Notes to Consolidated Financial Statements
Note 1---Organization and Summary of Significant Accounting Policies
Nature of Business
BroadVision, Inc. (collectively with its subsidiaries, "BroadVision" or "we") was incorporated in the state of Delaware on May 13, 1993, and has been a publicly traded corporation since 1996. We develop, market, and support enterprise portal applications that enable companies to unify their e-business infrastructure and conduct both interactions and transactions with employees, partners, and customers through a personalized self-service model that increases revenues, reduces costs, and improves productivity.
On January 1, 2018, we adopted a new revenue recognition standard, Revenue from Contracts with Customers (Topic 606), which was issued by the Financial Accounting Standards Board (“FASB”) in May 2014. See Recent Accounting Pronouncements included below in this Note 1 for additional discussion of our accounting changes related to our adoption of this standard.
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.
Liquidity
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. During the year ended December 31, 2018, the Company had a net loss of $7.0 million and negative cash flow from operations of $7.1 million, and at December 31, 2018 the Company had a working capital of $1.9 million. At December 31, 2018, the Company has cash and cash equivalents of $2.6 million and no short-term investments. The Company has implemented cost reduction plans since the second half of 2017 to reduce the Company’s cash needs and reduced the cost of its operations by approximately $5 million in 2018. In January 2019,
we completed the VMSO financing, pursuant to which VMSO raised $3 million in cash from our and VMSO’s President and Chief Executive Officer and our largest stockholder and VMSO now holds all of the intellectual property and other assets related to our Clearvale and Vmoso platforms, reducing our exposure to future development and commercialization cost of Clearvale, Vmoso and MVN. The Company’s cash on hand plus VMSO financing will be sufficient to fund operations for at least twelve months from the date of issuance of these
consolidated
financial statements.
However, further cost reductions may cause voluntary departures of highly skilled technical and managerial personnel, which would have a material adverse effect on our business, internal controls, financial condition and results of operations.
We expect to opportunistically seek to raise additional funds through private or public sales of securities, strategic relationships, bank debt, financing under leasing arrangements or otherwise. If additional funds are raised through the issuance of equity securities, the percentage ownership of our current stockholders will be reduced, stockholders may experience additional dilution or any equity securities we sell may have rights, preferences or privileges senior to those of the holders of our common stock. We expect that obtaining additional financing on acceptable terms would be difficult, at best. If adequate funds are not available or are not available on acceptable terms, we may be unable to pay our liabilities as they become due, develop our products, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements, which could have a material adverse effect on our business, financial condition and future operating results.
The outcome of these matters cannot be predicted at this time. Our ability to continue as a going concern is dependent upon our ability to successfully accomplish these plans and secure sources of financing and/or reduce costs and ultimately attain profitable operations.
Revenue Recognition
On January 1, 2018, we adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification (ASC) Topic 605, Revenue Recognition (Topic 605), using the modified retrospective transition method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts have not been adjusted and continue to be reported in accordance with our historic accounting under Topic 605. The impact of adopting the new revenue standard is presented below in this Note 1.
New Revenue Accounting Policies Upon Adoption of Topic 606
Our revenue consists of fees for licenses of our software products, maintenance, consulting services and training. Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We enter into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. The transaction price is generally in the form of a fixed fee at contract inception without variable considerations. We allocate the transaction price to each distinct performance obligation based on the relative estimated standalone selling prices for each performance obligation. We then look to how control transfers to the customer in order to determine the timing of revenue recognition.
The following is a description of principal activities from which we generate revenue:
Software License Revenues-
Products with Non-Ratably Recognized Revenue
Licenses for software products with non-ratably recognized revenue (such as QuickSilver) provide the customer with a right to use the software as it exists when made available to the customer. Customers may purchase perpetual licenses or subscribe to licenses, which provide customers with the same functionality and differ mainly in the duration over which the customer benefits from the software. Revenues from such software licenses are recognized upfront at the point in time when the software is made available to the customer, which is consistent with the timing of the payments received from the customer. We do not grant a right of return for these software products.
Software License Revenues –
Products with Ratably-Recognized Revenue
These cloud offerings (such as Vmoso, Clearvale and Clear) allow customers to use software over the subscription period without taking possession of the software. Revenue related to these licenses is recognized ratably over the contract period. We receive payments from our customers in advance based on billing schedules established in each contract. Upfront payments are recorded as deferred revenue and are recognized as revenue as we perform our obligations under these contracts.
Maintenance Revenues
Maintenance revenues, which include revenues that are allocated from software license agreements that entitle the customers to technical support and future unspecified enhancements to our products, are recognized ratably over the related agreement period, which time period is generally twelve months. Customer payments are usually received annually in advance, which are recorded as deferred revenue and are recognized as revenue as we perform our obligations under these agreements.
Consulting Services Revenues
Consulting services revenues and training revenues are recognized as such services are performed based on time and cost incurred. These services are not essential to the functionality of the software. We record reimbursements from our customers for out-of-pocket expenses as an increase to services revenues.
Significant Judgments
Our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Judgment is also required to determine the timing of the recognition, as well as the standalone selling price for each distinct performance obligation. In instances where the standalone selling price is not directly observable, such as when we do not sell the product or service separately, we determine such standalone selling price using information that may include market conditions and other observable inputs.
