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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Year Ended December 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
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange which registered
------------------- --------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 par value
------------------------------
(Title of Class)
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 |_|
Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|
Based on the closing sales price of 5.2188 on March 28, 2001, the aggregate
market value of the voting stock held by nonaffiliates of the registrant was
$1,142,674,573.
As of March 28, 2001, registrant had outstanding 272,101,531 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Proxy Statement for Registrant's 2001 Annual Meeting of
Stockholders to be held May 24, 2001 are incorporated by reference in Part III
of this Form 10-K Report.
BROADVISION, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 2000
TABLE OF CONTENTS
Page No.
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Part I
Item 1. Business...............................................................3
Item 2. Properties............................................................14
Item 3. Legal Proceedings.....................................................14
Item 4. Submission of Matters to a Vote of Security Holders...................14
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.15
Item 6. Selected Consolidated Financial Data..................................16
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................17
Item 7A. Quantitative and Qualitative Disclosure About Market Risk............35
Item 8. Financial Statements and Supplementary Data...........................38
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..................................................56
Part III
Item 10. Directors and Executive Officers of the Registrant...................57
Item 11. Executive Compensation...............................................58
Item 12. Security Ownership of Certain Beneficial Owners and Management.......58
Item 13. Certain Relationships and Related Transactions.......................58
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8.K.....59
SIGNATURES....................................................................60
2
PART I.
ITEM 1. BUSINESS
CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995
Certain statements set forth or incorporated by reference in this Form
10-K, as well as in our Annual Report to Stockholders for the year ended
December 31, 2000, constitute "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. Words such as
`believes", "anticipates", "expects", "intends", "estimates" and similar
expressions are intended to identify forward-looking statements, but are not
the exclusive means of identifying such statements. These statements involve
known and unknown risks, uncertainties and other factors that may cause our
actual results, performance or achievements, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors
include, but are not limited to, those risk factors set forth under "Risk
Factors" and elsewhere in this Form 10-K. We expressly disclaim any
obligation to update or publicly release any revision to these
forward-looking statements after the date of this Form 10-K.
Overview and Industry Background................................4
The BroadVision Solution........................................4
BroadVision Business Strategies.................................4
Extend and Expand our Product Portfolio.......................4
Develop Targeted Application Solutions........................4
Enhance our Service and Support Infrastructure................5
Expand and Leverage Alliances with Key Business Partners......5
Support Diverse Customer Business Models......................5
Grow Our International Presence...............................5
BroadVision Solutions...........................................5
BroadVision Demand Suite......................................6
BroadVision Workplace.........................................6
BroadVision Supply............................................6
Enterprise Relationship Management Tools......................7
Key Capabilities of BroadVision's Applications................7
Other Products................................................8
Product Development...........................................8
BroadVision Global Services.....................................8
Strategic Services............................................8
Technical Services............................................8
Content and Creative Services.................................8
Technical Support Services....................................9
Education Services............................................9
Client Services, Project and Program Management...............9
Partner Services..............................................9
Strategic Alliances.............................................9
Platform Alliances..............................................9
Customers and Markets..........................................10
Sales and Marketing............................................11
Competition....................................................12
Intellectual Property and Other Proprietary Rights.............12
Employees......................................................13
Executive officers...........................................13
3
Overview and Industry Background
BroadVision develops and sells an integrated suite of packaged
applications for conducting e-business interactions, transactions and services.
Global enterprises and government entities use these applications to sell, buy,
and exchange goods, services and information over the Web and on wireless
devices. The BroadVision e-business application suite enables a corporation to
establish and sustain high-yield relationships with customers, suppliers,
partners, distributors, employees and other constituents of the extended
enterprise. Our consulting, education and support services in more than 34
countries, supported by over 190 partner organizations worldwide, transform
these applications into business value for our customers.
BroadVision, which was founded in 1993 and has been a publicly traded
company since 1996, has more than 1,100 customers and is a component stock of
the Standard & Poor's 500 index. IDC ranks BroadVision as the world's leading
provider of e-commerce software applications (International Data Corp.,
E-Commerce Software Applications Market Forecast and Analysis, 2000-2004).
The BroadVision Solution
The BroadVision e-business application suite allows businesses to tailor Web and
wireless content to the needs and interests of individual users by personalizing
content and transactions on a real-time basis. These personalized self-service
applications have demonstrated that they can enhance customer satisfaction and
loyalty, increase business volume and brand awareness, reduce costs to service
customers and execute transactions, and enhance employee productivity and
retention.
Our products enable companies to organize dynamic profiles of Web and
wireless users from volunteered data and observed behavior, deliver highly
specialized content in response to these profiles and execute transactions
securely. Business managers are able to modify business rules and content in
real time, offering a personalized experience to each visitor. Because of the
open architecture of our applications, they are easily integrated with our
customers' existing systems and easily expanded as our customers' needs and
businesses grow.
Supporting this application infrastructure are more than 190 partner firms
around the world who are working to ensure our joint customers' success through
complementary technology, applications, tools and services offerings that extend
and enhance customers' BroadVision implementations.
We believe our products enhance our customers' revenue opportunities by
enabling them to establish more effective and efficient "one-to-one"
relationships with their customers and business partners. Web and wireless users
are engaged by highly personalized real-time interactions, are able to transact
business securely and are encouraged to remain online and make return visits.
