================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q10 - Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended
September 30, 1999March 31, 2000
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-28252
BroadVision, Inc.
-----------------
(Exact name of registrant as specified in its charter)
Delaware 94-3184303
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
585 Broadway, Redwood City, California 94063
-------------------------------------- -----------
(Address of principal executive offices) (Zip code)
(650) 261-5100
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.days
YES X NO
--- ---
As of October 31, 1999,May 5, 2000, there were 77,618,034249,903,000 shares of the Registrant's
Common Stock issued and outstanding.
================================================================================
BROADVISION, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2000
BROADVISION, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
Page No.
--------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 1999
March 31, 2000 and December 31, 19981999 3
Consolidated Statements of Operations and Comprehensive Income -
Three and nine months ended September 30,March 31, 2000 and 1999 and 1998 4
Consolidated Statements of Cash Flows -
NineThree months ended September 30,March 31, 2000 and 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 1615
PART II OTHER INFORMATION
Item 1. Legal Proceedings 1715
Item 2. Changes in Securities and Use of Proceeds 1715
Item 3. Defaults upon Senior Securities 1715
Item 4. Submission of Matters to a Vote of Security Holders 1715
Item 5. Other Information 1815
Item 6. Exhibits and Reports on Form 8-K 1816
SIGNATURES 1816
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BROADVISION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
September 30,March 31, December 31,
2000 1999 1998
--------- ---------
ASSETS (unaudited)
ASSETS
Cash and cash equivalents $ 55,323283,908 $ 61,878279,823
Short-term investments 24,201 --86,581 68,758
Accounts receivable, less allowance for doubtful accounts of
$1,746 and returns of $1,221$1,446, for 2000 and $788, for 1999, and 1998, respectively 23,091 15,36138,006 26,540
Prepaids and other 3,992 3,5899,496 5,085
--------- ---------
Total current assets 106,607 80,828417,991 380,206
Property and equipment, net 12,830 8,03421,982 16,751
Long-term investments 25,534 11,546
Deferred income taxes 8,036 --13,208 4,414
Other 3,522 1,154assets 5,673 4,757
--------- ---------
Total assets $ 156,529458,854 $ 101,562406,128
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 4,60210,484 $ 2,2435,754
Accrued expenses 8,161 4,93313,826 13,156
Unearned revenue 3,715 1,91817,315 3,896
Deferred maintenance 11,601 6,15724,157 15,228
Income taxes 23,597 151
Current portion of capital lease obligations 347 709145 270
Current portion of long-term debt 977 548977
--------- ---------
Total current liabilities 29,403 16,50890,501 39,432
Long-term debt, 5,030 2,924
Other 26 321net of current portion 4,615 4,890
Deferred income taxes -- 16,618
--------- ---------
Total liabilities 34,459 19,75395,116 60,940
Commitments
Stockholders' equity:
Convertible preferred stock, $0.0001 par value; 10,000
shares authorized; none issued and outstanding -- --
Common stock, $0.0001 par value; 500,000 shares authorized;
77,441248,950 and 74,389244,812 shares issued and outstanding for 2000 and
1999, and
1998, respectively 8 725 24
Additional paid-in capital 120,084 98,762327,505 320,259
Deferred compensation (307) (555)(147) (226)
Accumulated other comprehensive income, net of tax 11,141 3,198
Accumulated deficit (8,856) (19,603)27,113 25,925
Retained earnings (accumulated deficit) 9,242 (794)
--------- ---------
Total stockholders' equity 122,070 81,809363,738 345,188
--------- ---------
Total liabilities and stockholders' equity $ 156,529458,854 $ 101,562406,128
========= =========
See Accompanying Notes to Consolidated Financial Statements
3
BROADVISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- --------------------------
1999 1998 1999 1998
-------- -------- -------- --------
Revenues:
Software licenses $ 18,954 $ 9,158 $ 47,221 $ 24,455
Services 10,877 4,273 24,550 10,439
-------- -------- -------- --------
Total Revenues 29,831 13,431 71,771 34,894
Cost of revenues:
Cost of software licenses 676 237 2,460 637
Cost of services 7,241 2,553 15,114 6,264
-------- -------- -------- --------
Total cost of revenues 7,917 2,790 17,574 6,901
-------- -------- -------- --------
Gross profit 21,914 10,641 54,197 27,993
Operating expenses:
Research and development 3,816 2,394 9,986 6,476
Sales and marketing 12,136 6,285 29,891 18,389
General and administrative 2,119 977 5,001 2,562
-------- -------- -------- --------
Total operating expenses 18,071 9,656 44,878 27,427
-------- -------- -------- --------
Operating income 3,843 985 9,319 566
Other income, net 891 769 2,001 1,382
-------- -------- -------- --------
Income before provision
for income taxes 4,734 1,754 11,320 1,948
Provision for income taxes 240 -- 573 --
-------- -------- -------- --------
Net income $ 4,494 $ 1,754 $ 10,747 $ 1,948
======== ======== ======== ========
Basic earnings per share $ 0.06 $ 0.02 $ 0.14 $ 0.03
======== ======== ======== ========
Diluted earnings per share $ 0.05 $ 0.02 $ 0.13 $ 0.03
======== ======== ======== ========
Shares used in computing:
Basic earnings per share 76,335 72,792 75,306 68,772
======== ======== ======== ========
Diluted earnings per share 86,649 80,166 84,753 75,642
======== ======== ======== ========
Comprehensive income:
Net income $ 4,494 $ 1,754 $ 10,747 $ 1,948
Other comprehensive income, net of tax:
Unrealized long-term investment
gains (losses) (2,102) -- 7,943 --
-------- -------- -------- --------
Total comprehensive income $ 2,392 $ 1,754 $ 18,690 $ 1,948
======== ======== ======== ========
BROADVISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)
Three Months Ended
March 31,
-----------------------
2000 1999
-------- --------
(unaudited)
Revenues:
Software licenses $ 40,713 $ 12,783
Services 20,788 5,681
-------- --------
Total revenues 61,501 18,464
Cost of revenues:
Cost of software licenses 2,064 747
Cost of services 15,673 3,322
-------- --------
Total cost of revenues 17,737 4,069
-------- --------
Gross profit 43,764 14,395
Operating expenses:
Research and development 5,759 2,901
Sales and marketing 25,200 7,664
General and administrative 3,611 1,271
-------- --------
Total operating expenses 34,570 11,836
-------- --------
Operating income 9,194 2,559
Other income, net 7,248 516
-------- --------
Income before provision
for income taxes 16,442 3,075
Provision for income taxes 6,406 138
-------- --------
Net income $ 10,036 $ 2,937
======== ========
Basic earnings per share $ 0.04 $ 0.01
======== ========
Diluted earnings per share $ 0.04 $ 0.01
======== ========
Shares used in computing:
Basic earnings per share 245,495 222,030
======== ========
Diluted earnings per share 284,688 250,020
======== ========
Comprehensive income:
Net income $ 10,036 $ 2,937
Other comprehensive income, net of tax:
Unrealized gain on investments 1,188 7,228
-------- --------
Total comprehensive income $ 11,224 $ 10,165
======== ========
See Accompanying Notes to Consolidated Financial Statements
4
BROADVISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended
March 31,
-----------------------
2000 1999
--------- ---------
(unaudited)
Cash flows from operating activities:
Net income $ 10,036 $ 2,937
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,943 907
Amortization of deferred compensation 79 85
Allowance for doubtful accounts 300 150
Amortization of prepaid royalties 296 83
Amortization of prepaid compensation 511 --
Changes in operating assets and liabilities:
Accounts receivable (11,766) (1,053)
Prepaids and other (4,728) (447)
Accounts payable and accrued expenses 5,400 (349)
Unearned revenue and deferred maintenance 22,348 2,001
Income taxes 6,036 151
Other noncurrent assets (1,406) (50)
--------- ---------
Net cash provided by operating activities 29,049 4,415
Cash flows from investing activities:
Purchase of property and equipment (7,174) (1,106)
Purchase of long-term investments (8,794) --
Purchase of short-term investments (16,915) --
Maturity of short-term investments 1,072 --
--------- ---------
Net cash used for investing activities (31,811) (1,106)
Cash flows from financing activities:
Proceeds from issuance of common stock, net 7,247 2,156
Repayments of borrowings (275) (195)
Payments on capital lease obligations (125) (216)
--------- ---------
Net cash provided by financing activities 6,847 1,745
Net increase in cash and cash equivalents 4,085 5,054
Cash and cash equivalents at beginning of period 279,823 61,878
--------- ---------
Cash and cash equivalents at end of period $ 283,908 $ 66,932
========= =========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 125 $ 92
========= =========
Cash paid for income taxes $ 314 $ 159
========= =========
Non-cash investing and financing activities:
Unrealized gain on long-term investments, net of
income taxes of $792 and $4,819 for 2000 and
