UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON,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
Juneended September 30, 2000
OrOR
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR | |
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
0-28252
(Commission File Number 0-28252Number)
BroadVision, Inc.BROADVISION, INC.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of | |||
incorporation or organization) | 94-3184303 (I.R.S. Employer Identification Number) |
585 Broadway, Redwood City, California | |||
(Address of principal executive offices) | 94063 (Zip code) |
(650) 261-5100
(Registrant'sRegistrant’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 daysdays. Yes [x] No [ ]
|
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As of AugustNovember 9, 2000, there were 267,150,685269,141,816 shares of the Registrant’s Common Stock issued and outstanding.
BROADVISION, INC. AND SUBSIDIARIES
FORM 10-QQUARTERENDEDJUNEQuarter Ended September 30, 2000
TABLE OF CONTENTS
SIGNATURES | ||
2
ITEMItem 1. FINANCIAL STATEMENTSFinancial Statements
BROADVISION, INC. AND SUBSIDIARIESCONDENSEDCONSOLIDATEDBALANCE SHEETSCONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
June 30, | December 31, | |||||||||||||
September 30, 2000 | December 31, 1999 | |||||||||||||
(unaudited) | ||||||||||||||
(unaudited) | ||||||||||||||
ASSETS | ||||||||||||||
Cash and cash equivalents | $ | 148,830 | $ | 279,823 | $ | 156,401 | $ | 279,823 | ||||||
Short-term investments | 178,424 | 68,758 | 110,526 | 68,758 | ||||||||||
Accounts receivable, less allowance for doubtful accounts of | ||||||||||||||
$2,142 and $1,446, for 2000 and 1999, respectively | 66,880 | 26,540 | ||||||||||||
Accounts receivable, less allowance for doubtful accounts of $2,805 and $1,446, for 2000 and 1999, respectively | 92,579 | 26,540 | ||||||||||||
Prepaids and other | 9,424 | 5,085 | 13,139 | 5,085 | ||||||||||
Total current assets | 403,558 | 380,206 | 372,645 | 380,206 | ||||||||||
Property and equipment, net | 32,334 | 16,751 | 42,234 | 16,751 | ||||||||||
Long-term investments | 21,632 | 4,414 | 81,291 | 4,414 | ||||||||||
Goodwill and other intangibles, net | 741,236 | — | 674,876 | — | ||||||||||
Other assets | 5,657 | 4,757 | 6,624 | 4,757 | ||||||||||
Total assets | $ | 1,204,417 | $ | 406,128 | $ | 1,177,670 | $ | 406,128 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||
Accounts payable | $ | 12,299 | $ | 5,754 | $ | 12,824 | $ | 5,754 | ||||||
Accrued expenses | 27,830 | 13,156 | 41,658 | 13,156 | ||||||||||
Unearned revenue | 24,574 | 3,896 | 16,897 | 3,896 | ||||||||||
Deferred maintenance | 30,173 | 15,228 | 37,179 | 15,228 | ||||||||||
Income taxes | 2,881 | 16,769 | — | 16,769 | ||||||||||
Current portion of long-term debt and capital lease obligations | 997 | 1,247 | 977 | 1,247 | ||||||||||
Total current liabilities | 98,754 | 56,050 | 109,535 | 56,050 | ||||||||||
Other noncurrent liabilities | 867 | — | 884 | — | ||||||||||
Long-term debt, net of current portion | 4,347 | 4,890 | 4,113 | 4,890 | ||||||||||
Total liabilities | 103,968 | 60,940 | 114,532 | 60,940 | ||||||||||
Stockholders’ equity: | ||||||||||||||
Convertible preferred stock, $0.0001 par value; 10,000 | ||||||||||||||
shares authorized; none issued and outstanding | — | — | ||||||||||||
Common stock, $0.0001 par value; 2,000,000 shares | ||||||||||||||
authorized; 265,963 and 244,812 shares issued and | ||||||||||||||
outstanding for 2000 and 1999, respectively | 27 | 24 | ||||||||||||
Convertible preferred stock, $0.0001 par value; 10,000 shares authorized; none issued and outstanding | — | — | ||||||||||||
Common stock, $0.0001 par value; 2,000,000 shares authorized; 267,977 and 244,812 shares issued and outstanding for 2000 and 1999, respectively | 27 | 24 | ||||||||||||
Additional paid-in capital | 1,141,104 | 320,259 | 1,161,642 | 320,259 | ||||||||||
Deferred compensation | (67) | (226) | — | (226 | ) | |||||||||
Accumulated other comprehensive income, net of tax | 5,016 | 25,925 | ||||||||||||
Accumulated other comprehensive income (loss), net of tax | (144 | ) | 25,925 | |||||||||||
Accumulated deficit | (45,631) | (794) | (98,387 | ) | (794 | ) | ||||||||
Total stockholders’ equity | 1,100,449 | 345,188 | 1,063,138 | 345,188 | ||||||||||
Total liabilities and stockholders’ equity | $ | 1,204,417 | $ | 406,128 | $ | 1,177,670 | $ | 406,128 | ||||||
See Accompanying Notes to Condensed Consolidated Financial Statements
3
BROADVISION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share amounts)
Three Months Ended | Six Months Ended | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||
2000 | 1999 | 2000 | 1999 | 2000 | 1999 | 2000 | 1999 | |||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | ||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||
Software licenses | $ | 56,848 | $ | 15,484 | $ | 97,562 | $ | 28,267 | $ | 72,351 | $ | 18,954 | $ | 169,913 | $ | 47,221 | ||||||||||
Services | 38,496 | 7,992 | 59,283 | 13,673 | 47,843 | 10,877 | 107,126 | 24,550 | ||||||||||||||||||
Total revenues | 95,344 | 23,476 | 156,845 | 41,940 | 120,194 | 29,831 | 277,039 | 71,771 | ||||||||||||||||||
Cost of revenues: | ||||||||||||||||||||||||||
Cost of software licenses | 1,563 | 1,037 | 3,626 | 1,784 | 1,395 | 676 | 5,021 | 2,460 | ||||||||||||||||||
Cost of services | 30,282 | 4,624 | 45,956 | 7,945 | 34,015 | 7,241 | 79,971 | 15,186 | ||||||||||||||||||
Total cost of revenues | 31,845 | 5,661 | 49,582 | 9,729 | 35,410 | 7,917 | 84,992 | 17,646 | ||||||||||||||||||
Gross profit | 63,499 | 17,815 | 107,263 | 32,211 | 84,784 | 21,914 | 192,047 | 54,125 | ||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||
Research and development | 9,706 | 3,268 | 15,465 | 6,169 | 14,988 | 3,816 | 30,453 | 9,986 | ||||||||||||||||||
Sales and marketing | 33,570 | 10,019 | 58,770 | 17,684 | 43,799 | 12,136 | 102,569 | 29,819 | ||||||||||||||||||
General and administrative | 6,786 | 1,611 | 10,344 | 2,882 | 8,198 | 2,119 | 18,542 | 5,001 | ||||||||||||||||||
Goodwill and intangible amortization | 55,351 | — | 55,404 | — | 66,308 | — | 121,712 | — | ||||||||||||||||||
Charge for acquired in-process | ||||||||||||||||||||||||||
technology | 10,100 | — | 10,100 | — | ||||||||||||||||||||||
Charge for acquired in-process technology | — | — | 10,100 | — | ||||||||||||||||||||||
Total operating expenses | 115,513 | 14,898 | 150,083 | 26,735 | 133,293 | 18,071 | 283,376 | 44,806 | ||||||||||||||||||
Operating income (loss) | (52,014 | ) | 2,917 | (42,820 | ) | 5,476 | (48,509 | ) | 3,843 | (91,329 | ) | 9,319 | ||||||||||||||
Other income, net | 3,940 | 593 | 11,187 | 1,110 | 4,318 | 891 | 15,505 | 2,001 | ||||||||||||||||||
Income (loss) before provision | ||||||||||||||||||||||||||
for income taxes | (48,074 | ) | 3,510 | (31,633 | ) | 6,586 | ||||||||||||||||||||
Income (loss) before provision for income taxes | (44,191 | ) | 4,734 | (75,824 | ) | 11,320 | ||||||||||||||||||||
Provision for income taxes | 6,797 | 195 | 13,204 | 334 | 8,565 | 240 | 21,769 | 573 | ||||||||||||||||||
Net income (loss) | $ | (54,871 | ) | $ | 3,315 | $ | (44,837 | ) | $ | 6,252 | $ | (52,756 | ) | $ | 4,494 | $ | (97,593 | ) | $ | 10,747 | ||||||
Basic earnings (loss) per share | $ | (0.21 | ) | $ | 0.01 | $ | (0.18 | ) | $ | 0.03 | $ | (0.20 | ) | $ | 0.02 | $ | (0.38 | ) | $ | 0.05 | ||||||
Diluted earnings (loss) per share | $ | (0.21 | ) | $ | 0.01 | $ | (0.18 | ) | $ | 0.02 | $ | (0.20 | ) | $ | 0.02 | $ | (0.38 | ) | $ | 0.04 | ||||||
Shares used in computing: | ||||||||||||||||||||||||||
Basic earnings (loss) per share | 258,935 | 226,107 | 252,288 | 223,974 | 266,368 | 229,005 | 257,254 | 225,918 | ||||||||||||||||||
Diluted earnings (loss) per share | 258,935 | 253,386 | 252,288 | 251,514 | 266,368 | 259,947 | 257,254 | 254,259 | ||||||||||||||||||
Comprehensive income (loss): | ||||||||||||||||||||||||||