Practical Expedients and Exemptions
We generally expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within sales and marketing expenses.
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, 2018 and 2017, respectively. Our short-term investments matured during fiscal 2018 and no short-term investment was outstanding as of December 31, 2018. Total interest income for fiscal years 2018 and 2017 was $67,000 and $129,000, 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 $6,000 and $44,000 in 2018 and 2017, 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 60 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, 2018, 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 $1.3 million and $1.6 million on December 31, 2018 and 2017, 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, 2018, no customer accounted for 10% or more of our total revenues. For the year ended December 31, 2017, Indian Railways Catering and Tourism Corporation Limited accounted for 13% of our total revenues and NTT Communications Corporation (NTTCC) accounted for 11% of our revenues.
For the year ended December 31, 2018, four customers each accounted for 10% or more of our total accounts receivable. For the year ended December 31, 2017, four customers each accounted for 10% or more of our total accounts receivable.
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, 2018 and 2017 (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
|
|
|
|
2018
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,628
|
|
$
|
1,628
|
|
$
|
-
|
|
$
|
-
|
|
Money market funds
|
|
|
946
|
|
|
946
|
|
|
-
|
|
|
-
|
|
Total cash and cash equivalents
|
|
$
|
2,574
|
|
$
|
2,574
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at Reporting Date Using
|
|
|
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
Observable
|
|
Unobservable
|
|
|
|
December 31,
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
|
|
2017
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
4,266
|
|
$
|
4,266
|
|
$
|
-
|
|
$
|
-
|
|
Money market funds
|
|
|
4,294
|
|
|
4,294
|
|
|
-
|
|
|
-
|
|
Total cash and cash equivalents
|
|
$
|
8,560
|
|
$
|
8,560
|
|
$
|
-
|
|
$
|
-
|
|
Fixed income securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds - industrial
|
|
$
|
1,000
|
|
$
|
-
|
|
$
|
1,000
|
|
$
|
-
|
|
Total fixed income securities
|
|
$
|
1,000
|
|
$
|
-
|
|
$
|
1,000
|
|
$
|
-
|
|
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, 2018, we had 1,037,306 shares of our Common Stock reserved for issuance under the Amended and Restated 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, 2018, 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, 2018, we had 64,067 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 2018 and 2017, we received a total of $10,000 and $79,000, 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, 2018 and 2017, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
2018
|
|
2017
|
Cost of services
|
|
$
|
50
|
|
$
|
116
|
Research and development
|
|
|
121
|
|
|
281
|
Sales and marketing
|
|
|
102
|
|
|
237
|
General and administrative
|
|
|
81
|
|
|
223
|
|
|
$
|
354
|
|
$
|
857
|
|
|
|
|
|
|
|
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. There were no new grants of stock options in the years ended December 31, 2018 and 2017.
The following assumptions were used to determine the expense related to the Employee Stock Purchase Plan:
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2018
|
|
2017
|
|
Expected volatility
|
|
76
|
%
|
|
48
|
%
|
|
Weighted average volatility
|
|
76
|
%
|
|
48
|
%
|
|
Risk-free interest rate
|
|
2
|
%
|
|
1
|
%
|
|
Expected term (in years)
|
|
1
|
year
|
|
1
|
year
|
|
Expected dividend yield
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
The weighted-average fair value of the purchase rights granted in the years ended December 31, 2018 and 2017, were $0.70 and $1.20, 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,
|
|
|
|
2018
|
|
2017
|
|
Net loss
|
|
$
|
(7,000)
|
|
$
|
(9,899)
|
|
Weighted-average common shares outstanding used to compute basic and diluted net loss per share
|
|
|
4,997
|
|
|
4,975
|
|
Basic and diluted net loss per share
|
|
$
|
(1.40)
|
|
$
|
(1.99)
|
|
|
|
|
|
|
|
|
|
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, 2018 and 2017, translation gain was $123,000 and translation loss $591,000, respectively, and is included in other comprehensive loss account in the Consolidated Statements of Stockholders’ Equity.
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 Stockholders’ Equity in the accompanying Consolidated Balance Sheets. The accumulated balance of other comprehensive loss, consisting of foreign currency translation adjustment, net of taxes is as follows (in thousands):
|
|
|
|
|
|
|
Accumulated
|
|
|
|
Other
|
|
|
|
Comprehensive
|
|
|
|
Loss
|
|
Balance, December 31, 2017
|
|
$
|
(1,558)
|
|
Foreign currency translation adjustment
|
|
|
123
|
|
Balance, December 31, 2018
|
|
$
|
(1,435)
|
|
|
|
|
|
|
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.
Because we have a full valuation allowance against our U.S. net deferred tax assets, the Tax Cuts and Jobs Act of 2017, or Tax Act, will not materially impact our consolidated balance sheet or consolidated statement of comprehensive loss. See Note 5.
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.
Recently issued accounting pronouncements not yet adopted
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), which requires the recognition of an asset and liability for lease arrangements longer than twelve months. ASU 2016-02 will be effective for the Company beginning in the first quarter of fiscal 2019. Entities may early adopt the ASU. The ASU requires application at the beginning of the earliest period presented using a modified retrospective approach. The Company does not believe this ASU will have a material impact on its Consolidated Financial Statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326). This ASU requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. ASU 2016-13 is effective for the Company in the first quarter of fiscal 2020. Entities may early adopt the ASU in their fiscal years beginning after December 15, 2018. The Company does not believe this ASU will have a material impact on its Consolidated Financial Statements.