1999, respectively $ 1,188 $ 7,228
========= =========
See Accompanying Notes to Consolidated Financial Statements
4
BROADVISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended
September 30,
----------------------------
1999 1998
-------- --------
Cash flows from operating activities:
Net income $ 10,747 $ 1,948
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 2,994 2,074
Amortization of deferred compensation 248 269
Allowance for doubtful accounts and returns 433 403
Revenue recognized from non-monetary transactions -- (2,917)
Amortization of prepaid royalties 250 167
Changes in operating assets and liabilities:
Accounts receivable (8,163) (2,442)
Prepaids and other (429) (995)
Accounts payable and accrued expenses 5,587 1,018
Unearned revenue and deferred maintenance 7,241 237
-------- --------
Net cash provided by (used for) operating activities 18,908 (238)
Cash flows from investing activities:
Additions to property and equipment (7,790) (2,932)
Purchase of long-term investments (750) (1,500)
Other assets (2,618) (161)
Purchase of short-term investments (24,201) --
Maturity of short-term investments -- 796
-------- --------
Net cash used for investing activities (35,359) (3,797)
Cash flows from financing activities:
Net change in restricted cash -- 1,400
Proceeds from issuance of common stock, net 7,993 55,947
Proceeds from borrowings, net 2,535 958
Capital lease payments (632) (633)
-------- --------
Net cash provided by financing activities 9,896 57,672
Net (decrease) increase in cash and cash equivalents (6,555) 53,637
Cash and cash equivalents at beginning of period 61,878 8,277
-------- --------
Cash and cash equivalents at end of period $ 55,323 $ 61,914
======== ========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 267 $ 294
======== ========
Cash paid for income taxes $ 511 $ 159
======== ========
Non-cash investing and financing activities:
Unrealized gain on long-term investments (net of taxes of $5,295) $ 7,943 $ --
======== ========
Contributed capital - Income tax benefits from stock option exercises $ 13,330 $ --
======== ========
Other current and noncurrent assets acquired in non-monetary transaction $ -- $ 5,275
======== ========
Unearned revenue and deferred maintenance - non-monetary transaction $ -- $ 2,358
======== ========
Acquisition of equipment under capital lease $ -- $ 247
======== ========
Deferred compensation forfeited due to voluntary terminations $ -- $ 693
======== ========
See Accompanying Notes to Consolidated Financial Statements
5
BROADVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Summary of Significant Accounting Policies
Nature of Business - BroadVision, Inc. ("BroadVision" or(collectively with its subsidiaries,
the "Company") was incorporated in the state of Delaware on May 13, 1993. The
Company develops, markets and supports application software solutions
specifically designed for one-to-one relationship management across thean extended
enterprise. These solutions enable businesses to use the Internet as a platform
to conduct electronic commerce, offerprovide online customer self-service, and support, deliver
targeted information to constituents and provide online financial services. Each
of these capabilities can be providedmade available to all constituents of the extended
enterprise, includingincluding: customers, suppliers, partners, distributors and
employees. The BroadVision One-To-One product suite empowers businesses to
uniquely tailor Web site content to the needs and interests of individual users
by personalizing each constituent's visit on a real-time interactive basis. The
Company's applications accomplish this by interactively capturing Web site
visitor profile information and targeting organized content of an enterprise to
each visitor based on easily constructed business rules.
Basis of Presentation - The accompanying consolidated financial statements
include the accounts of BroadVision and its wholly ownedwholly-owned subsidiaries. They have
been prepared in accordance with the established guidelines for interim
financial information as provided by the instructions to Form 10-Q and Article
10 of Regulation S-X. All significant intercompany transactions have been
eliminated in consolidation. The financial results and related information as of
September 30, 1999March 31, 2000 and for the three and nine months ended September 30,March 31, 2000 and 1999
and 1998 are
unaudited. The balance sheet at December 31, 1998,1999, has been derived from the
audited consolidated financial statements atas of that date but does not
necessarily reflect all of the informational disclosures previously reported in
accordance with Generally Accepted Accounting Principles. In the Company's
opinion, the consolidated financial statements presented herein include all
necessary adjustments, consisting of normal recurring adjustments, to fairly
state the Company's financial position, results of operations, and cash flows
for the periods indicated. The accompanying consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included with the Company's Form 10-K and other documents that
have been filed with the Securities and Exchange Commission. The results of the
Company's operations for the interim periods presented are not necessarily
indicative of operating results for the full fiscal year or any future interim
periods.
Stock Split - TheSplits -On February 8, 2000, the Company's Board of Directors declared a
three-for-one common stock split in the form of a stock dividend for
Stockholders of record as of October 11, 1999.February 21, 2000. The stock dividend payment date
was October 25, 1999March 13, 2000 and the Company's common stock traded ex-dividend starting
October 26, 1999,March 14, 2000, reflecting the three-for-one stock split. The accompanying
consolidated financial statements and related financial information contained
herein havehas been retroactively restated to give effect for the three-for-one stock split.
Net Loss Per Share - Statement of Financial Accounting Standard ("SFAS") No.
128, Earnings Per Share, requires the presentation of basic and diluted earnings
per share. Earnings per share is calculated by dividing net income applicable to
common stockholders by the weighted-average number of shares outstanding for the
period. Basic earnings per share are determined solely on common shares;
whereas, diluted earnings per share includes common equivalent shares, as
determined under the treasury stock method. The following table sets forth basic
and diluted earnings per share computational data for the periods presented (in
thousands, except per share amounts):
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1999 1998 1999 1998
------- ------- ------- -------
Net income $ 4,494 $ 1,754 $10,747 $ 1,948
======= ======= ======= =======
Weighted-average common shares outstanding
utilized for basic earnings per share 76,335 72,792 75,306 68,772
Weighted-average common equivalent shares outstanding:
Employee common stock options 10,242 7,308 9,362 6,816
Common stock warrants 72 66 85 54
------- ------- ------- -------
Total weighted-average common and common
equivalent shares outstanding utilized
for diluted earnings per share 86,649 80,166 84,753 75,642
======= ======= ======= =======
Basic earnings per share $ 0.06 $ 0.02 $ 0.14 $ 0.03
======= ======= ======= =======
Diluted earnings per share $ 0.05 $ 0.02 $ 0.13 $ 0.03
======= ======= ======= =======
6
Net Earnings Per Share - Statement of Financial Accounting Standard ("SFAS") No.
128, Earnings Per Share, requires the presentation of basic and diluted earnings
per share. Earnings per share is calculated by dividing net income applicable to
common stockholders by the weighted-average number of shares outstanding for the
period. Basic earnings per share are determined solely on common shares;
whereas, diluted earnings per share includes common equivalent shares, as
determined under the treasury stock method. The following table sets forth basic
and diluted earnings per share computational data for the periods presented (in
thousands, except per share amounts):
Three Months Ended
March 31,
---------------------
2000 1999
-------- --------
Net income $ 10,036 $ 2,937
======== ========
Weighted-average common shares outstanding
utilized for basic earnings per share 245,495 222,030
Weighted-average common equivalent
shares outstanding:
Employee common stock options 39,168 27,549
Common stock warrants 25 441
-------- --------
Total weighted-average common and common
equivalent shares outstanding utilized 284,688 250,020
for diluted earnings per share
======== ========
Basic earnings per share $ 0.04 $ 0.01
======== ========
Diluted earnings per share $ 0.04 $ 0.01
======== ========
New Accounting Pronouncements - The-- In June 1998, the Financial Accounting
Standards Board, ("FASB")or FASB, issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by SFAS No. 137.137, effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. Accordingly,
the Company will adopt SFAS No. 133, addressesas amended, beginning on January 1, 2001.
