Department of The ~~Nasdaq~~NASDAQ Stock Market stating that for a period of 30 consecutive business days, the bid price of the ~~Company’s~~Company's common stock closed below the minimum $1.00 per share requirement for continued inclusion under Marketplace Rule 4450(a)(5) (the ~~“Minimum~~"Minimum Bid Price ~~Rule”~~Rule"). The notice further stated that pursuant to Marketplace Rule 4450(e)(2), the Company would be provided 180 calendar days (or until March 6, 2006) to regain compliance. The Company did not regain compliance, and therefore voluntarily delisted its stock from the ~~Nasdaq~~NASDAQ National Market effective March 8, 2006. ~~See Note 12.~~


	*~~Employee Based Compensation~~*

The ~~Company applies APB Opinion 25 and related interpretations when accounting for its stock option and stock purchase plans. As of December 31, 2002, the Company had reserved 96 million shares of~~Company's common stock ~~for issuance~~currently trades on the Pink Sheets (www.pinksheets.com).

Stock Based Compensation

The fair value of stock options awarded under ~~its~~the Equity ~~Incentive Plan. Under this plan,~~Plan to employees and non-employee members of the Company's Board of Directors ~~may grant incentive or nonqualified stock options at prices not less than 100% or 85%, respectively, of the fair market value of the~~

~~BROADVISION, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements — (Continued)~~

~~Company’s common stock, as determined by the Board of Directors, at the date of grant. The vesting of individual options may vary but~~included in ~~each case at least 25% of~~ the total number of shares subject to options will become exercisable per year. These options generally expire ten years after the grant date. When an employee option is exercised prior to vesting, any unvested shares so purchased are subject to repurchaseshare-based compensation expense recorded by the Company atfor the ~~original purchase price of~~year ended December 31, 2006 and the ~~stock upon termination of employment. The Company’s right to repurchase lapses at~~total share-based compensation expense disclosed in Note 1 on a ~~minimum rate of 20% per year over five~~pro forma basis for the years ~~from the date the option was granted or, for new employees, the date of hire. Such right is exercisable only within 90 days following termination of employment. During the year~~ ended December 31, 2005 and 2004 ~~no shares were repurchased. There were 133 unvested shares that were repurchased by~~was estimated using the ~~Company during~~Black-Scholes option valuation model. Expected volatility is based on the historical volatility of the Company's common stock. The expected term for the year ended December 31, ~~2003 at a weighted-average price~~2006 was estimated using the simplified method described in SAB 107. The expected term for the years ended December 31, 2005 and 2004 was estimated using factors that included historical exercise patterns and expected terms used by comparable companies. The expected term represents the estimated period of ~~$7.81.~~time that stock options granted are expected to be outstanding. The risk-free interest rate is based on the U.S. Treasury yield.

Valuation Assumptions

As of December 31, 2006, 2005, and 2004, the fair value of stock based awards for the Equity Plan, the Prior Equity Plan, 2000 Non-Officer Plan and employee stock purchases made under the Purchase Plan was estimated using the Black-Scholes option pricing model. The following weighted-average assumptions were as follows:

2006 Equity Incentive Plan and 2000 Non-Officer Plan

	Years Ended December 31,
	2006			2005			2004
Expected life (in years)		6.0	years		7.4	years		3.5	years
Risk-free interest rate		4.79	%		4.12	%		3.61	%
Expected volatility		84	%		84	%		108	%
Expected dividend		-	%		-	%		-	%
Forfeiture rate		11.00	%		NA	%		NA	%

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Employee Stock Purchase Plan

	Years Ended December 31,
	2006			2005			2004
Expected volatility		107	%		84	%		108	%
Weighted average volatility		106	%		89	%		102	%
Risk-free interest rate		5.08	%		3.84	%		3.61	%
Expected life (in years)		1	year		1	year		1	year
Expected dividend yield		-	%		-	%		-	%

The weighted-average fair value of the purchase rights granted in the years ended December 31, 2006, 2005, and 2004, was $0.22, $0.82, and $4.04, respectively.

As of December 31, 2006, the Company had reserved ~~12,558,550~~9,735,941 common shares for future issuance upon the exercise of stock options and ~~warrants and upon the exercise of the conversion provision of the Notes.~~warrants.

~~In anticipation of the pending reporting requirements under SFAS 123(R), the Company’s Board of Directors on November 29, 2005 unanimously approved accelerating the vesting ofout-of-the-money, unvested stock options held by current employees, including executive officers, and Board members.~~

The acceleration applied only to those options with an exercise price of $1.13 per share or higher. The closing market price of the Company’s common stock on November 28, 2005, the last full trading day before the date of the acceleration, was $0.72 per share. The following table summarizes the options for which vesting was accelerated:

Aggregate Number
of Common Shares
Issuable Under Weighted Average
Accelerated Stock Exercise Price
Options per Share

Total Non-Employee Directors 122,181 $ 2.98
Total Named Executive Officers 391,886 2.87

Total Directors and Named Executive Officers 514,067 2.89
Total All Other Employees 610,707 2.97

Total 1,124,774 2.94

The decision to accelerate vesting of these options was made to avoid recognizing compensation cost in the Company’s statements of operations as required under the provisions of SFAS 123(R), which was effective as of January 1, 2006.

~~The Company’s~~Company's President and ~~Chief Executive Officer (“CEO”)~~CEO has options to purchase 1,704,444 shares of common stock at ana weighted average exercise price of $38.60 per share. The table below is a summary of shares granted through December 31, ~~2005:~~

Vesting
Options Options Period
Date Granted Granted Price Vested (Months)

6/23/1999 500,000 $ 60.00 500,000 60
5/25/2001 500,000 66.51 500,000 48
11/27/2001 4,444 35.01 4,444 24
2/19/2002 55,555 18.63 55,555 48
10/30/2002 644,445 2.16 644,445 48

Totals 1,704,444 1,704,444

~~BROADVISION, INC. AND SUBSIDIARIES~~2006:

~~Notes to Consolidated Financial Statements — (Continued)~~

								Vesting
		Options		Options				Period
Date Granted		Granted		Price		Vested		(Months)
	6/23/1999		500,000	$	60.00		500,000		60
	5/25/2001		500,000		66.51		500,000		48
	11/27/2001		4,444		35.01		4,444		24
	2/19/2002		55,555		18.63		55,555		48
	10/30/2002		644,445		2.16		644,445		48

	Totals		1,704,444				1,704,444

Activity in the ~~Company’s stock option plan~~Equity Plan is as follows:

Years Ended December 31,

2005 2004 2003

Weighted- Weighted- Weighted-
Average Average Average
Options Exercise Options Exercise Options Exercise
Fixed Options (000’s) Price (000’s) Price (000’s) Price

Outstanding at beginning of period 4,876 $ 21.93 4,128 $ 27.32 6,036 $ 29.03
Granted 422 2.18 1,264 3.35 190 4.77
Exercised (26 ) 1.50 (87 ) 3.07 (170 ) 2.31
Forfeited (1,507 ) 13.24 (429 ) 21.23 (1,928 ) 25.10

Outstanding at end of period 3,765 23.48 4,876 21.93 4,128 27.17

Options exercisable at end of period 3,748 $ 23.49 2,656 $ 44.90 2,060 $ 40.91
Weighted-average fair value of options granted during the period $ 0.70 $ 2.33 $ 3.47

	Years Ended December 31,
	2006					2005					2004
				Weighted-					Weighted-					Weighted-
				Average					Average					Average
	Options			Exercise		Options			Exercise		Options			Exercise
	(000's)			Price		(000's)			Price		(000's)			Price
Outstanding at beginning of period		3,765		$	23.48		4,876		$	21.93		4,128		$	27.32
Granted		3,880			0.59		422			2.18		1,264			3.35
Exercised		(46	)		0.57		(26	)		1.5		(87	)		3.07
Forfeited		(1,360	)		4.84		(1,507	)		13.24		(429	)		21.23
Outstanding at end of period		6,239			13.48		3,765			23.48		4,876			21.93
Options exercisable at end of period		3,910		$	21.15		3,748		$	23.49		2,656		$	44.9
Weighted-average fair value of options granted during the period				$	0.34				$	0.70				$	2.33
Aggregate Intrinsic Value:
Options exercised				$	9,855
Options exercisable				$	249,438

The Company granted 144,000 shares of fully vested restricted stock to the non-employee members of its Board of Directors in March 2006, and recorded a stock-based compensation expense of $82,060.

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The following table summarizes stock options outstanding under the ~~plan~~Equity Plan as of December 31, ~~2005:~~

Outstanding
Weighted-
Average
Remaining Weighted Exercisable Weighted
Options Contractual Exercise Options Exercise
Range of Exercise Prices (000’s) Life in Years Price (000’s) Price

$  0.43 - $  1.52 159 7.38 $ 1.42 142 $ 1.49
   2.10 -    2.94 1,363 7.85 2.37 1,363 2.37
   3.08 -    3.80 431 7.43 3.65 431 3.65
   4.25 -    8.50 396 6.39 6.25 396 6.25
  10.75 -   30.00 121 4.48 21.41 121 21.41
  30.50 -   39.63 176 5.53 35.01 176 35.01
  42.75 -   87.19 1,104 4.45 62.86 1,104 62.86
133.06 -  448.31 15 4.45 186.56 15 186.56

3,765 6.40 $ 23.48 3,748 $ 23.49

~~BROADVISION, INC. AND SUBSIDIARIES~~2006:

~~Notes to Consolidated Financial Statements — (Continued)~~

							Outstanding
							Weighted-
							Average
							Remaining		Weighted		Exercisable		Weighted
					Options		Contractual		Exercise		Options		Exercise
Range of Exercise Prices					(000's)		Life in Years		Price		(000's)		Price
$	0.43	-	$	1.52		3,657		9.14	$	0.62		1,328	$	0.67
	2.10	-		2.94		874		6.37		2.24		874		2.24
	3.08	-		3.80		86		6.44		3.34		86		3.34
	4.25	-		8.50		258		6.00		6.47		258		6.47
	10.75	-		30.00		122		3.42		21.75		122		21.75
	30.50	-		39.63		143		4.52		35.13		143		35.13
	42.75	-		87.19		1,090		3.45		62.86		1,090		62.86
	133.06	-		448.31		9		3.29		182.66		9		182.66
						6,239		7.36	$	13.48		3,910	$	21.15

The Company grants options outside of the ~~Company’s stock option plan.~~Company's Equity Plan (2000 Non-Officer Plan and non-plan grants). The terms of these options are generally identical to those granted under the ~~Company’s plan.~~Company's Equity Plan. A summary of options outside of the plan is presented below:

Years Ended December 31,

2005 2004 2003

Weighted- Weighted- Weighted-
Average Average Average
Options Exercise Options Exercise Options Exercise
Fixed Options (000’s) Price (000’s) Price (000’s) Price

Outstanding at beginning of period 1,151 $ 17.69 1,614 $ 15.96 2,471 $ 17.61
Granted 3 2.10 71 7.07 178 5.17
Exercised (28 ) 1.50 (210 ) 1.70 (198 ) 1.54
Forfeited (538 ) 19.48 (324 ) 17.10 (837 ) 21.59

Outstanding at end of period 588 16.70 1,151 17.69 1,614 15.96

Options exercisable at end of period 588 16.70 647 28.77 609 31.88

Weighted-average fair value of options granted during the period $ 0.42 $ 7.07 $ 3.77

	Years Ended December 31,
	2006					2005					2004
				Weighted-					Weighted-					Weighted-
				Average					Average					Average
	Options			Exercise		Options			Exercise		Options			Exercise
	(000's)			Price		(000's)			Price		(000's)			Price
Outstanding at beginning of period		588		$	16.7		1,151		$	17.69		1,614		$	15.96
Granted		432			0.53		3			2.10		71			7.07
Exercised		-			-		(28	)		1.50		(210	)		1.70
Forfeited		(255	)		11.12		(538	)		19.48		(324	)		17.1
Outstanding at end of period		765			9.70		588			16.70		1,151			17.69
Options exercisable at end of period		495		$	14.72		588		$	16.70		647		$	28.77
Weighted-average fair value of options granted during the period				$	0.30				$	0.42				$	7.07
Aggregate Intrinsic Value:
Options exercised				$	-
Options exercisable				$	14,175

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The following table summarizes stock options, granted outside the ~~plan,~~Equity Plan (2000 Non-Officer Plan and non-plan grants), outstanding as of December 31, ~~2005:~~

Outstanding
Weighted-
Average Weighted Weighted
Remaining Average Exercisable Average
Options Contractual Exercise Options Exercise
Range of Exercise Prices (000’s) Life in Years Price (000’s) Price

$ 1.50 - $  4.91 408 6.83 $ 1.53 408 $ 1.53
  5.00 -    7.92 103 6.17 6.32 103 6.32
35.01 -   64.44 37 5.30 41.64 37 41.64
91.94 - 381.94 40 4.00 176.40 40 176.40

588 6.43 $ 16.70 588 16.70

For the year ended December 31, 2004, the Company recorded compensation income of $19,000 as a result of a vesting modification of a grant to a third-party consultant common stock in the Company. During the year ended December 31, 2003, the Company recorded compensation expense of $342,000. This charge was recorded as a result of granting terminated employees continued vesting of their stock options for a period beyond their actual termination date. The compensation charge was calculated using the Black-Scholes model. $131,000 of the charge is recorded in general and administrative expense, $67,000 is recorded in sales and marketing and the remaining $144,000 is included in restructuring charge as it related to employees terminated under the Company’s restructuring plan.2006:

In December 2005, the Company announced its intention to effect a rights offering under which all stockholders of record at the close of business on December 20, 2005 will receive nontransferable rights to purchase approximately 5.9 additional common shares at $0.45 per share for each common share then held. Dr. Chen and his affiliates have waived any right to purchase shares in the rights offering. The rights offering will be made only by means of a prospectus, a preliminary copy of which was filed with the Securities and

~~BROADVISION, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements — (Continued)~~

~~Exchange Commission as part of a registration statement on February 3, 2006 (see~~

							Outstanding
							Weighted-
							Average
							Remaining		Weighted		Exercisable		Weighted
					Options		Contractual		Exercise		Options		Exercise
Range of Exercise Prices					(000's)		Life in Years		Price		(000's)		Price
$	0.43	-	$	1.52		649		7.63	$	0.99		379	$	1.33
	2.10	-		2.94		3		8.21		2.10		3		2.10
	3.08	-		3.80		1		6.13		3.92		1		3.92
	4.25	-		8.50		58		6.14		6.67		58		6.67
	10.75	-		30.00		-		-		-		-		-
	30.50	-		39.63		19		4.91		35.01		19		35.01
	42.75	-		87.19		9		2.50		61.18		9		61.18
	133.06	-		448.31		26		3.09		198.89		26		198.89
						765		7.23	$	9.70		495	$	14.72

Note ~~12). It is anticipated that the rights offering will be made in the second quarter of fiscal 2006.~~

~~Note 10 — Employee~~10---Employee Benefit Plan

The Company provides for a defined contribution employee retirement plan in accordance with section 401(k) of the Internal Revenue Code. Eligible employees are entitled to contribute up to 50% of their annual compensation, subject to certain limitations. The Plan allows for discretionary contributions by the Company. The Company made no contributions during the three years ended December 31, ~~2005.~~2006.