Our applications also improve the cost-effectiveness of one-to-one relationship
management by enabling non-technical managers to modify business rules and
content in real time and by helping to reduce costs of customer acquisition and
retention, business development and technical support as well as employee
workplace initiatives. In addition, the packaged solution nature of our products
decreases our customers' time to deployment and allows them to easily manage and
expand their Web and wireless application usage in a cost-effective manner.
BroadVision Business Strategies
Our objective is to be the leading provider of self-service e-business
applications. In order to achieve this objective, we have adopted the following
key strategic elements:
Extend and Expand our Product Portfolio. In order to enable our customers to
effectively manage all of their key e-business processes, we have focused our
product development and marketing efforts in the following areas:
o Continuing to enhance our core technology through heavy investment
in research and development activities;
o Incorporating industry-leading application components into our
products; and
o Partnering with leading technology and platform providers.
Develop Targeted Application Solutions. We were among the first companies to
introduce packaged Web applications for electronic commerce, financial services
and knowledge management. We are now extending our "best of breed" applications
with new applications designed for specific vertical industries. These
applications are being developed in conjunction with industry leaders, system
integration firms and key technology vendors.
4
Enhance our Service and Support Infrastructure. We have changed the name of our
services organization to BroadVision Global Services, or BVGS, to more
accurately reflect the expanding nature of the services provided to our clients
and partners. BVGS provides a broad range of consulting, training and technical
support services for all of our products. This organization provides business
application and technical expertise, along with extensive product knowledge, to
complement our products and provide solutions that meet customer business
requirements. By using BVGS, customers are able to build customized application
solutions to maximize the benefits of one-to-one relationship management and
self-service.
We are committed to extending the service offerings and the resources available
to our customers and have implemented programs such as an online BroadVision
University, "train-the-trainer" and third-party educational centers to extend
the breadth and depth of our service offerings. We have also tiered our
technical support offerings to offer standard, enterprise and personalized
support programs for our customers.
Expand and Leverage Alliances with Key Business Partners. We partner with
leading systems integrators, technology partners, application service providers,
or ASPs, value-added resellers, or VARs, software partners and hardware platform
partners. These alliances provide additional sales and marketing channels for
our products, enable us to more rapidly incorporate additional functions and
platforms into our products and facilitate the successful deployment of customer
applications.
To accelerate the acceptance of our products, we have developed the BroadVision
Partner Program. This Partner Program is a comprehensive, structured partnership
relationship designed to drive effective partner alliances and ensure the
success of these relationships by jointly identifying and pursuing specific
business objectives. The BroadVision Partner Program operates within a framework
of proactive business planning, revenue targeting initiatives, structured sales
enablement and enhanced BroadVision training as well as marketing and sales
engineering support. The Partner Program is intended to help our partners
successfully develop, promote, and sell their services and solutions in close
coordination with our newly expanded network of sales engineering, channel and
partner marketing and professional consulting services. The Partner Program
assists our partners in growing their businesses by incorporating our core
competency, personalizing interactions and transactions with a wide range of
constituencies, into a focused execution matrix.
Support Diverse Customer Business Models. We intend to continue our commitment
to flexibility by offering our customers choices for the deployment of our
applications. Customers can choose to deploy our applications using their own
in-house technical resources or can engage with BVGS to assist with
implementation. Customers can also choose to work with a BroadVision-trained
systems integrator or distribution partner, or with a combination of our
resources and those of a partner. Another option is for a customer to utilize an
ASP who hosts the customer's BroadVision application deployment at a remote
facility and is responsible for its ongoing service and support.
Grow Our International Presence. To capitalize on the emergence of the Web as a
global network, we have established, and will continue to add to, our worldwide
distribution capabilities. Our partners include multinational systems
integrators, as well as partners with a single-country scope of operations. Our
product architecture is designed to support multiple languages, multiple
currencies and remote, distributed publishing.
Our strategies involve substantial risks. We may be unable to implement our
strategies and our strategies, even if implemented, may not lead to successful
achievement of our objectives. If we are unable to implement our strategies
effectively, our business may be harmed. We will continue to place an emphasis
on establishing additional alliances as new technologies and standards emerge,
although we may be unable to establish or maintain certain alliances.
BroadVision Solutions
We offer enterprise-class solutions to connect companies to their customers,
suppliers, partners and employees. These solutions enable companies to maintain
and expand existing relationships in an online environment via a single,
integrated e-business platform.
BroadVision One-to-One(R) Enterprise is the application system on top of which
all BroadVision solutions are built. One-To-One Enterprise provides a secure and
flexible, standards-based architecture that supports large volume transactions,
large scale catalogs, distributed content management, enterprise system
integration and dynamic personalization. It is based on open standards such as
CORBA, Java and XML.