SFAS No. 133 establishes standards for the accounting forand reporting of
derivative instruments and hedging activities, including certain derivative
instruments embedded in other contracts. Under SFAS No. 133, entities are
required to record and carry all derivative instruments at fair value as either assets or liabilities.on their
6
balance sheets. The accounting for changes in the fair value (i.e., gains or
losses) of a derivative instrument depends on whether it has been designated and
qualifies as part of a hedging relationship,
has been so designated as suchactivity and the underlying reasonpurpose for holding it. The
Company must adoptdoes not believe that the adoption of SFAS No. 133 will have a
significant impact on its consolidated financial statements or related
disclosures.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements, which provides guidance on the recognition, presentation, and
disclosure of revenue in financial statements filed with the SEC. SAB 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosure related to revenue recognition policies. The Company
will adopt SAB 101 upon its effective date in the second quarter of 2000, as
amended, by January 1, 2001,required and does not expect suchthe adoption willof SAB 101 to have any material effect
on its financial statements.
In December 1998, the Accounting Standards Executive Committee
("AcSEC")position or results of the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-9 Software Revenue Recognition, With Respect to
Certain Transactions, which requires recognition of revenue using the "residual
method" in a multiple-element arrangement when fair value does not exist for one
or more of the delivered elements in the arrangement. Under the "residual
method", the total fair value of the undelivered elements is deferred and
subsequently recognized in accordance with SOP 97-2. The Company will adopt SOP
98-9 on January 1, 2000. The Company does not expect a material change to its
revenue accounting as a result of the provisions of SOP 98-9.operations.
Note 2. SelectiveSelected Balance Sheet Detail
Property and equipment consisted of the following (in thousands):
September 30, December 31,
1999 1998
-------- --------
Furniture and fixtures $ 1,218 $ 1,001
Computers and software 16,108 8,662
Leasehold improvements 3,852 3,725
-------- --------
21,178 13,388
Less accumulated depreciation and
amortization (8,348) (5,354)
-------- --------
$ 12,830 $ 8,034
Property and equipment consisted of the following (in thousands):
March 31, December 31,
2000 1999
-------- --------
Furniture and fixtures $ 2,832 $ 2,323
Computers and software 23,728 17,618
Leasehold improvements 7,458 6,903
-------- --------
34,018 26,844
Less accumulated depreciation and amortization (12,036) (10,093)
-------- --------
$ 21,982 $ 16,751
======== ========
Accrued expenses consisted of the following (in thousands):
March 31, December 31,
2000 1999
-------- --------
Employee benefits $ 1,889 $ 1,340
Commissions and bonuses 5,993 6,747
Sales and other taxes 2,471 1,122
Other 3,473 3,947
-------- --------
$ 13,826 $ 13,156
======== ========
Accrued expenses consisted of the following (in thousands):
September 30, December 31,
1999 1998
------ ------
Employee benefits $1,129 $ 678
Commissions and bonuses 2,991 2,013
Taxes payable 1,674 785
Royalties payable 639 138
Other 1,728 1,319
------ ------
$8,161 $4,933
====== ======
Note 3. Commercial Credit Facilities
The Company has outstanding borrowingsvarious credit facilities with a commercial lender totaling $6.0 million aswhich
include term debt in the form of September 30, 1999notes payable and a revolving line of credit
that provides for up to $5.0 million$5,000,000 of additional borrowings based(based on eligible
accounts receivable (no outstanding borrowings as of September 30, 1999)receivable). As of September 30,March 31, 2000 and December 31, 1999, outstanding
term debt borrowings were approximately $5,600,000 and $5,900,000, respectively.
Borrowings bear interest at the bank's prime rate (9.0% and 8.5% as of March 31,
2000 and December 31, 1999, respectively). Principal and interest is due in
consecutive monthly payments through maturity based on the term of the facility.
Principal payments of $977,000 are due annually from 2000 through 2004, $611,000
due in 2005, and a final payment of $357,000 due in 2006. As of March 31, 2000
and December 31, 1999, the Company had totalno outstanding borrowings under its
revolving line of credit. However, commitments of $2.8
milliontotaling $2,820,000, in the form
of standby letters of credit were issued under its revolving line of credit.credit
facility as of March 31, 2000 and December 31, 1999. The Company'scommercial credit
facilities include covenants thatwhich impose certain restrictions on the payment of
dividends and other distributions and requirerequires the Company to maintain monthly
financial covenants, including a minimum quick ratio, tangible net worth ratio
and minimum cash reserves. The minimum cash
reserves covenant is replaced with a "minimum debt service coverage ratio" upon
six consecutive quarters of profitability.ratio. Borrowings are collateralized by a security
interest in substantially all of the Company's owned assets. As of
September 30, 1999, theThe Company was in
compliance with its commercial credit
facility covenants.
7
financial covenants as of March 31, 2000.
Note 4. Geographic, Segment and Significant Customer Information
The Company adopted the provisions of SFAS No. 131, Disclosure about Segments
of an Enterprise and Related Information, during 1998. SFAS No. 131 establishes
standards for the reporting by public business enterprises of information about
operating segments, products and services, geographic areas, and major
customers. The methodology for determining what information is reported is based
on the organization of operating segments and the related information that the
Chief Operating Decision Maker ("CODM") uses for operational decisions and
financial performance assessments. The Company's Chief Executive Officer ("CEO")
is considered its CODM. The CEO reviews consolidated financial information presented on a consolidated basis
accompanied by disaggregated information for products and services and revenues
by geographic region for purposes of making operating decisions and assessing financial
performance.
The Company sells its products and provides services worldwide through
a direct sales force, independent distributors, value-added resellers, and
system integrators. It currently operates in three primary regions, the
Americas, which includes North and South America; Europe, which includes Eastern
and Western Europe and the Middle East; and Asia/Pacific, which includes the
Pacific Rim and the Far East. Disaggregated financial information regarding the
Company's products and services and revenues by geographic region is as follows
(in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1999 1998 1999 1998
------- ------- ------- -------
Software licenses:
One-To-One Enterprise $ 2,965 $ 6,491 $ 7,602 $17,494
One-To-One WebApps 15,989 2,667 39,619 6,964
Services 7,260 2,894 16,323 7,160
Maintenance 3,617 1,379 8,227 3,276
------- ------- ------- -------
Total Revenues $29,831 $13,431 $71,771 $34,894
======= ======= ======= =======
Revenues:
Americas $20,266 $ 7,790 $50,012 $19,605
Europe 7,807 4,668 15,444 11,471
Asia/Pacific 1,758 973 6,315 3,818
------- ------- ------- -------
Total Company $29,831 $13,431 $71,771 $34,894
======= ======= ======= =======
September 30,performance assessments. The Company sells its products and provides services
worldwide through a direct sales force, independent distributors, value-added
resellers, and system integrators. It currently operates in three primary
7
regions, the Americas, which includes North and South America; Europe, which
includes Eastern and Western Europe and the Middle East; and Asia/Pacific, which
includes the Pacific Rim and the Far East. Disaggregated financial information
regarding the Company's products and services and geographic revenues is as
follows (in thousands):
Three Months Ended
March 31,
----------------------------
2000 1999
-------- --------
Software licenses:
One-To-One Enterprise $ 7,068 $ 3,827
One-To-One WebApps 33,645 8,956
Services 13,678 3,731
Maintenance 7,110 1,950
-------- --------
Total Revenues $ 61,501 $ 18,464
======== ========
Revenues:
Americas $ 47,534 $ 11,340
Europe 11,532 3,962
Asia/Pacific 2,435 3,162
-------- --------
Total Company $ 61,501 $ 18,464
======== ========
March 31, December 31,
2000 1999 1998
-------- --------
Identifiable assets:
Americas $153,154 $ 99,343$450,570 $400,858
Europe 2,808 1,7547,470 4,122
Asia/Pacific 567 465814 1,148
-------- --------
Total Company $156,529 $101,562$458,854 $406,128
======== ========
During the three months ended September 30,March 31, 2000 and 1999, and the three and
nine months ended September 30, 1998, no single
customer accounted for more than 10% of the Company's total revenues.