Note ~~11 — Geographic,~~11---Geographic, Segment and Significant Customer Information

The Company operates in one segment, electronic business commerce solutions. The ~~Company’s~~Company's reportable segment includes the ~~Company’s~~Company's facilities in North and South America (Americas), Europe and Asia Pacific and the Middle East ~~(Asia/~~ (/Pacific). The ~~Company’s~~Company's chief operating decision maker is considered to be the ~~Company’s~~ CEO. The CEO reviews financial information presented on a consolidated basis accompanied by disaggregated information about revenues by geographic region and by product for purposes of making operating decisions and assessing financial performance. The disaggregated revenue information reviewed by the CEO is as follows (in thousands):

Years Ended December 31,

2005 2004 2003

Software licenses $ 14,720 $ 26,883 $ 30,230
Services 19,095 19,942 22,012
Maintenance 26,306 31,179 35,839

Total revenues $ 60,121 $ 78,004 $ 88,081

	Years Ended December 31,
	2006		2005		2004
Software licenses	$	15,215	$	14,720	$	26,883
Services		12,099		19,095		19,942
Maintenance		24,670		26,306		31,179
Total revenues	$	51,984	$	60,121	$	78,004

The Company sells its products and provides services worldwide through a direct sales force and through a channel of independent distributors, value-added resellers ~~(“VARs”~~("VARs") and ~~application service providers (“ASPs”).~~ASPs. In addition, the sales of the ~~Company’s~~Company's products are promoted through independent professional consulting organizations known as systems integrators. The Company provides services worldwide through its BroadVision Global Services Organization and indirectly through distributors, VARs, ASPs, and systems integrators. The Company currently operates in three primary geographical territories, Americas, Europe and Asia/Pacific.

Disaggregated financial information regarding the ~~Company’s~~Company's products and services and geographic revenues is as follows (in thousands):

Years Ended December 31,

2005 2004 2003

Revenues:
Americas $ 34,328 $ 37,278 $ 45,135
Europe 20,228 33,321 35,458
Asia/ Pacific 5,565 7,405 7,488

Total Company $ 60,121 $ 78,004 $ 88,081

		Years Ended December 31,
		2006		2005		2004
Revenues:
	Americas	$	30,976	$	34,328	$	37,278
	Europe		14,530		20,228		33,321
	Asia/ Pacific		6,479		5,565		7,405
	Total Company	$	51,984	$	60,121	$	78,004

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During the years ended December 31, 2006, 2005 ~~2004~~ and ~~2003,~~2004, no customer accounted for 10% or more of the ~~Company’s~~Company's revenues.

~~BROADVISION, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements — (Continued)~~

The following represents long-lived assets by geographic region (in thousands):

December 31,

2005 2004

Long-Lived Assets:
Americas $ 29,039 $ 60,312
Europe 328 531
Asia/ Pacific 445 527

Total Company $ 29,812 $ 61,370

December 31,

2006

2005

Long-Lived Assets:
Americas $ 26,025 $ 29,039
Europe 104 328
Asia/ Pacific 81 445
Total Company $ 26,210 $ 29,812

Note ~~12 — Subsequent Events~~12---Related Party Transactions

~~As discussed in Note 5, on March 8,~~

In 2006, ~~pursuant to an agreement entered into on December 20, 2005,~~ the Company ~~completed~~executed a consulting agreement with a third party in which the ~~exchange of approximately $15.5 million of principal~~CEO is a passive owner and ~~interest on outstanding secured~~ convertible ~~notes for common shares of~~note holder. The total contract value is $365,000. For the ~~Company. In connection with this transaction,~~year ended December 31, 2006, the Company issued 34,500,000 shares of its common stock to a company owned by Dr. Pehong Chen, the Company’s Chairman, Chief Executive Officer, President and largest stockholder, at a price of $0.45 per share in exchangerecognized $365,000 as revenue. The Company received payment for the cancellation of the notes, all of which were held by Dr. Chen’s company, and the accrued interest on the notes. At the same time, BroadVision paid Dr. Chen’s company approximately $180,000 in cash, representing the portion of the accrued interest on the notes that was not paid in stock. The common share issuance, representing approximately 50% of the post-conversion shares outstanding, increased Dr. Chen’s beneficial ownership interest to 58.7% of the total shares outstanding. The closing price of the Company’s common stock on the Nasdaq National Market on March 8, 2006, was $0.44 per share.

~~As discussed in Note 10, the Company filed an~~ ~~S-1~~ Registration Statement on February 3, 2006, related to a pending rights offering. Under the terms of the offering, all stockholders of record at the close of business on December 20, 2005 will receive nontransferable rights to purchase approximately 5.9 additional common shares at $0.45 per share for each common share then held. Dr. Chen and his affiliates have waived any right to purchase sharesentire contract in the ~~rights offering. The rights offering will be made only by means of a prospectus, a preliminary copy of which was filed with the Securities and Exchange Commission as part of theS-1~~ ~~registration statement. It is anticipated that the rights offering will be made in the second~~third quarter of ~~fiscal~~ 2006. The Company incurred $99,000 in costs and expenses relating to this contract.

~~As discussed in~~

Note 9, in September 2005, the Company received a notice from the Listing Qualifications Department of The Nasdaq Stock Market stating that it was not in compliance with the Minimum Bid Price Rule, and that it would be provided 180 calendar days (or until March 6, 2006) to regain compliance. Because of this non-compliance and in order to complete the share issuance for the stock for debt exchange without violating applicable listing standards, the Company delivered to Nasdaq a notification of voluntarily delisting of its common stock from the Nasdaq National Market, and its common stock was delisted from the Nasdaq National Market effective March 8, 2006. Accordingly, the last day of trading on the Nasdaq National Market was March 7, 2006. Quotations for BroadVision’s common stock are currently available through the “Pink Sheets” under the trading symbol “BVSN”, and the Company anticipates that such quotations will continue to be available.

In connection with the Note cancellation and stock issuance discussed above, the warrants issued to convertible debenture investors in November 2004 (see Note 9), which were originally exercisable to purchase 1,739,130 shares at an exercise price of $3.58 per share, were adjusted such that, following such share issuance, the warrants became exercisable for 3,082,219 common shares at an exercise price of $2.02 per share. The exchange was pursuant to the terms of the warrants, which included a provision for pricing based upon dilutive share issuances. In connection with this exchange, the Company will record a charge of $282,000 in the quarter ended March 31, 2006, in its consolidated financial statements. The remaining terms of the warrants were unchanged.

~~BROADVISION, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements — (Continued)~~

~~Note 13 — Quarterly~~13---Quarterly Results of Operations (Unaudited)

The following tables set forth certain unaudited condensed consolidated statement of operations data for the eight quarters ended December 31, ~~2005.~~2006, as well as that data expressed as a percentage of total revenues for the periods indicated.

The ~~unaudited quarterly information should be read in conjunction with the Consolidated Financial Statements and Notes thereto included. We believe~~Company believes that~~period-to-period~~ period-to-period comparisons of ~~our~~its financial results are not necessarily meaningful and should not be relied upon as an indication of future performance. ~~In addition, data for the quarters ended December 31, 2004, March 31, 2005, June 30, 2005 and September 30, 2005 differ from amounts previously reported on the Company’s Annual Report on Form~~ ~~10-K~~ ~~for the year ended December 31, 2004 and the Company’s Quarterly Reports on Form~~ ~~10-Q~~ ~~for the first three quarters of~~

~~BROADVISION, INC. AND SUBSIDIARIES~~

~~Notes to Consolidated Financial Statements — (Continued)~~

~~the year ended December 31, 2005. For a reconciliation~~

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Table of ~~the data set forth below to amounts previously reported, see Note 1 of Notes to Consolidated Financial Statements.~~Contents

Three Months Ended

Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, Sep 30, Jun 30, Mar 31,
2005 2005 2005 2005 2004 2004 2004 2004

(As restated) (As restated) (As restated) (As restated)

(In thousands)
(Unaudited)
Statement of Operations Data:

Revenues:
Software licenses $ 3,780 $ 3,134 $ 3,391 $ 4,416 $ 7,292 $ 4,654 $ 7,097 $ 7,840
Services 10,383 10,943 12,123 11,951 12,471 12,570 13,031 13,049

Total revenues 14,163 14,077 15,514 16,367 19,763 17,224 20,128 20,889
Cost of revenues:
Cost of software licenses 99 106 (186 ) (57 ) 156 256 313 578
Cost of services 4,696 5,641 5,614 5,980 6,008 6,391 6,302 6,277

Total cost of revenues 4,795 5,747 5,428 5,923 6,164 6,647 6,615 6,855

Gross profit 9,368 8,330 10,086 10,444 13,599 10,577 13,513 14,034
Operating expenses:
Research and development 2,494 3,095 3,955 4,287 4,027 4,600 4,509 4,888
Sales and marketing 2,389 2,948 5,060 5,811 6,974 6,020 7,480 6,866
General and administrative 1,953 2,162 2,829 2,535 2,386 2,335 2,400 2,417
Goodwill and intangible write-offs 18,170 13,198 — — — — — —
Restructuring (reversals) charges (312 ) 245 309 (704 ) 660 (25,454 ) 679 570
Business combination charges 1,840 977 — — — — — —

Total operating expenses (credits) 26,534 22,625 12,153 11,929 14,047 (12,499 ) 15,068 14,741

Operating income (loss) (17,166 ) (14,295 ) (2,067 ) (1,485 ) (448 ) 23,076 (1,555 ) (707 )
Other income (expense), net (10,714 ) (1,757 ) (959 ) 6,866 (2,457 ) 315 57 (24 )
Benefit (provision) for income taxes 109 540 (70 ) 2,032 450 (11 ) 6 (136 )

Net (loss) income $ (27,771 ) $ (15,512 ) $ (3,096 ) $ 7,413 $ (2,455 ) $ 23,380 $ (1,492 ) $ (867 )

Basic net (loss) income per share $ (0.81 ) $ (0.45 ) $ (0.09 ) $ 0.22 $ (0.07 ) $ 0.70 $ (0.04 ) $ (0.03 )

Dilute net (loss) income per share $ (0.81 ) $ (0.45 ) $ (0.09 ) $ 0.19 $ (0.07 ) $ 0.69 $ (0.04 ) $ (0.03 )

Shares used in computing basic net (loss) income per share 34,430 34,320 34,181 33,971 33,768 33,599 33,476 33,300

Shares used in computing diluted net (loss) income per share 34,430 34,320 34,181 39,968 33,768 34,052 33,476 33,300

~~Our~~

	Three Months Ended
	Dec 31,			Sep 30,			Jun 30,			Mar 31,			Dec 31,			Sep 30,			Jun 30,			Mar 31,
	2006			2006			2006			2006			2005			2005			2005			2005
	(In thousands)
	(Unaudited)
Statement of Operations Data:
Revenues:
Software licenses	$	3,956		$	4,750		$	3,627		$	2,882		$	3,780		$	3,134		$	3,391		$	4,416
Services		9,090			8,835			9,102			9,742			10,383			10,943			12,123			11,951
Total revenues		13,046			13,585			12,729			12,624			14,163			14,077			15,514			16,367
Cost of revenues:
Cost of (credit for) software licenses		32			22			142			62			99			106			(186	)		(57	)
Cost of services		2,173			2,729			3,496			4,058			4,696			5,641			5,614			5,980
Total cost of revenues		2,205			2,751			3,638			4,120			4,795			5,747			5,428			5,923

Gross profit		10,841			10,834			9,091			8,504			9,368			8,330			10,086			10,444
Operating expenses:
Research and development		2,708			2,766			2,405			2,631			2,494			3,095			3,955			4,287
Sales and marketing		2,529			1,761			1,982			2,381			2,389			2,948			5,060			5,811
General and administrative		613			2,429			3,239			1,738			1,953			2,162			2,829			2,535
Goodwill impairment		-			-			-			-			18,170			13,198			-			-
Restructuring (credits), charges		(1,966	)		(1,878	)		(15	)		490			(312	)		245			309			(704	)
Business combination charges		-			-			-			-			1,840			977			-			-
Total operating expenses		3,884			5,078			7,611			7,240			26,534			22,625			12,153			11,929

Operating income (loss)		6,957			5,756			1,480			1,264			(17,166	)		(14,295	)		(2,067	)		(1,485	)
Other income (expense), net		248			(163	)		335			(227	)		(10,714	)		(1,757	)		(959	)		6,866
Income taxes (expense) benefit		(185	)		(228	)		(65	)		(156	)		109			540			(70	)		2,032

Net income (loss)	$	7,020		$	5,365		$	1,750		$	881		$	(27,771	)	$	(15,512	)	$	(3,096	)	$	7,413
Basic net income (loss) per share	$	0.09		$	0.08		$	0.03		$	0.02		$	(0.81	)	$	(0.45	)	$	(0.09	)	$	0.22
Diluted net income (loss) per share	$	0.09		$	0.08		$	0.03		$	0.02		$	(0.81	)	$	(0.45	)	$	(0.09	)	$	0.19
Shares used in computing basic net income (loss) per share		80,878			69,489			69,151			42,958			34,430			34,320			34,181			33,971
Shares used in computing diluted net income (loss) per share		80,878			69,489			69,151			43,068			34,430			34,320			34,181			39,968

BroadVision's 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~~the Company's control. It is likely that ~~our~~the Company's operating results in one or more future quarters may be below the expectations of securities analysts and investors. In that event, the trading price of ~~our~~the Company's common stock almost certainly would decline.


~~ITEM 9.~~	*~~CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE~~*

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

On November 29, 2005, BDO Seidman, LLP ~~(“BDO”~~("BDO") delivered to us a letter dated November 28, 2005 stating that it had resigned as our independent registered public accounting firm. On January 20, 2006, we engaged Stonefield Josephson, Inc. ("Stonefield Josephson") as our independent registered public accounting firm.

On October 13, 2006, the Audit Committee of our Board of Directors approved the replacement of Stonefield Josephson as our independent registered public accounting firm, and we advised Stonefield Josephson of its dismissal on October 14, 2006. The report of Stonefield Josephson on our consolidated financial statements for the year ended December 31, 2005 did not contain any adverse opinion or a disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope or accounting principles.


~~ITEM 9A.~~	*~~CONTROLS AND PROCEDURES~~*


	*~~Disclosure Controls and Procedures~~*

During the year ended December 31, 2005 and through October 14, 2006, there were no disagreements with Stonefield Josephson on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Stonefield Josephson, would have caused it to make reference thereto in its report on the financial statements for such periods, except as follows. During the course of the preparation of our financial statements for the year ended December 31, 2005, there were two disagreements between Stonefield Josephson and our management, both of which were resolved to Stonefield Josephson's satisfaction prior to the issuance of the financial statements. These two matters concerned the appropriate accounting for (i) the embedded derivatives related to the convertible debt arrangements we entered into in November 2004 and (ii) the transactions we effected pursuant to the Debt Conversion Agreement we entered into in December 2005. The Audit Committee of our Board of Directors subsequently discussed these matters with Stonefield Josephson and our management and was satisfied with the resolution of the matters.

On October 16, 2006, we engaged the independent registered public accounting firm Odenberg, Ullakko, Muranishi & Co. LLP ("OUM") as our new independent accountants. Prior to the engagement of OUM, including the two most recent fiscal years through October 16, 2006, neither we nor anyone acting on our behalf consulted with OUM regarding (i) either the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements, and neither a written report was provided to us or oral advice was provided that OUM concluded was an important factor considered by us in reaching a decision as to the accounting, auditing or financial reporting issue or (ii) any matter that was either the subject of a disagreement, as that term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K, or a reportable event, as that term is defined in Item 304(a)(1)(v) of Regulation S-K. The Audit Committee of our Board of Directors approved the engagement of OUM as our independent registered public accounting firm on October 13, 2006.

