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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10 - Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended
March 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
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(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
YES X NO
--- ---
As of May 5, 2000, there were 249,903,000 shares of the Registrant's
Common Stock issued and outstanding.
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BROADVISION, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2000
TABLE OF CONTENTS
Page No.
--------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 2000 and December 31, 1999 3
Consolidated Statements of Operations and Comprehensive Income -
Three months ended March 31, 2000 and 1999 4
Consolidated Statements of Cash Flows -
Three months ended March 31, 2000 and 1999 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 15
PART II OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 16
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BROADVISION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
March 31, December 31,
2000 1999
--------- ---------
ASSETS (unaudited)
Cash and cash equivalents $ 283,908 $ 279,823
Short-term investments 86,581 68,758
Accounts receivable, less allowance for doubtful accounts of
$1,746 and $1,446, for 2000 and 1999, respectively 38,006 26,540
Prepaids and other 9,496 5,085
--------- ---------
Total current assets 417,991 380,206
Property and equipment, net 21,982 16,751
Long-term investments 13,208 4,414
Other assets 5,673 4,757
--------- ---------
Total assets $ 458,854 $ 406,128
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 10,484 $ 5,754
Accrued expenses 13,826 13,156
Unearned revenue 17,315 3,896
Deferred maintenance 24,157 15,228
Income taxes 23,597 151
Current portion of capital lease obligations 145 270
Current portion of long-term debt 977 977
--------- ---------
Total current liabilities 90,501 39,432
Long-term debt, net of current portion 4,615 4,890
Deferred income taxes -- 16,618
--------- ---------
Total liabilities 95,116 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;
248,950 and 244,812 shares issued and outstanding for 2000 and
1999, respectively 25 24
Additional paid-in capital 327,505 320,259
Deferred compensation (147) (226)
Accumulated other comprehensive income, net of tax 27,113 25,925
Retained earnings (accumulated deficit) 9,242 (794)
--------- ---------
Total stockholders' equity 363,738 345,188
--------- ---------
Total liabilities and stockholders' equity $ 458,854 $ 406,128
========= =========
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
3
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
5
BROADVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Summary of Significant Accounting Policies
Nature of Business - BroadVision, Inc. (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 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 constituents and provide online financial services. Each
of these capabilities can be made available to all constituents of the extended
enterprise, including: 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-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
March 31, 2000 and for the three months ended March 31, 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. 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 Splits -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 February 21, 2000. The stock dividend payment date
was March 13, 2000 and the Company'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 has been retroactively restated to give effect for the stock split.
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 -- In June 1998, the Financial Accounting
Standards Board, or FASB, issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by SFAS No. 137, effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. Accordingly,
the Company will adopt SFAS No. 133, as amended, beginning on January 1, 2001.
SFAS No. 133 establishes standards for the accounting and reporting of
derivative instruments and hedging activities, including certain derivative
instruments embedded in other contracts. Under SFAS No. 133, entities are
required to carry all derivative instruments at fair value 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 activity and the underlying purpose for it. The
Company does 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
required and does not expect the adoption of SAB 101 to have any material effect
on its financial position or results of operations.
Note 2. Selected Balance Sheet Detail
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
======== ========
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 $5,000,000 of additional borrowings (based on eligible
accounts receivable). As of 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 no outstanding borrowings under its
revolving line of credit. However, commitments totaling $2,820,000, in the form
of standby letters of credit were issued under its revolving line of credit
facility as of March 31, 2000 and December 31, 1999. 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's owned assets. The Company was in
compliance with its 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
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, 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
-------- --------
Identifiable assets:
Americas $450,570 $400,858
Europe 7,470 4,122
Asia/Pacific 814 1,148
-------- --------
Total Company $458,854 $406,128
======== ========
During the three months ended March 31, 2000 and 1999, no single
customer accounted for more than 10% of the Company's total revenues.