During the nine months ended September 30,
1999, one customer accounted for 11% of the Company's total revenues.
Note 5. Subsequent Events
On October 5, 1999,April 14, 2000, the Company issued 14.4 million shares of its common
stock in acquisition of all of the outstanding stock of Interleaf, Inc.
("Interleaf"). Under the terms of the agreement, Interleaf shareholders received
1.0395 shares of BroadVision common stock in exchange for each share of
Interleaf common stock; or estimated purchase consideration of approximately
$802 million, inclusive of $18 million of estimated acquisition and severance
costs. The acquisition will be accounted for as a purchase and, accordingly, the
purchase price will be allocated based upon the fair value of assets acquired
and liabilities assumed. The operating results of Interleaf and acquisition
related amortization expense, pertaining to the excess of the purchase price
over the fair value of net assets acquired, will be included in the Company's
Boardconsolidated results of Directors increased the
authorized shares of common stock and convertible preferred stock to 500 million
and 10 million, respectively. In addition, the Board of Directors increased the
aggregate number of shares of common stock available to be issued under the
Company's Equity Incentive Plan by 3 million shares.
During November 1999, the Company completed a follow on common stock
offering and issued 3.1 million shares for net proceeds to the Company of
approximately $209.4 million. In connection with the stock offering, the Company
has been listed on the Neuer Markt segmentoperations commencing as of the Frankfurt Stock Exchange under
the symbol "BDN".date of acquisition.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER SIGNIFICANTLY FROM
THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSEDsignificantly from
those discussed hereIN. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed HEREIN WITH THISthis
QUARTERLY REPORT ON FORMForm 10-Q, THE COMPANY'S ANNUAL REPORTthe Company's annual report ON FORM 10-K, AND
OTHER DOCUMENTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ANY SUCH
FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE SUCH STATEMENTS ARE MADE.Form 10-k, and
other documents filed with the securities and exchange commission. Any such
forward-looking statements speak only as of the date such statements are made.
OVERVIEW
BroadVision develops, markets and supports fully integrated scalable
application software solutions specifically designed for one-to-one relationship
management across the extended enterprise. These total end-to-end solutions
enable businesses to use the Internet as a unique platform to conduct electronic
commerce, provide online financial services, offer online interactive customer
self-service, and support, deliver targeted information and provide online financial services. Each of these
capabilities can be provided to all constituents of the
extended enterprise,
including:enterprise. These constituents include but are not limited to
customers, suppliers, distributors, partners, distributors and employees.
The BroadVision One-To-One product suite allows businessbusinesses to tailor their
Web site content to the special needs and interests of individual users by
personalizing each constituent's visit on a real-time interactive basis. BroadVision'sOur
applications interactively captureaccomplish this by capturing Web site visitor profile information
organize theand targeting an enterprise's content, target thatorganized content to each visitor based on easily
constructed business rules, and execute transactions. BroadVision believesrules. We believe the benefits of these applications
include enhancedgreater customer satisfaction and loyalty, increased business volume,
greaterenhanced brand awareness, reduced costs to service customers and to execute
transactions, and enhanceas well as higher employee productivity.
The Company's core product, BroadVision One-To-One Enterprise, was
first made commercially available in December 1995. A complementary family of
targeted application products was first introduced as early as 1997. These
complementary application products (BroadVision One-To-One Retail Commerce,
BroadVision One-To-One Business Commerce, BroadVision One-To-One Financial, and
BroadVision One-To-One Knowledge) are built upon and tightly integrated with the
Company's core technology and provide specifically enhanced functionality for
the distinct customer requirements involved in managing one-to-one relationships
within business-to-consumer, business-to-business, financial services, and
knowledge management. BroadVision intends to remain nimble and flexible in
developing other packaged application products in the general area of one-to-one
relationship management in response to market opportunities that may arise.
The Company sells its products and services worldwide through direct sales
forces, independent distributors, resellers and system integrators. It also has
a global network of strategic business relationships with key industry platform
and Web developer partners. The Company also engages in strategic business
alliances to assist in thewith its marketing, selling and developingdevelopment of customer
applications. TheIn addition, the Company places a strategic emphasis on developing technology
alliances in order to ensure that its products are based on industry standards and that
it is positioned to take advantage of current and emerging technologies. The
benefits of this approach include enabling the Company to focus on its core
competencies while reducing time to market and simplifying the task of designing
and developing applications for itself and its customers.
9
Litigation Settlement
On February 22, 2000, the Company reached a settlement agreement and
entered into a license agreement with Art Technology Group ("ATG") in connection
with the lawsuit filed by the Company on December 11, 1998 against ATG alleging
infringement on the Company's U.S. Patent No. 5,710,887. In accordance with the
terms of the agreement, the Company granted ATG a nonexclusive, nontransferable,
worldwide, perpetual license and was paid $8 million by ATG at the effective
date of the settlement and will receive a total of $7 million payable in
quarterly installments commencing February 24, 2000 (four consecutive quarterly
payments of $750,000 during 2000 and eight consecutive quarterly payments of
$500,000 during 2001 and 2002).
RESULTS OF OPERATIONS
Revenues
The Company's revenues are derived from software license fees and fees
charged for its services. The Company recognizes software license revenues when
a non-cancelable license agreement has been signed and the customer acknowledges
an unconditional obligation to pay, the software product has been
9
delivered, there are no uncertainties surrounding product acceptance, the fees
are fixed and determinable, and collection is considered probable. Software
license revenues, in general, are recognized upon consummation of the sale.
The Company's professional services include its Strategic Services
Group, its Interactive Services Group, its Content and Creative Services Group,
its Education Services Group, and its Technical Support Group. Consulting
related services are typically recognized as services are performed. Maintenance
fees relating to technical support and upgrades are recognized ratably over the
contracted period.
Total Company revenues increased 122%233% during the quarter ended September 30, 1999March
31, 2000 to $29.8$61.5 million as compared to $13.4$18.5 million for the quarter ended
September 30, 1998. For the nine months ended September 30, 1999, total
Company revenues increased 106% to $71.8 million as compared to $34.9 million
for the comparable period during 1998.March 31, 1999. A summary of the Company's revenues by geographic region is as
follows:
(In thousands) Software % Services % Total %
-------- -------- -------- ------- ------- ------- ------- ------- ----------------
Three Months Ended:
September 30, 1999March 31, 2000
---------------
Americas $11,610 61% $ 8,656 80% $20,266 68%$31,760 78% $15,525 75% $47,285 77%
Europe 6,063 32 1,744 16 7,807 267,259 18 4,364 21 11,623 19
Asia/Pacific 1,281 7 4771,694 4 1,758 6899 4 2,593 4
------- -------- ------- ------- ------- ---------
Total $40,713 100% $20,788 100% $61,501 100%
======= ======== ======= ======= ======= =========
March 31, 1999
--------------
Americas $ 7,457 58% $ 3,883 69% $11,340 61%
Europe 2,467 19 1,495 26 3,962 22
Asia/Pacific 2,859 23 303 5 3,162 17
------- -------- ------- ------- ------- ---------
Total $18,954$12,783 100% $10,877$ 5,681 100% $29,831$18,464 100%
======= ======== ======= ======= ======= ======= ======= =======
September 30, 1998
Americas $ 4,777 52% $ 3,013 71% $ 7,790 58%
Europe 3,897 43 771 18 4,668 35
Asia/Pacific 484 5 489 11 973 7
------- ------- ------- ------- ------- -------
Total $ 9,158 100% $ 4,273 100% $13,431 100%
======= ======= ======= ======= ======= =======
Nine Months Ended:
September 30, 1999
Americas $31,229 66% $18,783 77% $50,012 70%
Europe 10,893 23 4,551 18 15,444 21
Asia/Pacific 5,099 11 1,216 5 6,315 9
------- ------- ------- ------- ------- -------
Total $47,221 100% $24,550 100% $71,771 100%
======= ======= ======= ======= ======= =======
September 30, 1998
Americas $12,278 50% $ 7,327 70% $19,605 56%
Europe 9,628 39 1,843 18 11,471 33
Asia/Pacific 2,549 11 1,269 12 3,818 11
------- ------- ------- ------- ------- -------
Total $24,455 100% $10,439 100% $34,894 100%
======= ======= ======= ======= ======= ================
Software product license revenues increased 107%218% during the quarter
ended September 30, 1999March 31, 2000 to $19.0$40.7 million as compared to $9.2$12.8 million for the
quarter ended September 30, 1998. For the nine months ended September 30, 1999,
license revenues increased 93% to $47.2 million as compared to $24.5 million for
the comparable period during 1998.