5
Ours solution offerings fall into three major categories:
o The BroadVision Demand Suite enables one-to-one marketing, automates
complex transactions and personalizes self-service for customers.
o BroadVision Business Commerce facilitates online trade between
business partners, whether they are merchants, resellers,
distributors or manufacturers. Large-scale business-to-business
sellers such as W.W. Grainger, General Electric and Toshiba use
BroadVision Business Commerce to create e-businesses that integrate
with structured back-end business system .
o BroadVision Retail Commerce: A highly scalable, consumer-focused
application used by Fortune 500 retailers such as Circuit City,
Sears Roebuck and The Home Depot to maximize the profitability and
efficiency of the online retailing channel.
o BroadVision MarketMaker attracts and retains buyers and suppliers by
focusing on their specific business needs. It facilitates the
formation of trading communities with automated order processing,
attribute-based request for quotes, or RFQs, sophisticated catalog
management, dynamic auctioning and robust analytic and reporting
capabilities.
o BroadVision Finance combines business rules and intelligent matching
to dynamically customize content, news, quotes and service
recommendations according to a customer's profile or a visitor's
behavior. These advanced personalization capabilities can result in
more transactions, increased opportunities for cross-selling and
up-selling and greater customer loyalty.
o BroadVision Billing brings electronic bill payment and delivery
capabilities to e-commerce and marketing Web sites. It enables
companies that want to personalize interactions with customers
during their ongoing billing cycles to streamline routine billing
practices while gaining knowledge of their customers' needs,
preferences and buying activities using the Web.
o The BroadVision Workplace offering enables companies to share information
via an enterprisewide portal and decrease the cost of procuring indirect
goods via a centralized e-procurement site.
o BroadVision Information Exchange Portal is a ready-to-use
application for building powerful enterprise information portals,
enabling businesses to reach customers, partners, suppliers and
employees through a single, personalized gateway. It allows users to
perform sophisticated publishing, access relevant information,
perform analysis, manage business processes and collaborate across
organizational boundaries through user-defined Web pages.
o BroadVision Procurement is a complete, Web-based self-service
purchasing system for maintenance, repair and operations, or MRO,
goods. It simplifies purchasing administration and facilitates
business planning through advanced administrative, analytical and
reporting tools.
o The BroadVision Supply offering provides businesses with a robust online
marketplace for buying and selling goods.
o BroadVision MarketMaker, as described above.
o BroadVision Information Exchange Portal, as described above.
6
These offerings are underpinned by a set of common enterprise relationship
management tools and capabilities, including the following:
o BroadVision Command Center is a tool that allows managers to
add, alter or delete information and manage relationships
across the extended enterprise. It enables a personalized,
dynamic and interactive experience for site visitors.
o BroadVision Design Center offers Web authors and Internet
application developers faster time-to-market by shortening the
site development cycle.
o BroadVision One-To-One Publishing is a powerful tool for
creating, publishing, updating and versioning a company's
electronic assets.
o BroadVision Publishing Center is an easy-to-use tool with a
Web-based interface for managing distributed, collaborative
online content development. It allows a distributed team of
non-technical content experts to manage every aspect of site
content, including creation, editing, staging, production and
archiving.
o BroadVision Instant Publisher allows casual content
contributors to leverage the functionality of BroadVision
Publishing Center without extensive training. It uses
customized, business-specific forms that permit easy data
entry and are usually specific to a content type.
Key Capabilities of BroadVision's Applications
We designed all of the BroadVision solutions for use in mission-critical,
high-performance environments by companies with demanding architecture,
deployment and maintenance requirements. Some of the key capabilities of the
applications include:
o Ease of use--tools designed with graphical user interfaces allowing
non-technical business managers to modify business rules and content
in real time.
o Scalability--robust embedded application server functionality allows
BroadVision One-To-One applications to support large numbers of
concurrent customers and transactions.
o Flexible integration--a comprehensive set of APIs allows integration
with a variety of legacy business systems such as Oracle,
PeopleSoft, SAP, and custom mainframe systems.
o Open standards-based architecture--object-oriented application
code written in C++ and J2EE programming environments, including
Java and JavaScript, allows developers and system integrators to
use, integrate, modify, adapt or extend the applications with
minimal impact on other areas to create a rapidly customized
product that meets specific business requirements. Support for
the CORBA standard for object-oriented computing enables
high-volume performance, flexible application deployment and easy
integration with other third-party or legacy applications. Our
applications fully support XML, which is the emerging standard
for managing and exchanging data between e-business systems as
well as for re-purposing and sending information to wireless
devices. In addition, we use other widely accepted standards in
developing our products, including Structured Query Language
(SQL) for accessing relational database management systems;
Common Gateway Interface (CGI) and Hypertext Transfer Protocol
(HTTP) for Web access; Netscape Application Programming Interface
(NAPI) for access to Netscape's Web servers; Secure Socket Layer
(SSL) for secure transmissions over networks; and the RC2 and MD5
encryption algorithms supplied by RSA. Our applications can be
operated in conjunction with relational database management
systems provided by Informix, Microsoft, Oracle and Sybase.
o Secure transaction processing--secure handling of a wide range of
commerce and financial services transactions includes order pricing
and discount/incentive handling, tax computation, shipping and
handling charges, payment authorization, credit card processing,
order tracking, news and stock feeds through a combination of
built-in functionality and integration with other products.
o Multiplatform availability--BroadVision One-To-One Enterprise and
its associated applications are available on a variety of platforms
including Sun Solaris, Microsoft Windows NT and Hewlett-Packard's
HP-UX. Supported databases include Oracle, Sybase, Informix and
Microsoft SQL Server.
o Multilingual/Multicurrency--availability of content display and
interface in Arabic, Chinese, Hebrew, Japanese, Korean, Slovakian,
Turkish and most Western European languages and support for a wide
range of currencies, including the Euro, enable worldwide use of our
applications.
7
Other Products
In addition to our products, we have entered into agreements that enable
us to resell third-party software products from Broadbase, Interwoven, IONA
Technologies, Macromedia and Verity. These are sublicensed to end users and
either incorporated in or sold as options to our products. License revenue from
these third-party products constituted approximately 5%, 7% and less than 1% of
total software product license revenues for each of the years ended December 31,
2000, 1999 and 1998, respectively.