Net income (loss) | $ | (54,871 | ) | $ | 3,315 | $ | (44,837 | ) | $ | 6,252 | $ | (52,756 | ) | $ | 4,494 | $ | (97,593 | ) | $ | 10,747 | ||||||
Other comprehensive income (loss), | ||||||||||||||||||||||||||
net of tax: | ||||||||||||||||||||||||||
Unrealized short-term investment | ||||||||||||||||||||||||||
gains (losses) | (22,097 | ) | 2,816 | (20,909 | ) | 10,045 | ||||||||||||||||||||
Other comprehensive income (loss), net of tax: | ||||||||||||||||||||||||||
Unrealized investment gains (losses) | (5,160 | ) | (2,102 | ) | (26,070 | ) | 7,943 | |||||||||||||||||||
Total comprehensive income (loss) | $ | (76,968 | ) | $ | 6,131 | $ | (65,746 | ) | $ | 16,297 | $ | (57,916 | ) | $ | 2,392 | $ | (123,663 | ) | $ | 18,690 | ||||||
See Accompanying Notes to Condensed Consolidated Financial Statements
4
BROADVISION, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)(unaudited)
Nine Months Ended September 30, | ||||||||||||||
Six Months Ended June 30, | ||||||||||||||
2000 | 1999 | |||||||||||||
2000 | 1999 | |||||||||||||
(unaudited) | ||||||||||||||
Cash flows from operating activities: | ||||||||||||||
Net income (loss) | $ | (44,837 | ) | $ | 6,252 | $ | (97,593 | ) | $ | 10,747 | ||||
Adjustments to reconcile net income to net cash | ||||||||||||||
provided by operating activities: | ||||||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||
Depreciation and amortization | 4,481 | 1,921 | 7,347 | 2,994 | ||||||||||
Amortization of deferred compensation | 159 | 166 | 226 | 248 | ||||||||||
Allowance for doubtful accounts | 696 | 230 | 1,359 | 433 | ||||||||||
Amortization of prepaid royalties | 592 | 167 | 996 | 250 | ||||||||||
Amortization of prepaid compensation | 1,034 | - | 1,456 | — | ||||||||||
Charge for acquired in-process technology | 10,100 | - | 10,100 | — | ||||||||||
Goodwill and intangible amortization | 55,404 | - | 121,712 | — | ||||||||||
Changes in operating assets and liabilities, net of effects from | ||||||||||||||
acquired business: | ||||||||||||||
Changes in operating assets and liabilities, net of effects from acquired business: | ||||||||||||||
Accounts receivable | (30,108 | ) | (6,348 | ) | (56,470 | ) | (8,163 | ) | ||||||
Prepaids and other | (3,205 | ) | (246) | (7,510 | ) | (429 | ) | |||||||
Accounts payable and accrued expenses | 4,841 | (2,695 | ) | 21,675 | (7,743 | ) | ||||||||
Unearned revenue and deferred maintenance | 24,291 | 5,388 | 23,620 | 7,241 | ||||||||||
Income tax benefit from stock option exercises | 13,131 | 6,167 | 21,079 | 13,330 | ||||||||||
Other noncurrent assets | (1,990 | ) | - | (2,891 | ) | — | ||||||||
Net cash provided by operating activities | 34,589 | 11,002 | 45,106 | 18,908 | ||||||||||
Cash flows from investing activities: | ||||||||||||||
Purchase of property and equipment | (17,168 | ) | (3,865 | ) | (29,934 | ) | (7,790 | ) | ||||||
Purchase of long-term investments | (14,218 | ) | - | (76,033 | ) | (750 | ) | |||||||
Direct costs of purchase transaction, net of cash acquired | (4,428 | ) | - | (6,039 | ) | — | ||||||||
Other assets | - | (90 | ) | — | (2,618 | ) | ||||||||
Purchase of short-term investments | (200,122 | ) | (18,823 | ) | (175,947 | ) | (24,201 | ) | ||||||
Maturity of short-term investments | 55,607 | - | 92,956 | — | ||||||||||
Net cash used for investing activities | (180,329 | ) | (22,778 | ) | (194,997 | ) | (35,359 | ) | ||||||
Cash flows from financing activities: | ||||||||||||||
Proceeds from issuance of common stock, net | 15,539 | 4,373 | 27,757 | 7,993 | ||||||||||
Proceeds from borrowings, net | — | 2,535 | ||||||||||||
Repayments of borrowings | (542 | ) | (324 | ) | (1,018 | ) | — | |||||||
Payments on capital lease obligations | (250 | ) | (416 | ) | (270 | ) | (632 | ) | ||||||
Net cash provided by financing activities | 14,747 | 3,633 | 26,469 | 9,896 | ||||||||||
Net decrease in cash and cash equivalents | (130,993 | ) | (8,143 | ) | (123,422 | ) | (6,555 | ) | ||||||
Cash and cash equivalents at beginning of period | 279,823 | 61,878 | 279,823 | 61,878 | ||||||||||
Cash and cash equivalents at end of period | $ | 148,830 | $ | 53,735 | $ | 156,401 | $ | 55,323 | ||||||
Supplemental disclosures of cash flow information: | ||||||||||||||
Cash paid for interest | $ | 283 | $ | 177 | $ | 422 | $ | 267 | ||||||
Cash paid for income taxes | $ | 593 | $ | 431 | $ | 1,165 | $ | 511 | ||||||
See Accompanying Notes to Condensed Consolidated Financial Statements
5
BROADVISION, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1.Organization and Summary of Significant Accounting Policies
Nature of Business Business—- BroadVision, Inc. (collectively with its wholly-owned subsidiaries, "BroadVision"“BroadVision” or the "Company"“Company” ) was incorporated in the state of Delaware on May 13, 1993. BroadVision develops and delivers an integrated suite of packaged applications for conducting e-commerce interactions and transactions. Companies use these applications to sell, buy and exchange information over the web and on wireless devices. The Company develops, marketsbelieves its e-commerce application suite enables a business to become more competitive and supports application software solutions specifically designed for one-to-one relationship management across an extended enterprise. These solutions enable businesses to use the Internet as a platform to conduct electronic commerce, provide online customer self-service, deliver targeted information to constituentsprofitable by establishing and provide online financial services. Each of these capabilities can be made available to all constituentssustaining high-yield relationships with customers, suppliers and employees through integration, automation and personalization of the extended enterprise, including:e-commerce value chain. BroadVision service professionals transform these applications into business value for its customers suppliers, partners, distributorsthrough consulting, education and employees.support services.
The BroadVision product suite allows businesses to tailor their website content to the special needs and interests of individual users by personalizing each constituent'sconstituent’s visit on a real-time interactive basis. The Company'sCompany’s applications accomplish this by capturing website visitor profile information and targeting an enterprise's organizedenterprise’s content to each visitor based on easily constructed business rules. The Company believes the benefits of these applications include greater customer satisfaction and loyalty, increased business volume, enhanced brand awareness, reduced costs to service customers and execute transactions, as well as higher employee productivity. The product offerings inherited through the Interleaf acquisition includeCompany’s XML-based e-contentcontent management tools that can, when combined with BroadVision's existing products,BroadVision’s other product offerings, create a comprehensive, end-to-end offering for companies needing to manage content richcontent-rich and transactional e-businesses for delivery over the Webweb and wireless devices.
The Company sells its products and services worldwide through a direct sales force and a channel of independent distributors, value-added resellers (“VARs”) and application service providers (“ASPs”). In addition, the Company’s sales are promoted through independent professional consulting organizations known as systems integrators or consulting partners and through members of 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 with the marketing, selling and development of its customers applications. The Company places a strategic emphasis on technology alliances to ensure that its products are based on industry standards and to position it to take advantage of current and emerging technologies. All of these independent entities are often referred to in this document as “partners.” 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.