ITEM 9A. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to our management, including the individual who serves as our Chief Executive Officer and interim Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures were designed to provide reasonable assurance that the controls and procedures would meet their objectives.

As required by Rules 15(e) and 15d-15(e) under the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including the individual who serves as both our Chief Executive Officer and our interim Chief Financial Officer, ~~are responsible for establishing~~of the effectiveness of the design and ~~maintaining “disclosure controls and procedures” (as defined in the rules promulgated under the Securities Exchange Act of 1934, as amended) for our company. Based on their evaluation~~operation of our disclosure controls and procedures ~~(as defined in~~as of the ~~rules promulgated under~~end of the ~~Securities Exchange Act of 1934),~~period covered by this report. Based on the foregoing, our Chief Executive Officer and ~~our~~interim Chief Financial Officer concluded that our disclosure controls and procedures were not effective ~~as of December 31, 2005,~~at the ~~end of the period covered by this report.~~reasonable assurance level. This conclusion was based on the identification of one material weakness in internal control over financial reporting as of December 31, ~~2005, as described in the following subsection.~~


	*~~Management’s Report on Internal Control Over Financial Reporting~~*

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system was designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. An internal control material weakness is a significant deficiency, or aggregation of deficiencies, that does not reduce to a relatively low level the risk that material misstatements in financial statements will be prevented or detected on a timely basis by employees in the normal course of their work. An internal control significant deficiency, or aggregation of deficiencies, is one that could result in a misstatement of the financial statements that is more than inconsequential.2006.

~~Our management assessed the effectiveness of our internal control over financial reporting~~

We previously reported that as of December 31, 2005, and this assessment identified one material weakness. Further, we restated our operating results for the year ended December 31, 2004, due to the subsequent determination that an embedded derivative existed in our convertible notes that should have been separately accounted for as a liability.

As of December 31, 2005, we did not have a sufficient number of experienced personnel in our accounting and finance organization to facilitate an efficient financial statement close process and permit the preparation of our financial statements in accordance with ~~generally accepted accounting principles.~~Generally Accepted Accounting Principles (GAAP). For example, there were a significant number of adjustments to our financial statements during the course of the 2005 audit, at least one of which was individually material and required us to ~~make the restatement described above.~~restate several prior quarters. Our personnel also lacked certain required skills and competencies to oversee the accounting operations and perform certain important control functions, such as the review, periodic inspection and investigation of transactions of our foreign locations. We consider this to be a deficiency that iswas also a material weakness in the operation of entity-level controls.

In 2006 we hired several new full-time employees, and we believe that as of December 31, 2006 we have retained a sufficient number of experienced personnel in our accounting and finance organization to enable us to address the material weakness that existed as of December 31, 2005. These new hires have augmented the capabilities of our organization, but in many cases they replaced employees or part-time contactors who had left the Company for various reasons. This turnover has caused a reduction in our institutional knowledge regarding historical events. While we believe that the recent additions to our accounting and finance organization continue to gain familiarity with the complex issues relating mainly to our historical operations, as of December 31, 2006 the full organization had not yet been in place for a sufficient amount of time to allow us to conclude that no material weakness existed as of December 31, 2006. If we are not successful in ~~remedying~~retaining experienced personnel in our accounting and finance organization in order to sufficiently address the ~~deficiencies that caused this material weakness,~~reduction in institutional knowledge referenced above, there is more than a remote likelihood that our quarterly or annual financial statements could be materially misstated, which could require a restatement.

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Maintaining sufficient expertise and historical institutional knowledge in our ~~future staffing~~accounting and finance organization is dependent upon ~~filling open positions and~~ retaining existing employees and filling any open positions with experienced personnel in a timely fashion. The market for skilled accounting and finance personnel is competitive and we may have continued difficulty in retaining our staff because (1) in the region in which we compete there are ~~currently unable~~many established companies that can offer more lucrative compensation packages and (2) some professionals are reluctant to ~~determine when this material weakness~~deal with our complex accounting issues relating to our historical operations. One Senior Accountant who joined the Company in the third quarter of 2006 left in January 2007. Our inability to staff the department with competent personnel with sufficient training will ~~be fully remediated. In June 2006 William Meyer resigned as~~affect our Chief Financial Officer, a position Mr. Meyer had held since April 2003. Mr. Meyer’s departure compounds our staffing needs and will increase the time it will take to fully remediate this material weakness.

~~In making its assessment of~~ internal ~~control~~controls over financial reporting ~~management used~~to the ~~criteria issued by~~extent that we may not be able to prevent or detect material misstatements.

Limitations on the ~~Committee~~Effectiveness of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Because of the material weakness described in the preceding paragraphs, our management believes that, as of December 31, 2005, our internal control over financial reporting was not effective based on those criteria.Controls


	*~~Changes in Internal Control Over Financial Reporting~~*

There were no changes in our internal control over financial reporting during our fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


	*~~Limitations on the Effectiveness of Controls~~*

Our management, including our Chief Executive Officer and interim Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their ~~objectives.~~objectives, and we are in the process of remediating the material weakness that existed at December 31, 2006.

ITEM 9B. OTHER INFORMATION


~~ITEM 9B.~~	*~~OTHER INFORMATION~~*

Not applicable.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERANCE


~~ITEM 10.~~	*~~DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT~~*

Directors

The names of the current ~~executive officers and~~ members of our board of directors and a brief biography for each of them are set forth ~~below:~~below. Each director serves on our board for a one-year term.

Name	Age		Principal Occupation/Position Held with the Company
Pehong Chen		49	Chairman , Chief Executive Officer and Chief Financial Officer
James D. Dixon		63	Formerly an executive with bankofamerica.com
Robert Lee		58	Formerly an executive with Pacific Bell
Francois Stieger		57	Chief Executive Officer, Intentional Software International Sarl.

~~Name~~	~~Age~~		~~Principal Occupation/Position Held with the Company~~

~~Pehong Chen~~		48	~~Chairman of the Board of Directors, President, Chief Executive Officer and Chief Financial Officer~~
~~David L. Anderson~~		62	~~Managing Director, Sutter Hill Ventures~~
~~James D. Dixon~~		62	~~Formerly an executive with bankofamerica.com~~
~~Robert Lee~~		57	~~Formerly an executive with Pacific Bell~~
~~Roderick C. McGeary~~		55	~~Formerly Chief Executive Officer, Brience, Inc.~~
~~T. Michael Nevens~~		56	~~Former Managing Partner, McKinsey & Company~~

Pehong Chenhas served as Chairman of the Board, Chief Executive Officer and President of the Company since its incorporation in May 1993. From 1992 to 1993, Dr. Chen served as the Vice President of Multimedia Technology at Sybase, Inc., a supplier of client-server software products. Dr. Chen founded and, from 1989 to 1992, served as President of, Gain Technology, Inc., a provider of multimedia applications development systems, which was acquired by Sybase, Inc. Dr. Chen currently serves on the board of directors of ~~SINA.com and Tumbleweed Communications Corp.~~SINA.com. He received a B.S. in Computer Science from National Taiwan University, an M.S. in Computer Science from Indiana University and a Ph.D. in Computer Science from the University of California at Berkeley.

~~David L. Anderson~~has served as a director of the Company since November 1993. Since 1974, Mr. Anderson has been a Managing Director of the General Partner of Sutter Hill Ventures, a venture capital investment firm. Mr. Anderson also serves on the board of directors of Dionex Corporation and Molecular Devices Corporation, and on the board of directors of several privately held companies. He holds a B.S. in Electrical Engineering from the Massachusetts Institute of Technology and an M.B.A. from Harvard Graduate School of Business Administration.

James D. Dixonhas served as a director of the Company since January 2003. Prior to his retirement from Bank of America in January 2002, Mr. Dixon served as an executive with bankofamerica.com. From September 1998 to February 2000, Mr. Dixon was Group Executive and Chief Information Officer of Bank of America Technology & operations. From 1990 to 1998, before the merger of NationsBank Corporation and BankAmerica Corporation, Mr. Dixon was President of NationsBank Services, Inc. From 1986 to 1990, he also served as Chief Financial Officer for Citizens and Southern Bank/Sovran, a predecessor company to NationsBank. Mr. Dixon holds a B.A. from Florida State University, a J.D. from University of Florida School of Law, and he is a graduate of the executive M.B.A. program at Stanford University. Mr. Dixon also serves on the board of directors of CheckFree Corporation, a provider of financial electronic commerce services and products, ~~724 Solutions Inc., a provider of mobile network technology~~ and Rare Hospitality International, Inc., a restaurant operator and franchisor.

Robert Leehas served as a director of the Company since August 2004. Mr. Lee was a corporate Executive Vice President and President of Business Communications Services at Pacific Bell, where he established two new subsidiaries: Pacific Bell Internet Services and Pacific Bell Network Integration. During his 26 year career at Pacific Bell, Mr. Lee managed groups in operations, sales and marketing. Mr. Lee served as Executive Vice President of Marketing and Sales from 1987 to 1992. Mr. Lee serves on the board of directors of ~~Interland,~~web.com (formerly Interland), which provides web hosting for the small and medium business market, ~~Netopia, which manufactures and sells DSL internet routers for consumers and small businesses, and~~ Blue Shield of California, which provides health insurance to members in ~~California.~~California, and Corinthian Colleges, which operates as a post-secondary education company in North America. Mr. Lee holds a B.S. in Electrical Engineering from University of Southern California and an M.B.A. from University of California at Berkeley.

~~Roderick C. McGeary~~

Francois Stiegerhas served as a director of the Company since ~~April 2004.~~August 2006. Mr. ~~McGeary served~~Stieger leads Intentional Software's international group as ~~Chief Executive Officer~~CEO of ~~Brience, Inc. from July 2000~~Intentional Software International Sarl. He is also the President and board member of Security Tech SA. Immediately prior to ~~July 2002. From April 2000 to June 2000, he served as a Managing Director~~joining Intentional Software International, Mr. Stieger was senior vice president and general manager for Europe, Middle East and Africa for Verisign, the leading provider of ~~KPMG Consulting LLC, a wholly owned subsidiary of BearingPoint, Inc. (formerly KPMG Consulting, Inc.). From August 1999 to April 2000, he served as Co-President~~critical infrastructure security services for the Internet and~~Co-Chief~~ Executive Officer of BearingPoint, Inc. From January 1997 to August 1999, he was employed by KPMG LLP as its Co-Vice Chairman of Consulting. Prior to 1997, he served in several capacities with KPMG LLP, including audit partner for technology clients. Mr. McGeary also serves on the board of directors of BearingPoint, Inc. and Cisco Systems, Inc. Mr. McGeary is a Certified Public Accountant and holds a B.S. in Accounting from Lehigh University.

~~T. Michael Nevens~~~~has served as a director of the Company~~ telecommunication markets. He held this post since April ~~2003. Prior to his retirement from McKinsey & Company, a management consulting firm, in December 2002, Mr. Nevens served as a director~~2003, and was ~~managing partner of McKinsey & Company’s Global High Tech Practice and founder and Chairman of its IT Vendor Relations Committee.~~responsible for Verisign's business throughout that region. Prior to joining ~~McKinsey~~Verisign, Mr. Stieger was a partner of Amadeus Capital, a leading European venture capital firm based in ~~1980,~~London. In 1996, Mr. ~~Nevens spent five years~~Stieger established BroadVision's European operations. Under his management through mid 2001, these operations grew to more than 400 employees and US$104 million annual revenues. He was also personally involved in ~~several staff positions with the U.S. House of Representatives~~BroadVision's very successful initial public offering on NASDAQ in June 1996, and ~~various political organizations. He also currently serves~~its public offering on the ~~board~~Neuer Markt in Frankfurt in November 1999. On a larger scale from 1987-1992, as vice president Mr. Stieger established and managed operations of ~~directors~~Oracle Corporation for southern and central Europe. Mr. Stieger is a graduate of ~~Borland Software Corporation. Mr. Nevens holds a B.S. in~~

~~100~~

~~Physics from~~ the University of ~~Notre Dame~~Strasbourg's Institute of Technology.

Audit Committee Financial Expert

Our Audit Committee is presently composed of three non-employee directors: Messrs. Dixon (Chairman), Lee and Stieger. Our Board has determined that all members of the Audit Committee are independent (as independence is currently defined in Rule 4350(d)(2)(A) of the NASDAQ listing standards). Our Board of Directors has determined that Mr. Dixon qualifies as an ~~M.S.~~"audit committee financial expert," as defined in ~~Industrial Administration from the Krannert School~~applicable SEC rules. Our Board made a qualitative assessment of ~~Purdue University.~~Mr. Dixon's level of knowledge and experience based on a number of factors, including his formal education and experience as a chief financial officer for Citizens and Southern Bank/Sovran, a predecessor company to NationsBank.


	~~Code of Business Ethics and Conduct~~

Code of Business Ethics and Conduct

We have adopted a Code of Business Ethics and Conduct (the ~~“Code~~"Code of ~~Conduct”~~Conduct") that applies to all of its directors, officers and employees. The text of the Code of Conduct is posted on our website at www.broadvision.com. If we make any substantive amendment to the Code of Conduct or ~~grants~~grant any waiver from a provision of the Code of Conduct to any executive officer or director, we will promptly disclose the nature of the amendment or waiver on our website.


	~~Audit Committee Financial Expert~~

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Executive Officers

The information set forth in Item 1 of this Form 10-K under the Caption "Executive Officers" is incorporated herein by reference.

Section 16(A) Beneficial Ownership Reporting Compliance

Our Audit Committee is presently composed of three non-employee directors: Messrs. Dixon (Chairman), Nevens and McGeary. Our Board has determined that all members of the Audit Committee are independent (as independence is currently defined in Rule 4350(d)(2)(A) of the Nasdaq listing standards). Our Board has determined that Mr. Dixon qualifies as an “audit committee financial expert,” as defined in applicable Securities and Exchange Commission (“SEC”) rules. Our Board made a qualitative assessment of Mr. Dixon’s level of knowledge and experience based on a number of factors, including his formal education and experience as a chief financial officer for Citizens and Southern Bank/ Sovran, a predecessor company to NationsBank.


	*~~Section 16(A) Beneficial Ownership Reporting Compliance~~*

Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than ten percent of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities. Directors, officers and greater than ten percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.

To our knowledge, based solely on a review of the copies of such reports furnished to us and written representations that no other reports were required, during the fiscal year ended December 31, ~~2005~~2006 and, all Section 16(a) filing requirements applicable to its officers, directors and greater than ten percent beneficial owners were complied ~~with.~~with, other than the late filing of one Form 4 for each of Messrs. Dixon, Lee and Nevens and a Form 3 and a Form 4 for Mr. Stieger.

~~101~~


~~ITEM 11.~~	*~~EXECUTIVE COMPENSATION~~*

ITEM 11. EXECUTIVE COMPENSATION


	*~~Summary of Compensation~~*

Compensation Discussion And Analysis

Philosophy

Our compensation policies are designed to attract and retain key employees, motivating them to achieve and rewarding them for superior performance. In allocating total compensation between cash compensation and equity compensation, the committee focuses on creating incentives geared to both short and longer-term performance with the goal of increasing stockholder value over the long term. Executive compensation programs impact all employees by setting general levels of compensation and helping to create an environment of goals, rewards and expectations. Because we believe the performance of every employee is important to our success, we are mindful of the effect of executive compensation and incentive programs on all of our employees.