In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification, amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a
statement of comprehensive income is required to be filed. This final rule became effective on November 5, 2018 and allows for the first presentation in the quarter that begins after the effective date. This Release will require additional disclosures in the Company’s interim Consolidated Financial Statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13), which modifies the disclosure requirements on fair value measurements. ASU 2018-13 is effective for the Company in the first quarter of fiscal 2020. Early adoption is permitted. The Company does not believe this ASU will have a material impact on its Consolidated Financial Statements.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement, that Is a Service Contract. ASU 2018-15 clarifies the accounting for implementation costs in cloud computing arrangements. ASU 2018-15 is effective for the Company in the first quarter of fiscal 2020. Early adoption is permitted. The Company is currently assessing the potential impact of adopting this new guidance on its Consolidated Financial Statements.
Recently adopted accounting pronouncements
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). Under the standard, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. On January 1, 2018, we adopted ASU 2014-09 applying the modified retrospective method to all contracts that were not completed as of the transition date (See below).
We adopted ASU 2016-09, Stock Compensation, during the first quarter of fiscal 2017. ASU 2016-09 requires entities to record all tax effects related to share-based payments at settlement or expiration through the statements of comprehensive income and the windfall tax benefit to be recorded when it arises, subject to normal valuation allowance considerations. Our excess tax benefits for the year ended December 31, 2017 and the cumulative effect to retained earnings from previously unrecognized excess tax benefits for Federal and state
were $2,652,000 and $1,908,000
, respectively. Our excess tax benefits for the year ended December 31, 2018 were not significant to our Consolidated Balance Sheets after offset by the related valuation allowance. 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, based upon the uncertainty of realizing such deferred tax assets, that it is more likely than not that some portion or all of the deferred tax assets will not be realized. 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.
Presentation requirements for cash flows related to employee taxes paid for withheld shares had no impact to all periods presented as such cash flows have historically been presented as financing activities. Further, we did not elect an accounting policy change to record forfeitures as they occur and thus we continue to estimate forfeitures at each period.
Revenue from Contracts with Customers
On January 1, 2018, we adopted Topic 606 applying the modified retrospective method to all contracts that were not completed as of the transition date. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with the historic accounting under Topic 605. We recorded a net increase of $605,000 to our opening retained earnings balance as of January 1, 2018 due to the cumulative effect of adopting Topic 606. For the year ended December 31, 2018, the impact on the Company’s revenue was significant by type of revenue but was not significant to total revenues as a result of the adoption of Topic 606.
The most significant impact of the new revenue standard relates to our accounting for subscription-based Quicksilver products, which are arrangements that include term-based QuickSilver software licenses bundled with maintenance and support. Under the accounting standards in effect prior to January 1, 2018, we recognized revenue attributable to these software subscription licenses ratably over the term of the arrangement. Under Topic 606, the requirement to have VSOE for undelivered elements to enable the separation of revenue for the delivered software licenses is eliminated. Accordingly, effective January 1, 2018, we began to recognize a portion of the arrangement fees allocated to QuickSilver software license as revenue upon delivery. As a result, revenues for these QuickSilver arrangements are generally recorded in an earlier period upon the adoption of Topic 606 and software license revenue recognition in the year ended December 31, 2018 has decreased. In contrast, revenue recognition related to hosted software products (cloud offerings) and professional services recognition for the year ended December 31, 2018 has increased upon the adoption of Topic 606.
Deferred revenues include unearned revenue and deferred maintenance. The following table shows the reconciliation of our deferred revenues at January 1, 2018, including both current and non-current deferred revenues from what we disclosed in the Form 10-K for the year ended December 31, 2017 and giving effect to our modified retrospective adoption of Topic 606 (in thousands):
|
|
|
|
|
|
Deferred revenues balance at December 31, 2017
|
$
|
2,056
|
Cumulative effect of adoption of Topic 606
|
|
(605)
|
Deferred revenues balance at January 1, 2018
|
$
|
1,451
|