10
March 31, 1999.
The increase in software license revenues is attributable toa result of continued strong
demand for the Company's expanding product line and core competencies and technologies within a
growing market using the Internet for commerce and communication; the Company's
expanding range of products; the continually increasing levels of application
functionality within its products; the Company's strategic focus of leveraging
its partner relationships; and to a lesser extent, product pricing increases
that were effective October 1, 1998. As a result, the Company is attractingboth by
new customers and our existing customer base is generating additionalcustomers and the growing market for
business-to-business and business-to-consumer personalization focused software
application solutions. Software product license revenues throughfor its targeted web
enabling applications increased useto $33.6 million for the quarter ended March 31,
2000, as compared to $9.0 million for the quarter ended March 31, 1999. In
addition, deployment related user profile based licensing revenues continues to
increase as a result of established web sites as well as the introductiona larger number of additional web sites within an existing customer's organization.live sites. During the quarter ended
September 30, 1999,March 31, 2000, the Company signed approximately 56110 new end userlicensed customers (102 new end-user
customers and 168 new partnerspartners) which compares to
approximately 19with 43 new end userlicensed customers ( 32
end-user customers and 1011 new partners duringpartners) for the quarter ended September 30, 1998.March 31, 1999. As
of September 30, 1999, BroadvisionMarch 31, 2000, the Company had licensed
over 335 end usera total installed license base of 517
end-user customers and 115131 partners, which compares with over 195 end
user415 end-user customers
and 75123 partners as of December 31, 19981999 and 165 end user229 end-user customers and 6588
partners as of September 30, 1998.March 31, 1999.
Professional services revenues increased 266% during the quarter ended
March 31, 2000 to $20.8 million as compared to $5.7 million for the quarter
ended March 31, 1999.
The increase in professional services revenue is a result of higher levels of
consulting related services associated with increased business volumes and
higher customer support revenues derived from a larger installed customer base.
Maintenance related fees for technical support and product upgrades were $7.1
million for the quarter ended March 31, 2000, which compares to $2.0 million for
the quarter ended March 31, 1999. During the latter half of 1999, the Company
expanded its corporate training facility in Redwood City, California. The
Company also added additional training and professional consulting related
facilities in Europe and Asia as of December 31, 1999.
To date the Company has achieved good market acceptance for its products and
has experienced continued revenue growth. The CompanyManagement anticipates that
international revenues will continue to account for a significant amount of
total revenues, and management expects to continue to commit significant time and financial
resources to the maintenance and ongoing development of direct and indirect
international sales and support channels. The Company'sOur Asia/Pacific operations have
experienced reduced growth
rates over recent yearsa decline in revenues as a result of
10
the generally weak economic conditions of that region. As a result, the Company expectswe expect
that any significant growth in international revenues will most likely come from
European operations. There canHowever, we may be no assurance, however, that the Company will be ableunable to maintain or continue to
increase international or domestic market acceptance for itsour family of products.
Total services revenues increased 155% during the quarter ended
September 30, 1999 to $10.9 million as compared to $4.3 million for the quarter
ended September 30, 1998. For the nine months ended September 30, 1999, services
revenues increased 135% to $24.6 million as compared to $10.4 million for the
comparable period during 1998.
The increase in professional services revenue is a result of the
Company's increased business volumes and a higher level of customer support
revenues derived from a larger installed customer base. The Company continues to
maintain its emphasis on leveraging its partner integrator relationships and has
continued to add internal headcount within its professional services
organizations to support the higher business volumes. Increasingly sophisticated
and customer-specific use of the Company's products has recently caused
accelerated demand for our professional services. However, our strategy of
developing business alliances with system integrators and other third-party
professional services organizations to support our products may in the future
result in a decline in professional services revenues as a percentage of total
revenues. Maintenance revenues continue to increase and were $8.2 million for
the nine months ended September 30, 1999, as compared to $3.3 million for the
nine months ended September 30, 1998.
Cost of Revenues
Cost of license revenues include royalties payable to third parties for
software that is either embedded in, or bundled and sold with, the Company's
products; commissioned agent fees paid to distributors; and the costs of product
media, duplication, packaging and other associated manufacturing costs.
11
Cost of services consists primarily of employee-related costs,
third-party consultant fees incurred on consulting projects, post-contract
customer support, and instructional training services.
A summary of the cost of revenues for the periods presented is as
follows:
Three Months Ended September 30, Nine Months Ended September 30,
---------------------------------------- ----------------------------------------
(In thousands) 1999 % 1998 % 1999 % 1998 %
------- ---- ------- ---- ------- ---- ------- ----
Cost of software licenses [1] $ 676 3.6% $ 237 2.6% $ 2,460 5.2% $ 637 2.6%
Cost of services [2] 7,241 66.6% 2,553 59.7% 15,114 61.6% 6,264 60.0%
------- ------- ------- -------
Total cost of revenues [3] $ 7,917 26.5% $ 2,790 20.8% $17,574 24.5% $ 6,901 19.8%A summary of the cost of revenues for the periods presented is as
follows:
Three Months Ended
March 31,
----------------------------------------
(In thousands) 2000 % 1999 %
------- --- -------- -------
Cost of software licenses[1] $ 2,064 5% $ 747 6%
Cost of services[2] 15,673 75% 3,322 59%
------- --------
Total cost of revenues[3] $17,737 29% $ 4,069 22%
======= ======= ======= =======
[1] - Percentage is calculated based on total software license revenues for the
period indicated
[2] - Percentage is calculated based on total services revenues for the period
indicated
[3] - Percentage is calculated based on total revenues for the period indicated
Cost of software licenses increased 185%176% during the quarter ended September 30, 1999March
31, 2000 to $676,000$2.1 million as compared to $237,000$747,000 for the quarter ended September 30, 1998. For the nine months ended September 30, 1999, cost of
software licenses increased 286% to $2.5 million as compared to $637,000 for the
comparable period during 1998.March 31,
1999.
The increasesincrease in cost of software licenses,license revenues, in both absolute dollar terms, was
principally a result of increased sales of the Company's products and related
third party royalty fees. Cost of license revenues in relative percentage terms
is primarily a result of the increased business
volumes and the mix of Company proprietary software in relation to third party
vendor software that is bundled and sold with the Company's products. The higher
third party software sales add incremental revenues to the Company's product
sales but carry a higher cost of license factor in the form of royalties.
Although aggregate costs were higher, royalty costs for third party software
embedded in the Company's product decreased on a percentage basisprincipally as a result of the Company renegotiating a previously
existing percentage basedpercentage-based royalty arrangementarrangements into a prepaid fixed fee royaltyroyalties
for a period that has been extendedperiods extending through 2004.
