| Organization And Summary Of Significant Accounting Policies | Note 1---Organization and Summary of Significant Accounting Policies
Nature of Business
BroadVision, Inc. (collectively with its subsidiaries, "BroadVision" or "we") was incorporated in the state of Delaware on May 13, 1993, and has been a publicly traded corporation since 1996. We develop, market, and support enterprise portal applications that enable companies to unify their e-business infrastructure and conduct both interactions and transactions with employees, partners, and customers through a personalized self-service model that increases revenues, reduces costs, and improves productivity.
Principles of Consolidation
The accompanying Consolidated Financial Statements include our and our subsidiaries’ accounts. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of Consolidated Financial Statements in conformity with U.S. GAAP requires management to make certain assumptions and estimates that affect reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate the reasonableness of our estimates, including those related to receivable reserves, stock-based compensation, investments and income taxes, as well as contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates using different assumptions or conditions. We believe the following significant accounting policies reflect the more significant judgments and estimates used in the preparation of our Consolidated Financial Statements.
Revenue Recognition
Overview
Our revenue consists of fees for licenses of our software products, maintenance, consulting services and training.
Our revenue recognition policies comply with Accounting Standards Codification ASC 985-605, Software: Revenue Recognition , and Staff Accounting Bulletin SAB 104, Revenue Recognition . In October 2009, the FASB amended the accounting standards in Accounting Standards Update ("ASU") 2009-13 (an update to ASC 605-25) ("ASU 2009-13") for certain multiple deliverable revenue arrangements to: 1) provide updated guidance on whether multiple deliverables exist, how the deliverables in an arrangement should be separated, and how the consideration should be allocated; 2) require an entity to allocate revenue in an arrangement using best estimated selling price ("BESP") of deliverables if a vendor does not have VSOE of selling price or third-party evidence ("TPE") of selling price; and 3) eliminate the use of the residual method and require an entity to allocate revenue using the relative selling price method.
We recognize revenue when all four of the following revenue recognition criteria have been met:
•
Persuasive evidence of an arrangement exists;
•
We have delivered the product or performed the service;
•
The fee is fixed or determinable; and
•
Collection is probable.
We qualify the second of the above listed criteria differently for different types of revenues, as follows.
Software License Revenue, Non-Subscription and Non-Hosted Products
Delivery of non-subscription and non-hosted software products is considered to have occurred when title to the physical media and risk of loss have been transferred to the customer, which generally occurs when media containing the licensed programs is provided to a common carrier. In case of electronic delivery, delivery occurs when the customer is given access to the licensed programs. For products that cannot be used without a licensing key, the delivery requirement is met when the licensing key is made available to the customer. We do not grant a right of return for non-subscription or non-hosted software products. We recognize revenue upon delivery of our software.
Software License Revenue, Subscription Products or Hosted Products
Although we made the software available to the customer at a particular point in time, the delivery of subscription software products (such as QuickSilver ) and hosted software products (such as Vmoso, Clearvale and Clear ) is considered to have occurred ratably over the duration of the contract. We recognize revenue ratably over the contract periods.
Services Revenues
Consulting services revenues and training revenues are recognized as such services are performed. These services are not essential to the functionality of the software. We record reimbursements from our customers for out-of-pocket expenses as an increase to services revenues.
Maintenance revenue, which includes revenue that is derived from software license agreements that entitle the customers to technical support and future unspecified enhancements to our products, is recognized ratably over the related agreement period, which time period is generally twelve months.
Cash and Cash Equivalents, and Short-term Investments
We consider all debt with remaining maturities of three months or less at the date of purchase to be cash equivalents. Short-term investments consist of debt that has a remaining maturity of less than one year as of the date of the balance sheet.
Management determines the appropriate classification of short-term investments at the time of purchase and evaluates such designation as of each balance sheet date. All short-term investments to date have been classified as held-to-maturity and carried at amortized cost, which approximates fair market value, on our Consolidated Balance Sheets. Our held-to-maturity securities did not have any gross unrealized gains and losses as of December 31, 2016 and 2015, respectively. Our short-term investments’ contractual maturities occur before July 2017. Total interest income during fiscal years 2016 and 2015 was $86,000 and $76,000 , respectively.