We believe that the compensation of our officers should reflect their success as individual and as a management team, in attaining key operating objectives, such as growth of revenues, growth of operating earnings and earnings per share and growth or maintenance of market share and long-term competitive advantage, and ultimately, in attaining an increased market price for our stock. We believe that the performance of the officers in managing our company, considered in light of general economic and specific company, industry and competitive conditions, should be the basis for determining their overall compensation. We also believe that their compensation should not be based on the short-term performance of our stock, whether favorable or unfavorable, but rather that the price of our stock will, in the long-term, reflect our operating performance, and ultimately, the management of the company by our executives. We seek to have the long-term performance of our stock reflected in executive compensation through our stock option and other equity incentive programs. In setting our officers' compensation, we intend to be competitive with other similarly situated companies in our industry.

Overview of Compensation and Process

Elements of compensation for our executives include: salary, incentive bonus, stock option awards, health, disability and life insurance, and perquisites. Base salaries are set for our officers annually by our compensation committee. At the same time, our compensation committee also approves and adopts an incentive bonus plan for the new year and typically grants stock option awards to our officers and certain other eligible employees.

As part of its annual review of officer compensation, our compensation committee takes into account each officer's total compensation package from prior years, as well as information contained in market surveys. Typically, the chief executive officer makes compensation recommendations to the compensation committee with respect to the executive officers who report to him. Such executive officers are not present at the time of these deliberations. The chairman of the compensation committee then makes compensation recommendations to the compensation committee with respect to the chief executive officer, who is absent from that meeting. The compensation committee may accept or adjust such recommendations and also makes the sole determination of the chief executive officer's compensation.

We choose to pay each element of compensation in order to attract and retain the necessary executive talent, reward annual performance and provide incentive for their balanced focus on long-term strategic goals as well as short-term performance. The amount of each element of compensation is determined by or under the direction of our compensation committee. The following ~~table shows~~are factors that the compensation committee may take into account in determining the various components of our officers' total compensation package:

l	Performance against corporate and individual objectives for the previous year;

l	Difficulty of achieving desired results in the coming year;

l	Value of their unique skills and capabilities to support the long-term performance of the company;

l	Performance of their management responsibilities;

l	Responsibility and authority of each position relative to other positions within the company; and

l	Contributions as a member of the senior management team.

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These elements fit into our overall compensation objectives by helping to secure the future potential of our operations, facilitating our entry into new markets, providing proper compliance and regulatory guidance, and helping to create a cohesive team.

Our policy for allocating between long-term and currently paid compensation is to ensure adequate base compensation to attract and retain the right personnel, while providing incentives to maximize long-term value for our company and our stockholders. Likewise, we provide cash compensation in the form of base salary to meet competitive salary norms and reward good performance on an annual basis and in the form of profit-sharing compensation to reward superior performance against specific short-term goals. We provide non-cash compensation to reward superior performance against specific objectives and long-term strategic goals. As our Company continues to focus on executing its turnaround plan in 2007 and introduces new products and services to the marketplace, we want our executives that are leading these initiatives to have strong incentives to see that these initiatives succeed. At the same time, we want our executives to be appropriately rewarded if these initiatives do succeed. As a result, we believe that equity compensation will be a significant component of total compensation for our key employees.

Compensation Consultant

In 2006 we utilized the services of a compensation consulting company during the year. We had a contract with the Radford Group of AON Consulting Inc. for the ~~fiscal years December 31, 2003, 2004~~first six months of 2006. The Radford Group provided us with their Radford Benchmark Survey, the Radford Executive Survey, the Radford Sales Survey and ~~2005,~~the Radford International Survey. All these surveys were used to ascertain the reasonableness of amounts and types of compensation ~~awarded or~~ paid to ~~or earned by,~~our employees and executives. The Radford Group was paid $14,700 for their services.

SUMMARY COMPENSATION TABLE
Name and Principal Positi on	Year		Salary ($)		Bonus ($)		Stock Awards($)		Option Awards ($)(2)		Non-Equity Incentive Plan Compensation ($) (3)		Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)		All Other Compensation ($) (4)		Total ($)
Pehong Chen, CEO and CFO		2006	$	350,000	$	-	$	-	$	-	$	37,092	$	10,904	$	16,852	$	414,848
William E. Meyer, CFO (1)		2006	$	108,441	$	22,500	$	-	$	38,496	$	-	$	4,773	$	2,823	$	177,033

(1) Mr. Meyer was our Chief ~~Executive~~Financial Officer until his resignation on June 6, 2006. Upon Mr. Meyer's resignation, Dr. Chen assumed the duties of the Chief Financial Officer effective June 2, 2006. Total in Salary column includes $15,826 that we paid to Mr. Meyer for accrued vacation time upon his termination.

(2) Stock option values calculated using the Black-Scholes model under the rules of SFAS 123R, as discussed in the Stock Compensation section of this report.

(3) Consists of payment under our Employee Profit Sharing Plan (EPSP). See table below for details.

(4) Consists of company contribution for health insurance coverage. See table below for details.

Employee Profit Sharing Plan (EPSP) - NON-EQUITY INCENTIVE PLAN
	Year	Paid in 2006		Deferred		TOTAL
Pehong Chen, CEO and CFO	2006	$	37,092	$	26,976	$	64,068
William E. Meyer, CFO	Not with the company at time of payouts

	Total	$	37,092	$	26,976	$	64,068

Company Contributions for Health Coverage - ALL OTHER COMPENSATION
	Year	Health		Dental		Vison		STD		LTD		Life Ins		EE Assist		TOTAL
Pehong Chen, CEO and CFO	2006	$	13,352	$	1,831	$	302	$	359	$	450	$	540	$	19	$	16,852
William E. Meyer, CFO	2006	$	1,863	$	248	$	57	$	180	$	225	$	242	$	9	$	2,823

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Base Salary

It is the goal of our compensation committee to establish salary compensation for our executive officers based on our company's operating performance relative to comparable software and computer peer companies over a three to five year period. In setting base salaries for fiscal 2006, we reviewed the Radford studies and recommendations with respect to the salary compensation of officers with comparable qualifications, experience and responsibilities at companies in their recommended peer group. It is not our policy to pay our CEO at the highest level relative to his peers but rather to set his compensation on a basis relative to the other ~~most highly compensated~~members of our senior management team and CEO's of other similar technology companies. We believe that this gives us the opportunity to attract and retain talented managerial employees both at the senior executive level and below. Our committee does not presently intend to increase the salaries of any of our officers in 2007.

Employee Profit Sharing Plan

Our 2006 Employee Profit Sharing Plan (EPSP) is designed to reward both executives and employees alike for the achievement of shorter-term financial goals, principally achievement of certain levels of Earnings Before Interest Taxes Depreciation and Amortization, also known as EBITDA. It is our general philosophy that employees be rewarded for their performance as a team in the attainment of these goals. We believe that this is important to aligning our executive and employees toward promoting and rewarding teamwork among them. Although each executive officer is eligible to receive an award under the EPSP, the granting of the awards to any individual or the officers as a group is entirely at the discretion of our compensation committee. The compensation committee may choose to award the bonus or not, and decide on the actual level of the award in light of all relevant factors after completion of the year.

At the beginning of 2006, our compensation committee adopted the 2006 EPSP. Under the terms of the 2006 EPSP:

l	Payouts are made quarterly, on the first regularly scheduled pay date after the announcement of quarterly earnings, or on such other date as deemed appropriate by management;

l	Eligible persons are active, full-time, or more than 50% part-time employees who maintain a satisfactory standing during the entirety of each quarter and who remain an employee at the time of each quarterly payout;

l	Commission-based employees (those with a sales commission plan) have a portion of their variable compensation tied to company performance, funded under this EPSP award pool, with payouts ahead of non-commissioned employees;

l	Payouts to non-commissioned employees are targeted at a certain percentage of each individual's base salary, set and/or adjusted with management discretion;

l	All amounts earned but not paid under the plan (reductions from any "merit factor", resignations with positive profit-sharing accruals, etc.) are eliminated, going back into company earnings;

l	The award pool is allocated as follows:

EBITDA < 10%= No payouts are made (0%)

EBITDA of 11-20%=Payouts are 11-20% (percent for percent)

EBITDA > 20%=20% maximum

Profit-Sharing Awards

In its discretion our compensation committee decided to award bonuses for fiscal 2006 based upon our achievement of EBITDA performance goals and management discretion, because the actual 2006 results considerably exceeded expectations.

Stock Option and Equity Incentive Programs

We intend for our stock option award program to be the primary vehicle for offering long-term incentives and rewarding our officers and other key employees. We regard this as a key retention tool. Because of the relationship between the value of an option and the market price of our common stock, we have always believed that granting stock options is the best method of motivating our executive officers to manage our company in a manner that is consistent with the interests of our stockholders.

Stock Options Granted

We grant stock options under our 2006 Equity Incentive Plan to our officers and other key employees based upon prior performance, the importance of retaining their services and the potential for their performance to help us attain our long-term goals. However, there is no set formula for the granting of awards to individual executives or employees. In 2006 we granted stock options to purchase 3,880,000 shares of stock representing approximately 11.3% of the outstanding shares of our common stock on December 31, 2005 on a fully diluted basis. Of this amount, options to acquire an aggregate of 120,000 shares were issued to our named executive officers. During year 2006, a total of 64 employees and ~~one individual who was an executive officer of BroadVision until his departure during fiscal 2005 (the “Named Executive Officers”):~~7 officers received stock option awards.

~~Summary Compensation Table~~

Long Term
Compensation
Annual Compensation(1) Awards
Securities All Other
Annual Other Annual Underlying Annual
Salary Bonus Compensation Options Compensation
Name and Principal Position Year ($) ($) ($)(2) (#) ($)

Pehong Chen 2005 $ 350,000 $ — $ — $ — $ —
Chairman of the Board, President 2004 350,000 — — — —
and Chief Executive Officer 2003 350,000 — — — —
William E. Meyer(3) 2005 $ 224,000 $ — — — —
Executive Vice President 2004 224,000 10,000 — — —
and Chief Financial Officer 2003 168,000 10,000 — 240,000 —
Alex Kormushoff(4) 2005 $ 203,360 $ — — — 69,000
Senior Vice President, 2004 205,000 — — 200,000 56,250
Worldwide Field Operations 2003 200,000 18,750 — — —


~~(1)~~	~~Includes amounts earned but deferred at the election of the Named Executive Officers under our 401(k) plan.~~

~~(2)~~	As permitted by rules promulgated by the SEC no amounts are shown with respect to certain “perquisites” where such amounts do not exceed the lesser of 10% of the sum of the amount in the salary and bonus columns or $50,000.

~~(3)~~	~~Mr. Meyer joined the Company as Executive Vice President and Chief Financial Officer on April 1, 2003.~~

~~(4)~~	Mr. Kormushoff joined BroadVision on September 23, 2002 and became Senior Vice President, Global Services on July 1, 2003. Mr. Kornushoff was Senior Vice President, Worldwide Field Operations from October 2004 until his departure in December, 2005. Other compensation paid to Mr. Kormushoff includes payment of commissions on sales.


	*~~Stock Option Grants and Exercises~~*

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Timing of Grants

~~We grant options~~

Stock option awards to our executive officers and other key employees are typically granted annually in conjunction with the review of the individual performance of our executive officers. The exercise price of all stock options is set at the last reported sale price of our common stock on the grant date.

Perquisites

We limit the perquisites that we make available to our executive officers, particularly in light of recent developments with respect to corporate crime and abuse involving perquisites. Our executives are entitled to few benefits that are not otherwise available to all of our employees. In this regard it should be noted that we do not provide pension arrangements, post-retirement health coverage other than COBRA, or similar benefits for our executives or employees.

The perquisites we provided in fiscal 2006 are as follows: All employees are eligible to participate in the 401(k) retirement plan if they so choose. The Company does not match any funds contributed by employees. Our health and insurance plans are the same for all employees. In general, and depending upon the employee's choice, our employees pay 20% of the health premium due. The Company does not provide other perquisites such as country club memberships, jet aircraft, limousine service, estate or financial planning services etc.

GRANTS OF PLAN BASED AWARDS
		Estimated Future Payouts Under Non-Equity Incentive Plan Awards						Estimated Future Payouts Under Equity Incentive Plan Awards						All Other Stock Awards:		All Other Options Awards:		Exercise or Base
Name and Principal Position	Grant Date	Threshold ($)		Target ($)		Maximum ($)		Threshold ($)		Target ($)		Maximum ($)		Number of Shares of Stock		Number of Securities Underlying Options		Price of Option Awards ($/Sh)
Pehong Chen - Note 1		$	-	$	26,976	$	26,976	$	-	$	-	$	-		-		-	$	-
William E. Meyer		$	-	$	-	$	-	$	-	$	-	$	-		-		-	$	-

(1) - Future firm payouts under ~~our 1996 Equity Incentive~~the 2006 Employee Profit Sharing Plan ~~(the “Incentive Plan”). As of December 31, 2005,~~(EPSP)

The compensation committee granted stock options to ~~purchase~~the officers on the same date on which they granted stock awards to our other employees. In keeping with our standard policy and practice, the exercise price of the stock options that were awarded was $0.57 per share, the last sale price of our common stock on the date of grant, as quoted on the Pink Sheets. The terms of the options provide for vesting in three equal annual installments commencing one year from the date of grant and prorated thereafter until fully vested. The options have a ~~total~~life of ~~3,756,932 shares were outstanding under~~10 years.

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OUTSTANDING EQUITY AWARDS AT YEAR-END
	Option Awards										Stock Awards
Name and Principal Position	Number of Securities Underlying Unexercised Options (#) Exercisable		Number of Securities Underlying Unexercised Options (#) Unexercisable		Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) (1)		Option Exercise Price ($)		Option Expiration Date		Number of Shares or Units of Stock That Have Not Vested (#)		Market Value of Shares or Units of Stock That Have Not Vested ($)		Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)		Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)
Pehong Chen		493,108		-		-	$	60.00		6/23/2009		-	$	-		-	$	-
		6,892		-		-	$	60.00		6/23/2009		-	$	-		-	$	-
		500,000		-		-	$	66.51		5/25/2011		-	$	-		-	$	-
		4,444		-		-	$	35.01		11/27/2011		-	$	-		-	$	-
		55,555		-		-	$	18.63		2/19/2012		-	$	-		-	$	-
		644,445		-		-	$	2.16		10/30/2012		-	$	-		-	$	-
William E. Meyer		-		-		-	$	-		NA		-	$	-		-	$	-

(1) - The Company does not issue stock options in any direct formulaic performance based plan.

OPTION EXERCISES AND STOCK VESTED
	Option Awards			Stock Awards
Name and Principal Position	Number of Shares Acquired on Exercise (#)	Value Realized on Exercise ($)		Number of Shares Acquired on Vesting (#)	Value Realized on Vesting ($)
Pehong Chen	-	$	-	-	$	-
William E. Meyer	10,000	$	1,030	-	$	-

Post-Employment Compensation

Pension Benefits

We do not provide pension arrangements or post-retirement health coverage for our executives or employees. All employees, including our executives, are eligible to participate in our 401(k) contributory defined contribution plan. We do not make any contribution to or make any matching contribution to the ~~Incentive Plan and options to purchase 3,378,775 shares remained available for grant thereunder.~~401(k).