Cost of services increased 184%372% during the quarter ended September 30,
1999March 31, 2000
to $7.2$15.7 million as compared to $2.6$3.3 million for the quarter ended September
30, 1998. For the nine months ended September 30, 1999, cost of services
increased 141% to $15.1 million as compared to $6.3 million for the comparable
period during 1998.March 31,
1999.
11
The increase in cost of services revenues in absolute dollar terms is a
result of expandedhigher business volumes as evidenced by increased services revenues.
Overall costs increased as a result of additions to the Company'sour professional services
staff and the employment of outside consultants to meet short-term consulting
arrangements.demands. The increase in cost of services as a percentpercentage of services revenues
is a result of the effect of assimilating higher numbersassimilation of new internal consulting staffprofessional consultants added to the
group during the quarter and higher utilizationuse of outside consultants in relation to
the extent previously utilizedused during the prior year period.
Operating Expenses
Research and development expenses consist primarily of salaries,
employee-related benefit costs, and consulting fees incurred in association with
the development of the Company's products. Costs incurred for the research and
development of new software products are expensed as incurred until such time
that technological feasibility, in the form of a working model, is established
at which time such costs are capitalized subject to recoverability. The costs
incurred by the Company subsequent to the establishment of a working model but
prior to general release have not been significant. To date, the Company has not
capitalized any software development costs.
12
Sales and marketing expenses consist primarily of salaries,
employee-related benefit costs, commissions and other incentive compensation,
travel and entertainment, and marketing program related expenditures such as
collateral materials, trade shows, public relations, and creative services.
General and administrative expenses consist primarily of salaries,
employee-related benefit costs, and professional service fees.
Three Months Ended September 30, Nine Months Ended September 30,
----------------------------------------- -----------------------------------------
(In thousands) 1999 % [1] 1998 % [1] 1999 % [1] 1998 % [1]
------- ---- ------- ---- ------- ---- ------- ----
Research and Development $ 3,816 12.8% $ 2,394 17.8% $ 9,986 13.9% $ 6,476 18.6%
Sales and Marketing 12,136 40.7 6,285 46.8 29,891 41.6 18,389 52.7
General and Administrative 2,119 7.1 977 7.3 5,001 7.0 2,562 7.3
------- ---- ------- ---- ------- ---- ------- ----
Total Operating Expenses $18,071 60.6% $ 9,656 71.9% $44,878 62.5% $27,427 78.6%Sales and marketing expenses consist primarily of salaries,
employee-related benefit costs, commissions and other incentive compensation,
travel and entertainment, and marketing program related expenditures such as
collateral materials, trade shows, public relations, and creative services.
General and administrative expenses consist primarily of salaries,
employee-related benefit costs, and professional service fees.
Three Months Ended
March 31,
-----------------------------------------
(In thousands) 2000 %[1] 1999 %[1]
------- ------- ------- ----
Research and Development $ 5,759 9% $ 2,901 16%
Sales and Marketing 25,200 41 7,664 41
General and Administrative 3,611 6 1,271 7
------- ------- ------- ----
Total Operating Expenses $34,570 56% $11,836 64%
======= ======= ======= ==== ======= ==== ======= ==== ======= ====
[1] - Expressed as a percent of total revenues for the period indicated
Research and development expenses increased 59%99% during the quarter
ended September 30, 1999March 31, 2000 to $3.8$5.8 million as compared to $2.4$2.9 million for the quarter
ended September 30, 1998. For the nine months ended September 30, 1999,
research and development expenses increased 54% to $10.0 million as compared to
$6.5 million for the comparable period during 1998.March 31, 1999. The increase in research and development expenses in absolute dollar terms is
primarily attributable to personnel costs for added headcount within those
operations involved in the enhancement of existing applications and the
development of the Company's next generation of products. Research and development expenses, as a percentage of
total revenues, decreased because revenues have increased at a higher rate
relative to expenses. The Company expects
research and development expenses will continue to increase in absolute dollar
terms.
Sales and marketing expenses increased 93%229% during the quarter ended
September 30, 1999March 31, 2000 to $12.1$25.2 million as compared to $6.3$7.7 million for the quarter
ended September 30, 1998. For the nine months ended September 30, 1999, sales
and marketing expenses increased 63% to $29.9 million as compared to $18.4
million for the comparable period during 1998.March 31, 1999. The increases in sales and marketing expenses in absolute dollar terms reflect the
cost of hiring additional sales and marketing personnel, increased commission
payments resulting from higher revenues, developing and expanding sales
distribution channels, and expanding promotional activities and marketing
related programs. Sales and marketing expenses, as a percentage of total revenues, decreased
because revenues have increased at a higher rate relative to expenses. The Company expects sales and marketing expenses will continue
to increase in absolute dollar terms.
General and administrative expenses increased 117%184% during the quarter
ended September 30, 1999March 31, 2000 to $2.1$3.6 million as compared to $977,000$1.3 million for the quarter
ended September 30, 1998. For the nine months ended September 30, 1999, general
and administrative expenses increased 95% to $5.0 million as compared to $2.6
million for the comparable period during 1998.March 31, 1999. The increase in general and administrative expenses in absolute dollar terms is
attributable to additional administrative and management personnel, higher
professional services fees and additional infrastructure to support the
expansion of the Company's operations. General and administrative expenses, as a percentage of total revenues,
decreased because revenues have increased at a higher rate relative to expenses.
The Company expects general and
administrative expenses will continue to increase in absolute dollar terms.
Income Taxes
During the quarter ended September 30, 1999,March 31, 2000, the Company's provision for
income taxes was $240,000$6.4 million for an effective tax rate of approximately 5%39%.
Due to the Company's continuing trend of
12
positive earnings, the Company reversedhas utilized a significant portion of its valuation allowance against the previously established deferred
tax assets for which realization is considered more likely than not. Asnet
operating loss carryforwards and as a result, the Company's effective tax rate
differs from theis similar to its statutory rate.
13
LIQUIDITY AND CAPITAL RESOURCES
September 30,March 31, December 31,
(In thousands) 2000 1999
1998
---- ---------------- --------
Cash, cash equivalents and
liquid short-term investments $79,524 $61,878
======= =======$ 370,489 $348,581
============ ========
Working capital $77,204 $64,320
======= =======$ 327,490 $340,774
============ ========
Working capital ratio 3.6:1 4.9:1
======= =======4.6 9.6
============ ========
At September 30, 1999,March 31, 2000, the Company had $79.5$370.5 million of cash, cash
equivalents and liquid short-term investments, which represents an increase of $17.6$21.9
million as compared to December 31, 1998.1999. The Company currently has no
significant capital commitments other than obligations under operating leases,
commitments of $2.8 million in the form of standby letters of credit and $6.0$5.6
million of outstanding term debt under its existing credit facilities with a
commercial bank.
The Company has funded its operations by cash generated from operations
the private placement of common and preferred stock and public offerings of its common stock. Through May 1996, private placements provided net
proceeds totaling $15.5 million and publicPublic stock offerings during June
1996, March 1998, and November 1999 netted proceeds for the Company proceeds of $20.7
million, and $53.7 million in June 1996 and March 1998,$210.4 million, respectively.
During November 1999, the Company completed a follow on common stock
offering and issued 3.1 million shares for net proceeds to the Company of
approximately $209.4 million. In connection with the stock offering, the Company
has been listed on the Neuer Markt segment of the Frankfurt Stock Exchange under
the symbol "BDN".
Cash provided by and used for operating activities was $18.9$29.1 million and $238,000,$4.4
million, respectively, for the ninethree months ended September 30, 1999March 31, 2000 and 1998.1999. Cash
used for investing activities was $35.4$31.8 million and $3.8$1.1 million for the ninethree
months ended September 30,March 31, 2000 and 1999, and 1998, respectively, and was primarily for
capital expenditures and purchase of short-term investments. Cash provided by financing
activities was $9.9$6.8 million and $57.7$1.7 million for the ninethree months ended September 30,March
31, 2000 and 1999, and 1998, respectively, and consists primarily of proceeds from the
issuance of common stock.