In accordance with Topic 606, the disclosure of the impact of adoption to our Consolidated Statement of Comprehensive Loss is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
|
As reported
|
|
Amounts without adoption of Topic 606
|
|
Effect of change - higher (lower)
|
Revenue
|
|
|
|
|
|
|
|
|
|
Software licenses
|
|
$
|
2,783
|
|
$
|
3,213
|
|
$
|
(430)
|
Services
|
|
|
2,268
|
|
|
1,737
|
|
|
531
|
Total revenues
|
|
|
5,051
|
|
|
4,950
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
3,093
|
|
|
2,992
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(6,844)
|
|
|
(6,945)
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,000)
|
|
$
|
(7,101)
|
|
$
|
101
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(1.40)
|
|
$
|
(1.42)
|
|
$
|
(0.02)
|
In accordance with Topic 606, the disclosure of the impact of adoption to our Consolidated Balance Sheet is as follows. Deferred revenues includes unearned revenue and deferred maintenance. (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
As reported
|
|
Amounts without adoption of Topic 606
|
|
Effect of change - higher (lower)
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Deferred revenues - current
|
|
$
|
786
|
|
|
132
|
|
|
654
|
Deferred revenues - non-current
|
|
|
142
|
|
|
90
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
$
|
(1,269,113)
|
|
|
(1,268,407)
|
|
|
(706)
|
Disaggregation of revenues
The following table provides information about disaggregated revenue by geographical region, major product line and timing of revenue recognition (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
Geographic region:
|
|
Software Licenses - Non-hosted
|
|
Software Licenses - Hosted
|
|
Maintenance
|
|
Professional Services
|
|
Total
|
|
Americas
|
|
$
|
1,465
|
|
$
|
247
|
|
$
|
844
|
|
$
|
26
|
|
$
|
2,582
|
|
Europe
|
|
|
289
|
|
|
65
|
|
|
715
|
|
|
71
|
|
|
1,140
|
|
Asia/Pacific
|
|
|
11
|
|
|
706
|
|
|
236
|
|
|
376
|
|
|
1,329
|
|
Total revenues
|
|
$
|
1,765
|
|
$
|
1,018
|
|
$
|
1,795
|
|
$
|
473
|
|
$
|
5,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
Timing of revenue recognition:
|
|
Software Licenses - Non-hosted
|
|
Software Licenses - Hosted
|
|
Maintenance
|
|
Professional Services
|
|
Total
|
|
Transferred at a point in time
|
|
$
|
1,765
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
1,765
|
|
Transferred over time
|
|
|
|
|
|
1,018
|
|
|
1,795
|
|
|
473
|
|
|
3,286
|
|
Total revenues
|
|
$
|
1,765
|
|
$
|
1,018
|
|
$
|
1,795
|
|
$
|
473
|
|
$
|
5,051
|
|
Contract balances
The following table provides information about receivables, contract assets and deferred revenues from contracts with customers. Deferred revenues include unearned revenue and deferred maintenance (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
|
Balance at beginning of period
|
|
Increases
|
|
Decreases
|
|
Balance at end of period
|
Receivables
|
|
$
|
1,193
|
|
$
|
5,216
|
|
$
|
5,933
|
|
$
|
476
|
Contract assets - current
|
|
|
-
|
|
|
38
|
|
|
38
|
|
|
-
|
Deferred revenues-current and non-current
|
|
|
1,451
|
|
|
3,936
|
|
|
4,459
|
|
|
928
|
We receive payments from customers based upon contractual billing schedules; accounts receivables are recorded when the right to consideration becomes unconditional. Contract assets include amounts related to our contractual right to consideration for completed performance obligations not yet invoiced. Deferred revenues include payments received in advance of performance under the contract and are realized with the associated revenue recognized under the contract, which is generally within a year. Increases to deferred revenues were mainly a result of additional upfront payments received during the period, whereas decreases to deferred revenues were due to performance obligations satisfied.
Note 2---Property and Equipment
Property and equipment consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2018
|
|
2017
|
|
Furniture and fixtures
|
|
$
|
19
|
|
$
|
169
|
|
Computer and software
|
|
|
2,056
|
|
|
2,169
|
|
Leasehold improvements
|
|
|
6
|
|
|
179
|
|
Total property and equipment
|
|
|
2,081
|
|
|
2,517
|
|
Less accumulated depreciation and amortization
|
|
|
(2,066)
|
|
|
(2,482)
|
|
Property and equipment, net
|
|
$
|
15
|
|
$
|
35
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense for the years ended December 31, 2018 and 2017 was
$22,000
and
$32,000
, respectively. We retired
$433,000
and
$23
,000
in fully depreciated property and equipment in 2018 and 2017, respectively.
Note 3---Accrued Expenses
Accrued expenses consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2018
|
|
2017
|
|
Employee benefits
|
|
$
|
409
|
|
$
|
518
|
|
Income tax
|
|
|
24
|
|
|
25
|
|
Sales and other taxes
|
|
|
287
|
|
|
319
|
|
Commissions and bonuses
|
|
|
18
|
|
|
224
|
|
Deferred rent
|
|
|
-
|
|
|
57
|
|
Other
|
|
|
109
|
|
|
515
|
|
Total accrued expenses
|
|
$
|
847
|
|
$
|
1,658
|
|
|
|
|
|
|
|
|
|
Note 4---Other Non-Current Liabilities
Other non-current liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2018
|
|
2017
|
|
Deferred maintenance and unearned revenue
|
|
$
|
141
|
|
$
|
61
|
|
Other
|
|
|
422
|
|
|
522
|
|
Total other non-current liabilities
|
|
$
|
563
|
|
$
|
583
|
|
|
|
|
|
|
|
|
|
Note 5---Income Taxes
Losses before income taxes are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2018
|
|
2017
|
|
Domestic
|
|
$
|
(6,364)
|
|
$
|
(8,670)
|
|
Foreign
|
|
|
(667)
|
|
|
(1,341)
|
|
Loss before income taxes