Note 5. Subsequent Events
On 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
consolidated results of operations commencing as of the 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 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, 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 deliver targeted information to all constituents of the
extended enterprise. These constituents include but are not limited to
customers, suppliers, distributors, partners, and employees.
The BroadVision One-To-One product suite allows businesses 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. Our
applications accomplish this by capturing Web site visitor profile information
and targeting an enterprise's organized content to each visitor based on easily
constructed business rules. We believe 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 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 with its marketing, selling and development of customer
applications. In addition, the Company places a strategic emphasis on technology
alliances 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.
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 233% during the quarter ended March
31, 2000 to $61.5 million as compared to $18.5 million for the quarter ended
March 31, 1999. A summary of the Company's revenues by geographic region is as
follows:
(In thousands) Software % Services % Total %
-------- -------- -------- ------- ------- ---------
Three Months Ended:
March 31, 2000
---------------
Americas $31,760 78% $15,525 75% $47,285 77%
Europe 7,259 18 4,364 21 11,623 19
Asia/Pacific 1,694 4 899 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 $12,783 100% $ 5,681 100% $18,464 100%
======= ======== ======= ======= ======= =========
Software product license revenues increased 218% during the quarter
ended March 31, 2000 to $40.7 million as compared to $12.8 million for the
quarter ended March 31, 1999.
The increase in software license revenues is a result of continued strong
demand for the Company's expanding product line and core competencies both by
new customers and existing customers and the growing market for
business-to-business and business-to-consumer personalization focused software
application solutions. Software product license revenues for its targeted web
enabling applications increased to $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 a larger number of live sites. During the quarter ended
March 31, 2000, the Company signed 110 new licensed customers (102 new end-user
customers and 8 new partners) which compares with 43 new licensed customers ( 32
end-user customers and 11 new partners) for the quarter ended March 31, 1999. As
of March 31, 2000, the Company had a total installed license base of 517
end-user customers and 131 partners, which compares with 415 end-user customers
and 123 partners as of December 31, 1999 and 229 end-user customers and 88
partners as of 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. Management anticipates that
international revenues will continue to account for a significant amount of
total revenues, and 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. Our Asia/Pacific operations have
experienced a decline in revenues as a result of
10
the generally weak economic conditions of that region. As a result, we expect
that any significant growth in international revenues will most likely come from
European operations. However, we may be unable to maintain or continue to
increase international or domestic market acceptance for our family of products.
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.
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
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 176% during the quarter ended March
31, 2000 to $2.1 million as compared to $747,000 for the quarter ended March 31,
1999.
The increase in cost of license revenues, in 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
decreased principally as a result of the Company renegotiating previously
existing percentage-based royalty arrangements into prepaid fixed fee royalties
for periods extending through 2004.
Cost of services increased 372% during the quarter ended March 31, 2000
to $15.7 million as compared to $3.3 million for the quarter ended March 31,
1999.
11
The increase in cost of services revenues in absolute dollar terms is a
result of higher business volumes as evidenced by increased services revenues.
Overall costs increased as a result of additions to our professional services
staff and the employment of outside consultants to meet short-term consulting
demands. The increase in cost of services as a percentage of services revenues
is a result of the assimilation of new professional consultants added to the
group during the quarter and higher use of outside consultants in relation to
the extent previously used 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.
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 99% during the quarter
ended March 31, 2000 to $5.8 million as compared to $2.9 million for the quarter
ended March 31, 1999. The increase in research and development expenses 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. The Company expects
research and development expenses will continue to increase in absolute dollar
terms.
Sales and marketing expenses increased 229% during the quarter ended
March 31, 2000 to $25.2 million as compared to $7.7 million for the quarter
ended March 31, 1999. The increases in sales and marketing expenses 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. The Company expects sales and marketing expenses will continue
to increase in absolute dollar terms.
General and administrative expenses increased 184% during the quarter
ended March 31, 2000 to $3.6 million as compared to $1.3 million for the quarter
ended March 31, 1999. The increase in general and administrative expenses is
attributable to additional administrative and management personnel, higher
professional services fees and additional infrastructure to support the
expansion of the Company's operations. The Company expects general and
administrative expenses will continue to increase in absolute dollar terms.