Research and Development and Software Development Costs
ASC 985-20, Cost of Software to be Sold, Leased, or Marketed ("ASC 985-20"), requires capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based on our product development process, technological feasibility is established upon the completion of a working model. To date, costs incurred by us from the completion of the working model to the point at which the product is ready for general release have been insignificant. Accordingly, we have charged all such costs to research and development expenses in the period incurred.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense, which is included in sales and marketing expense in the accompanying Consolidated Statements of Comprehensive Loss, amounted to $46,000 and $22,000 in 2016 and 2015, respectively.
Receivable Reserves
Occasionally, our customers experience financial difficulty after we recognize the revenue but before payment has been received. We maintain receivable reserves for estimated losses resulting from the inability of our customers to make required payments. Our normal payment terms are generally 30 to 90 days from the invoice date. If the financial condition of our customers were to deteriorate, resulting in their inability to make the contractual payments, additional reserves may be required. Losses from customer receivables in the two-year period ended December 31, 2016, have not been significant. If all efforts to collect a receivable fail, and the receivable is considered uncollectible, such receivable would be written off against the receivable reserve.
Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments, and accounts receivable. We maintain our cash and cash equivalents and short-term investments with high-quality institutions. Our management performs ongoing credit evaluations of our customers and requires certain of these customers to provide security deposits or letters of credit.
Cash deposits and cash equivalents in foreign countries of approximately $1.8 million and $3.4 million on December 31, 2016 and 2015, respectively, are subject to local banking laws and may bear higher or lower risk than cash deposited in the United States. As part of our cash and investment management processes, we perform periodic evaluations of the credit standing of the financial institutions and we have not sustained any credit losses from instruments held at these financial institutions. From time to time, our financial instruments maintained in our foreign subsidiaries may be subject to political risks or instability that may arise in foreign countries where we operate.
For the year ended December 31, 2016, Indian Railways Catering and Tourism Corporation Limited accounted for 12% of our total revenues. For the year ended December 31, 2015, no customer accounted for more than 10% of our total revenues.
Property and Equipment
Property and equipment are stated at cost and depreciated on a straight-line basis over their estimated useful lives (generally two years for software, three years for computer equipment and four years for furniture and fixtures). Leasehold improvements are amortized over the lesser of the remaining life of the lease term or their estimated useful lives.
Maintenance and repairs are charged to operations as incurred. When assets are retired or otherwise disposed of, the cost and accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is reflected in operations in the period realized.
Fair Value of Financial Instruments
We adopted the provisions of ASC 820-10, Fair Value Measurement ("ASC 820-10 "). ASC 820-10 establishes a framework for measuring fair value and requires disclosures about fair value measurements by establishing a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:
•
Level 1 – Quoted prices in active markets for identical assets or liabilities.
•
Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
•
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
We measure the following financial assets at fair value on a recurring basis. The fair value of these financial assets as of December 31, 2016 and 2015 (in thousands) were as follows
Fair Value at Reporting Date Using
Quoted
Prices in
Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
December 31,
Assets
Inputs
Inputs
2016
(Level 1)
(Level 2)
(Level 3)
Cash and cash equivalents:
Cash
$ 3,664
$ 3,664
$
-
$
-
Money market funds
8,066
8,066
-
-
Total cash and cash equivalents
$ 11,730
$ 11,730
$
-
$
-
Fixed income securities
Corporate bonds - financial
$ 2,201
$
-
$ 2,201
$
-
Corporate bonds - industrial
2,275
-
2,275
-
U.S. Treasury Securities
3,498
-
3,498
-
Total fixed income securities
$ 7,974
$
-
$ 7,974
$
-
Fair Value at Reporting Date Using
Quoted
Prices in
Active
Significant
Markets for
Other
Significant
Identical
Observable
Unobservable
December 31,
Assets
Inputs
Inputs
2015
(Level 1)
(Level 2)
(Level 3)
Cash and cash equivalents:
Cash
$ 8,909
$ 8,909
$
-
$
-
Money market funds
691
691
-
-
Total cash and cash equivalents
$ 9,600
$ 9,600
$
-
$
-
Fixed income securities
Corporate bonds - financial
$ 3,267
$
-
$ 3,267
$
-
Corporate bonds - industrial
5,051
-
5,051
-
U.S. Treasury Securities
2,488
-
2,488
-
Certificates of deposit
8,725
-
8,725
-
Total fixed income securities
$ 19,531
$
-
$ 19,531
$
-
Level 2 securities are priced using quoted market prices for similar instruments, nonbinding market prices that are corroborated by observable market data, or discounted cash flow techniques.