Product Development
We believe that our future success will depend in large part on our
ability to enhance the BroadVision One-To-One applications suite, develop new
products, maintain technological leadership and satisfy an evolving range of
customer requirements for large-scale interactive online relationship management
applications.
Our product development organization is responsible for product
architecture, core technology, product testing and quality assurance, writing
product user documentation and expanding the ability of BroadVision One-To-One
products to operate with the leading hardware platforms, operating systems,
database management systems and key electronic commerce transaction processing
standards.
Since inception, we have made substantial investments in product
development and related activities. Certain technologies have been acquired and
integrated into BroadVision One-To-One products through licensing arrangements.
As of December 31, 2000, there were 348 employees in our product
development organization. Our research and development expenses were $51.6
million in the year ended December 31, 2000, $14.6 million in the year ended
December 31, 1999 and $9.2 million in the year ended December 31, 1998.
To date, we have not capitalized any software development costs as
products are made available for general release relatively concurrently with the
establishment of technological feasibility. We expect to continue to devote
substantial resources to our product development activities.
BroadVision Global Services (BVGS)
BroadVision Global Services, or BVGS, provides a broad range of
consulting, training and technical support services to all of our customers
and implementation partners. This organization provides business application
and technical expertise, along with extensive product knowledge, to
complement our products and provide solutions that meet customers' unique
business requirements. By using our services, customers are able to build
customized application solutions to maximize the benefits of one-to-one
relationship management and self-service.
A summary of the services provided by BVGS is as follows:
o Strategic Services. We provide business strategy and process consulting to
assist customers in defining and planning profitable online businesses,
while optimally utilizing the functionality of our products. Services
include in-depth needs analysis, customer segmentation, one-to-one
marketing expertise, storyboarding and business organizational planning to
achieve timely and successful implementation of our e-business solutions.
Strategic Services consulting is generally offered on a time and materials
basis.
o Technical Services. We provide technical services for development of
customized BroadVision One-To-One applications, custom interfaces, data
conversions and system integration. These consultants participate in a
wide range of activities, including requirements definition, solution
design, development and implementation and performance planning,
architecture and tuning. These consultants also provide advanced
technology services focused on application development for custom objects
and templates and database administration and tuning. Technical Services
consulting is generally offered on a time and materials basis.
o Content and Creative Services. This group specializes in information
architecture, content management, sourcing, workflow processes and user
experience design. The group is made up of BroadVision One-To-One product
design experts and a variety of leading third party design companies. This
team combines extensive interactive design and marketing experience to
build effective user experiences. Content and Creative Services consulting
is generally offered on a time and materials basis.
8
o Technical Support Services. We have tiered our support programs to
better serve the needs of our worldwide customer base. Standard Support
provides technical assistance during regular business hours; Enterprise
Support is designed for customers with mission-critical environments,
providing customers with access to support experts 24 hours a day, 7
days a week; and Personalized Support assigns a specific individual to
a customer along with other customer specified support services,
including on-site support engineers. We have technical support centers
in North America, Europe and Asia. Under our standard maintenance
agreement, we provide telephone support and upgrade rights to new
releases, including patch releases as necessary, and product
enhancements.
o Education Services. Under the banner of BroadVision University, we deliver
training solutions that ensure our customers and partners have access to
timely and effective training for successful implementation of BroadVision
One-to-One Applications globally. Our advanced delivery infrastructure
allows us to deliver courses throughout the world at our facilities or at
customer locations. In addition to instructor led courses, BroadVision
University has launched a global e-learning platform to facilitate the
delivery of web-based on-demand courses. BroadVision University also
delivers an extensive training program to BroadVision employees to ensure
high-quality and consistent training of our own personnel. This program
provides a series of foundation courses that are general in content for
all audiences as well as specific courses based on the employee's role in
BroadVision.
o Client Services, Project and Program Management. This management team
drives project discipline from discovery through deployment and into
production support based on our client and partner needs. Our Client
Services Managers manage multiple projects with a variety of customers and
provide deep knowledge and best practices advocacy within BroadVision for
appropriate implementation, training and support services. Our Project
Managers are responsible for the day-to-day project management activities,
which can include project scope, deliverables, change management and
resource coordination. Our Project Managers also leverage our BVGS iGuide
methodology and work closely with our clients, partners and consultants to
collaboratively deliver each project plan. Our Program Managers are also
responsible for managing our national and global accounts where our
clients are implementing enterprise-wide solutions. These Program Managers
establish processes and coordinate knowledge and relationships between
corporate functions and individual line or field business units to re-use
information, resulting in speed to market and low cost of ownership.
o Partner Services. The goal of partner services is to provide the partner
community with the appropriate integration of BVGS services, tools,
resources and best practices required to deliver the highest level of
customer satisfaction. This team works directly with our extensive partner
community including system integrators, technology partners, platform
partners and application service providers to ensure partner readiness and
enable knowledge transfer between BVGS and the partner community. Specific
activities include the creation and execution of partner specific training
and development plans utilizing BroadVision University, development of a
Partner Framework that clearly outlines the working relationship between
BVGS and a given partner, and the ongoing measurement of partner
capabilities and readiness.
Strategic Alliances
A significant element of our sales strategy is to engage in strategic business
alliances to assist us in marketing, selling and developing customer
applications.