Income Taxes
During the quarter ended March 31, 2000, the Company's provision for
income taxes was $6.4 million for an effective tax rate of approximately 39%.
Due to the Company's continuing trend of
12
positive earnings, the Company has utilized a significant portion of its net
operating loss carryforwards and as a result, the Company's effective tax rate
is similar to its statutory rate.
LIQUIDITY AND CAPITAL RESOURCES
March 31, December 31,
(In thousands) 2000 1999
------------ --------
Cash, cash equivalents and
short-term investments $ 370,489 $348,581
============ ========
Working capital $ 327,490 $340,774
============ ========
Working capital ratio 4.6 9.6
============ ========
At March 31, 2000, the Company had $370.5 million of cash, cash
equivalents and short-term investments, which represents an increase of $21.9
million as compared to December 31, 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 $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
and public offerings of its common stock. Public stock offerings during June
1996, March 1998, and November 1999 netted the Company proceeds of $20.7
million, $53.7 million and $210.4 million, respectively.
Cash provided by operating activities was $29.1 million and $4.4
million, respectively, for the three months ended March 31, 2000 and 1999. Cash
used for investing activities was $31.8 million and $1.1 million for the three
months ended March 31, 2000 and 1999, respectively, and was primarily for
capital expenditures and purchase of investments. Cash provided by financing
activities was $6.8 million and $1.7 million for the three months ended March
31, 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.
However, the Company may need to raise additional funds 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.
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. 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.
On April 14, 2000, the Company completed its acquisition of Interleaf,
Inc. In connection with the acquisition, 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 result in long-term
benefits and will depend in part on whether the companies' operations can be
integrated in an efficient and effective manner. There is no assurance that this
will occur. The successful integration of Interleaf with the Company will
require, among other things, the 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 of combining the
operations of the two organizations could cause the interruption of, or a loss
of momentum in, the activities either or both of the 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 combined
companies' future operations. There can be no assurance that employees of
Interleaf will continue to work for the Company. Failure to accomplish the
integration of the two companies operations efficiently and effectively could
have a material adverse effect 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 affected.
Under the terms 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 approximately $802 million, inclusive of $18 million of
estimated acquisition and severance costs. The Company expects to incur
amortization expense related to the acquisition beginning in the second quarter
of the 2000 fiscal year.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company'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 March 31,
14
2000 or December 31, 1999. We place our investments in instruments that meet
high credit quality standards and the amount of credit exposure to any one
issue, issuer and type of instrument is limited. We do not expect any material
loss with respect to our investment portfolio. Our financial instrument holdings
as of March 31, 2000 were analyzed to determine their sensitivity to interest
rate changes. In our sensitivity analysis, we assumed an adverse change in
interest rates of 500 basis points and the expected effect on net income was
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 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).
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
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Item Description
10.19 Triple Net Building Lease dated April 12, 2000 between
Pacific Shores Development LLC, as Lessor, and
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
27.1 Financial Data Schedule
* Incorporated herein by reference to the applicable Exhibit to the
Company's Registration 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 29, 1999, 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: May 12, 2000 /s/ Pehong Chen
------------------------ -------------------------------
Pehong Chen
President and Chief
Executive Officer
(Principal Executive Officer)
Date: May 12, 2000 /s/ Randall C. Bolten
------------------------ -------------------------------
Randall C. Bolten
Executuve Vice President,
Operations and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
16
INDEX TO EXHIBITS
Exhibit
No. Description
10.19 Triple Net Building Lease dated April 12, 2000 between Pacific
Shores Development LLC, as Lessor, and 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
27.1 Financial Data Schedule
* Incorporated herein by reference to the applicable Exhibit to the
Company's Registration Statement on Form S-8, filed on April 17, 2000,
File 333-35114