Basis of Presentation Presentation—- The accompanying consolidated financial statements include the accounts of the Company. 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 JuneSeptember 30, 2000 and for the three and sixnine months ended JuneSeptember 30, 2000 and 1999 are unaudited. The balance sheet at December 31, 1999 has been derived from the audited consolidated financial statements as of that date but does not necessarily reflect all of the informational disclosures previously reported in accordance with Generally Accepted Accounting Principles.generally accepted accounting principles. In the Company'sCompany’s opinion, the consolidated financial statements presented herein include all necessary adjustments, consisting of normal recurring adjustments, to fairly state the Company'sCompany’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'sCompany’s Form 10-K and other documents that have been filed with the Securities and Exchange Commission. The results of the Company'sCompany’s operations for the interim periods presented are not necessarily indicative of operating results for the full fiscal year or any future interim periods.
Reclassifications -Reclassifications—Certain prior period balances have been reclassified to conform to the current period presentation.
6
Stock Splits -Splits—On September 29, 1999, the Company'sCompany’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. The stock dividend payment date was October 25, 1999 and the Company'sCompany’s common stock traded ex-dividend starting October 26, 1999, reflecting the three-for-one stock split. On February 8, , 2000, the Company'sCompany’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 February 21, 2000. The stock dividend payment date was March 13, 2000 and the Company'sCompany’s common stock traded ex-dividend starting March 14, 2000, reflecting the three-for-one stock split. The accompanying consolidated financial statements and related financial information contained herein hashave been retroactively restated to give effect for the stock splits.
Net Earnings (Loss) Per Share-—Statement of Financial Accounting Standard ("SFAS"(“SFAS”) No. 128, Earnings Per Share, requires the presentation of basic and diluted earnings per share. Earnings per share are calculated by dividing net income applicable to common stockholders by a weighted average number of shares outstanding for the period. Basic earnings per share are determined solely on common shares;shares whereas diluted earnings per share include 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 | Six Months Ended | ||||||||||||
June 30, | June 30, | ||||||||||||
2000 | 1999 | 2000 | 1999 | ||||||||||
Net income (loss) | $ | (54,871 | ) | $ | 3,315 | $ | (44,837 | ) | $ | 6,252 | |||
Weighted average common shares outstanding | |||||||||||||
utilized for basic earnings (loss) per share | 258,935 | 226,107 | 252,288 | 223,974 | |||||||||
Weighted average common equivalent shares | |||||||||||||
outstanding: | |||||||||||||
Employee common stock options | — | 27,009 | — | 27,270 | |||||||||
Common stock warrants | — | 270 | — | 270 | |||||||||
Total weighted average common and | |||||||||||||
common equivalent shares outstanding | |||||||||||||
utilized for diluted earnings (loss) per | |||||||||||||
share | 258,935 | 253,386 | 252,288 | 251,514 | |||||||||
Basic earnings (loss) per share | $ | (0.21 | ) | $ | 0.01 | $ | (0.18 | ) | $ | 0.03 | |||
Diluted earnings (loss) per share | $ | (0.21 | ) | $ | 0.01 | $ | (0.18 | ) | $ | 0.02 | |||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||
2000 | 1999 | 2000 | 1999 | ||||||||||
Net income (loss) | $ | (52,756 | ) | $ | 4,494 | $ | (97,593 | ) | $ | 10,747 | |||
Weighted average common shares outstanding utilized for basic earnings (loss) per share | 266,368 | 229,005 | 257,254 | 225,918 | |||||||||
Weighted average common equivalent shares outstanding: | |||||||||||||
Employee common stock options | — | 30,726 | — | 28,086 | |||||||||
Common stock warrants | — | 216 | — | 255 | |||||||||
Total weighted average common and common equivalent shares outstanding utilized for diluted earnings (loss) per share | 266,368 | 259,947 | 257,254 | 254,259 | |||||||||
Basic earnings (loss) per share | $ | (0.20 | ) | $ | 0.02 | $ | (0.38 | ) | $ | 0.05 | |||
Diluted earnings (loss) per share | $ | (0.20 | ) | $ | 0.02 | $ | (0.38 | ) | $ | 0.04 | |||
7
Diluted net loss per share does not include the effect of the following potential common shares at JuneSeptember 30, 2000, as such shares would be anti-dilutive (in thousands):
Three Months Ended | Six Months Ended | |||||||||||||
June 30, 2000 | June 30, 2000 | Three Months Ended September 30, 2000 | Nine Months Ended September 30, 2000 | |||||||||||
Employee common stock options | 36,412 | 38,593 | 32,665 | 36,603 | ||||||||||
Common stock warrants | 24 | 25 | 22 | 24 | ||||||||||
New Accounting Pronouncements- —The Financial Accounting Standards Board ("FASB"(“FASB”) issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, asamended by SFAS No. 137. SFAS No. 133 addresses the accounting for derivative instruments, 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. The accounting for changes in fair value (i.e., gains or losses) of a derivative instrument depends on whether it qualifies as part of a hedging relationship, has been so designated as such and the underlying reason for holding it. The Company must adopt SFAS No. 133, as amended, by January 1, 2001, and does not expect such adoption will have any material effect on its financial statements.
In December 1999, the Securities and Exchange Commission ("SEC"(“SEC”) issued Staff Accounting Bulletin No. 101 ("(“SAB 101"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 fourth quarter of 2000, as required and does not expect the adoption of SAB 101 to have any material effect on its financial position or results of operations.
In March 2000, the FASB issued Interpretation No. 44, “Accounting for Certain Transactions Involving Stock Compensation”, an interpretation of Accounting Principles Board, (“APB”), Opinion No. 25. This interpretation provides guidance regarding the application of APB Opinion No. 25 to stock compensation involving employees. This interpretation was effective July 1, 2000 and did not have a material effect on the Company’s financial position, results of operations, or cash flows.
Note 2.Selective Balance Sheet Detail
Property and equipmentconsisted of the following (in thousands):
June 30, | December, 31 | September 30, | December 31, | |||||||||||
2000 | 1999 | 2000 | 1999 | |||||||||||
Furniture and fixtures | $ | 3,811 | $ | 2,323 | $ | 4,805 | $ | 2,323 | ||||||
Computers and software | 32,908 | 17,618 | 43,036 | 17,618 | ||||||||||
Leasehold improvements | 10,189 | 6,903 | 11,833 | 6,903 | ||||||||||
46,908 | 26,844 | 59,674 | 26,844 | |||||||||||
Less accumulated depreciation and amortization | (14,574 | ) | (10,093 | ) | (17,440 | ) | (10,093 | ) | ||||||
$ | 32,334 | $ | 16,751 | $ | 42,234 | $ | 16,751 | |||||||
8
Accrued expenses consisted of the following (in thousands):
June 30, | December 31, | ||||||
2000 | 1999 | ||||||
Employee benefits | $ | 6,056 | $ | 1,340 | |||
Commissions and bonuses | 8,149 | 6,747 | |||||
Sales and other taxes | 3,438 | 1,122 | |||||
Other | 10,187 | 3,947 | |||||
$ | 27,830 | $ | 13,156 | ||||
September 30, | December 31, | ||||||
2000 | 1999 | ||||||
Employee benefits | $ | 11,136 | $ | 1,340 | |||
Commissions and bonuses | 16,730 | 6,747 | |||||
Sales and other taxes | 1,410 | 1,122 | |||||
Other | 12,382 | 3,947 | |||||
$ | 41,658 | $ | 13,156 | ||||
Note 3.Commercial Credit Facilities
The Company has various credit facilities with a commercial lender which include term debt in the form of notes payable and a revolving line of credit that provides for up to $10,000,000 of additional borrowings (basedbased on eligible accounts receivable).receivable. As of JuneSeptember 30, 2000 and December 31, 1999, outstanding term debt borrowings were approximately $5,300,000$5,100,000 and $5,900,000, respectively. Borrowings bear interest at the bank'sbank’s prime rate (9.5% and 8.5% as of JuneSeptember 30, 2000 and December 31, 1999, respectively). Principal and interest isare 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 JuneSeptember 30, 2000 and December 31, 1999, the Company had no outstanding borrowings under its revolving line of credit. However, commitments totaling $1,000,000$3,809,000 and $2,820,000 in the form of standby letters of credit were issued under its revolving line of credit facility as of JuneSeptember 30, 2000 and December 31, 1999, respectively. Commitments totaling $21,682,641 in the form of standingstandby letters of credit were also issued from a separate financial institution as of JuneSeptember 30, 2000. The commercial credit facilities include covenants which impose certain restrictions on the payment of dividends and other distributions and requires the Company to maintain monthly financial covenants, including a minimum quick ratio, tangible net worth ratio and debt service coverage ratio. Borrowings are collateralized by a security interest in substantially all of the Company'sCompany’s owned assets. The Company was in compliance with its financial covenants as of JuneSeptember 30, 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"(“CODM”) uses for operational decisions and financial performance assessments. The Company'sCompany’s Chief Executive Officer ("CEO"(“CEO”) is considered its CODM. The CEO reviews consolidated financial information accompanied by disaggregated information for products and