|
|
$
|
(7,031)
|
|
$
|
(10,011)
|
|
|
|
|
|
|
|
|
|
The components of benefit for income taxes are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2018
|
|
2017
|
|
Current:
|
|
|
|
|
|
|
|
Federal
|
|
$
|
41
|
|
$
|
123
|
|
State
|
|
|
(1)
|
|
|
(3)
|
|
Foreign
|
|
|
(9)
|
|
|
(8)
|
|
Total current
|
|
|
31
|
|
|
112
|
|
Deferred:
|
|
|
|
|
|
|
|
Federal
|
|
|
730
|
|
|
(78,619)
|
|
State
|
|
|
343
|
|
|
731
|
|
Foreign
|
|
|
(253)
|
|
|
119
|
|
Total deferred
|
|
|
820
|
|
|
(77,769)
|
|
Valuation allowance
|
|
|
(820)
|
|
|
77,769
|
|
Benefit for income taxes
|
|
$
|
31
|
|
$
|
112
|
|
The differences between the benefit for income taxes computed at the federal statutory rate of
21%
and our actual income tax expense for the periods presented are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2018
|
|
2017
|
|
Expected income tax benefit
|
|
$
|
1,477
|
|
$
|
3,504
|
|
Expected state income taxes expense, net of federal tax benefit
|
|
|
267
|
|
|
470
|
|
Research and development credit
|
|
|
161
|
|
|
166
|
|
Foreign taxes and foreign loss not benefited
|
|
|
(401)
|
|
|
(347)
|
|
Change in valuation allowance
|
|
|
(820)
|
|
|
77,769
|
|
Stock-based compensation
|
|
|
(353)
|
|
|
(252)
|
|
True-ups
|
|
|
(266)
|
|
|
821
|
|
Intraperiod tax allocation
|
|
|
41
|
|
|
|
|
Unrealized tax benefits
|
|
|
(5)
|
|
|
(15)
|
|
Federal tax rate change
|
|
|
-
|
|
|
(81,939)
|
|
Others
|
|
|
(70)
|
|
|
(65)
|
|
Benefit for income taxes
|
|
$
|
31
|
|
$
|
112
|
|
|
|
|
|
|
|
|
|
Federal tax rate change was due to the reduction of federal tax rate from
35%
to
21%
under the new Tax Act.
The individual components of our deferred tax assets are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2018
|
|
2017
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
3
|
|
$
|
45
|
|
Accrued, allowance and others
|
|
|
1,521
|
|
|
1,866
|
|
Net operating losses
|
|
|
131,170
|
|
|
130,003
|
|
Tax credits
|
|
|
9,596
|
|
|
9,556
|
|
Total deferred tax assets
|
|
|
142,290
|
|
|
141,470
|
|
Less: valuation allowance
|
|
|
(142,290)
|
|
|
(141,470)
|
|
Net deferred tax assets
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
We have provided a full valuation allowance for all of our deferred tax assets as of December 31, 2018 and 2017, due to the uncertainty regarding their future realization. The total valuation allowance increased
$820,000
from December 31, 2017 to December 31, 2018.
As of December 31, 2018, we had federal and state net operating loss ("NOL") carryforwards of approximately
$591,804,000
and $
39,641,000
available to offset future regular taxable income.
Federal losses arising in tax years ending after 2017 c
an
be indefinitely carried forward. Loss arising in taxable years beginning after December 31, 2017 is limited to 80% of taxable income.
Our federal net operating loss carryforwards expire in various years from
20
19
through
203
7
, if not used. The state net operating loss carryforwards expire in various years from
20
29
to
203
8
, if not used.
Due to the projected loss for the year with a full valuation allowance against its deferred tax assets, there is no tax impact for 2017 and 2018. As of December 31, 2018, we had federal and state research and development credit carryforwards of approximately
$7,251,000
and
$6,349,000
, respectively, available to offset future tax liabilities. The federal tax credit carryforwards expire in the tax years from 2019 through 2038, if not utilized. The state research and development credits can be carried forward indefinitely.
Federal and state tax laws impose substantial restrictions on the utilization of net operating loss and credit carryforwards in the event of an "ownership change" for tax purposes, as defined in IRC Section 382. Based on a high-level ownership change analysis performed each year, management concluded that there were no ownership changes through December 31, 2018.
We follow the provision of ASC 740-10-25,
Income Taxes: Recognition
("ASC 740-10-25"). Our total amount of unrecognized tax benefits as of December 31, 2018 and 2017 were
$3,128,000
and
$3,022,000
, respectively. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate were $
160,000
and
$160,000
as of December 31, 2018 and 2017, respectively.
We recognize interest and penalties accrued related to unrecognized tax benefits in our provision for income taxes. During the years ended December 31, 2018 and 2017, respectively, we did not recognize any interest and penalties.
A reconciliation of the beginning and ending balances of the total amounts of unrecognized tax benefits for the years ended December 31, 2018 and 2017 is as follows (in thousands):
|
|
|
|
|
Balance at January 1, 2017
|
|
$
|
2,880
|
|
Additions based on tax provisions related to the current year
|
|
|
150
|
|
Additions for tax provisions of prior year
|
|
|
-
|
|
Lapse of the statute of limitation
|
|
|
(8)
|
|
Balance at December 31, 2017
|
|
|
3,022
|
|
Additions based on tax provisions related to the current year
|
|
|
116
|
|
Additions for tax provisions of prior year
|
|
|
-
|
|
Lapse of the statute of limitation
|
|
|
(10)
|
|
Balance at December 31, 2018
|
|
$
|
3,128
|
|
|
|
|
|
|
We are subject to taxation in the United States and various foreign jurisdictions. Our tax years
1999
and forward remain open in several jurisdictions due to the NOL carryforward from those tax years.