As of December 31, 2000, we had developed key strategic business alliances with
over 190 systems integration, design, consulting and other services
organizations throughout the world, including Accenture, Deloitte Consulting,
Hewlett-Packard Consulting, IBM Global Services, KPMG Consulting, Leapnet,
PricewaterhouseCoopers and Roundarch. Moreover, as of December 31, 2000, we had
trained over 15,000 external consultants.
In April 1999, we announced a strategic alliance with Hewlett-Packard in which
Hewlett-Packard agreed to resell and support the current BroadVision One-To-One
product suite and to co-develop, sell and support integrated business-portal
solutions that will act as the interface to next generation e-services for
enterprise customers. In June 2000, the companies deepened their strategic
relationship by signing a consulting Systems Integration Partner Agreement. As a
result of this agreement, more than 400 consultants trained by HP Consulting are
engaged in the implementation of more than 40 BroadVision customer sites
worldwide. Hewlett-Packard is leveraging its approximately 5,000 person global
sales force to resell and support the current BroadVision One-To-One product
suite.
Throughout 2000, PricewaterhouseCoopers and BroadVision have been working
together on more than 20 engagements, across many major industries, for Fortune
500 and new economy clients. The expanded alliance will combine the global
reach, e-business acumen, consulting and systems integration experience of
PricewaterhouseCoopers with BroadVision's comprehensive suite of integrated
e-business software products and services.
Platform Alliances
Our platform alliances are partnerships formed to integrate technologies to
drive business growth.
NCR Corporation. In November 2000, data warehousing and automatic teller
machine, or ATM, leader NCR Corporation and BroadVision announced a worldwide
agreement to enable companies to drive business growth with personalized
communications to consumers and businesses. This $17 million commitment
represents the two companies' joint investment in research and development,
marketing and the development and operation of Centers of Expertise.
Through this agreement, NCR and BroadVision plan to work together to develop
software adapters between our industry-leading e-business applications and NCR's
world-class Teradata database, Customer Relationship Management solutions and
ATMs.
9
Intel Corporation. In November 2000, BroadVision and Intel Corporation announced
an e-business alliance to develop and market solutions built on BroadVision's
suite of e-business applications and Intel-based servers. The agreement advances
both companies' commitment to deliver cost-effective, enterprise-class
e-business solutions.
BEA Systems. Also in November 2000, BroadVision and BEA Systems announced a
strategic alliance under which BEA Systems' WebLogic Server would be marketed
with BroadVision One-To-One Enterprise. This arrangement is intended to allow
users to combine BEA's leading Java-based application server technology with
our leading e-business software applications.
I2 Technologies. In October 2000, i2 Technologies and BroadVision announced a
joint development agreement to deliver a comprehensive e-commerce solution. The
combined offering will integrate the i2 TradeMatrix Sell and i2 TradeMatrix
Content Solutions with our suite of e-business applications to create a
best-of-breed solution for managing the entire e-commerce value chain. Aimed at
companies that want to accelerate their time-to-market and reduce cost of
ownership as they establish new e-businesses, this is one of the first
e-business solutions to integrate front-end multi-enterprise order capture and
creation to back-end order management and fulfillment capabilities.
Compaq Computer Corporation. In September 2000, acting on our commitment to
deliver enterprise-ready solutions to the Windows marketplace, we announced a
strategic relationship with Compaq Computer Corporation for the development and
marketing of solutions built on our suite of e-business applications and
Compaq's ProLiant servers.
IBM Corporation. Also in September 2000, IBM and BroadVision announced an
agreement that will enable IBM to integrate our full suite of e-business
applications on IBM's RS/6000 servers that employ high-performance copper
technology. The agreement provides customers with more choices for building and
deploying their e-business solutions, as well as increasing network performance
and availability. In addition, IBM Global Services will create a practice of
service professionals around the world to help customers implement our
applications.
Additionally, we have developed key technology partnerships with leading Web-
and wireless-focused companies in areas complementary to our solutions, such as
data analysis and reporting, enterprise application integration, enterprise Web
management, call center management, content management, voice recognition,
payment processing, auctioning and XML. These technology partnerships enhance
our ability to base our products on industry standards and to take advantage of
current and emerging technologies. These alliances include companies such as
Broadbase, Documentum, E.Piphany, Genesys, i2, Interwoven, Nuance, Tibco,
WebMethods and Yantra.
Customers and Markets
As of December 31, 2000, we had licensed our products to over 970 end-user
customers, including customers acquired as part of the Interleaf acquisition,
and over 190 partners and the total number of our installed customer base as
of December 31, 2000 was over 1,100 accounts across top vertical markets
worldwide. As of December 31, 2000, our products were commercially deployed
in over 572 live Web sites. During the years ended December 31, 2000, and
December 31, 1999, no customer accounted for more than 10% of our total
revenues.
Our primary target customers are Global 2000 organizations that are at the
forefront of building innovative Web applications to increase revenues and
reduce operational costs. We also target pure-play Web companies that have built
or are building their core businesses on the Web.