services and revenues by geographic region for purposes of making operating decisions and financial performance assessments. The Company sells its products and provides services worldwide through a direct sales force and through a channel of independent distributors, value-added resellers (“VARs”) and application service providers ("ASPs"(“ASPs”). In addition, the sales of the Company'sCompany’s products are promoted through independent professional consulting organizations known as systems integrators. The Company provides
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services worldwide directly through its Worldwide Professional Services Organization and indirectly through distributors, value-added resellers,VARs, ASPs and system integrators. It currently operates in three primary geographical territories: NASA, which includes North and South America; EMEA, which includes Europe, the Middle East, Africa and India; and Asia/Pacific/Japan (APJ), which includes the Pacific Rim and the Far East. Disaggregated financial information regarding the Company'sCompany’s products and services and geographic revenues is as follows (in thousands):
Three Months Ended | Six Months Ended | ||||||||||||
June 30, | June 30, | ||||||||||||
2000 | 1999 | 2000 | 1999 | ||||||||||
Software licenses: | |||||||||||||
One-To-One Enterprise | $ | 8,031 | $ | 1,056 | $ | 13,735 | $ | 4,098 | |||||
One-To-One WebApps | 38,230 | 12,665 | 65,384 | 20,896 | |||||||||
Tools | 10,587 | 1,763 | 18,443 | 3,273 | |||||||||
Services | 28,491 | 5,332 | 42,168 | 9,063 | |||||||||
Maintenance | 10,005 | 2,660 | 17,115 | 4,610 | |||||||||
Total Revenues | $ | 95,344 | $ | 23,476 | $ | 156,845 | $ | 41,940 | |||||
Revenues: | |||||||||||||
NASA | $ | 64,028 | $ | 18,405 | $ | 111,313 | $ | 29,746 | |||||
EMEA | 21,646 | 3,675 | 33,269 | 7,637 | |||||||||
APJ | 9,670 | 1,396 | 12,263 | 4,557 | |||||||||
Total Company | $ | 95,344 | $ | 23,476 | $ | 156,845 | $ | 41,940 | |||||
June 30, | December 31, | ||||||||||||
2000 | 1999 | ||||||||||||
Identifiable assets: | |||||||||||||
NASA | $ | 1,172,785 | $ | 400,858 | |||||||||
EMEA | 28,711 | 4,122 | |||||||||||
APJ | 2,921 | 1,148 | |||||||||||
Total Company | $ | 1,204,417 | $ | 406,128 | |||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2000 | 1999 | 2000 | 1999 | |||||||||||||
Software licenses: | ||||||||||||||||
One-To-One Enterprise | $ | 7,941 | $ | 2,548 | $ | 21,676 | $ | 6,646 | ||||||||
One-To-One WebApps | 53,083 | 13,739 | 118,467 | 34,633 | ||||||||||||
Tools | 11,327 | 2,667 | 29,770 | 5,942 | ||||||||||||
Services | 35,054 | 7,260 | 77,223 | 16,323 | ||||||||||||
Maintenance | 12,789 | 3,617 | 29,903 | 8,227 | ||||||||||||
Total Revenues | $ | 120,194 | $ | 29,831 | $ | 277,039 | $ | 71,771 | ||||||||
Revenues: | ||||||||||||||||
NASA | $ | 79,607 | $ | 20,266 | $ | 190,920 | $ | 50,012 | ||||||||
EMEA | 30,921 | 7,807 | 64,190 | 15,444 | ||||||||||||
APJ | 9,666 | 1,758 | 21,929 | 6,315 | ||||||||||||
Total Company | $ | 120,194 | $ | 29,831 | $ | 277,039 | $ | 71,771 | ||||||||
September 30, 2000 | December 31, 1999 | ||||||
Identifiable assets: | |||||||
NASA | $ | 1,140,327 | $ | 400,858 | |||
EMEA | 32,027 | 4,122 | |||||
APJ | 5,316 | 1,148 | |||||
Total Company | $ | 1,177,670 | $ | 406,128 | |||
Prior periods have been restated to reflect changes in software license classifications. During the three and sixnine months ended JuneSeptember 30, 2000 and the three months ended JuneSeptember 30, 1999, no single customer accounted for more than 10% of the Company'sCompany’s total revenues. During the sixthree months ended JuneSeptember 30, 2000 and the nine months ended September 30, 1999, one reseller customer accounted for 11% of the Company'sCompany’s total revenues.
Note 5.Acquisition
On April 14, 2000, the Company completed its acquisition of Interleaf, Inc. and its subsidiaries ("Interleaf"(“Interleaf”) pursuant to a statutory merger involving a stock-for-stock exchange. Interleaf'sInterleaf’s software products and related services enable automated electronic business, or e-business, and also enable the extension of e-business to wireless users. Interleaf provides customers with an integrated, easily implemented e-business solution based on extensible Markup Language, or XML, that enables the design, creation and management of XML-based content for transformation and delivery over the Web and related services. As a result of the acquisition, the
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Company will have the ability to combine technological resources to develop a robust Web-based business solution and reduce time to market for the combined Company'sCompany’s products. Through the acquisition of all of the equity securities of Interleaf, BroadVision acquired all of the assets and assumed liabilities of Interleaf and its existing operations which included in-process technology. Pursuant to the terms of the Agreement and Plan of Merger and Reorganization, dated as of January 26, 2000 (the "Merger Agreement"“Merger Agreement”), each outstanding share of Interleaf common stock was exchanged for 1.0395 shares of Company common stock for all outstanding shares of Interleaf common stock and all options to purchase shares of Interleaf common stock outstanding immediately prior to the consummation of the Merger were converted into options to purchase shares of Company common stock.
The Company issued 14,391,991 shares of Company common stock with a fair market value of $686.9 million and exchanged options to purchase 2,338,342 shares of Company common stock with a fair market value of $102.7 million. The fair market value of the exchanged options to purchase 2,338,342 shares of Company common stock was valued using the Black-Scholes option-pricing model. In connection with the acquisition, the Company incurred transaction costs consisting primarily of financial advisor, legal and accounting professional fees of $14.8 million, severance costs of $1.0 million and office closure costs of $1.3 million, resulting in a total purchase price of $806.7 million. The results of operations of Interleaf have been included with the Company'sCompany’s results of operations since the April 14, 2000 acquisition date.
The acquisition was accounted for as a purchase business combination. Under this accounting treatment, the purchase price is allocated to the assets acquired and liabilities assumed based on the estimated fair values on the date of acquisition.
The total purchase price paid for the Interleaf acquisition was allocated as follows (in thousands):
Property and equipment | $ | 2,896 | $ | 2,896 | ||||
Net assets acquired, excluding property and equipment | (2,284 | ) | (2,284 | ) | ||||
Identifiable intangible assets | 28,910 | 28,910 | ||||||
In-process research and development | 10,100 | |||||||
In-process technology | 10,100 | |||||||
Goodwill | 767,048 | 767,048 | ||||||
Total | $ | 806,670 | $ | 806,670 | ||||
Based upon the Company'sCompany’s estimates prepared in conjunction with a third-party valuation consultant, $10.1 million was allocated to acquired in-Process research and developmentin-process technology and $796.0 million was allocated to intangible assets. The amounts allocated to intangible assets include completed technologies of $20.4 million and assembled workforces of $8.5 million.
At JuneSeptember 30, 2000, accumulated amortization related to the goodwill and other intangible assets acquired in the Interleaf acquisition totaled $55.3$121.6 million. Goodwill amortization was $53.3$117.2 million and other intangible asset amortization was $2.0$4.4 million. The goodwill and other intangible assets are being amortized over a three-year period.
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The following summary, prepared on an unaudited pro forma basis, reflects the condensed consolidated results of operations for the six-monthnine-month period ended JuneSeptember 30, 2000 and 1999 assuming Interleaf had been acquired at the beginning of the periods presented (in thousands, except per share data):
For the nine months ended September 30, | |||||||||||||||||
For the six months ended June 30, | |||||||||||||||||
2000 | 1999 | 2000 | 1999 | ||||||||||||||
Revenue | $ | 170,508 | $ | 67,486 | $ | 290,702 | $ | 110,909 | |||||||||
Net loss | (120,121 | ) | (128,038 | ) | (172,584 | ) | (191,944 | ) | |||||||||
Basic and diluted net loss per share | $ | (0.47 | ) | $ | (0.55 | ) | $ | (0.65 | ) | $ | (0.81 | ) | |||||
The pro forma results are not necessarily indicative of what would have occurred if the acquisition had been in effect for the periods presented. In addition, they are not intended to be a projection of future results and do not reflect any synergies that might be affected from combined operations. The charges for in-process technology have not been included in the unaudited pro forma results because they are nonrecurring. See Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations for more information concerning the acquisition of Interleaf.
ITEMItem 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONSManagement’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 DISCUSSED HEREIN WITH THIS QUARTERLY REPORT ON FORM 10-Q, THE 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.