It is possible that the amount of our liability for unrecognized tax benefits may change within the next 12 months. However, an estimate of the range of possible changes cannot be made at this time.
U.S. Tax Reform
On December 22, 2017, the Tax Cuts and Job Act (“TCJA”) was signed into law. The TCJA makes broad and significantly complex changes to the U.S. corporate income tax system, including reducing the U.S. federal corporate income tax rate from 35% to 21%, transitioning the former U.S. international taxation model to a territorial tax system, and imposing a one-time deemed repatriation transition tax, payable over eight years, on accumulated earning of foreign subsidiaries. The Company is required to recognize the effect of tax law changes in the period of enactment, such as determining the repatriation transition tax, remeasuring U.S. deferred tax assets and liabilities, as well as assessing the impact of the TCJA on the realizability of deferred tax assets and liabilities. Given the significant changes resulting from, and complexities associated with, the Act, the estimated financial impact for implementing the TCJA were provisional and subject to further analysis, interpretation and clarification of the TCJA, which did result in changes to these estimates during 2018
.
In accordance with Accounting Standards Update No. 2018-05, Income Taxes (Topic 740):
Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118
, the Company recorded provisional adjustments in the year ended December 31, 2017 related to the TCJA for certain elements in which accounting had not been completed but reasonable estimates had been made. Provisional amounts related to the TCJA were subject to change during a measurement period not to extend beyond one year from the enactment date. All tax reform adjustments are complete and have been included in the financial statements as of December 31, 2018. The remeasurement of estimates resulted in a reduction of deferred tax assets of $81,939,000 for the
year ended December 31, 2017. Because t
he Company
had a full valuation allowance on its net deferred tax assets, the remeasurement did not
have an impact on the Company’s consolidated financial statements.
TCJA also includes a new Code Sec. 951A, which requires a United States shareholder (“U.S. shareholder”) of any controlled foreign corporation (“CFC”) for any taxable year to include in gross income the shareholder’s global intangible low-taxed income (“GILTI”) for such taxable year. Section 14201(d) of the Act provides that section 951A applies to taxable years of foreign corporations beginning after December 31, 2017, and to taxable years of U.S. shareholders in which or with which such taxable years of foreign corporations end. The proposed regulations under section 951A requires U.S. shareholders of CFCs to include in gross income the shareholder’s GILTI for years in which they are U.S. shareholders of CFCs for tax years of CFCs beginning after December 31, 2017. The Company did not have net global intangible low-taxed income for the year ended December 31, 2018
.
Note 6---Commitments and Contingencies
Warranties and Indemnification
We provide a warranty to our perpetual license customers that our software will perform substantially in accordance with the documentation we provide with the software, typically for a period of 90 days following receipt of the software. Historically, costs related to these warranties have been immaterial. Accordingly, we have not recorded
any
warranty liabilities as of December 31, 2018 and 2017, respectively.
Our perpetual software license agreements typically provide for indemnification of customers for intellectual property infringement claims caused by use of a current release of our software consistent with the terms of the license agreement. The term of these indemnification clauses is generally perpetual. The potential future payments we could be required to make under these indemnification clauses is generally limited to the amount the customer paid for the software. Historically, costs related to these indemnification provisions have been immaterial. We also maintain liability insurance that limits our exposure. As a result, we believe the potential liability of these indemnification clauses is minimal. We rarely have litigation initiated against us by customers.
We entered into agreements whereby we indemnify our officers and directors for certain events or occurrences while the officer is, or was, serving in such capacity. The term of the indemnification period is for so long as such officer or director is subject to an indemnifiable event by reason of the fact that such person was serving in such capacity. The maximum potential amount of future payments we could be required to make under these indemnification agreements may be unlimited; however, we have a director and officer insurance policy that limits our exposure and enables us to recover a portion of any future amounts paid. As a result of our insurance policy coverage, we believe the estimated fair value of these indemnification agreements is insignificant. Accordingly, we have
no
liabilities recorded for these agreements as of December 31, 2018 and 2017. We assess the need for an indemnification reserve on a quarterly basis and there can be no guarantee that an indemnification reserve will not become necessary in the future.
Leases
We lease our headquarters facility and our other facilities under noncancelable operating lease agreements expiring through the year 2020. Under the terms of the agreements, we are required to pay property taxes, insurance and normal maintenance costs.
A summary of total future minimum lease payments under noncancelable operating lease agreements is as follows (in thousands):
|
|
|
|
|
|
|
Operating
|
|
|
|
Leases
|
|
Years ending December 31,
|
|
|
|
|
2019
|
|
|
141
|
|
2020
|
|
|
45
|
|
Total minimum lease payments
|
|
$
|
186
|
|
|
|
|
|
|
Rent expense for the years ended December 31, 2018 and 2017, was
$73
7,000
and
$1,300,000
, respectively.
Legal Proceedings
We are subject from time to time to various legal actions and other claims arising in the ordinary course of business. We are not presently a party to any material legal proceedings.
Note 7---Stockholders' Equity
Convertible Preferred Stock
As of December 31, 2018, there were
no
outstanding shares of convertible preferred stock. Our Board of Directors and our stockholders have authorized
1,000,000
shares of convertible preferred stock that are available for issuance.