The Company believes that its available cash and short-term investment
resources, cash generated from operations and amounts available under its
commercial credit facilities will be sufficient to meet its expected working
capital and capital expenditure requirements for at least the next 12 months.
This estimate is a forward-looking statement that involves risks and
uncertainties, and actual results may vary as a result of a number of factors,
including those discussed under "Risk Factors" and elsewhere herein.
TheHowever, the Company may need to raise additional funds in order to support more rapid
expansion, develop new or enhanced services, respond to competitive pressures,
acquire complementary businesses or technologies, or respond to unanticipated
requirements. If additional funds are raised through the issuance of equity
securities, the percentage ownership of the stockholders of the Company will be
reduced, stockholders may experience additional dilution, or such equity
securities may have rights, preferences, or privileges senior to those of the
holders of the Company's common stock. There can be no assurance that additional
financing will be available on acceptable terms, if at all. If adequate funds
are not available or are not available on acceptable terms, the Company may be
unable to develop or enhance its products, take advantage of future
opportunities, or respond to competitive pressures or unanticipated
requirements, which could have a material adverse effect on the Company's
business, financial condition, and operating results.
14
FACTORS AFFECTING QUARTERLY OPERATING RESULTS
The Company expects to experience significant fluctuations in quarterly
operating results that may be caused by many factors including, but not limited
to, those discussed below and herein with this quarterly report on Form 10-Q, as
contained in the Company's annual report on Form 10-K under the caption "Risk
Factors" and elsewhere therein, and as disclosed in other documents filed with
the Securities and Exchange Commission. Significant fluctuations in future
quarterly operating results may be caused by many factors including, among
others, the timing of introductions or enhancements of products and services by
the Company or its competitors, market acceptance of new products, the mix of
the Company's products sold, changes in pricing policies by the Company or its
competitors, changes in the Company's sales incentive plans, budgeting cycles of
its customers, customer order deferrals in anticipation of new products or
enhancements by the Company or its competitors, nonrenewal of service agreements
(which generally automatically renew for one year terms unless earlier
terminated by either
13
party upon 90-days notice), product life cycles, changes in strategy, seasonal
trends, the mix of distribution channels through which the Company's products
are sold, the mix of international and domestic sales, the rate at which new
sales people become productive, changes in the level of operating expenses to
support projected growth, and general economic conditions. The Company
anticipates that a significant portion of its revenues will be derived from a
limited number of orders, and the timing of receipt and fulfillment of any such
orders is expected to cause fluctuations in the Company's operating results,
particularly on a quarterly basis. The Company
anticipates that it will make the major portion of each quarter's deliveries
near the end of each quarter and, as a result, short delays in delivery of
products at the end of a quarter could adversely affect operating results for
that quarter. Due to the foregoing factors, quarterly
revenues and operating results are difficult to forecast, and the Company
believes that period-to-period comparisons of its operating results will not
necessarily be meaningful and should not be relied upon as any indication of
future performance. It is likely that the Company's future quarterly operating
results from time to time will not meet the expectations of market analysts or
investors, which may have an adverse effect on the price of the Company's Common
Stock. The Company anticipates that its operating expenses will continue to be
substantial in relation to total revenues as it continues the development of its
technology, increases its sales and marketing activities, and creates and
expands its distribution channels. Some of these risks and uncertainties relate
to the new and rapidly evolving nature of the markets in which the Company
operates. These related market risks include, among other things, the early
stage of the developing online commerce market, the dependence of online
commerce on the development of the Internet and its related infrastructure, the
uncertainty pertaining to widespread adoption of online commerce, and the risk
of government regulation of the Internet. Other risks and uncertainties facing
the Company relate to the Company's ability to, among other things, successfully
implement its marketing strategies, respond to competitive developments,
continue to develop and upgrade its products and technologies more rapidly than
its competitors, and commercialize its products and services by incorporating
these enhanced technologies. There can be no assurance that the Company will
succeed in addressing any or all of these risks. A more complete description of
these and other risks relating to the Company's business is set forth in the
Company's annual report on Form 10-K under the caption "Risk Factors" and
elsewhere therein and other documents filed with the Securities and Exchange
Commission.
YearOn April 14, 2000, Compliance
Background and Risks - Many currently installed computer systems and software
and devices with imbedded technology are coded to two digits for time sensitive
dating purposes. Beginningthe Company completed its acquisition of Interleaf,
Inc. In connection with the year 2000, these date code fieldsacquisition, the Company issued approximately 14.4
million shares of its common stock for all of the outstanding stock of
Interleaf, Inc. The expectation is that the acquisition will need
toresult in long-term
benefits and will depend in part on whether the companies' operations can be
four digit functionalintegrated in order to distinguish between 21st century datesan efficient and 20th century dates. For example, computer programseffective manner. There is no assurance that have date sensitive
software may incorrectly recognize a date using "00" asthis
will occur. The successful integration of Interleaf with the year 1900 rather
than the year 2000. As a result, computer systems, software products and devices
with imbedded technology used by many companies
15
may need to be upgraded to comply with such "Year 2000" requirements. This type
of Year 2000 error could potentially cause system failures or miscalculations
that could disrupt operations, includingCompany will
require, among other things, a temporary
inability tothe integration of the companies' respective
product offerings and coordination of the companies' sales and marketing efforts
and research and development efforts. It is possible that this integration will
not be accomplished smoothly or successfully. The diversion of the attention of
management and any difficulties encountered in the process transactions, issue invoicesof combining the
operations of the two organizations could cause the interruption of, or engage in similar normal
business activities. Although the Company believes that its products are Year
2000 compliant, undetected Year 2000 error or defects could result in delay ora loss
of revenue, diversionmomentum in, the activities either or both of development resources, damagethe companies' businesses,
which could have an adverse effect on their combined operations. Furthermore,
the process of combining the companies could have a material adverse effect on
employee morale and on the ability of the combined Company to retain the key
technical and sales and marketing personnel who are critical to the Company's
reputation and increased service and warranty costs. The Company believes that
the purchasing patterns of customers could potentially be affected by Year 2000
issues as companies expend significant resources to correct or patch their
current software systems for Year 2000 compliance. These expenditures may result
in reduced funds available to purchase software products such as those offered
by the Company. In addition, even if the Company's products are Year 2000
compliant, other systems or software used by the Company's customers may not be
Year 2000 compliant. The failure of noncompliant third-party software or systems
could affect the perceived performance of the Company's products.
State of Readiness - The Company uses various financial and managerial
information systems within its operations in the United States, Europe and Asia,
which the Company believes to be or will be Year 2000 compliant by the end of
1999. As part of its normal course of business, the Company analyzes its
information system requirements in relation to its business operating goals and
strategic objectives and is implementing new systems during 1999 that will be
Year 2000 compliant. The Company has also analyzed its other systems and its
material suppliers and vendors for Year 2000 issues which it believes to be or
will be Year 2000 compliant by the end of 1999. Such other systems include
non-information technology systems and services utilized by the Company in its
business operations, such as power, telecommunications, security and general
facilities.
Costs for Year 2000 Compliance - Costs that may be incurred by the Company
pertaining to Year 2000 compliance issues include identification, assessment,
remediation and testing efforts, as well as potential costs to be incurred by
the Company with respect to Year 2000 issues of third parties. To date, the
costs incurred by the Company directly related to Year 2000 issues have been
minimal, even in cases where non-compliant information technology systems were
redeployed or replaced.