OVERVIEW
BroadVision develops, marketsExcept for the historical information contained herein, the following discussion contains forward-looking statements that involve risks 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 businessesuncertainties. The Company’s actual results could differ significantly from those discussed herein. Factors that could cause or contribute to use the Internet as a unique platform to conduct electronic commerce, provide online financial services, offer online interactive customer self-service, and deliver targeted information to all constituents of the extended enterprise. These constituentssuch differences include, but are not limited to, those discussed herein and in the 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.
Overview
BroadVision develops and delivers an integrated suite of packaged applications for conducting e-commerce interactions and transactions. Companies use these applications to sell, buy and exchange information over the web and on wireless devices. The Company believes its e-commerce application suite enables a business to become more competitive and profitable by establishing and sustaining high-yield relationships with customers, suppliers distributors, partners, and employees. employees through integration, automation and personalization of the e-commerce value chain. BroadVision service professionals transform these applications into business value for its customers through consulting, education and support services.
The BroadVision product suite allows businesses to tailor their website content to the special needs and interests of individual users by personalizing each constituent'sconstituent’s visit on a real-time interactive basis. OurThe Company’s applications accomplish this by capturing website visitor profile information and targeting an enterprise's organizedenterprise’s content to each visitor based on easily constructed business rules. We believeThe Company believes the benefits of these applications include greater customer satisfaction and loyalty, increased business volume, enhanced brand awareness, reduced costs to service customers and execute transactions, as well as higher employee productivity. The product offerings inherited through the Interleaf acquisition includeCompany’s XML-based e-contentcontent management tools that can, when combined with BroadVision's existing products,BroadVision’s other product offerings, create one of
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the mosta comprehensive, end-to-end offeringsoffering for companies needing to manage content-rich and transactional e-businesses for delivery over the Webweb and wireless devices.
The Company sells its products and services worldwide through a direct sales forcesforce and through a channel of independent distributors, value-added resellers (“VARs”) and application service providers ("ASPs"(“ASPs”). In addition, the Company’s sales of the Company's products are promoted through independent professional consulting organizations known as systemsystems integrators or consulting partners and through members of a global network of strategic business relationships with key industry platform and Webweb developer partners. The Company also engages in strategic business alliances to assist with itsthe marketing, selling and development of customerits customers applications. In addition, theThe Company places a strategic emphasis on technology alliances to ensure that its products are based on industry standards and thatto position it is positioned to take advantage of current and emerging technologies. All of these independent entities are often referred to in this document as "partners".“partners.” The benefits of this app roachapproach 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.
RESULTS OF OPERATIONSResults of Operations
Revenues
The Company'sCompany’s revenues are derived from software license fees and fees charged for its services. Software is generally licensed for development use and for its use in deployment of the customer'scustomer’s website using the software.. Deployment licenses are generally based on the number of persons who register on a customer'scustomer’s website using the Company'sCompany’s software. 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 delivered, there are no uncertainties surrounding product acceptance, the fees are fixed and determinable and collection is considered probable.
The Company'sCompany’s professional services are provided through its Worldwide Professional Services Organization ("WPSO"(“WPSO”) operation, presently comprised of the the Technical Services Group, the Content and Strategic Services Group, the e-publications Group, BroadVision University and the Worldwide Customer Support Group. The first three groups provide consulting services, the fourth group provides training-related services to employees, customers and partners, and the last group provides software maintenance services (including technical support) to
the Company'sCompany’s customers and partners. Revenue from consulting services are typically recognized as services are performed. Maintenance fees relating to technical support and upgrades are recognized ratably over the maintenance period.
Total Company revenuesincreased 306%303% during the quarter ended JuneSeptember 30, 2000 to $95.3$120.2 million as compared to $23.5$29.8 million for the quarter ended JuneSeptember 30, 1999. For the sixnine months ended JuneSeptember 30, 2000, total Company revenues increased 274%286% to $156.8$277.0 million as compared to $41.9$71.8 million for the comparable period during 1999. A summary of the Company'sCompany’s revenues by geographic region is as follows:
Software | % | Services | % | Total | % | ||||||||||||||
(dollars in thousands) | |||||||||||||||||||
Three Months Ended: | |||||||||||||||||||
September 30, 2000 | |||||||||||||||||||
NASA | $ | 42,005 | 58 | % | $ | 37,602 | 78 | % | $ | 79,607 | 66 | % | |||||||
EMEA | 22,840 | 32 | 8,081 | 17 | 30,921 | 26 | |||||||||||||
APJ | 7,506 | 10 | 2,160 | 5 | 9,666 | 8 | |||||||||||||
Total | $ | 72,351 | 100 | % | $ | 47,843 | 100 | % | $ | 120,194 | 100 | % | |||||||
September 30, 1999 | |||||||||||||||||||
NASA | $ | 11,610 | 61 | % | $ | 8,656 | 80 | % | $ | 20,266 | 68 | % | |||||||
EMEA | 6,063 | 32 | 1,744 | 16 | 7,807 | 26 | |||||||||||||
APJ | 1,281 | 7 | 477 | 4 | 1,758 | 6 | |||||||||||||
Total | $ | 18,954 | 100 | % | $ | 10,877 | 100 | % | $ | 29,831 | 100 | % | |||||||
Nine Months Ended: | |||||||||||||||||||
September 30, 2000 | |||||||||||||||||||
NASA | $ | 108,134 | 64 | % | $ | 82,786 | 77 | % | $ | 190,920 | 69 | % | |||||||
EMEA | 44,918 | 26 | 19,272 | 18 | 64,190 | 23 | |||||||||||||
APJ | 16,861 | 10 | 5,068 | 5 | 21,929 | 8 | |||||||||||||
Total | $ | 169,913 | 100 | % | $ | 107,126 | 100 | % | $ | 277,039 | 100 | % | |||||||
September 30, 1999 | |||||||||||||||||||
NASA | $ | 31,229 | 66 | % | $ | 18,783 | 77 | % | $ | 50,012 | 70 | % | |||||||
EMEA | 10,893 | 23 | 4,551 | 18 | 15,444 | 21 | |||||||||||||
APJ | 5,099 | 11 | 1,216 | 5 | 6,315 | 9 | |||||||||||||
Total | $ | 47,221 | 100 | % | $ | 24,550 | 100 | % | $ | 71,771 | 100 | % | |||||||
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(In thousands) | Software | % | Services | % | Total | % | |||||||||||||
Three Months Ended: | |||||||||||||||||||
June 30, 2000 | |||||||||||||||||||
NASA | $ | 34,368 | 60 | % | $ | 29,660 | 77 | % | $ | 64,028 | 67 | % | |||||||
EMEA | 14,819 | 26 | 6,827 | 18 | 21,646 | 23 | |||||||||||||
APJ | 7,661 | 14 | 2,009 | 5 | 9,670 | 10 | |||||||||||||
Total | $ | 56,848 | 100 | % | $ | 38,496 | 100 | % | $ | 95,344 | 100 | % | |||||||
June 30, 1999 | |||||||||||||||||||
NASA | $ | 12,163 | 79 | % | $ | 6,242 | 78 | % | $ | 18,405 | 78 | % | |||||||
EMEA | 2,362 | 15 | 1,313 | 16 | 3,675 | 16 | |||||||||||||
APJ | 959 | 6 | 437 | 6 | 1,396 | 6 | |||||||||||||
Total | $ | 15,484 | 100 | % | $ | 7,992 | 100 | % | $ | 23,476 | 100 | % | |||||||
Six Months Ended: | |||||||||||||||||||
June 30, 2000 | |||||||||||||||||||
NASA | $ | 66,129 | 68 | % | $ | 45,184 | 76 | % | $ | 111,313 | 71 | % | |||||||
EMEA | 22,078 | 23 | 11,191 | 19 | 33,269 | 21 | |||||||||||||
APJ | 9,355 | 9 | 2,908 | 5 | 12,263 | 8 | |||||||||||||
Total | $ | 97,562 | 100 | % | $ | 59,283 | 100 | % | $ | 156,845 | 100 | % | |||||||
June 30, 1999 | |||||||||||||||||||
NASA | $ | 19,619 | 69 | % | $ | 10,127 | 74 | % | $ | 29,746 | 71 | % | |||||||
EMEA | 4,830 | 17 | 2,807 | 21 | 7,637 | 18 | |||||||||||||
APJ | 3,818 | 14 | 739 | 5 | 4,557 | 11 | |||||||||||||
Total | $ | 28,267 | 100 | % | $ | 13,673 | 100 | % | $ | 41,940 | 100 | % | |||||||
Software product license revenues increased 267%281% during the current quarter ended JuneSeptember 30, 2000 to $56.8$72.4 million as compared to $15.5$19.0 million for the quarter ended JuneSeptember 30, 1999. For the sixnine months ended JuneSeptember 30, 2000, license revenues increased 245%260% to $97.6$169.9 million as compared to $28.3$47.2 million for the comparable period during 1999.