A sample listing of our customers by industry is as follows:
o Financial Services: ABN AMRO, Bank of America, Barclay's Bank, Bear
Stearns, China Trust Bank, Citibank, Credit Suisse, e-Trade,
FleetBoston, GMAC, Hartford Life, ING Bank, Northern Trust and TD
Waterhouse.
o Manufacturing:
o High-Tech: Agilent, Compaq, Hewlett-Packard, Intel, NEC, NCR,
Macromedia, Molex, Motorola, Novell, RS Components, Siemens,
Sony, Toshiba, Unisys and Xerox;
o Industrial Equipment: GE Supply, Hilti, MRO.com, WW Grainger
and Sealed Air;
o Oil/Gas: Aramco Service Company, Cooper Cameron, Fuel Quest
and Tosco;
o Automobile: Ferrari, Fiat and Maserati
o Consumer Packaged Goods: Coors, GE and Georgia Pacific;
o Aircraft/Transport: Aviall, Boeing and Rockwell.
10
o Government/Public Sector: San Diego Workforce, Singapore Post,
State of California, Swiss Post, US General Services
Administration, US Postal Service and World Health
Organization.
o Retail: Blackwell's, Brookstone, Circuit City, Hallmark, Home
Depot, Maytag, OfficeMax, Pitney Bowes, RedEnvelope, Sears
Roebuck, Shop At Home, Swatch, and Wal*Mart.
o Telecom: British Telecom, ConnectOne, Eircom, Ericsson, France
Telecom, Genuity, Japan Telecom, KPN, MCI Worldcom, Nortel
Networks, Telia, Telus, UUNet, Verizon and Vodafone.
o Travel: Aer Lingus, Air Canada, Air France, Amadeus, Budget
Canada, Carlson Companies, Club Med, Forte Hotels, Japan
Airlines, RailEurope, Rand McNally, TAM Airlines and Nippon
Travel.
o Pharmaceuticals/Healthcare: Advance PCS, formerly Advance
Paradigm, Cardinal Health Inc./Allegiance Healthcare ,
Fresenius Medical Care, Hawaii Medical Service Association,
Highmark, Janssen Pharmaceutica, Longs Drugs, Medimania, Merck
Medco, NTT Data Healthcare, Pfizer and Premier Healthcare.
o Media/Publishing/Entertainment: Electronic Arts, Grolier,
Loftus Multimedia, NextMedia and Primedia.
Sales and Marketing
We market our products primarily through a direct sales organization with
operations in North America, Europe, Australia and Asia/Pacific. On December 31,
2000, our direct sales organization included 544 sales representatives, managers
and sales support.
We have sales offices located throughout the world to support the sales
and marketing of our products. In support of the Americas sales and marketing
organizations, offices are located in the United States in Arizona, California,
Colorado, Florida, Georgia, Illinois, Kansas, Maryland, Massachusetts, Michigan,
Minnesota, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania,
Texas, Virginia, Washington and Wisconsin; in Canada, in Toronto, Ontario and
Vancouver, British Columbia; in Latin America, in Argentina, Brazil and Mexico.
Sales and marketing offices for our EMEA, or Europe/Middle East/Africa,
region are located in Austria, Denmark, Finland, France, Germany, Italy, the
Netherlands, Spain, Sweden, Switzerland and the United Kingdom.
Our sales and marketing offices in the Asia Pacific/Japan/India region are
located in Australia, India, Japan, the People's Republic of China, including
Hong Kong, the Republic of China (Taiwan), Singapore and South Korea.
A component of our strategy is continued expansion of our international
activities. We intend to broaden our presence in international markets by
expanding our international sales force and by entering into additional
distribution agreements. We also contract with third-party resellers,
distributors and systems integrators in North America, South America, Europe,
Australia and Asia. We intend to increase our use of this distribution channel.
Initial sales activities typically include a demonstration of our
e-business product suite capabilities at the prospect's site, followed by one or
more detailed technical reviews, often presented at our headquarters. The sales
process usually involves collaboration with the prospective customer in order to
specify the scope of the application. Our global services organization typically
plays a key role in helping customers to design, and then develop and deploy,
their applications.
As of December 31, 2000, 196 employees were engaged in a variety of
marketing activities, including preparing marketing research, product planning
and collateral marketing materials, managing press coverage and other public
relations, identifying potential customers, attending trade shows, seminars and
conferences, establishing and maintaining close relationships with recognized
industry analysts and maintaining our Web site.
Our marketing efforts are targeted at:
o Product strategy development and product management;
o Building market awareness through press and analysts relations;
o Creating brand awareness and visibility;
o Producing and maintaining marketing information and sales tools;
o Generating and developing customer leads;
o Sourcing and managing relationships with systems integrators,
value-added resellers and creative designers; and
o Advertising agencies and technology partners.
11
Competition
The market for personalized e-business and one-to-one relationship management
applications is rapidly evolving and intensely competitive. We expect
competition to persist and intensify in the future.
Our primary competition currently includes:
o in-house development efforts by prospective customers or
partners;
o other vendors of application software or application
development platforms and tools directed at interactive
commerce and financial services, such as Allaire, Ariba, Art
Technology Group Inc., Blue Martini, CommerceOne, InterWorld
Corporation, Open Market, Inc., Oracle, Plumtree, Siebel and
Vignette Corporation;
o Web content developers that develop custom software or
integrate other application software into custom solutions;
o International Business Machines Corporation; and
o Microsoft Corporation.
The principal competitive factors affecting the market for our products are:
o Depth and breadth of functionality offered;
o Ease of application development;
o Availability of knowledgeable developers;
o Time required for application development;
o Reliance on industry standards;
o Product reliability;
o Proven track record;
o Scalability;
o Maintainability;
o Personalization and other features;
o Product quality;
o Price; and
o Customer support.