~~102~~

~~The following tables show for the fiscal year ended December 31, 2005, certain information regarding options granted to, exercised by, and held at year end by, the Named Executive Officers.~~

~~Fiscal Year End Option Values of Unexercised Options~~

PENSION BENEFITS

Name and Principal Position

Plan Name

Number of Years Credited Service (#)

Present Value of Accumulated Benefits ($)

Payment During Last Year ($)

Pehong Chen

N/A

William E. Meyer

N/A

~~Number of Securities~~

~~Value of Unexercised~~

~~Underlying Unexercised~~

~~In-the-Money~~

~~Options at~~

~~Shares~~

~~December 31, 2005~~

~~December 31, 2005 ($)(3)~~

~~Acquired~~

~~Value~~

~~(#)(2)~~

~~Unexercisable~~

~~on Exercise~~

~~Realized~~

~~Name~~

~~(#)~~

~~($)(1)~~

~~Exercisable~~

~~Unexercisable~~

~~Exercisable~~

~~Unexercisable~~

~~Pehong Chen~~

—

~~1,704,444~~

—

~~William E. Meyer~~

—

~~240,000~~

—

~~Alex Kormushoff~~

—

~~243,333~~

—


~~(1)~~	Value received is based on the per share deemed values of our common stock on the date of exercise, determined after the date of grant solely for financial accounting purposes, less the exercise price, without taking into account any taxes that may be payable in connection the transaction.

~~(2)~~	~~Reflects vested and unvested shares at December 31, 2005. Options granted are immediately exercisable, but are subject to our right to repurchase unvested shares on termination of employment.~~

~~(3)~~	~~Fair market value of BroadVision’s common stock at December 31, 2005, which was $0.49 per share, less the exercise price of the options.~~

~~REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD~~

OF DIRECTORS ON EXECUTIVE COMPENSATION*

~~As noted above,~~

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Nonqualified Deferred Compensation

We provide a 401(k) nonqualified defined contribution plan for all employees. We do not match any employee contributions. Amounts shown below are totally from the ~~Compensation Committee~~named executives.

NONQUALIFIED DEFERRED COMPENSATION
Name and Principal Position	Executive Contributions in Last Year ($)		Registrant Contributions in Last Year ($)		Aggregate Earnings in Last Year ($)		Aggregate Withdrawls / Distributions ($)		Aggregate Balance at Last Year-End ($)
Pehong Chen	$	-	$	-	$	10,904	$	-	$	88,791
William E. Meyer	$	9,407	$	-	$	4,773	$	-	$	56,155

NOTE: This is our 401(k) Plan administered by Fidelity Investments and brokered by the NWK Group

Other Post-Employment Payments

All of our employees, including our officers, are employees-at-will and as such do not have employment contracts with us, except in the case of one officer of our EMEA foreign subsidiaries. We also do not provide post-employment health coverage or other benefits, except in connection with the severance plan which is described below under "Retention Agreements".

Retention Agreements

We do not have individual retention agreements with any employee. However we do have a Change of Control Severance Benefit Plan for Involuntary Severance from the Company. This plan was approved by shareholders in July, 2006 and previously disclosed on Form Schedule 14A. The Severance Benefit Plan generally provides that the named executive officers will receive severance benefits if their employment is involuntarily terminated within one month before or 24 months following a change of control of the Company. There are four "Levels" with all participants in a certain Level being eligible for severance benefits. Our CEO, Pehong Chen, is the only member in Level 1, while two of the named officers are in Level 2, and one is in Level 3. Generally the Levels provide for cash payments of 50-100% of Base Pay, plus continuation of benefits for 6-12 months, outplacement services for 6-12 months, and acceleration of unvested stock options depending upon the length of service with the company ranging from 12.5% to 100% vesting. None of these benefits apply if the named officer retires or voluntarily resigns.

POTENTIAL PAYMENTS UNDER RETENTION AGREEMENTS

The table below describes the amounts of current and future compensation benefits that the named executive officers would receive under various change of control or termination scenarios. Under our 2006 benefit plan the benefits are the same for a voluntary termination, early retirement, or normal retirement on December 31, 2006. Our Change of Control Plan, in the context of an Involuntary For Good Reason Termination, only provides for benefits intended to compensate management for lost wages and longer term health and displacement benefits. There are certain graduated levels of benefits for the executives depending upon their responsibility levels and seniority with the company. Under the Involuntary Not For Cause Termination scenario the benefits are reduced, while a For Cause Termination would result in little or no benefits beyond those earned up to the termination date, assumed for purposes of this table to be midnight December 31, 2006. This means the For Cause terminated employee would be entitled to only shares and stock options vested, profit sharing and accrued vacation earned through December 31, 2006 and no further compensation. In the case of disability on December 31, 2006, the employee would be entitled to the additional benefits of long-term disability insurance payouts for up to one year. In the case of death on December 31, 2006, the benefit additional to the employee would include the present value of all life insurance proceeds until normal retirement age of 65.

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TERMINATION OR CHANGE OF CONTROL
Executive Benefits and Payments Upon Separation		Voluntary Termination on 12/31/06 ($)		Early Retirement on 12/31/06 ($)		Normal Retirement on 12/31/06 ($)		Involuntary Not For Cause Termination on 12/31/06 ($)		For Cause Termination on 12/31/06 ($)		Involuntary For Good Reason Termination (Change in Control) on 12/31/06 ($)		Disability on 12/31/06 ($)		Death on 12/31/06 ($)
Pehong Chen
Compensation:
	Short-Term Incentive Compensation	$	37,092	$	37,092	$	37,092	$	37,092	$	37,092	$	37,092	$	37,092	$	37,092
	Stock Options	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Benefits & Perquisites:
	Deferred Compensation Program	$	88,791	$	88,791	$	88,791	$	88,791	$	88,791	$	88,791	$	88,791	$	88,791
	Health & Welfare Benefits	$	1,404	$	1,404	$	1,404	$	1,404	$	1,404	$	1,404	$	1,404	$	1,404
	Disablilty Income	$	-	$	-	$	-	$	-	$	-	$	-	$	1,198,244	$	-
	Life Insurance Benefits	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	500,000
	Cash Severance	$	-	$	-	$	-	$	343,419	$	-	$	415,943	$	-	$	-
	Accrued Vacation Pay	$	2,692	$	2,692	$	2,692	$	2,692	$	2,692	$	2,692	$	2,692	$	2,692

William E. Meyer
Compensation:
	Short-Term Incentive Compensation	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
	Stock Options	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Benefits & Perquisites:
	Deferred Compensation Program	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
	Health & Welfare Benefits	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
	Disablilty Income	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
	Life Insurance Benefits	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
	Cash Severance	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
	Accrued Vacation Pay	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Disability Income:

Assumes Present Value of all Future Benefits Until Normal Retirement Age
		Years to Age	Discount Rate		Present Value
Name	Age on 12/31/06	65	6.5%		of the Annuity
Pehong Chen	49	16	6.5%	$	1,198,244
William E. Meyer				$	-

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DIRECTOR COMPENSATION
Name and Principal Position	Fees Earned or Paid in Cash ($)		Stock Awards ($)		Option Awards ($)		Non-Equity Incentive Plan Compensation ($)		Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)		All Other Compensation ($)		Total ($)
Pehong Chen, CEO and CFO	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Robert Lee, Director and Chairman of Compensation Committee	$	-	$	13,680	$	-	$	-	$	-	$	-	$	13,680
James Dixon, Director and Chairman of Audit Committee	$	-	$	13,680	$	-	$	-	$	-	$	-	$	13,680
David Anderson, Director (1)	$	-	$	13,680	$	-	$	-	$	-	$	-	$	13,680
Roderick McGeary, Director (1)	$	-	$	13,680	$	-	$	-	$	-	$	-	$	13,680
Michael Thomas Nevens, Director (1)	$	-	$	27,360	$	-	$	-	$	-	$	-	$	27,360
Francois Stieger, Director (2)	$	-	$	-	$	12,200	$	-	$	-	$	-	$	12,200

Note: (1) David Anderson, Roderick McGeary, Michael Tomas Nevens ceased serving on our Board of Directors ~~(the “Committee”)~~as of August 8, 2006.

(2) Francois Stieger joined our Board of Directors as of August 8, 2006

Overview of Director Compensation and Procedures

We review the level of compensation of our non-employee directors on an annual basis. To determine how appropriate the current level of compensation for our non-employee directors is, ~~currently composed~~we have historically obtained data from a number of different sources including the Radnor Surveys. Other data sources used in our analysis included:

l	Publicly available data describing director compensation in peer companies;

l	Survey data collected by our human resources department; and

l	Information obtained directly from other companies.

We compensate non-employee members of the board through stock options. We do not pay our non-employee directors ~~identified at the end~~any cash remuneration other than reimbursement of ~~this report. None of these non-employee directors has any interlocking or other type of relationship that would call into question his independence as a committee member.~~travel expenses and deminimus items.

One new director joined our board in 2006 and was awarded an option exercisable for 20,000 shares, which vests quarterly in four equal installments. At December 31, 2006, 10,000 shares had vested. The ~~Committee is responsible for setting and administering the policies which govern annual performance, and determines the compensation~~exercise price of the ~~Chief Executive Officer (“CEO”) and other executive officers of the Company.~~

~~COMPENSATION PHILOSOPHY~~

The objectives of the Company’s executive compensation policies are to attract, retain and reward executive officers who contribute to the Company’s success, to align the financial interests of executive officers with the performance of the Company, to ensure a direct relationship between executive pay and stockholder value, to motivate executive officers to achieve the Company’s business objectives and to reward individual performance. During 2005, the Company used base salary, annual incentives and long-term incentives under the Incentive Plan to achieve these objectives. In carrying out these objectives, the Committee considers the following:


	•	~~The level of compensation paid to executive officers in positions of companies similarly situated in size and products. To ensure that pay~~option is ~~competitive, the Committee, from time to time, compares the Company’s executive compensation packages with those offered by other companies in the same or~~

* The material in this report is not “soliciting material,” is not deemed “filed” with the SEC, and is not to be incorporated by reference into any filing of the Company under the Securities Act or Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language contained in such filing in meeting Company financial and business objectives during the prior fiscal year, as well as the executive officer’s performance of individual responsibilities and the Company’s financial position and overall performance. The Committee periodically considers the low, midpoint and upper ranges of base salaries published by compensation surveys in establishing base salaries of each executive officer.

~~103~~

~~similar industries or with other similar attributes. Compensation surveys used by the Company typically include public and private companies comparable in size, products or industry to the Company.~~


	•	The individual performance of each executive officer. Individual performance includes meeting individual performance objectives, demonstration of job knowledge, skills, teamwork and acceptance of the Company’s core values.

	•	Corporate performance, which is evaluated by factors such as performance relative to competitors, performance relative to business conditions and progress in meeting the Company’s objectives and goals as typically reflected in the annual operating plan.

	•	~~The responsibility and authority of each position relative to other positions within the Company.~~

The Committee does not quantitatively weigh these factors but considers all of these factors as a whole in establishing executive compensation. The application given each of these factors in establishing the components of executive compensation follows.

~~BASE SALARY~~

Base salaries are established for each executive officer at levels that are intended to be competitive with salaries for comparable positions at other software and computer industry companies of similar size and products. The Company seeks to pay salaries to executive officers that are commensurate with their qualifications, duties and responsibilities and that are competitive in the marketplace. In conducting periodic compensation reviews, the Committee considers each individual executive officer’s achievements

~~ANNUAL INCENTIVE~~

Annual bonus incentives for executives are intended to reflect the Company’s belief that management’s contribution to stockholder returns comes from achieving operating results that maximize the Company’s earnings and cash flow over a multi-year time horizon. The Company believes that the achievement of its performance objectives depends on (a) its ability to deliver outstanding products and services to its customers, (b) its success in establishing and maintaining a position of strength in its chosen markets and (c) its short- and long-term profitability, as well as the quality of that profitability. For purposes of annual incentive compensation, progress towards these performance objectives is measured against the results anticipated in the Company’s annual operating plan, which is approved by the Board of Directors.

The 2005 incentive compensation for executive officers other than the CEO was based in part on the achievement of total Company results consistent with the Company’s 2005 operating plan, as well as achievement of other objectives in the 2005 operating plan specific to such officers’ individual areas of management responsibility. The Company believes that this incentive compensation structure closely links the incentives paid to its executives with the results necessary to create long-term value for stockholders.

~~LONG-TERM INCENTIVES~~

The Committee also endorses the position that stock ownership by management is beneficial in aligning management and stockholder interests in enhancing stockholder value. In that regard, stock options also are used to retain executives and motivate results to improve long-term stock market performance. Stock options are granted at the prevailing market value and will have value only if the Company’s stock price increases. As part of its periodic review of compensation, the Compensation Committee reviews the stock option holdings of the Company’s officers and senior executives, and recommends additional stock option grants as appropriate.

The Committee determines the number of options to be granted to executive management based on (a) competitive practice within the comparison group used in determining base salary, (b) historical performance of the executive and (c) the amount of prior grants held by such executive, as well as the number of vested versus unvested options. When using comparative data, the Company targets its option grants in the mid to high range of comparable companies.

~~104~~

Section 162(m) limits the Company to a deduction for federal income tax purposes of no more than $1.0 million of compensation paid to certain covered employees in a taxable year. Compensation above $1.0 million may be deducted if it is “performance-based compensation” within the meaning of the Code. Stock options granted under the Incentive Plan with an exercise price at least equal to the fair market value of ~~the Company’s Common Stock~~our common stock on the date of ~~grant are considered to be “performance-based compensation.”~~grant.

~~CEO COMPENSATION FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005~~

Our CEO, Dr. Chen, is the only employee director, and he does not receive cash or equity compensation for service on the board in addition to compensation payable for his service as an employee of the Company.

Compensation Committee Interlocks and Insider Participation

No member of the Compensation Committee has served as ~~Chairman, President~~one of our officers or employees at any time. None of our executive officers serve as a member of the compensation committee of any other company that has an executive officer serving as a member of our board. None of our executive officers serve as a member of the board of directors of any other company that has an executive officer serving as a member of our Compensation Committee.

Compensation Committee Report

The Compensation Committee has reviewed the Compensation Discussion and ~~Chief Executive Officer throughout~~Analysis and discussed that Analysis with management. Based on its review and discussions with management, the ~~year,~~committee recommended to our Board of Directors that the Compensation Discussion and ~~he continues to hold these offices.~~

~~Dr. Chen’s base salary, annual incentives and long-term incentives were determined in accordance with the criteria described~~Analysis be included in the ~~“Base Salary,” “Annual Incentive” and “Long-Term Incentive” sections of this report. Dr. Chen received $350,000 in base salary.~~company's Annual Report on Form 10-K for 2006. This ~~amount, together with a potential annual incentive tied to~~report is provided by the ~~achievement of 2005 revenue and net income targets, was estimated to provide an annual cash compensation level which would be competitive with~~following independent directors, who comprise the ~~mid to high range of compensation paid by comparable software companies. Dr. Chen did not receive a bonus in 2005 because the Company did not meet the operating plan targets for 2005. See “Summary~~committee:

James Dixon, Compensation ~~Table.”~~

~~CONCLUSION~~

Through the plans described above, a significant portion of the Company’s executive compensation programs and Dr. Chen’s compensation are contingent on Company performance and realization of benefits closely linked to increases in long-term stockholder value. The Company remains committed to this philosophy of pay for performance, recognizing that the competitive market for talented executives and the volatility of the Company’s business may result in highly variable compensation for a particular time period.