The increase in software license revenues is a result of continued strong demand by existing and new customers for the Company'sCompany’s expanding product line and core competencies and the growing market for business-to-business and business-to-consumer e-commerce software application solutions. Software license revenue also increased induring the quarternine months ended JuneSeptember 30, 2000 as a result of sales of software licenses of products acquired in the Interleaf transaction.In addition, software license revenues for the Company's web-applicationsCompany’s Enterprise applications increased to $8.0$7.9 million for the quarter ended JuneSeptember 30, 2000 as compared to $1.1$2.5 million for the quarter ended JuneSeptember 30, 1999. Software product license revenues for web-enablingEnterprise applications increased to $21.7 million for the nine months ended September 30, 2000 as compared to $6.6 million for the nine months ended September 30, 1999. Software license revenues for the Company’s web applications (“WebApps”) increased to $53.1 million for the quarter ended September 30, 2000 as compared to $13.7 million for the sixquarter ended September 30, 1999. Software license revenues for the Company’s WebApps increased to $118.5 million for the nine months ended JuneSeptember 30, 2000 as compared to $4.1$34.6 million for the sixnine months ended JuneSeptember 30, 1999.2000.
The Company believes that thecustomers’ requirements of customers to be able to handlesuccessfully accommodate more registered visitors t oto their websites after they have "gone live" (i.e.,“ gone live,” been deployed)deployed, has resulted in a continued increase in deployment license revenues. During the quarter ended JuneSeptember 30, 2000, the Company signed license agreements with 161142 new customers (136(115 end-user customers and 2527 partner organizations), as compared to 6372 new customers (51(56 end users and 1216 partner organizations) for the quarter ended JuneSeptember 30, 1999. The Company signed license agreements with 271413 new customers (238(353 end-user organizations and 33 partner
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organizations) for the six months ended June 30, 2000, compared to 106 new licensed customers (83 end-users and 2360 partner organizations) for the sixnine months ended JuneSeptember 30, 2000 as compared to 180 new licensed customers (140 end-users and 40 partner organizations) for the nine months ended September 30, 1999. As of JuneSeptember 30, 2000, the Company had a total installed base of 764 end-customers879 end-user customers and 156183 partners which compares withas compared to 415 end-user customers and 123 partners as of December 31, 1999 and 280335 end-user customers and 100115 partners as of JuneSeptember 30, 1999.
Total services revenues increased 382%339% during the current quarter ended JuneSeptember 30, 2000 to $38.5$47.8 million as compared to $8.0$10.9 million for the quarter ended JuneSeptember 30, 1999. For the sixnine months ended JuneSeptember 30, 2000, services revenues increased 334%335% to $59.3$107.1 million as compared to $13.7$24.6 million for the comparable period during 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 $10.0$12.8 million for the quarter ended JuneSeptember 30, 2000 as compared to $2.7$3.6 million for the quarter ended JuneSeptember 30, 1999. Maintenance related fees were $17.1$29.9 million for the sixnine months ended JuneSeptember 30, 2000 as compared to $4.6$8.2 million for the sixnine months ended JuneSeptember 30, 1999. The Company also experienced increases in services and maintenance revenues as a result of the Interleaf acquisition. During the first half offiscal 2000, the Company expanded its corporate training facilities by building new training centers in Chicago, Illinois, the United Kingdom and Taipei, Taiwan.
Cost of Revenues
Cost of license revenues include the costs of product media, duplication, packaging and other manufacturing costs as well as royalties payable to third parties for software that is either embedded in, or bundled and sold with, the Company's products; commissioned agent fees paid to distributors; and the costs of product media, duplication, packaging and other manufacturing costs. Company’s products.
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 June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
(In thousands) | 2000 | % | 1999 | % | 2000 | % | 1999 | % | ||||||||||||||||||
Cost of software licenses [1] | $ | 1,563 | 3 | % | $ | 1,037 | 7 | % | $ | 3,626 | 4 | % | $ | 1,784 | 6 | % | ||||||||||
Cost of services [2] | 30,282 | 79 | 4,624 | 58 | 45,956 | 78 | 7,945 | 58 | ||||||||||||||||||
Total cost of revenues [3] | $ | 31,845 | 33 | % | $ | 5,661 | 24 | % | $ | 49,582 | 32 | % | $ | 9,729 | 23 | % | ||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||
2000 | % | 1999 | % | 2000 | % | 1999 | % | ||||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||||||
Cost of software licenses (1) | $ | 1,395 | 2 | % | $ | 676 | 4 | % | $ | 5,021 | 3 | % | $ | 2,460 | 5 | % | |||||||||
Cost of services (2) | 34,015 | 71 | 7,241 | 67 | 79,971 | 75 | 15,186 | 62 | |||||||||||||||||
Total cost of revenues (3) | $ | 35,410 | 29 | % | $ | 7,917 | 27 | % | $ | 84,992 | 31 | % | $ | 17,646 | 25 | % | |||||||||
[1] -______________
(1) Percentage is calculated based on total software license revenues for the period indicated[2] -
(2) Percentage is calculated based on total services revenues for the period indicated[3] -
(3) Percentage is calculated based on total revenues for the period indicated
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Cost of software licensesincreased 51%100% in absolute dollar terms during the current quarter ended JuneSeptember 30, 2000 to $1.6$1.4 million as compared to $1.0$0.7 million for the quarter ended JuneSeptember 30, 1999. For the sixnine months ended JuneSeptember 30, 2000, cost of software licenses increased 103%100% to $3.6$5.0 million as compared to $1.8$2.5 million for the comparable period during 1999.
In absolute dollar terms, the increases in cost of software licenses in both comparative periods were principally a result of increased sales of the Company'sCompany’s products and of royalty-bearing third party products. In relative percentage terms, cost of software licenses decreased principally as a result of the Company renegotiating the royalty provisions of agreements with twothree software suppliers from per copy royalties to fixed fee prepaid license fees.
Cost of services increased 555%372% during the current quarter ended JuneSeptember 30, 2000 to $30.3$34.0 million as compared to $4.6$7.2 million for the quarter ended JuneSeptember 30, 1999. For the sixnine months ended JuneSeptember 30, 2000, cost of services increased 478%426% to $46.0$80.0 million as compared to $7.9$15.2 million for the comparable period during 1999.
In absolute dollar terms, the increases in cost of services in both comparative periods were a result of higher business volumes as evidenced by increased services revenues. Overall costs increased as a result of additions to ourthe Company’s professional services staff and the employment of outside consultants to meet short-term consulting demands. As a percentage of services revenue, the increase in cost of services is a result of hiring new employees within WPSO who do not generate revenue during their internal training period and higher use of outside consultants in relation to the extent previously used during the prior year period.
Operating Expenses and Other Income, net
Research and development expenses consist primarily of salaries, employee-related benefit costs and consulting fees incurred in association with the development of the Company'sCompany’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 and recorded at the lower of unamortized cost or net realizable value. The costs incurred by the Company subsequent to the establishment of a working model but prior to general release of the product have not been significant. To date, the Company has not capitalized any software development costs.
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 (e.g.such as collateral materials, trade shows, public relations, advertising 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, | ||||||||||||||||||||||||
2000 | % (1) | 1999 | % (1) | 2000 | % (1) | 1999 | % (1) | ||||||||||||||||||
(dollars in thousands) | |||||||||||||||||||||||||
Research and development | $ | 14,988 | 12 | % | $ | 3,816 | 13 | % | $ | 30,453 | 11 | % | $ | 9,986 | 14 | % | |||||||||
Sales and marketing | 43,799 | 36 | 12,136 | 41 | 102,569 | 37 | 29,819 | 42 | |||||||||||||||||
General and administrative | 8,198 | 7 | 2,119 | 7 | 18,542 | 7 | 5,001 | 7 | |||||||||||||||||
Goodwill and intangible amortization | 66,308 | 55 | — | — | 121,712 | 44 | — | — | |||||||||||||||||
Charge for acquired in-process technology | — | — | — | — | 10,100 | 4 | — | — | |||||||||||||||||
Total Operating Expenses | $ | 133,293 | 110 | % | $ | 18,071 | 61 | % | $ | 283,376 | 103 | % | $ | 44,806 | 63 | % | |||||||||
16______________
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||
(In thousands) | 2000 | % [1] | 1999 | % [1] | 2000 | % [1] | 1999 | % [1] | |||||||||||||||||
Research and development | $ | 9,706 | 10 | % | $ | 3,268 | 14 | % | $ | 15,465 | 10 | % | $ | 6,169 | 15 | % | |||||||||
Sales and marketing | 33,570 | 35 | 10,019 | 43 | 58,770 | 38 | 17,684 | 42 | |||||||||||||||||
General and administrative | 6,786 | 7 | 1,611 | 7 | 10,344 | 7 | 2,882 | 7 | |||||||||||||||||
Goodwill and intangible | |||||||||||||||||||||||||
amortization | 55,351 | 58 | — | — | 55,404 | 35 | — | — | |||||||||||||||||
Charge for acquired in-process | |||||||||||||||||||||||||
technology | 10,100 | 11 | — | — | 10,100 | 6 | — | — | |||||||||||||||||
Total Operating Expenses | $ | 115,513 | 121 | % | $ | 14,898 | 64 | % | $ | 150,083 | 96 | % | $ | 26,735 | 64 | % | |||||||||
[1] - (1) Expressed as a percent of total revenues for the period indicated
Research and development expenses increased 197%295% during the current quarter ended JuneSeptember 30, 2000 to $9.7$15.0 million as compared to $3.3$3.8 million for the quarter ended JuneSeptember 30, 1999. For the sixnine months ended JuneSeptember 30, 2000, research and development expenses increased 151%205% to $15.5$30.5 million as compared to $6.2$10.0 million for the comparable period during 1999. The increase in research and development expenses is primarily attributable to increased personnel, as a result of additional hires as well as employees acquired in the Interleaf transaction, involved in the enhancement of existing applications and the development of the Company'sCompany’s next generation of products. The Company expects research and development expenses will continue to increase in absolute dollar terms.