Common Stock
As of December 31, 2018, we had reserved
7
4
4,793
common shares for future issuance upon the exercise of stock options.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2018
|
|
|
|
|
|
|
Weighted-
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Average
|
|
Average
|
|
|
|
|
|
|
|
|
|
Exercise
|
|
Remaining
|
|
Aggregate
|
|
|
|
|
Options
|
|
Price
|
|
Contractual
|
|
Intrinsic
|
|
|
|
|
(000's)
|
|
Per Share
|
|
Term (Years)
|
|
Value
|
|
Outstanding at beginning of year
|
|
|
593
|
|
$
|
8.51
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
$
|
-
|
|
|
|
|
$
|
-
|
|
Forfeited
|
|
|
(11)
|
|
$
|
6.44
|
|
|
|
|
|
|
|
Expired
|
|
|
(290)
|
|
$
|
8.84
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
292
|
|
$
|
8.26
|
|
|
4.88
|
|
$
|
-
|
|
Options exercisable at end of year
|
|
|
288
|
|
$
|
8.31
|
|
|
4.83
|
|
$
|
-
|
|
Options vested and expected to vest at end of year
|
|
|
292
|
|
$
|
8.27
|
|
|
0.01
|
|
$
|
-
|
|
There were
no
options granted under our stock plans during the year ended December31, 2018. The weighted-average fair market value per share of options granted under our stock option plans during the year ended December 31, 2017 was
$2.90
.
We granted
56,388
shares of restricted stock to the non-employee members of our Board of Directors during the year ended December 31, 2018 and recorded a stock-based compensation expense of $
35,000
. We granted
1
5,292
shares of restricted stock to the non-employee members of our Board of Directors and Board of Directors’ advisor during the year ended December 31, 2017, and recorded a stock-based compensation expense of
$79,000
. The restricted stock of our Board of Directors will vest over a
one
-year period measured from the date of the annual meeting of stockholders with one quarter of the shares included in such Director Grant vesting on each of the dates that are three months, six months, nine months and twelve months from the annual meeting, so long as each board member continues to serve as a member of our board of directors on such vesting date.
As of December 31, 2018, total unrecognized compensation cost related to unvested stock options was
$361,000
, which is expected to be recognized over the remaining weighted-average vesting period of
1
year. During the years ended December 31, 2018 and 2017, we received cash of
$10,000
and
$79,000
, respectively, from employee stock purchases and exercises of stock options.
Note 8---Geographic, Segment and Significant Customer Information
We operate in
one
segment: electronic business solutions. Our reportable segment includes our facilities in North and South America (Americas), Europe and Asia Pacific and the Middle East (Asia/Pacific). Our chief operating decision maker is considered to be the 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,
|
|
|
|
2018
|
|
2017
|
|
Software licenses
|
|
$
|
2,783
|
|
$
|
3,467
|
|
Consulting services
|
|
|
473
|
|
|
1,230
|
|
Maintenance
|
|
|
1,795
|
|
|
1,660
|
|
Total revenues
|
|
$
|
5,051
|
|
$
|
6,357
|
|
|
|
|
|
|
|
|
|
We sell our products and provide global services through a direct sales force and through a channel of independent distributors, value-added resellers ("VARs") and Application Service Providers ("ASPs"). In addition, the sales of our products are promoted through independent professional consulting organizations known as systems integrators ("SIs"). We provide global services through our
BroadVision Global Services organization
and indirectly through distributors, VARs, ASPs, and SIs. We currently operate in three primary geographical territories.
Disaggregated financial information regarding our product and service revenues by geographic region is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2018
|
|
2017
|
|
Americas
|
|
$
|
2,582
|
|
$
|
3,019
|
|
Europe
|
|
|
1,140
|
|
|
1,132
|
|
Asia/Pacific
|
|
|
1,329
|
|
|
2,206
|
|
Total revenues
|
|
$
|
5,051
|
|
$
|
6,357
|
|
|
|
|
|
|
|
|
|
Note 9---Related Party Transactions
On November 14, 2008, BroadVision (Delaware) LLC, a Delaware limited liability company (“BVD”), which was then our wholly owned subsidiary, entered into a Share Purchase Agreement with CHRM LLC, a Delaware limited liability company, that is controlled by Dr. Pehong Chen, our CEO and largest stockholder. We and CHRM LLC then entered into an Amended and Restated Operating Agreement of BroadVision (Delaware) LLC dated as of November 14, 2008 (the “BVD Operating Agreement”). Under these agreements, CHRM LLC received, in exchange for the assignment of certain intellectual property rights,
20
Class B Shares of BVD, representing the right to receive a portion of any distribution of Funds from “Capital Transactions” (as such term is defined in the BVD Operating Agreement), with the exact amount to be determined based on our and CHRM LLC’s capital account balances at the time of such distribution. A “capital transaction” under that agreement is any merger or sale of substantially all of the assets of BVD as a result of which the members of BVD will
no longer have an interest in BVD or the assets of BVD will be distributed to its members. Class B Shares do not participate in any profits of BVD except for net profits related to a “capital transaction,” in which case the net profits are allocated to the owners of Class A and Class B Shares in proportion to their respective number of shares. To the extent BVD’s losses do not exceed undistributed net profits accumulated since the date of issuance of Class B Shares, such losses are allocated to Class A Shares. To the extent net losses exceed the undistributed net profits accumulated since the date of issuance of Class B Shares, such excess is allocated to the owners of Class A and Class B Shares in proportion to their respective cumulative capital contributions less any return of capital, until allocation of such losses results in having the capital account balances equal to
zero
. Then, net losses are allocated to the owners of Class A and Class B Shares in proportion to their respective number of shares. Upon liquidation the net assets of BVD are distributed to the owners of Class A and Class B in proportion to their capital account balances.