~~COMPENSATION COMMITTEE~~

~~David L. Anderson, Chairman~~Committee Chair

Robert Lee,

~~105~~

PERFORMANCE MEASUREMENT COMPARISON* Compensation Committee Member

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following ~~graph shows the total stockholder return~~table provides certain information with respect to all of ~~an investment of $100~~our equity compensation plans in cash on December 31, 2000 for (a) the Company’s Common Stock, (b) the Nasdaq Stock Market (U.S.) Index (the “Nasdaq Index”) and (c) the JP Morgan H&Q Internet 100 Index. All values assume reinvestment of the full amount of all dividends and are calculatedeffect as of December 31, ~~of each year:~~2006.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

~~AMONG BROADVISION, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX~~Equity Compensation Plan Information

~~AND THE RDG INTERNET COMPOSITE INDEX~~

Number of Securities

Remaining Available

Number of Securities

for Issuance Under

to be Issued Upon

Weighted-Average

Equity Compensation

Exercise of

Exercise Price of

Plans (Excluding Securities

Outstanding Options

Reflected in Column (a))

Plan Category

(a)

(b)

(c)

Equity compensation plans approved by security holders(1)

6,944,144

12.66

3,327,093

Equity compensation plans not approved by security holders(2)

764,560

9.7

1,497,239

Total

7,708,704

12.36

4,824,332

(1)
*	~~$100 invested on 12/31/00 in stock or index-including reinvestment of dividends. Fiscal year ending December 31.~~Includes the following: Incentive Plan, Employee Stock Purchase Plan, 1993 Interleaf Stock Option Plan, 1994 Interleaf Employee Stock Option Plan and 2006 Equity Incentive Plan.

(2)

Includes the following: the 2000 Non-Officer Equity Incentive Plan (the "2000 Non-Officer Plan") and non-plan grants. For more information - see Notes 1 and 9 of consolidated financial statements.

Controlling Stockholder

*This Section is not “soliciting material,” is not deemed “filed” with the SEC and is not to be incorporated by reference in any filing of the Company under the Securities Act or the Exchange Act whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

~~106~~


~~ITEM 12.~~	*~~SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS~~*

~~Controlling Stockholder~~

~~As of~~From March ~~15,~~8, 2006 through November 28, 2006, Dr. Pehong Chen, directly and through entities controlled by him, held a majority of the voting power of ~~the Company’s~~our outstanding stock. As of March 23, 2007, Dr. Chen beneficially owned approximately 39% our common stock. As a result, Dr. Chen ~~controls~~has the ability to exert significant control over the election of ~~all~~ members of the Board of Directors and all other matters submitted to a vote of ~~the Company’s~~our stockholders.

Beneficial Ownership of BroadVision Common Stock

The following table sets forth certain information regarding the ownership of the ~~Company’s~~Company's common stock as of ~~March 15, 2006~~February 28, 2007 by: (a) each director; (b) each of the executive officers named in the Summary Compensation Table; (c) all current executive officers and directors of the Company as a group; and (d) all those known by the Company to be beneficial owners of more than five percent of its common stock.

Beneficial Ownership(1)

Number of Percent of
Beneficial Owner Shares (#) Total (%)

Pehong Chen(2) 42,079,429 59.4%
William E. Meyer(3) 265,061 *
Alex Kormushoff 0 *
David L. Anderson(4) 101,437 *
James D. Dixon(5) 96,000 *
Robert Lee(6) 85,039 *
Roderick C. McGeary(7) 84,000 *
T. Michael Nevens(8) 108,000 *
Honu Holdings, LLC(2) 34,500,000 49.9%
585 Broadway Redwood City,
CA 94063
All Current Directors and Executive Officers as a group (7 persons)(9) 42,818,966 60.4%

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		Beneficial Ownership(1)
		Number of		Percent of
Beneficial Owner		Shares (#)		Total (%)
Pehong Chen(2)			42,079,389		39.49	%
James D. Dixon(3)			96,000		*
Robert Lee(4)			85,039		*
Francois Stieger (5)			20,000		*
Honu Holdings, LLC(2)			34,500,000		32.37	%
	1600 Seaport Blvd., 5^th Floor, North Bldg., Redwood City,
	CA 94063
Palo Alto Investors LLC (6)			14,154,759		13.28	%
	470 Univrsity Avenue Palo Alto, CA 94301
Palo Alto Investors (6)			14,154,759		13.28	%
	470 Univrsity Avenue Palo Alto, CA 94301
William Leland Edwards			14,154,870		13.28	%
	470 Univrsity Avenue Palo Alto, CA 94301
Palo Alto Fund II, L.P.			6,834,659		6.41	%
	470 Univrsity Avenue Palo Alto, CA 94301
Micro Cap Partners, L. P.			6,355,600		5.96	%
	470 Univrsity Avenue Palo Alto, CA 94301
All Current Directors and Executive Officers as a group (4 persons)(7)			42,280,428		39.69	%

*Less than one percent

(1)
*	~~Less than one percent~~

~~(1)~~	This table is based upon information supplied by officers, directors and principal stockholders and Schedules 13D and 13G filed with the SEC. Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, the Company believes that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned. Applicable percentages are based on ~~69,180,991~~106,566,567 shares outstanding on ~~March 15, 2006,~~February 28, 2007, adjusted as required by rules promulgated by the SEC. The ~~Company’s~~Company's directors and executive officers can be reached at BroadVision, Inc., ~~585 Broadway,~~1600 Seaport Blvd., North Bldg., 5^th Floor, Redwood City, California 94063.

(2)

Includes 5,874,985 shares held in trust by Dr. Chen and his wife for their benefit and 1,704,444 shares of common stock issuable upon the exercise of stock options exercisable within 60 days of ~~March 15, 2006.~~February 28, 2007. Also includes 34,500,000 shares held by Honu Holdings, LLC, of which Dr. Chen is the sole member. Excludes ~~300,000~~1,145,387 shares of common stock held in trust by independent trustees for the benefit of Dr. ~~Chen’s~~Chen's children.


(3)	~~Includes 250,000 shares of common stock issuable upon the exercise of stock options exercisable within 60 days of March 15, 2006.~~

~~(4)~~	Includes 46,604 shares of common stock issuable upon the exercise of a stock option exercisable within 60 days of March 15, 2006 and 30,833 shares held by The Anderson Living Trust, of which Mr. Anderson is Trustee.

~~(5)~~	Includes 60,000 shares of common stock issuable upon the exercise of stock options exercisable within 60 days of ~~March 15, 2006.~~February 28, 2007.

~~107~~


~~(6)~~ (4)	Includes 60,000 shares of common stock issuable upon the exercise of stock options exercisable within 60 days of ~~March 15, 2006.~~February 28, 2007. Also includes 1,039 shares held in trust by Mr. Lee and his wife for their benefit.


~~(7)~~ (5)	Includes ~~60,000~~20,000 shares of common stock issuable upon the exercise of stock options exercisable within 60 days of ~~March 15, 2006.~~February 28, 2007.


~~(8)~~ (6)	~~Includes 60,000~~Based on Amendment No. 1 to Schedule 13G filed with the SEC on February 14, 2007, Palo Alto Investors, LLC, Palo Alto Investors and William Leland Edwards have shared voting and disposition power with respect to 14,159,759 shares of common stock ~~issuable upon~~(the "PAI Shares"), and Mr. Edwards has sole voting and disposition power with respect to an additional 111 shares of common stock. Palo Alto Fund II, L.P. has shared voting and disposition power with respect to 6,834,659 of the ~~exercise~~PAI Shares and Micro Cap Partners, L.P. shared voting and disposition power with respect to 6,355,600 of ~~stock options exercisable within 60 days of March 15, 2006.~~the PAI Shares.

~~(9)~~ (7)	Includes the information contained in the notes above, as applicable, for directors and executive officers of the Company as of ~~March 15, 2006.~~February 28, 2007.


~~ITEM 13.~~	*~~CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS~~*

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Since January 1, 2001, there has not been, nor is there currently proposed, any transaction or series of similar transactions to which we were or are a party in which the amount involved exceeds or exceeded ~~$60,000~~$120,000 and in which any director, executive officer or beneficial holder of more than 5% of any class of our voting securities or members of such ~~person’s~~person's immediate family had or will have a direct or indirect material interest other than as described below and elsewhere in Part III hereof. ~~All~~It is our policy that future transactions between us and any of our directors, executive officers or related parties will be subject to the review and approval of our ~~nominating and corporate governance committee, compensation committee~~Audit Committee or other committee comprised of independent, disinterested directors.

On November 18, 2005, Honu Holdings LLC, a company controlled by our Chief Executive Officer and largest stockholder, Dr. Pehong Chen, acquired all of our outstanding Senior Subordinated Convertible ~~Notes. Including~~Notes, including accrued ~~interest, the~~interest. The Notes represented approximately $15.5 million in debt obligations as of December 20, 2005. In order to relieve BroadVision from the liquidity challenges presented by the Notes, Dr. Chen agreed to cancel all amounts owed under the Notes in exchange for 34,500,000 shares of BroadVision common stock at an effective price per share of $0.45, representing a 25% discount to the December 20, 2005 closing price of BroadVision common stock of $0.60 per share. On March 8, 2006, we issued 34,500,000 new shares of common stock to Honu Holdings that, as of ~~March 15, 2006,~~January 31, 2007, represents approximately ~~49.9%~~32% of our total outstanding common ~~stock immediately following such issuance.~~stock.


	*~~Director and Officer Indemnification~~*

Dr. Chen has committed to provide, upon our request at any time through December 31, 2006, up to $5 million of working capital support through cash, debt guarantees or a combination thereof on mutually satisfactory terms.

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In 2006, we executed a consulting agreement with Professional Poker League Inc. in which Dr. Chen is a passive owner and convertible note holder. The total contract value is $365,000. We received payment for the entire contract in the third quarter of 2006. The contract was completed in the fourth quarter of 2006. We incurred $99,000 in costs and expenses relating to this contract.

Director and Officer Indemnification

Our revised and restated certificate of incorporation contains provisions limiting the liability of directors. In addition, we have entered into agreements to indemnify our directors and executive officers to the fullest extent permitted under Delaware law.

We have entered into indemnity agreements with certain officers and directors that provide, among other things, that we will indemnify such officer or director, under the circumstances and to the extent provided for in such agreement, for expenses, damages, judgments, fines and settlements he or she may be required to pay in actions or proceedings to which he or she is or may be made a party be reason of his or her position as a director, officer or other agent of BroadVision, and otherwise to the full extent permitted under Delaware law and our Bylaws.

Independence of Directors


~~ITEM 14.~~	*~~PRINCIPAL ACCOUNTANT FEES AND SERVICES~~*

Our Board of Directors has determined that Messrs. Dixon, Lee and Stieger are each independent under the standards set forth in Nasdaq Marketplace Rule 4200(a)(15). We intend to maintain at least two directors on the board that meet these independence standards. Our board has also determined that each member of our Compensation Committee is independent under Nasdaq Marketplace Rule 4200(a)(15) and each member of our Audit Committee is independent under the standards set forth in Nasdaq Marketplace Rules 4350(d)(2)(A)(i) and (ii).

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following presents aggregate fees billed to us by Odenberg, Ullakko, Muranishi & Co. LLP, our principal accountant for the year ended December 31, 2006, Stonefield Josephson, Inc., our principal accountant for the year ended December 31, 2005, and by BDO Seidman, LLP, our principal accountant for the ~~fiscal~~ year ended December 31, 2004. All fees described were approved by the Audit Committee.

~~Audit Fees.~~ Audit fees billed were $801,000 and $890,000 for the years ended December 31, 2005 and December 31, 2004, respectively. The fees were for professional services rendered for the audits of our consolidated financial statements, reviews of the financial statements included in our quarterly reports, consultations on matters that arose during our audit and reviews of SEC registration statements.

~~108~~

Audit Fees. Audit fees billed were $1,304,000 and $801,000 for the years ended December 31, 2006 and 2005, respectively. The fees were for professional services rendered for the audits of our consolidated financial statements, reviews of the financial statements included in our quarterly reports, consultations on matters that arose during our audit and reviews of SEC registration statements.


	~~Audit-Related Fees.~~ ~~No audit-related fees were billed in the years ended December 31, 2005 and December 31, 2004.~~

	~~Tax Fees.~~ Tax fees billed were $181,000 and $174,000 for the years ended December 31, 2005 and December 31, 2004, respectively. The tax fees were for professional services related to tax compliance, tax advice and tax planning.

	~~All Other Fees.~~ ~~There were no other fees billed in the years ended December 31, 2005 and December 31, 2004.~~

Audit-Related Fees. No audit-related fees were billed in the years ended December 31, 2006 and December 31, 2005.

Tax Fees. Tax fees billed were $113,000 and $181,000 for the years ended December 31, 2006 and 2005, respectively. The tax fees were for professional services related to tax compliance, tax advice and tax planning.

All Other Fees. There were no other fees billed in the years ended December 31, 2006 and 2005, respectively.

The Audit Committee has determined that the rendering of ~~the~~certain services other than audit services by ~~Stonefield~~Odenberg, Ullakko, Muranishi & Co. LLP is compatible with maintaining the principal ~~accountant’s~~accountant's independence.


	*~~Pre-Approval Policies And Procedures~~*

Pre-Approval Policies And Procedures

The Audit Committee has adopted a policy and procedures for the pre-approval of audit and non-audit services rendered by our independent auditor. The policy generally pre-approves specified services in the defined categories of audit services audit-related services, and tax services up to specified amounts. Pre-approval may also be given as part of the Audit ~~Committee’s~~Committee's approval of the scope of the engagement of our independent auditor or on an individual explicit case-by-case basis before the independent auditor is engaged to provide each service. The pre-approval of services may be delegated to one or more of the Audit ~~Committee’s~~Committee's members, but the decision must be reported to the full Audit Committee at its next scheduled meeting.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES


~~ITEM 15.~~	*~~EXHIBITS AND FINANCIAL STATEMENT SCHEDULES~~*

(a) The following documents are filed as a part of this Report.

1. Consolidated Financial ~~Statements.~~Statements. The following Consolidated Financial Statements of the Company are included at Part II, Item 8, of this Annual Report on Form ~~10-K.~~10-K

Reports of Independent Registered Public Accounting Firm


	~~Reports of Independent Registered Public Accounting Firm~~

	~~Consolidated Balance Sheets as of December 31, 2005 and 2004~~

	~~Consolidated Statements of Operations for each of the years in the three-year period ended December 31, 2005~~

	~~Consolidated Statements of Stockholders’ Equity (Deficit) and Comprehensive Income (Loss) for each of the years in the three-year period ended December 31, 2005~~

	~~Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2005~~

	~~Notes to Consolidated Financial Statements~~

Consolidated Balance Sheets as of December 31, 2006 and 2005

Consolidated Statements of Operations for each of the three years in the period ended December 31, 2006

Consolidated Statements of Stockholders' Equity (Deficit) and Comprehensive Income (Loss) for each of the years in the three-year period ended December 31, 2006

Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2006

Notes to Consolidated Financial Statements

2. Financial Statement ~~Schedule.~~Schedule. Attached to this Annual Report on Form 10-K.


	~~Schedule II — Valuation and Qualifying Accounts~~

Schedule II---Valuation and Qualifying Accounts

3.��~~Exhibits.~~Exhibits. The exhibits listed on the accompanying Index to Exhibits immediately following the consolidated financial statement schedule are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K.