Sales and marketing expensesincreased 235%262% during the current quarter ended JuneSeptember 30, 2000 to $33.6$43.8 million as compared to $10.0$12.1 million for the quarter ended JuneSeptember 30, 1999. For the sixnine months ended JuneSeptember 30, 2000, sales and marketing expenses increased 232%244% to $58.8$102.6 million as compared to $17.7$29.8 million for the comparable period during 1999. The increases in sales and marketing expenses reflect the cost of increased sales and marketing personnel from additional hires as well as employees acquired in the Interleaf transaction, increased sales commissions paid on the greater sales levels, expenditures made to develop and expand sales
distribution channels, and costs incurred for increased promotional activities and marketing related programs. The Company expects sales and marketing expenses will continue to increase in absolute dollar terms.
General and administrative expenses increased 321%290% during the current quarter ended JuneSeptember 30, 2000 to $6.8$8.2 million as compared to $1.6$2.1 million for the quarter ended JuneSeptember 30, 1999. For the sixnine months ended JuneSeptember 30, 2000, general and administrative expenses increased 259%270% to $10.3$18.5 million as compared to $2.9$5.0 million for the comparable period during 1999. The increase in general and administrative expenses is attributable to additional administrative and management personnel as a result of additional hires and employees acquired in the Interleaf transaction, higher professional fees and additional infrastructure to support the expansion of the Company'sCompany’s operations. The Company expects general and administrative expenses will continue to increase in absolute dollar terms.
17
Amortization of goodwill and other intangibles. As described in Note 5 in the Notes to the Condensed Consolidated Financial Statements above, the Company acquired Interleaf in the quarter ended June 30, 2000. The Company has accounted for the acquisition as a purchase business combination. As a result of this transaction, the Company hashad recorded goodwill and other intangible assets on the balance sheet of $796.0 million. Amortization of goodwill and other intangibles assets related to the Interleaf acquisition was $55.3$66.3 million in the quarter ended JuneSeptember 30, 2000 and $121.6 million for the nine months ended September 30, 2000. The remaining $740.7$674.4 million of goodwill and other intangible assets will be amortized on a straight-line basis through the quarter ended June 30, 2003. Please see Note 5 in the Notes to the Condensed Consolidated Financial Statements for a more detailed discussion of the charge for in-process technology.
In-Process Technology.In-process technology. In connection with the Interleaf acquisition, the Company recorded a charge of $10.1 million in the quarter ended June 30, 2000. Please see Note 5 in the Notes to the Condensed Consolidated Financial Statements for a detailed discussion of the acquisition of Interleaf. Based upon the Company'sCompany’s estimates prepared in conjunction with a third-party valuation consultant, $10.1 million was allocated to acquired in-process technologyAcquired In-Process Technology and $796.0 million was allocated to goodwill and intangible assets. The amounts allocated to goodwill and intangible assets include completed technologies of $20.4 million and assembled workforces of $8.5 million. The Company used the cost approach to estimate the value of the assembled workforce and the income approach to estimate the value of the business and technology projects acquired. The income approach takes into consideration the expected future cash flows attributable to the technology projects and discounts these cash flows to present value at a rate that appropriately reflects their risk. The value assigned to in-process technology was the amount attributable to the efforts of the sellerInterleaf up to the time of acquisition. This amount was estimated through application of the "stage“stage of completion"completion” calculation by multiplying the estimated present value of future cash flows, excluding costs of completion, by the percentage of completion of the purchased technology projects at the time of acquisition. Based upon these estimates, material net cash flows from the acquired business are expected to occur during the calendar year 2000. The cash flows for the completed and in-process technologies were discounted using discount rates of 15.0%15% to 35.0%35%.
The fair market value of the technologies acquired have been grouped in three classifications. Completed Technology represents technology that has successfully completed final Beta test. In-Process Technology represents technology that, as of the valuation date, has not yet entered Beta test or has commenced but not yet successfully completed final Beta test and has no alternative future use. Core Technology is technology that is being used in not only the current products and in-process technology projects, but also in future, not yet defined projects. Completed technologies are defined as those that have reached technological feasibility. The Company defines technological feasibility as the point at which the technologies have successfully completed Beta test.
The Completed Technologies include projects that enable companies to create, manage and deliver e-content for web enabled applications, using XML as its technology backbone and Microsoft Word for content creation. These projects also enable companies to manage XML and non-XML documents throughout their lifecycle in one integrated system.
18
The In-Process Technologies include a project to develop a version of current software which will run on a Unix-based operating system. As of the valuation date, the development of this project was approximately 34% complete and there was significant technological risk remaining. Another in-process technologyIn-Process Technology project is an upgrade to an existing product that will take into account new W3C standards being developed for XML as well asand will provide the capability for a user to author and create documents for a specific output device. As of the valuation date, this project was approximately 6% complete. This technology is not expected to reach technological feasibility until December of fiscal 2000. The final in-process technologyA third In-Process Technology project is being developed to provide a new, cost-effective means for a website to deliver content both to full-function personal computers and to
reduced-function devices such as wireless telephones and wireless person alpersonal digital assistants. As of the valuation date, this project was approximately 57% complete.
Core technologyTechnology encompasses both leveraged code and general technological know-how, experience and expertise regarding the design, manufacture and development of content management technology in existing products and itproducts. It is therefore not appropriate to consider the value of the core technologyCore Technology to be part of the estimated value of in-process technology.In-Process Technology. Thus, the value of the in-process technologyIn-Process Technology has been isolated by allocating a portion of the cash flow to this core technologyCore Technology that gives full recognition to its contribution.
As noted above, the income forecast method was used to value the business and technology projects acquired. The value of the acquired in-process technologyIn-Process Technology and the completed technologiesCompleted Technologies was estimated by discounting to present value the free cash flows generated by the products with which the technologies are associated over the remaining economic lives of the technologies. Discount rates used ranged from 15% to 35% and were based upon the relative risk associated with the completed technologies and the incomplete development projects and upon considerations such as stage of completion, remaining development milestones, technological uncertainties and projected cost to complete. The Company believes that these discount rates are consistent with the overall costs of capital and the relative risks of the completed technologies and the R&Dresearch and development project. The Company has valued the in-process technologyIn-Process Technology using the "Percentage“Percentage Completion Approach"Approach” as suggested by t hethe U.S. Securities and Exchange Commission. This approach varies from the traditional discounted cash flow approach that is used to value in-process technology.In-Process Technology. The Percentage Completion Approach does not include completion costs in the discounted cash flow analysis and the present value of future cash flows is multiplied by the estimated percentage complete as of the valuation date to determine the value of the acquired in-process technology. In-Process Technology.
The cost approach was utilized to value the assembled workforce. This approach considers the concept of avoided costs as an indicator of value and is an appropriate method for estimating the fair market value of an asset where reliable data for sales of comparable property are not available and where the property does not directly produce an income stream. The basis of the valuation is the estimated cost to recruit and train the new work force.
19
As part of the Purchase and Sale Agreement and the closing compilation documents, Non-Compete Agreements (the "Agreements"“Agreements”) were executed with certain Interleaf employees. No value of the aggregate purchase price was allocated to the Agreements based upon numerous facts and circumstances such as the likelihood of employees leaving the Company and the effect on the performance of the Company these employees would have should they leave the Company and were not barred from competing.
Income Taxes
During the quarter ended JuneSeptember 30, 2000, the Company recognized tax expense of $6.8$8.6 million for an effective tax rate of approximately 39%. For the sixnine months ended JuneSeptember 30, 2000, the Company recognized tax expense of $13.2$21.8 million for an effective tax rate of approximately 39%. Due to the Company'sCompany’s continuing trend of positive earnings, the Company has utilized a significant portion of its net operating loss carryforwards and as a result, the Company'sCompany’s effective tax rate is similar to its statutory rate.