Compared to us, many of these and other current and future competitors
have longer operating histories and significantly greater financial,
technical, marketing and other resources than those of us. As a result, they
may be able to respond more quickly to new or changing opportunities,
technologies and customer requirements. Many of these companies also can use
their greater name recognition and more extensive customer base to gain
market share at our expense. Competitors may be able to undertake more
extensive promotional activities, adopt more aggressive pricing policies and
offer more attractive terms to purchasers. Current and potential competitors
may bundle their products to discourage users from purchasing our products.
In addition, competitors have established or may establish cooperative
relationships among themselves or with third parties to enhance their
products. Accordingly, it is possible that new competitors or alliances among
competitors may emerge and rapidly acquire significant market share.
Competitive pressures may make it difficult for us to acquire and retain
customers and may require us to reduce the price of our products. We may be
unable to compete successfully with current or new competitors.
Intellectual Property and Other Proprietary Rights
Our success and ability to compete are dependent to a significant
degree on our proprietary technology. Although we hold a U.S patent, issued
in January 1998, on elements of the BroadVision One-To-One Enterprise
product, this patent may not provide an adequate level of intellectual
property protection. In addition, litigation like the lawsuit we filed
against Art Technology Group, which was settled in February 2000, may be
necessary in the future to enforce our intellectual property rights, to
protect our trade secrets, to determine the validity and scope of the
proprietary rights of others, or to defend against claims of infringement or
invalidity. We cannot guarantee that infringement or other claims will not be
asserted or prosecuted against us in the future, whether resulting from our
intellectual property or licenses from third parties. Claims or litigation,
whether successful or unsuccessful, could result in substantial costs and
diversions of resources, either of which could harm our business.
We also rely on copyright, trademark, service mark, trade secret laws
and contractual restrictions to protect our proprietary rights in products
and services. We have registered "BroadVision" and "BroadVision One-To-One"
as trademarks in the United States and in other countries. It is possible
that our competitors or other companies will adopt product names similar to
these trademarks, impeding our ability to build brand identity and possibly
confusing customers.
As a matter of company policy, we enter into confidentiality and
assignment agreements with our employees, consultants and vendors. We also
control access to and distribution of our software, documents and other
proprietary information. Notwithstanding these precautions, it may be
possible for an unauthorized third party to copy or otherwise obtain and use
our software or other proprietary information or to develop similar software
independently. Policing unauthorized use of our products will be difficult,
particularly because the global nature of the Internet makes it difficult to
control the ultimate destination or security of software and other
transmitted data. The laws of other countries may afford us little or no
effective protection of our intellectual property. We rely upon certain
software that we license from third parties, including relational database
management systems from Oracle and Sybase, object request broker software
from IONA Technologies, database access technology from RogueWave Software
and other software that is integrated with internally developed software and
used in our software to perform key functions. In this regard, all of our
services incorporate data encryption and authentication technology licensed
from RSA. Our third-party technology licenses may not continue to be
available to us on commercially reasonable terms, if at all. The loss of or
inability to maintain any of these technology licenses could result in delays
in introduction of our products and services until equivalent technology, if
available, is identified, licensed and integrated, which could harm our
business.
12
Recent Acquisitions
On April 14, 2000, we acquired Interleaf, Inc. and its subsidiaries
("Interleaf") pursuant to a statutory merger involving a stock-for-stock
exchange. We acquired Interleaf primarily to enable us to add significant
wireless technology capabilities and substantially increase our ability to
provide enhanced personalized e-business applications across multi-touch points.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview" and Note 2 of "Notes to Consolidated Financial Statements"
for more detailed information.
Employees
As of December 31, 2000, we employed a total of 2,412 full-time employees,
of whom 1,828 are based in North America and South America, 372 in Europe and
212 in Asia. Of these full-time employees, 740 are in sales and marketing, 348
are in product development, 1,135 are in global services and client support, and
189 are in finance, administration and operations. As of December 31, 1999 and
1998, we employed 652 and 271 full-time employees, respectively.
We believe that our future success depends on attracting and retaining
highly skilled personnel. Competition for personnel is intense, and we may be
unable to attract and retain high-caliber employees. Our employees are not
represented by any collective bargaining unit. We have never experienced a work
stoppage and consider our employee relations to be good.
Executive Officers
The following table sets forth certain information regarding our current
executive officers.
Name Age Position
---- --- --------
Pehong Chen............43 Chairman of the Board, Chief Executive
Officer and President
Randall C. Bolten......48 Chief Financial Officer and Executive Vice
President, Operations
James W. Thanos........52 Executive Vice President and General
Manager, Worldwide Field Operations
Nancy Mills-Turner.....48 Executive Vice President and General
Manager, Worldwide Products Organization
Chris M. Grejtak.......52 Executive Vice President, Worldwide
Marketing and Business Development, and
Chief Marketing Officer
Pehong Chen has served as our Chairman of the Board, Chief Executive
Officer and President since our incorporation in May 1993. From 1992 to 1993,
Dr. Chen served as the Vice President of Multimedia Technology at Sybase, a
supplier of client-server software products. Dr. Chen founded and, from 1989 to
1992, served as President of Gain Technology, a provider of multimedia
applications development systems, which was acquired by Sybase. He received a
B.S. in Computer Science from National Taiwan University, an M.S. in Computer
Science from Indiana University and a Ph.D. in Computer Science from the
University of California at Berkeley.