~~109~~

~~SIGNATURES~~

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, in Redwood City, State of California, on this ~~9th~~26^th day of ~~June 2006.~~March 2007.


	~~BROADVISION, INC.~~

BROADVISION, INC.


	~~By:~~	~~/s/Pehong Chen~~



	~~Pehong Chen~~
	~~Chairman of the Board,~~
	~~Chief Executive Officer and President~~

By: /s/ PEHONG CHEN

Pehong Chen

Chairman of the Board, President, Chief Executive Officer and Interim Chief Financial Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Pehong Chen to sign any amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that the said~~attorney-in-fact,~~ attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date

~~Signature~~ /s/ Pehong Chen	~~Title~~	~~Date~~March 26, 2007
Pehong Chen	Chairman of the Board, President, Chief Executive Officer, and (Principal Executive Officer)

/s/ Pehong Chen
Pehong Chen	Interim Chief Financial Officer (Principal Accounting Officer)	March 26, 2007

/s/ Francois Stieger		March 26, 2007
Francois Stieger	Director


~~/s/Pehong Chen~~ ~~Pehong Chen~~/s/ James D. Dixon		~~Chairman of the Board, Chief Executive Officer and President~~ ~~(Principal Executive Officer)~~	~~June 9, 2006~~March 26, 2007

~~/s/Pehong Chen~~ ~~Pehong Chen~~		~~Chief Financial Officer~~ ~~(Principal Accounting Officer)~~	~~June 9, 2006~~

~~/s/David L. Anderson~~ ~~David L. Anderson~~		~~Director~~	~~June 7, 2006~~

~~/s/James D. Dixon~~ James D. Dixon		Director	~~June 7, 2006~~

/s/~~Bob~~Robert Lee ~~Bob~~		March 26, 2007
Robert Lee	Director	~~June 7, 2006~~

~~/s/Roderick McGeary~~ ~~Roderick McGeary~~	~~Director~~	~~June 7, 2006~~

~~/s/T. Michael Nevens~~ ~~T. Michael Nevens~~		~~Director~~	~~June 7, 2006~~

~~110~~

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BROADVISION, INC. AND SUBSIDIARIES

SCHEDULE ~~II — VALUATION~~II---VALUATION AND QUALIFYING ACCOUNTS

Charged
Balance at (Credited) to Balance at
Beginning of Costs and End of
Period Expenses Deductions(1) Period

(In thousands)
Allowance for doubtful accounts and reserves:
Year Ended December 31, 2005 $ 1,409 $ (598 ) $ (80 ) $ 731
Year Ended December 31, 2004 3,022 (1,466 ) (147 ) 1,409
Year Ended December 31, 2003 5,502 (812 ) (1,668 ) 3,022

(in thousands)

				Charged
		Balance at		(Credited) to						Balance at
		Beginning of		Costs and						End of
		Period		Expenses			Deductions(1)			Period
Receivable reserves:
	Year Ended December 31, 2006	$	731	$	487		$	(77	)	$	1,141
	Year Ended December 31, 2005	$	1,409	$	(598	)	$	(80	)	$	731
	Year Ended December 31, 2004	$	3,022	$	(1,466	)	$	(147	)	$	1,409


~~(1)~~	~~Represents net charge-offs of specific receivables.~~

~~111~~

(1) Represents net charge-offs of specific receivables.

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BROADVISION, INC. ANNUAL REPORT ON FORM 10-K DECEMBER 31, ~~2005~~2006

INDEX TO EXHIBITS

Exhibit Description

3 .1(1) Amended and Restated Certificate of Incorporation.

3 .2(6) Certificate of Amendment of Certificate of Incorporation.

3 .3(21) Amended and Restated Bylaws.

4 .1(1) References are hereby made to Exhibits 3.1 to 3.2.

4 .4(19) Registration Rights Agreement dated November 10, 2004 among the Company and certain investors listed on Exhibit A thereto.

4 .5 Registration Rights Agreement dated March 8, 2006, between the Company and Honu Holdings LLC.

10 .1(8)(a) Equity Incentive Plan as amended through May 1, 2002 (the “Equity Incentive Plan”).

10 .2(1)(a) Form of Incentive Stock Option under the Equity Incentive Plan.

10 .3(1)(a) Form of Nonstatutory Stock Option under the Equity Incentive Plan.

10 .4(1)(a) Form of Nonstatutory Stock Option (Performance-Based).

10 .5(8)(a) 1996 Employee Stock Purchase Plan as amended May 1, 2002 (the “Employee Stock Purchase Plan”).

10 .6(1)(a) Employee Stock Purchase Plan Offering (Initial Offering).

10 .7(1)(a) Employee Stock Purchase Plan Offering (Subsequent Offering).

10 .8(1)(b) Terms and Conditions dated January 1, 1995 between IONA Technologies LTD and the Company.

10 .13(2) Lease dated February 5, 1997 between the Company and Martin/ Campus Associates, L.P.

10 .20(3)(a) 2000 Non-Officer Equity Incentive Plan.

10 .23(4)(b) Independent Software Vendor Agreement dated June 30, 1998 between the Company and IONA Technologies, PLC, as amended.

10 .27(5) Amended and Restated Loan and Security Agreement dated March 31, 2002 between the Company and Silicon Valley Bank.

10 .33(7) Form of Indemnity Agreement between the Company and each of its directors and executive officers.

10 .34(9) Offer letter dated March 4, 2003 by and between the Company and William Meyer.

10 .35(10) First Amendment to the Amended and Restated Loan and Security Agreement dated February 28, 2003 between the Company and Silicon Valley Bank.

10 .36(10) Second Amendment to the Amended and Restated Loan and Security Agreement dated June 30, 2003 between the Company and Silicon Valley Bank.

10 .37(10) BroadVision, Inc. Change in Control Severance Benefit Plan, established effective May 22, 2003.

10 .38(10) BroadVision, Inc. Executive Severance Benefit Plan, established effective May 22, 2003.

10 .39(10) Third Amendment to the Amended and Restated Loan and Security Agreement dated June 30, 2003 between the Company and Silicon Valley Bank.

10 .41(11) Offer Letter dated September 23, 2002 between the Company and Alex Kormushoff.

10 .42(11) Fourth Amendment to the Amended and Restated Loan and Security Agreement dated January 21, 2004 between the Company and Silicon Valley Bank.

10 .43(11) Fifth Modification to Amended and Restated Loan and Security Agreement dated February 27, 2004 between the Company and Silicon Valley Bank.

10 .44(13) Assignment and Assumption of Master Lease, Partial Termination of Master Lease and Assignment and Assumption of Subleases, dated July 7, 2004, between Pacific Shores Investors, LLC and the Company.

~~112~~

Exhibit Description

10 .45(13) Warrant to Purchase up to 700,000 share of common stock, dated July 7, 2004, issued to Pacific Shores Investors, LLC.

10 .46(13) Triple Net Space Lease, dated as of July 7, 2004, between Pacific Shores Investors, LLC and the Company.

10 .47(14) Sixth Amendment to the Amended and Restated Loan and Security Agreement dated September 29, 2004 between the Company and Silicon Valley Bank.

10 .48(15) Securities Purchase Agreement dated as of November 10, 2004.

10 .49(16) Seventh Amendment to the Amended and Restated Loan and Security Agreement dated November 9, 2004 between the Company and Silicon Valley Bank.

10 .50(17) Agreement to Restructure Lease and To Assign Subleases dated as of October 1, 2004 between VEF III Funding, LLC and the Company.

10 .51(18) Amendment No. 5 to IONA Independent Software Vendor Agreement dated December 20, 2004, between IONA Technologies, Inc. and the Company.

10 .52(19) Agreement to Assign Lease and Sublease dated as of January 26, 2005 between the Company and 100 Spear Street Owners Corporation.

10 .53(19) Letter dated January 26, 2005 amending Agreement to Assign Lease and Sublease dated as of January 26, 2005 between the Company and 100 Spear Street Owners Corporation.

10 .54(20) Settlement Agreement dated for reference purposes February 4, 2005, by and between Metropolitan Life Insurance Company and the Company.

10 .55(21) Debt Conversion Agreement dated as of December 20, 2005, between the Company and Honu Holdings, LLC

21 .1(22) Subsidiaries of the Company.

23 .1 Consent of BDO Seidman, LLP.

23 .2 Consent of Stonefield Josephson, Inc.

24 .1 Power of Attorney, pursuant to which amendments to this Annual Report on Form 10-K may be filed, is included on the signature pages hereto.

31 .1 Certification of the Chief Executive Officer of the Company.

31 .2 Certification of the Chief Financial Officer of the Company.

32 .1 Certification of the Chief Executive Officer and Chief Financial Officer of the Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit	Description
3.1(1)	~~(1)~~ Amended and Restated Certificate of Incorporation.	~~Incorporated~~
3.2(6)	Certificate of Amendment of Certificate of Incorporation.
3.3(21)	Amended and Restated Bylaws.
4.1(1)	References are hereby made to Exhibits 3.1 to 3.2.
4.4(19)	Registration Rights Agreement dated November 10, 2004 among the Company and certain investors listed on Exhibit A thereto.
4.5(22)	Registration Rights Agreement dated March 8, 2006, between the Company and Honu Holdings LLC.
4.6	Certificate of Amendment of Certificate of Incorporation.
10.1(8)(a)	Equity Incentive Plan as amended through May 1, 2002 (the "Equity Incentive Plan").
10.2(1)(a)	Form of Incentive Stock Option under the Equity Incentive Plan.
10.3(1)(a)	Form of Nonstatutory Stock Option under the Equity Incentive Plan.
10.4(1)(a)	Form of Nonstatutory Stock Option (Performance-Based).
10.5(8)(a)	1996 Employee Stock Purchase Plan as amended May 1, 2002 (the "Employee Stock Purchase Plan").
10.6(1)(a)	Employee Stock Purchase Plan Offering (Initial Offering).
10.7(1)(a)	Employee Stock Purchase Plan Offering (Subsequent Offering).
10.8(1)(b)	Terms and Conditions dated January 1, 1995 between IONA Technologies LTD and the Company.
10.13(2)	Lease dated February 5, 1997 between the Company and Martin/Campus Associates, L.P.
10.20(3)(a)	2000 Non-Officer Equity Incentive Plan.
10.23(4)(b)	Independent Software Vendor Agreement dated June 30, 1998 between the Company and IONA Technologies, PLC, as amended.
10.27(5)	Amended and Restated Loan and Security Agreement dated March 31, 2002 between the Company and Silicon Valley Bank.
10.33(7)	Form of Indemnity Agreement between the Company and each of its directors and executive officers.
10.34(9)	Offer letter dated March 4, 2003 by ~~reference~~and between the Company and William Meyer.
10.35(10)	First Amendment to the ~~Company’s Registration Statement~~Amended and Restated Loan and Security Agreement dated February 28, 2003 between the Company and Silicon Valley Bank.
10.36(10)	Second Amendment to the Amended and Restated Loan and Security Agreement dated June 30, 2003 between the Company and Silicon Valley Bank.
10.37(10)	BroadVision, Inc. Change in Control Severance Benefit Plan, established effective May 22, 2003.
10.38(10)	BroadVision, Inc. Executive Severance Benefit Plan, established effective May 22, 2003.
10.39(10)	Third Amendment to the Amended and Restated Loan and Security Agreement dated June 30, 2003 between the Company and Silicon Valley Bank.
10.41(11)	Offer Letter dated September 23, 2002 between the Company and Alex Kormushoff.
10.42(11)	Fourth Amendment to the Amended and Restated Loan and Security Agreement dated January 21, 2004 between the Company and Silicon Valley Bank.
10.43(11)	Fifth Modification to Amended and Restated Loan and Security Agreement dated February 27, 2004 between the Company and Silicon Valley Bank.
10.44(13)	Assignment and Assumption of Master Lease, Partial Termination of Master Lease and Assignment and Assumption of Subleases, dated July 7, 2004, between Pacific Shores Investors, LLC and the Company.
10.45(13)	Warrant to Purchase up to 700,000 share of common stock, dated July 7, 2004, issued to Pacific Shores Investors, LLC.
10.46(13)	Triple Net Space Lease, dated as of July 7, 2004, between Pacific Shores Investors, LLC and the Company.
10.47(14)	Sixth Amendment to the Amended and Restated Loan and Security Agreement dated September 29, 2004 between the Company and Silicon Valley Bank.
10.48(15)	Securities Purchase Agreement dated as of November 10, 2004.
10.49(16)	Seventh Amendment to the Amended and Restated Loan and Security Agreement dated November 9, 2004 between the Company and Silicon Valley Bank.
10.50(17)	Agreement to Restructure Lease and To Assign Subleases dated as of October 1, 2004 between VEF III Funding, LLC and the Company.
10.51(18)	Amendment No. 5 to IONA Independent Software Vendor Agreement dated December 20, 2004, between IONA Technologies, Inc. and the Company.
10.52(19)	Agreement to Assign Lease and Sublease dated as of January 26, 2005 between the Company and 100 Spear Street Owners Corporation.
10.53(19)	Letter dated January 26, 2005 amending Agreement to Assign Lease and Sublease dated as of January 26, 2005 between the Company and 100 Spear Street Owners Corporation.
10.54(20)	Settlement Agreement dated for reference purposes February 4, 2005, by and between Metropolitan Life Insurance Company and the Company.
10.55(21)	Debt Conversion Agreement dated as of December 20, 2005, between the Company and Honu Holdings, LLC
10.56(23)	2006 Equity Incentive Plan
21.1(22)	Subsidiaries of the Company.

~83~

Table of Contents

23.1	Consent of BDO Seidman, LLP.
23.2	Consent of Stonefield Josephson, Inc.
23.3	Consent of Odenberg, Ullakko, Muranishi & Co. LLP, an independent registered public accounting firm
24.1	Power of Attorney, pursuant to which amendments to this Annual Report on Form ~~S-1~~10-K may be filed, is included on ~~April 19, 1996 as amended by Amendment No. 1 filed on May 9, 1996, Amendment No. 2 filed on May 29, 1996 and Amendment No. 3 filed on June 17, 1996.~~the signature pages hereto.
31.1	Certification of the Chief Executive Officer and Chief Financial Officer of the Company.
32.1	Certification of the Chief Executive Officer and Chief Financial Officer of the Company pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	~~(2)~~	~~Incorporated by reference to the Company’s Form~~ ~~10-K~~ ~~for the fiscal year ended December 31, 1996 filed on March 31, 1997 (SEC File No. 000-28252).~~

	~~(3)~~	~~Incorporated by reference to the Company’s Registration Statement on Form~~ ~~S-8~~ ~~filed on October 15, 2003.~~

	~~(4)~~	~~Incorporated by reference to the Company’s Form~~ ~~10-Q~~ ~~for the quarter ended June 30, 2001 filed on August 14, 2001.~~

	~~(5)~~	~~Incorporated by reference to the Company’s Form~~ ~~10-Q~~ ~~for the quarter ended March 31, 2002 filed on May 16, 2002.~~

	~~(6)~~	~~Incorporated by reference to the Company’s Proxy Statement filed on May 14, 2002.~~

	~~(7)~~	~~Incorporated by reference to the Company’s Form~~ ~~10-Q~~ ~~for the quarter ended September 30, 2002 filed on November 14, 2002.~~

	~~(8)~~	~~Incorporated by reference to the Company’s Registration Statement on Form~~ ~~S-8~~ ~~filed on August 1, 2002.~~

~~113~~

(1) Incorporated by reference to the Company's Registration Statement on Form S-1 filed on April 19, 1996 as amended by Amendment No. 1 filed on May 9, 1996, Amendment No. 2 filed on May 29, 1996 and Amendment No. 3 filed on June 17, 1996.