Litigation Settlement
On February 22, 2000, the Company reached a settlement agreement and entered into a license agreement with Art Technology Group ("ATG"(“ATG”) in connection with the lawsuit filed by the Company on December 11, 1998 against ATG alleging infringement onof the Company'sCompany’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$8.0 million by ATG at the effective date of the settlement and willhas begun to receive a total of $7$7.0 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).
LIQUIDITY AND CAPITAL RESOURCES
June 30, | December 31, | |||||
(In thousands) | 2000 | 1999 | ||||
Cash, cash equivalents and | ||||||
liquid short-term investments | $ | 327,254 | $ | 348,581 | ||
Working capital | $ | 304,804 | $ | 324,156 | ||
Working capital ratio | 4.1 : 1 | 6.8 : 1 | ||||
September 30, 2000 | December 31, 1999 | ||||||
(in thousands) | |||||||
Cash, cash equivalents and liquid short-term investments | $ | 266,927 | $ | 348,581 | |||
Working capital | $ | 262,843 | $ | 324,156 | |||
Working capital ratio | 3.4 : 1 | 6.8 : 1 | |||||
At JuneSeptember 30, 2000, the Company had $327.3$266.9 million of cash, cash equivalents and liquid short-term investments, which represents a decrease of $21.3$81.7 million as compared to December 31, 1999. The Company currently has no significant capital commitments other than obligations under operating leases and $ 5.35.1 million of outstanding term debt under its existing credit facility with a commercial bank.
20
Cash provided by operating activities was $34.6$ 45.1 million and $11.0$18.9 million for the sixnine months ended JuneSeptember 30, 2000 and 1999, respectively. Cash used for investing activities was $180.3$ 195.0 million and $22.8$35.4 million for the sixnine months ended JuneSeptember 30, 2000 and 1999, respectively, and was primarily for capital expenditures and purchase of short-term and long-term investments. Cash provided by financing activities was $14.8$ 26.5 million and $3.6$9.9 million for the sixnine months ended JuneSeptember 30, 2000 and 1999, 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"“Factors Affecting Quarterly Operating Results” below and elsewhere herein. 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. The Company may seek to raise additional funds through private or public sales of securities, strategic relationships, bank debt, financing under leasing arrangements or otherwise. If additional funds are ra isedraised 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'sCompany’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'sCompany’s business, financial condition and operating results.
FACTORS AFFECTING QUARTERLY OPERATING RESULTSFactors Affecting Quarterly Operating Results
The Company may 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 containedset out in Items 7 and 7A in the Company'sCompany’s annual report on Form 10-K underfor the caption "Risk Factors"year ended December 31, 1999 and elsewhere therein and as disclosed in other documents filed by the Company 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'sCompany’s products sold, changes in pricing policies by the Company or its competitors, the ability of the Company to retain customers, changes in the Company'sCompany’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 party upon 90-days notice), product life cycles, changes in strategy, seasonal trends, the mix of distribution channels through which the Company'sCompany’s products are sold, the mix of international and domestic sales, the rate at which new s alessales people become productive, changes in the level of operating
21
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 material fluctuations in the Company'sCompany’s operating results, particularly on a quarterly basis. 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'sCompany’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'sCompany’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, creates and expands its distribution channels, grows its professional services organization and implements the administrative infrastructure to support those operations.
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'sCompany’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.
ITEMItem 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKETRISKQuantitative and Qualitative Disclosures about Market Risk
The Company'sCompany’s exposure to market risk for changes in interest rates relates primarily to its investment portfolio. The Company had no derivative financial instruments as of JuneSeptember 30, 2000 or December 31, 1999. The Company invests in instruments that meet high credit quality standards and the amount of credit exposure to any one issue, issuer and type of instrument is limited. The Company does not expect any material loss with respect to the investment portfolio. The Company'sCompany’s financial instrument holdings as of JuneSeptember 30, 2000 were analyzed to determine their sensitivity to interest rate changes. In the sensitivity analysis, the Company assumed an adverse change in interest rates of 250 basis points and the potential effect on the financial statements was not material.
22
ITEMItem 1.LEGAL PROCEEDINGSLegal Proceedings
Not applicableapplicable.
ITEMItem 2.CHANGES IN SECURITIES AND USE OF PROCEEDS
Changes in Securities and Use of Proceeds
(a) Modification of Constituent Instruments
Not applicable.
(b) Change in Rights
Not applicable.
(c) Changes in Securities
During the twelve months ended September 30, 2000 and as described below, the Company sold securities that were not registered under the Securities Act of 1933, as amended (the “Securities Act”). Each of these sales was intended to be exempt from the registration and prospectus delivery requirements under the Securities Act by virtue of Section 4(2) thereof due to, among other things, (i) the limited number of persons to whom the securities were issued, (ii) the distribution of disclosure documents to the investor, (iii) the fact that such person represented and warranted to the Company, among other things, that such person was acquiring the securities for investment only and not with a view to the resale or distribution thereof, (iv) with respect to the warrants described in (A) and (C) below, the fact that such warrants included a statement to the effect that such warrant had not been registered under the Securities Act or any state securities laws and could not be sold or transferred in the absence of such registration or an exemption therefrom and (v) with respect to the Common Stock described in (B) below, that a certificate representing the Common Stock was issued with a legend that such Common Stock had not been registered under the Securities Act or any state securities laws and could not be sold or transferred in the absence of such registration or an exemption therefrom.
(A) In November 1999, in connection with General Electric Company (“GE”) entering into a Master License Agreement (the “License Agreement”) with the Company, the Company issued a warrant to GE for that number of shares of its Common Stock as would result in a market value of such warrant equal to $125,000 using a Black-Scholes valuation model, on the date that GE purchased and the Company recognized revenue for $1.0 million in cumulative net license fees under the License Agreement, which date had to be on or before the one year anniversary of the signing of the License Agreement (the “Determination Date”). The parties have agreed that the Determination Date is February 1, 2000 and that the number of shares of Common Stock underlying the warrant is 5,588 with an exercise price per share of $48.44. The exercise period for the warrant began on the Determination Date and expires on February 1, 2002.
(B) In May 2000, the Company exchanged equity securities worth $3.0 million with netalone.com. The Company issued to netalone.com 76,665 shares of its Common Stock in exchange for the receipt from netalone.com of 23,366,700 shares of its Common Stock.
(C) In September 2000, in connection with Compaq Computer Corporation (“Compaq”) entering into a master marketing and license agreement with the Company, the Company issued a warrant to Compaq for 43,478 shares of its Common Stock with an exercise price of $34.50 per share. The exercise period for the warrant began on September 1, 2000 and expires on September 1, 2005.
Item 3.Defaults Upon Senior Securities
ITEMItem 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
For | Withheld | |||
Pehong Chen | 213,481,058 | 278,849 | ||
David L. Anderson | 213,488,635 | 271,272 | ||
Yogen K. Dalal | 194,725,981 | 19,033,926 | ||
Koh Boon Hwee | 213,475,815 | 284,092 | ||
Todd A. Garrett | 213,488,381 | 271,526 | ||
Klaus Luft | 213,479,035 | 280,872 | ||
Carl Pascarella | 213,479,755 | 280,152 |
23
(ii) To approve the Company's Certificate of Incorporation, as amended and restated, to increase the number of shares of common stock, par value $.0001 per share, to 2,000,000,000:
For: | 168,381,793 | Against: | 45,162,127 | |||
Abstain: | 212,176 | Not Voted | 3,811 |
(iii) To approve the Company's Equity Incentive Plan, as amended, to increase the number of shares of common stock authorized for issuance thereunder by 13,125,000:Not applicable.
For: | 154,934,026 | Against: | 57,860,680 | |||
Abstain: | 207,690 | Not Voted | 757,511 |
(iv) To ratify the appointment of Arthur Andersen LLP to serve as independent auditors of the Company for the fiscal year ending December 31, 2000:
For: | 213,530,742 | Against: | 114,532 | |||
Abstain: | 114,633 | Not Voted | N/A |
ITEMItem 5.OTHER INFORMATIONOther Information
Not applicableapplicable.
ITEMItem 6.EXHIBITS AND REPORTS ON FORMExhibits and Reports on Form 8-K
(a) Exhibits
Description | |||
27 | Financial Data Schedule |
* Filed as an exhibit to the Company's Proxy Statement filed (b) Reports on May 25, 2000 and incorporated herein by reference.Form 8-K
24 Not applicable.
25
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
BROADVISION, INC. | |||
Date: November 14, 2000 | By: | /s/ Pehong Chen | |
Pehong Chen | |||
President and Chief Executive Officer (Principal Executive Officer) |
Date: November 14, 2000 | |||
By: | /s/ Randall C. Bolten | ||
Randall C. Bolten | |||
Executive Vice President | |||
and Chief Financial Officer | |||
(Principal Financial and Accounting Officer) |
26
INDEX TO EXHIBITS
27