Contingency Plans - The Company has a contingency plan for handling Year 2000
problems that are not detected and corrected prior to their occurrence and
continues to assess its Year 2000 exposure areas in order to determine what
additional steps, beyond those identified by the Company's internal review to
date, are advisable. The Company's contingency plan includes adequate internal
resources that would be available to analyze, assess and direct remediation
efforts to address potential issues, back up systems that do not rely on
computers, and alternative sources of supply. The Company presently believes
that the Year 2000 issue will not pose significant operational problems for the
Company. However, any failure of the Company to adequately address any
unforeseen Year 2000 issue could adversely affect the Company's business,
financial condition, and results ofcombined
companies' future operations. In addition, if all of the Year
2000 issues are not properly identified, or adequate assessment, remediation and
testing are not effected timely with respect to Year 2000 problems that are
identified, thereThere can be no assurance that employees of
Interleaf will continue to work for the Year 2000 issue would notCompany. Failure to accomplish the
integration of the two companies operations efficiently and effectively could
have a material adverse impacteffect on the Company's business operating results and
financial condition.
If the integration of BroadVision's and Interleaf's operations is not
successful, if the combined company does not experience business synergies as
quickly as may be expected by financial analysts, if such synergies are not
achieved or are at levels below those expected by financial analysts, or if the
accretive/dilutive effect of the merger is not in line with the expectations of
financial analysts, the market price of the Company's common stock may be
significantly or adversely affectaffected.
Under the Company's relationships with customers, vendors, partners or others.
Additionally, there canterms of the acquisition agreement, Interleaf shareholders
received 1.0395 shares of Broadvision common stock in exchange for each share of
Interleaf common stock. The Company currently estimates the purchase
consideration to be no assurance thatapproximately $802 million, inclusive of $18 million of
estimated acquisition and severance costs. The Company expects to incur
amortization expense related to the Yearacquisition beginning in the second quarter
of the 2000 issues of other
entities will not have a material adverse impact on the Company's systems or
results of operations.fiscal year.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk exposure for changes in interest rate changesrates
relates primarily to its investment portfolio. The Company has not invested inhad no derivative
financial instruments as of September 30,March 31,
14
2000 or December 31, 1999. The Company places
its investment portfolioWe place our investments in instruments that meet
high credit quality instrumentsstandards and the amount of credit exposure to any one
issue, issuer and type of instrument is limited. The Company
doesWe do not expect any material
loss with respect to itsour investment portfolio. The
Company's investment portfolioOur financial instrument holdings
as of 16
September 30, 1999March 31, 2000 were analyzed to determine their sensitivity to interest
rate changes. As part ofIn our sensitivity analysis, we assumed an adverse change in
interest rates of between 50 and 250500 basis points and the expected effect on net income was
not material. The Company is also subject to market risk relating to equity
price changes concerning its long-term investment holdings, which consist of
marketable and non-marketable equity securities. As of September 30, 1999, the
Company's long-term investment holdings had a carrying value of $25.5 million, a
historical cost of value of $9.1 million and associated unrealized gains of
$16.4 million.insignificant.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 22, 2000, the Company reached a settlement agreement and
entered into a license agreement with Art Technology Group ("ATG") in connection
with the lawsuit filed by the Company on December 11, 1998 BroadVision filed a lawsuit against Art
Technology Group, Inc. ("ATG") inATG alleging
infringement on the Northern District of California. The
complaint alleges that ATG is infringing BroadVision'sCompany's U.S. Patent No. 5,710,887
and seeks injunctive relief and unspecified damages. On February 3, 1999, ATG
filed an answer and counterclaim against BroadVision in which ATG seeks
declaratory judgment for non-interference and declaratory judgment for
invalidity5,710,887. In accordance with the
terms of the patent. Trial is set for October 16, 2000.agreement, the Company granted ATG a nonexclusive, nontransferable,
worldwide, perpetual license and was paid $8 million by ATG at the effective
date of the settlement and will receive a total of $7 million payable in
quarterly installments commencing February 24, 2000 (four consecutive quarterly
payments of $750,000 during 2000 and eight consecutive quarterly payments of
$500,000 during 2001 and 2002).
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) A Special Meeting of Stockholders of the Company was held on September
29, 1999.
(b) Not applicable
(c) The matters voted upon and the voting of the stockholders with respect
thereto are as follows:
(i) To approve an amendment to the Company's Amended and Restated
Certificate of Incorporation to increase the authorized number
of shares of Common Stock to 500,000,000 shares and Preferred
Stock to 10,000,000 shares:
(ii)
For: 13,347,559 Against: 4,087,046
Abstain: 10,524 Broker Non-Vote: 6,600
(iii) To approve the Company's Equity Incentive Plan, as amended, to
increase the aggregate number of shares of Common Stock
authorized for issuance under such plan by 3,000,000 shares:
(iv)
For: 12,479,569 Against: 4,951,681
Abstain: 20,479 Broker Non-Vote 0
17
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Item Description
---- -----------
3.1 Certificate of Amendment of Amended10.19 Triple Net Building Lease dated April 12, 2000 between
Pacific Shores Development LLC, as Lessor, and
Restated Certificate
of Incorporation
10.1*BroadVision, Inc., as Lessee, for Premises at Pacific
Shores Center, Building 4, Redwood City, California.
10.20 Triple Net Building Lease dated February 16, 2000
between Pacific Shores Development LLC, as Lessor, and
BroadVision, Inc., as Lessee, for Premises at Pacific
Shores Center, Building 5, Redwood City, California.
10.21 Triple Net Building Lease dated February 16, 2000
between Pacific Shores Development LLC, as Lessor, and
BroadVision, Inc., as Lessee, for Premises at Pacific
Shores Center, Building 6, Redwood City, California.
10.22* 2000 Non-Officer Equity Incentive Plan as amended September 29, 1999
27.1 Financial Data Schedule
* Filed as 5 an exhibitIncorporated herein by reference to the applicable Exhibit to the
Company's ProxyRegistration Statement on Form S-8, filed on April 17, 2000,
File 333-35114
(b) Reports on Form 8-K.
On March 1, 2000 , the Company filed a Current Report on Form
8-K (File No. 0-28252) inclusive of exhibits to reflect
retroactively restated financial statements as of December 31,
15
1997 and 1998 and for the three year period ended December 31,
1998 in association with its September 13,29, 1999, and incorporated herein by reference .three for one
stock split.
On January 31, 2000, the Company filed a Current Report on
Form 8-K (File No. 0-28252), attaching as an exhibit its January
26, 2000 press release regarding its definitive agreement to
acquire all the outstanding stock of Interleaf, Inc. in exchange
for BroadVision common stock at a fixed rate of 1.0395 BroadVision
shares for each Interleaf share.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BROADVISION, INC
Date: NovemberMay 12, 19992000 /s/ Pehong Chen
--------------------- ----------------------------------------------------------------- -------------------------------
Pehong Chen
President and Chief
Executive Officer
(Principal Executive Officer)
Date: NovemberMay 12, 19992000 /s/ Randall C. Bolten
--------------------- ----------------------------------------------------------------- -------------------------------
Randall C. Bolten
Executuve Vice President,
Operations and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
1816
INDEX TO EXHIBITS
Exhibit
No. Description
- ------- -----------
3.1 Certificate of Amendment of Amended10.19 Triple Net Building Lease dated April 12, 2000 between Pacific
Shores Development LLC, as Lessor, and Restated Certificate of
Incorporation
10.1*BroadVision, Inc., as
Lessee, for Premises at Pacific Shores Center, Building 4, Redwood
City, California.
10.20 Triple Net Building Lease dated February 16, 2000 between Pacific
Shores Development LLC, as Lessor, and BroadVision, Inc., as
Lessee, for Premises at Pacific Shores Center, Building 5, Redwood
City, California.
10.21 Triple Net Building Lease dated February 16, 2000 between Pacific
Shores Development LLC, as Lessor, and BroadVision, Inc., as
Lessee, for Premises at Pacific Shores Center, Building 6, Redwood
City, California.
10.22* 2000 Non-Officer Equity Incentive Plan as amended September 29, 1999
27.1 Financial Data Schedule
* Filed as an exhibitIncorporated herein by reference to the applicable Exhibit to the
Company's ProxyRegistration Statement on Form S-8, filed on September
13, 1999 and incorporated herein by reference .
19April 17, 2000,
File 333-35114