(2) Incorporated by reference to the Company's Form 10-K for the fiscal year ended December 31, 1996 filed on March 31, 1997 (SEC File No. 000-28252).

(3) Incorporated by reference to the Company's Registration Statement on Form S-8 filed on October 15, 2003.

(4) Incorporated by reference to the Company's Form 10-Q for the quarter ended June 30, 2001 filed on August 14, 2001.

(5) Incorporated by reference to the Company's Form 10-Q for the quarter ended March 31, 2002 filed on May 16, 2002.

(6) Incorporated by reference to the Company's Proxy Statement filed on May 14, 2002.

(7) Incorporated by reference to the Company's Form 10-Q for the quarter ended September 30, 2002 filed on November 14, 2002.

(8) Incorporated by reference to the Company's Registration Statement on Form S-8 filed on August 1, 2002.

(9) Incorporated by reference to the Company's Form 10-Q for the quarter ended March 31, 2003 filed on May 14, 2003.

(10) Incorporated by reference to the Company's Form 10-Q for the quarter ended June 30, 2003 filed on August 14, 2003.

(11) Incorporated by reference to the Company's Form 10-K for the fiscal year ended December 31, 2003 filed on March 15, 2004.

(13) Incorporated by reference to the Company's Current Report on Form 8-K filed on August 9, 2004.

(14) Incorporated by reference to the Company's Current Report on Form 8-K filed on October 25, 2004.

(15) Incorporated by reference to the Company's Current Report on Form 8-K filed on November 10, 2004.

(16) Incorporated by reference to the Company's Current Report on Form 8-K filed on November 17, 2004.

(17) Incorporated by reference to the Company's Current Report on Form 8-K filed on November 19, 2004.

(18) Incorporated by reference to the Company's Current Report on Form 8-K filed on December 23, 2004.

(19) Incorporated by reference to the Company's Current Report on Form 8-K filed on February 1, 2005.

(20) Incorporated by reference to the Company's Current Report on Form 8-K filed on February 16, 2005.

(21) Incorporated by reference to the Company's Current Report on Form 8-K filed on December 22, 2005.

(22) Incorporated by reference to the Company's Form 10-K for the fiscal year ended December 31, 2005 filed on June 9, 2006.

(23) Incorporated by reference to the Company's Registration Statement on Form S-8 filed on November 6, 2006.

(a) Represents a management contract or compensatory plan or arrangement.

(b) Confidential treatment requested.


	~~(9)~~	~~Incorporated by reference to the Company’s Form~~ ~~10-Q~~ ~~for the quarter ended March 31, 2003 filed on May 14, 2003.~~

~84~


~~(10)~~	~~Incorporated by reference to the Company’s Form~~ ~~10-Q~~ ~~for the quarter ended June 30, 2003 filed on August 14, 2003.~~

~~(11)~~	~~Incorporated by reference to the Company’s Form~~ ~~10-K~~ ~~for the fiscal year ended December 31, 2003 filed on March 15, 2004.~~

~~(12)~~	~~Incorporated by reference to the Company’s Form~~ ~~10-Q~~ ~~for the quarter ended March 31, 2004 filed on May 10, 2004.~~

~~(13)~~	~~Incorporated by reference to the Company’s Current Report on Form~~ ~~8-K~~ ~~filed on August 9, 2004.~~

~~(14)~~	~~Incorporated by reference to the Company’s Current Report on Form~~ ~~8-K~~ ~~filed on October 25, 2004.~~

~~(15)~~	~~Incorporated by reference to the Company’s Current Report on Form~~ ~~8-K~~ ~~filed on November 10, 2004.~~

~~(16)~~	~~Incorporated by reference to the Company’s Current Report on Form~~ ~~8-K~~ ~~filed on November 17, 2004.~~

~~(17)~~	~~Incorporated by reference to the Company’s Current Report on Form~~ ~~8-K~~ ~~filed on November 19, 2004.~~

~~(18)~~	~~Incorporated by reference to the Company’s Current Report on Form~~ ~~8-K~~ ~~filed on December 23, 2004.~~

~~(19)~~	~~Incorporated by reference to the Company’s Current Report on Form~~ ~~8-K~~ ~~filed on February 1, 2005.~~

~~(20)~~	~~Incorporated by reference to the Company’s Current Report on Form~~ ~~8-K~~ ~~filed on February 16, 2005.~~


	~~(a)~~	~~Represents a management contract or compensatory plan or arrangement.~~

	~~(b)~~	~~Confidential treatment requested.~~


~~(21)~~	~~Incorporated by reference to the Company’s Current Report on Form~~ ~~8-K~~ ~~filed on December 22, 2005.~~

~~(22)~~	~~Filed previously with the Company’s Form 10-K for the fiscal year ended December 31, 2004, filed on March 15, 2005.~~

~~114~~

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

~~(Mark one)~~x
þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the Year Ended December 31, ~~2005~~

OR
2006
oOR
¨		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the transition period from to

Commission File Number 0-28252

Delaware		94-3184303
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)


~~Delaware~~ 1600 Seaport Blvd, 5th Fl., North Bldg.		~~94-3184303~~
~~(State or Other Jurisdiction of~~ ~~Incorporation or Organization)~~ Redwood City, California		~~(I.R.S. Employer~~ ~~Identification No.)~~ 94063
~~585 Broadway, Redwood City,~~ ~~California~~ (Address of principal executive offices)		~~94063~~ (Zip ~~Code)~~code)
(650) 331-1000 (Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 par value (Title of Class)


~~PART~~Part I
Item 1.		Business	1
Item 1A.		Risk Factors	97
Item 1B.	Unresolved Staff Comments	14
Item 2.	Properties	~~Properties~~	1814
Item 3.		Legal Proceedings	1814
Item 4.		Submission of Matters to a Vote of Security Holders	1914

~~PART~~Part II
Item 5.		Market for ~~Registrant’s~~Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	2015
Item 6.		Selected Consolidated Financial Data	2216
Item 7.		~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of Operations	2318
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk	5331
Item 8.		Financial Statements and Supplementary Data	5432
Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	9866
Item 9A.		Controls and Procedures	9866
Item 9B.		Other Information	9967

~~PART~~Part III
Item 10.		Directors, ~~and~~ Executive Officers ~~of the Registrant~~and Corporate Governance	9968
Item 11.		Executive Compensation	~~102~~69
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	~~107~~77
Item 13.		Certain Relationships and Related Transactions, and Director Independence	~~108~~78
Item 14.		Principal Accountant Fees and Services	~~108~~79

~~PART~~Part IV
Item 15.		Exhibits and Financial Statement Schedules	~~109~~80
~~SIGNATURES~~			~~110~~
~~EXHIBIT 4.5~~SIGNATURES		81
EXHIBIT 4.6
EXHIBIT 23.1
EXHIBIT 23.2
EXHIBIT 23.3
EXHIBIT 31.1
~~EXHIBIT 31.2~~
EXHIBIT 32.1


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

Overview and Industry Background		1
~~The~~ BroadVision Solution		2
~~Products~~Technology		3	4
~~BroadVision Self-Service Extensions~~Services		3	4
~~Product Bundles~~Customers		4	5
~~Technology~~		4
~~Alliances~~		5
~~Services~~		5
~~Customers~~		6
Sales and Marketing		6	5
~~Competition~~Alliances		7	5
Competition	6
Intellectual Property and Other Proprietary Rights		8	6
Employees		8	7
Executive Officers		8	7


l	•	Personalization ~~— BroadVision’s~~ -- Our advanced personalization technology, including session and event-based observations and transaction information, provide a better understanding of site visitors and allow our customers to dynamically tailor content to ~~them.~~them


l	•	Ease of use ~~— BroadVision~~ -- Our applications and tools are designed with graphical user interfaces that allow non-technical business managers to modify business rules and content in real ~~time.~~time


l	•	~~Unification~~ — BroadVision’s robust self-service framework pre-integrates the technologies necessary to deploy content-rich, process-aware, user-centric portals, including data integration, business logic, process logic and user experience.

	•	~~All-in~~~~-one solution — BroadVision provides a significant portion of needed functionalityout-of-the-box. This accelerates time to value and reduces Information Technology cost and complexity.~~

	•	~~Legacy integration~~ — A comprehensive set of application programming interfaces (APIs) allows for rapid, seamless integration with a variety of legacy business systems such as Oracle, PeopleSoft, SAP and custom mainframe systems.

	•	Secure transaction processing ~~— BroadVision~~ -- Our applications provide secure handling of a wide range of commercial and financial services transactions including order pricing and discount/incentive handling,


		tax computation, shipping and handling charges, payment authorization, credit card processing, order tracking, news and stock feeds through a combination of built-in functionality and integration with third-party ~~products.~~products


l	•	Multi-platform availability ~~— BroadVision~~ -- Our applications are optimized for a variety of hardware and software platforms including IBM AIX, Sun Solaris, Microsoft Windows NT and ~~Hewlett-Packard’s~~Hewlett-Packard's HP-UX. Supported databases include Oracle, Sybase, Informix, IBM and Microsoft SQL Server. Supported application servers include WebLogic, WebSphere and SunOne. ~~BroadVision~~We also ~~supports~~support Open Source platforms, such as Linux with Jboss and ~~Hypersonic.~~Hypersonic


l	•	Multilingual/multicurrency ~~— BroadVision~~ -- Our applications are global ready and designed to support multiple languages ~~(Arabic,~~(including Arabic, Chinese, Hebrew, Japanese, Korean, Slovakian, Turkish and most Western European languages) and a wide range of currencies, including the ~~euro.~~euro

l
	BroadVision ~~Staging Services~~^{tme-business Methodology}

l
	•	~~TAS~~~~(Total Agility Suite) is a risk-free introduction to BroadVision Process. It includes a~~ ~~60-day~~Search™ BroadVision Process software license (Designer, Developer and Server Editions) and the necessary training and specialized services to develop a mutually agreed upon web-based self-service business process. Customers purchase the bundle, or the license expires, after the~~60-day~~ ~~trial.~~

	•	~~PAS~~~~(Portal Agility Suite) is a pre-integrated product bundle that includes BroadVision Portal, BroadVision Process and selected BroadVision Content Services; anall-in-one solution that makes it easier (through BroadVision Process) to keep pace with changing business requirements.~~

	•	~~CAS~~~~(Commerce Agility Suite) is a pre-integrated product bundle that includes BroadVision Commerce, BroadVision eMarketing, BroadVision Process and selected BroadVision content services; anall-in-one commerce solution that makes it easier (through BroadVision Process) to keep pace with changing business requirements.~~

l
	*~~Open Standards-Based Architecture~~* On-Demand and Collaborative Human Resource Management ™


	•	~~developing and supporting marketing programs to enhance customer loyalty;~~

	•	~~building market awareness through press and industry analyst relations;~~

	•	~~generating and developing marketing and sales leads;~~


~~ITEM 1.~~	*~~BUSINESS~~*


	*~~Our Business~~*


	*~~Corporate Information~~*

l
	*~~BroadVision Portal~~*^tme-Commerce


	•	~~producing and maintaining marketing collateral and sales tools;~~

	•	~~developing and supporting marketing programs associated with various alliance partners; and~~

	•	~~developing materials associated with industry solutions.~~


	• l	in-house development efforts by prospective customers or partners;


	• l	other vendors of application software or application development platforms and tools directed at interactive commerce and portal applications, such as Art Technology Group, BEA Systems, IBM Corporation, Microsoft, Oracle ~~SAP~~ and ~~Vignette; and~~SAP.


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


	•	~~personalization and other features;~~

	•	~~integration of portal applications and framework;~~

	• l	availability of knowledgeable developers;


	*~~We have a history of losses and our future profitability on a quarterly or annual basis is uncertain, which could have a harmful effect on our business and the value of BroadVision common stock.~~*


	*~~We face liquidity challenges and may need additional near-term financing.~~*


	~~Our management identified a material weakness in the effectiveness of our internal control over financial reporting as of December~~quarters ended March 31, 2005, June 30, 2005, September 30, 2005, ~~and restated our historical operating results, and we cannot assure you that additional material weaknesses will not be discovered or additional restatements will not be made in the future.~~


	Our business currently depends on revenue related to our BroadVision Self-Service Suite, and if the market does not increasingly accept this product and related products and services, our revenue may continue to decline.


	*~~If we are unable to keep pace with the rapid technological changes in online commerce and communication, our products and services may fail to be competitive.~~*


	•	~~develop leading technologies;~~

	•	~~enhance our existing products and services;~~

	•	~~develop new products and services that address the increasingly sophisticated and varied needs of our prospective customers; and~~

	•	~~respond to technological advances and emerging industry standards and practices on a timely and cost-effective basis.~~


	*~~Our sales and product implementation cycles are lengthy and subject to delay, which make it difficult to predict our quarterly results.~~*


	Because our quarterly operating results are volatile and difficult to predict, our quarterly operating results in one or future periods are likely to fluctuate significantly, which could cause our stock price to decline if we fail to meet the expectations of securities analysts or investors.


	•	~~introduction of products and services and enhancements by us and our competitors;~~

	•	~~competitive factors that affect our pricing;~~

	•	~~market acceptance of new products;~~

	•	~~the mix of products sold by us;~~

	•	~~changes in our pricing policies or our competitors;~~

	•	~~changes in our sales incentive plans;~~

	•	~~the budgeting cycles of our customers;~~

	•	~~customer order deferrals in anticipation of new products or enhancements by us or our competitors or because of macro-economic conditions;~~

	•	~~nonrenewal of our maintenance agreements, which generally automatically renew for one-year terms unless earlier terminated by either party upon90-days~~ ~~notice;~~

	•	~~product life cycles;~~

	•	~~changes in strategy;~~

	•	~~seasonal trends;~~

	•	~~the mix of distribution channels through which our products are sold;~~

	•	~~the mix of international and domestic sales;~~

	•	~~the rate at which new sales people become productive;~~

	•	~~changes in the level of operating expenses to support projected growth;~~

	•	~~increase in the amount of third party products and services that we use in our products or resell with royalties attached;~~

	•	~~fluctuations in the recorded value of outstanding common stock warrants that will be based upon changes to the underlying market value of BroadVision common stock;~~

	•	~~the timing of receipt and fulfillment of significant orders; and~~

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


	Because a significant portion of our sales activity occurs at the end of each fiscal quarter, delays in a relatively small number of license transactions could adversely affect our quarterly operating results.


	*We have substantially modified our business and operations and will need to manage and support these changes effectively in order for our business plan to succeed.* *We have ~~substantially modified our business and operations and will need to manage and support these changes effectively in order for our business plan to succeed.~~*


	*~~Modifications to our business and operations may not result in a reduced cost structure as anticipated and may otherwise adversely impact our productivity.~~*


	*~~We are dependent on direct sales personnel and third-party distribution channels to achieve revenue growth.~~*


	*~~Failure to maintain relationships with third-party systems integrators could harm our ability to achieve our business plan.~~*

Position

~~Name~~Pehong Chen

~~Position~~Chairman, President, Chief Executive Officer and Interim Chief Financial Officer

~~Pehong Chen~~

~~Chairman of the Board, Chief Executive Officer and President~~

~~William E. Meyer~~

~~Executive Vice President and Chief Financial Officer~~