The fair value of cash and cash equivalents, short-term investments, accounts receivable and accounts payable for all periods presented approximates their respective carrying amounts due to the short-term nature of these balances.
Employee Benefit Plans
Amended and Restated 2006 Equity Incentive Plan: At our 2006 annual meeting held on August 8, 2006, our stockholders approved the adoption of our 2006 Equity Incentive Plan (the "Equity Plan"). At that time, our 1996 Equity Incentive Plan (the "Prior Equity Plan") was terminated and replaced by the Equity Plan. On January 21, 2009, our Board of Directors adopted the Amended and Restated BroadVision, Inc. 2006 Equity Incentive Plan (the "Amended and Restated Plan"), which was subsequently approved by our stockholders on April 30, 2009. The Amended and Restated Plan includes an "evergreen" provision that provides for automatic annual increases in the number of shares authorized for issuance. As of December 31, 2016, we had 1,223,824 shares of our Common Stock reserved for issuance under the plan. In addition, the number of shares of our Common Stock available for issuance under the Plan will automatically increase on January 1st of each year for a period of ten years, commencing on January 1, 2010 and ending on (and including) January 1, 2019. Further, our Board of Directors may grant incentive or nonqualified stock options at prices not less than 100% of the fair market value of our common stock, as determined by the Board of Directors, at the date of grant. The vesting of individual options may vary but in each case at least 20% of the total number of shares subject to vesting will become exercisable per year. These options generally expire ten years after the grant date.
2000 Non-Officer Plan: In February 2000, we adopted our 2000 Non-Officer Plan under which 106,666 shares of common stock were reserved for issuance to selected employees, consultants, and our affiliates who are not Officers or Directors. As of December 31, 2016, we had 72,625 shares available for issuance under the 2000 Non-Officer Plan. Under the 2000 Non-Officer Plan, we may grant non-statutory stock options at prices not less than 85% of the fair market value of our common stock at the date of grant. Options granted under the 2000 Non-Officer Plan generally vest over two years and are exercisable for not more than ten years.
Employee Stock Purchase Plan: We also have a compensatory Employee Stock Purchase Plan (the "Purchase Plan") that enables employees to purchase, through payroll deductions, shares of our common stock at a discount from the market price of the stock at the time of purchase.
As of December 31, 2016, we had 92,207 shares available for issuance under the Purchase Plan. The Purchase Plan permits eligible employees to purchase common stock with a value equivalent to a percentage of the employee's earnings, not to exceed the lesser of 15% of the employee's earnings or $25,000 under Section 423(b)(8) of the Internal Revenue Code of 1986, at a price equal to the lesser of 85% of the fair market value of the common stock on the date of the offering or the date of purchase. In accordance with ASC 718-10, Compensation – Stock Compensation ("ASC 718-10"), we record stock-based compensation expense related to the fair value of the employee purchase rights in our Consolidated Statements of Comprehensive Loss. During 2016 and 2015, we received a total of $181,000 and $ 275,000 , respectively, primarily from the purchase of shares under the Purchase Plan.
Stock-Based Compensation
Under the fair value recognition provisions of ASC 718-10, share-based compensation cost is estimated at the grant date based on the fair value of the award and is recognized as expense, net of estimated pre-vesting forfeitures, ratably over the vesting period of the award. In addition, the adoption of ASC 718-10 requires additional accounting related to the income tax effects and disclosure regarding the cash flow effects resulting from share-based payment arrangements. Calculating share-based compensation expense requires the input of highly subjective assumptions, including the expected term of the share-based awards, stock price volatility, dividend yield, risk free interest rates, 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 years ended December 31, 2016 and 2015, is as follows (in thousands):
Years Ended December 31,
2016
2015
Cost of services
$ 127
$ 162
Research and development
272
309
Sales and marketing
297
355
General and administrative
179
238
$ 875
$ 1,064
We adopted the alternative transition method for calculating the tax effects of stock-based compensation pursuant to ASC 718-10. The alternative transition method includes simplified methods to establish the beginning balance of the additional paid-in capital pool ("APIC pool") related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the APIC pool and Consolidated Statements of Cash Flows of the tax effects of employee stock-based compensation awards that are outstanding upon adoption of ASC 718-10.