BVD is the sole owner of BroadVision (Barbados) Limited (“BVB”) and BVB is the sole owner of BroadVision On Demand, a Chinese entity (“BVOD”). We have invested approximately
$9.0
million in BVOD (directly and through BVD and BVB). In 2014, we began making payments directly to BVOD for certain labor outsourcing services and expect to continue to pay BVOD for such services at the rate of approximately
$550,000
per quarter for the foreseeable future. We made aggregate payments to BVOD
of
$
1.8
million
and
$2.
3
million
(based on the RMB to USD exchange rates on the applicable dates of payment) for such services in the years ended December 31, 2018 and 2017, respectively. These payments in part covered services rendered outside of the applicable twelve month periods.
We have a controlling voting interest in BVD. Pursuant to the terms of the BVD Operating Agreement, the Class B Shares held by CHRM LLC have no voting rights.
The 20 Class B Shares of BVD represent a non-controlling interest. We allocate profits and losses of BVD to the non-controlling interest under the Hypothetical Liquidation Book Value (“HLBV”) method. Under this method the profits and losses are allocated by reference to the profit sharing provisions in the BVD Operating Agreement assuming liquidation of BVD at its book value at the end of each reporting period. Profits and losses allocated to the balance of such interest under the HLBV method have not been material.
Note 10---Employee Benefit Plan
We provide 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 the lower of
100%
of their compensation or the IRS annual maximum. The Plan allows for discretionary contributions by us.
As of July 1, 2011, we started a discretionary matching contribution. The amount is equal to a percentage determined annually by our management for the contribution period. Employees will be eligible for the match after
12
months of service and after completing
1,000
hours of work during the plan year. Employees must be employed on the last business day of the plan year to be eligible for the match. We have funded
$
22
,000
and
$57,000
for the year
s
ended December 31, 2018 and 2017, respectively.
Note 11---Subsequent Events
VMSO Financing
On January 2, 2019, the Company entered into a Series A Preferred Stock Purchase Agreement with Vmoso, Inc., a Delaware corporation (“VMSO”), for the purchase of
745,000
shares of VMSO’s Series A Preferred Stock for a purchase price comprising the contribution of the Company’s intellectual property and other assets valued by the Company’s Board of Directors at
$745,000
. The contributed assets represent substantially all of the intellectual property and other assets relating to the Company’s Clearvale and Vmoso platforms, including the Company’s current Clearvale and Vmoso products and the Company’s My Vmoso Network (“MVN”) development project. VMSO will continue the commercialization of the Clearvale and Vmoso products and the development of MVN.
Following the completion of VMSO’s sale of Class 1 Common Stock described below, the shares of Series A Preferred Stock owned by the Company represent approximately
19.9%
of the total number of shares of VMSO’s capital stock outstanding. The rights, preferences and privileges of VMSO’s Series A Preferred Stock include a liquidation preference of
$1.00
per share.
On January 2, 2019, Dr. Pehong Chen, the Company’s and VMSO’s President and Chief Executive Officer and the Company’s largest stockholder, purchased
3,000,000
shares of VSMO’s Class 1 Common Stock, representing approximately
80.1%
of the total number of shares of
VMSO
’s capital stock outstanding after such purchase, for a purchase price of
$3,000,000
in cash pursuant to a Class 1 Common Stock Purchase Agreement between Dr. Chen and
VMSO
.
As a result of this financing,
VMSO now holds all of the intellectual property and other assets related to the Company’s Clearvale and Vmoso platforms, which significantly reduces the Company’s exposure to future development and commercialization cost of Clearvale, Vmoso and MVN
On January 2, 2019, the Company entered into a Services and Facilities Agreement (the “Intercompany Agreement”), with VMSO, the terms of which provide for the payment of certain fees to the Company by VMSO, in exchange for the contribution of the Company’s expertise, resources, services, as well as the limited use of our facilities in VMSO’s business and operations. The Intercompany Agreement became effective as of January 1, 2019 and shall continue for a period of one year, unless earlier terminated, and shall be renewable upon written consent from both parties. The Company and VMSO anticipate that, pursuant to the Intercompany Agreement, the Company will provide substantially all of the personnel, facilities and equipment required for VMSO’s operations for the foreseeable future. The fees contemplated by the Intercompany Agreement are generally intended to permit the Company to recover the cost to the Company of providing these personnel, facilities, and equipment.
Since Dr. Chen is both the Company’s President, Chief Executive Officer, Interim Chief Financial Officer
and the Company’s largest stock
holder, as well as the President and Chief Exec
utive Officer and majority stock
holder of VMSO, the Company is deemed under common control with VMSO and will treat VMSO as a consolidated variable interest entity and will consolidate its financial results with the Company’s commencing with the first quarter of 2019.
Equity Plan
On January 21, 2019, the Company’s Equity Plan expired and
no
further grants may be made under the plan after such date