The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model based on assumptions noted in the following table below. The expected term of our options represents the period that our stock-based awards are expected to be outstanding based on the simplified method provided for in SAB 107, as amended by SAB No. 110, Share-Based Payment . Because we do not have sufficient historical exercise data, we used the simplified method for estimating the stock option expected term. The risk-free interest rate for periods related to the expected life of the options is based on the U.S. Treasury yield curve in effect at the time of grant. The expected volatility is based on historical volatilities of our stock over the expected life of the option. The expected dividend yield is zero , as we do not anticipate paying dividends in the near future.
The following assumptions were used to determine stock-based compensation during the years ended December 31, 2016 and 2015:
Years Ended December 31,
2016
2015
Expected volatility
67
%
59
%
Expected dividends
0
%
0
%
Expected term (in years)
6.25
year
6.25
year
Risk free interest rate
1.5
%
2
%
The following assumptions were used to determine the expense related to the Employee Stock Purchase Plan:
Years Ended December 31,
2016
2015
Expected volatility
45
%
22
%
Weighted average volatility
42
%
29
%
Risk-free interest rate
0.2
%
0
%
Expected term (in years)
1
year
1
year
Expected dividend yield
0
%
0
%
The weighted-average fair value of the purchase rights granted in the years ended December 31, 2016 and 2015, were $1.50 and $1.40 , respectively.
Earnings Per Share Information
Basic loss per share is computed using the weighted-average number of shares of common stock outstanding. Diluted net loss per share is computed using the weighted-average number of shares of common stock outstanding and, when dilutive, common equivalent shares from outstanding stock options using the treasury stock method. The following table sets forth the basic and diluted net loss per share computational data for the periods presented (in thousands, except per share amounts):
Years Ended December 31,
2016
2015
Net loss
$ (9,485)
$ (11,437)
Weighted-average common shares outstanding used to compute basic and diluted net loss per share
4,924
4,857
Basic and diluted net loss per share
$ (1.93)
$ (2.36)
Foreign Currency Transactions
The functional currencies of all foreign subsidiaries are the local currencies of the respective countries. Assets and liabilities of these subsidiaries are translated into U.S. dollars at the balance sheet date. Income and expense items are translated at average exchange rates for the period. Foreign exchange gains and losses resulting from the remeasurement of foreign currency assets and liabilities are included as other income, net in the Consolidated Statements of Comprehensive Loss. For the years ended December 31, 2016 and 2015, translation loss was $228,000 and $6,000 , respectively, and is included in other comprehensive loss account in the Consolidated Statements of Stockholder's Equity.
Discontinued Foreign Subsidiary
In September 2016, we completed the sale of BroadVision Scandinavia AB. The total sale price was $10,000 , of which the Company received cash payment of $7,500 in 2016, and the remainder is to be paid in 2017 as stipulated in the underlying agreement. Based on the assets and liabilities attributed to BroadVision Scandinavia AB on the date of the sale, and the estimated costs and expenses incurred in connection with the sale, the Company recorded a gain of $230,000 in the consolidated statement of comprehensive loss for the year ended December 31, 2016.
In January 2015, we wound down the operations of BroadVision B .V. . Based on the assets and liabilities attributed to BroadVision B.V. on the date the legal entity was closed, the Company recorded a gain of $183,000 in the consolidated statement of comprehensive loss for the year ended December 31, 2015.
Comprehensive Loss
Comprehensive loss includes net loss and other comprehensive loss, which consist of cumulative translation adjustments. Total accumulated other comprehensive loss is displayed as a separate component of Consolidated Statement of Stockholder's Equity in the accompanying Consolidated Balance Sheets. The accumulated balance of other comprehensive loss, consisting of foreign currency translation adjustment and foreign currency translation reclassification upon sale of foreign subsidiary , net of taxes is as follows (in thousands):
Accumulated
Other
Comprehensive
Loss
Balance, December 31, 2015
$ (739)
Foreign currency translation adjustment
2
Foreign currency translation reclassified into earnings upon sale of foreign subsidiary
(230)
Balance, December 31, 2016
$ (967)
Income Taxes and Deferred Tax Assets
Income taxes are computed using an asset and liability approach in accordance with ASC 740-10, Income Taxes ("ASC 740-10"), which requires the recognition of taxes payable or refundable for the current year and deferred tax assets and liabilities for the future tax consequences of events that have been recognized in our Consolidated Financial Statements or tax returns. The measurement of current and deferred tax assets and liabilities is based on provisions of the enacted tax law; the effects of future changes in tax laws or rates are not anticipated. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that, based on available evidence, is not expected to be realized.
We analyze our deferred tax assets with regard to potential realization. We have established a valuation allowance on our deferred tax assets to the extent that management has determined that it is more likely than not that some portion or all of the deferred tax asset will not be realized based upon the uncertainty of their realization. We consider the effects of estimated future taxable income, current economic conditions and ongoing prudent and feasible tax planning strategies in assessing the amount of the valuation allowance.
Segment and Geographic Information
We operate in one segment, electronic commerce business solutions. Our CEO is our chief operating decision maker. 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.
Comparative Figures
Certain comparative figures have been reclassified to conform to the current year presentation. These reclassifications had no effect on net income, total assets or cash flow
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers: Topic 606 (ASU 2014-09), which amended the existing accounting standards for revenue recognition and will supersede most existing revenue recognition guidance under U.S. GAAP. ASU 2014-09 establishes princ iples to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 is effective for us using either of two methods: (i) retrospective application of ASU 2014-09 to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09; or (ii) retrospective application of ASU 2014-09 with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application and providing certain additional disclosures as defined per ASU 2014-09. As currently issued and amended, ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, with early adoption permitted but not earlier than the original effective date. Accordingly, the updated standard is effective for us in the first quarter of fiscal 2018 and we do not plan to early adopt. We have not yet selected a transition method and we are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures. While we are continuing to assess all potential impacts of the new standard, we currently believe the most significant impact relates to our accounting for arrangements that include term-based software licenses bundled with maintenance and support. Undercurrent GAAP, the revenue attributable to these software licenses is recognized ratably over the term of the arrangement because VSOE does not exist for the undelivered maintenance and support element as it is not sold separately. The requirement to have VSOE for undelivered elements to enable the separation of revenue for the delivered software licenses is eliminated under the new standard. Accordingly, under the new standard we will be required to recognize as revenue a portion of the arrangement fee upon delivery of the software license. While we currently expect revenue related to our professional services and cloud offerings for business enterprises, individuals and teams to remain substantially unchanged, we are still in the process of evaluating the impact of the new standard on these arrangements. Due to the complexity of certain of our contracts, the actual revenue recognition treatment required under the new standard for these arrangements may be dependent on contract-specific terms and vary in some instances.
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements — Going Concern (Subtopic 205-40). The new guidance addresses management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. Management’s evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued. The standard will be effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted. ASU 2014-15 will be effective for the company beginning in the first quarter of fiscal 2017. The Company does not believe that the adoption of this guidance will have a material impact on its Consolidated Financial Statements.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) ("ASU 2016-02"), which requires recognition of an asset and liability for lease arrangements longer than twelve months. ASU 2016-02 will be effective for the Company beginning in the first quarter of fiscal 2019. Early application is permitted, and it is required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The Company is currently assessing the potential impact of adopting this new guidance on its Consolidated Financial Statements.
In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"), which simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 will be effective for the Company beginning in the first quarter of fiscal 2017. Early application is permitted in any interim or annual period, with any adjustments reflected as of the beginning of the fiscal year of adoption. We believe the new standard will cause volatility in our effective tax rates and diluted earnings per share due to the tax effects related to share-based payments being recorded to the income statement. The volatility in future periods will depend on our stock price at the awards ’ vest dates and the number of awards that vest in each period. Further, we will not elect an accounting policy change to record forfeitures as they occur and will continue to estimate forfeitures at each period. |