Randall C. Bolten has served as our Chief Financial Officer since
September 1995 and as Chief Financial Officer and Executive Vice President,
Operations from January 2000. From 1994 to 1995, Mr. Bolten served as a
financial consultant to various entrepreneurial enterprises. From 1992 to 1994,
Mr. Bolten served as Chief Financial Officer of BioCad Corporation, a supplier
of drug discovery software products. From 1990 to 1992, Mr. Bolten served as
Chief Financial Officer, Business Development Unit and then Vice President,
Finance of Teknekron, a company engaged in the management of various high
technology companies. He received an A.B. in Economics from Princeton University
and an M.B.A. from Stanford University.
13
James W. Thanos has served as our Vice President and General Manager,
Americas since January 1998 and as our Executive Vice President and General
Manager, Worldwide Field Operations, since January 2000. From January 1995 to
January 1998, Mr. Thanos served as Vice President of North American Operations
of Aurum Software, a sales force automation company. From May 1994 to January
1995, Mr. Thanos served as Vice President of Sales of Digital Equipment
Corporation. From January 1993 to December 1994, Mr. Thanos served as Vice
President of Sales of Harvest Software, an optical character recognition
software company. From December 1988 to January 1993, Mr. Thanos served as Vice
President of Sales Operations of Metaphor, a decision support software company.
Mr. Thanos holds a B.A. in International Relations from Johns Hopkins
University.
Nancy Mills-Turner joined BroadVision in September 1999 as Vice President
of Worldwide Professional Services, in January 2000, was promoted to Executive
Vice President and General Manager, Worldwide Professional Services and in
January 2001 was named Executive Vice President and General Manager, Worldwide
Products Organization. Prior to BroadVision, she worked for Oracle managing the
professional services groups including Consulting and Education. Before joining
Oracle in 1995, she served as director of Federal, State and Local practice
consultants at PricewaterhouseCoopers LLP. Prior to PricewaterhouseCoopers LLP,
she was Vice President, Software at BIS Computer Solutions directing the
activities of product development divisions specializing in commercial and
criminal justice applications and implementations services. Ms. Mills-Turner
received a B.A./B.S. in Business Administration and Biochemistry from Arizona
State University and a Master's degree in Business Administration and
Information Management Sciences from University of Southern California.
Chris M. Grejtak joined us in January 2001 as Executive Vice President,
Worldwide Marketing and Business Development, and Chief Marketing Officer.
From January 2000 to January 2001, he served as Chief Executive Officer of
Viquity, Inc., a provider of hosted universal connectivity services for
internet-based integration of mission critical business systems. From
December 1996 to January 2000, Mr. Grejtak was the Executive Vice President,
Worldwide Marketing for Brio Technology, a provider of analytics software for
enterprise infrastructure management. From December 1995 to December 1996,
Mr. Grejtak was the Vice President of Marketing for Red Brick Systems, Inc.,
which developed database management system technology to support data
warehouse and business intelligence applications. Mr. Grejtak received a B.A.
in Sociology from Middlebury College.
ITEM 2. PROPERTIES
Our principal administration, research and development, sales, consulting,
training and support facilities are located in Redwood City, California, where
we occupy approximately 162,000 square feet pursuant to leases expiring through
2008. We recently entered into a lease for a new facility currently under
construction that will provide us with an additional approximately 519,000
square feet in Redwood City, California. The facility is expected to be
available for occupancy during June 2001.
Our European headquarters are located in Green Park, Reading, in the
United Kingdom where we lease approximately 19,000 square feet. Our Asia Pacific
headquarters are located in Taipei, Taiwan where we lease approximately 19,000
square feet.
In addition, we have offices throughout the world to support the
development, sales, marketing and support of our products and services. See
"Sales and Marketing" above.
ITEM 3. LEGAL PROCEEDINGS
On February 22, 2000, we reached a settlement agreement and entered into a
license agreement with Art Technology Group, or ATG, in connection with the
lawsuit we filed on December 11, 1998 against ATG alleging infringement of our
U.S. Patent No. 5,710,887. In accordance with the terms of the settlement
agreement, we granted ATG a nonexclusive, nontransferable, worldwide, perpetual
license and we were paid by ATG $8 million at the effective date of the
settlement. In addition, we will receive an additional $7 million payable in
quarterly installments, which payments commenced February 24, 2000, in the form
of four consecutive quarterly payments of $750,000 during 2000 and eight
consecutive quarterly payments of $500,000 during 2001 and 2002. There are no
material pending legal proceedings to which we or any of our subsidiaries is a
party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is quoted on the Nasdaq National Market under the symbol
"BVSN." The following table shows high and low sale prices per share of the
common stock as reported on the Nasdaq National Market:
High Low
---- ---
Fiscal Year 2000
First Quarter......................... $ 90.67 $ 42.44
Second Quarter........................ 61.56 26.88
Third Quarter......................... 54.56 25.69
Fourth Quarter........................ 36.19 11.81
Fiscal Year 1999
First Quarter......................... $ 8.04 $ 3.01
Second Quarter........................ 8.19 4.35
Third Quarter......................... 15.54 6.82
Fourth Quarter........................ 59.67 14.10
As of March 28, 2001, there were 1,831 holders of record of our common
stock. On March 28, 2001, the last sale price reported on the Nasdaq National
Market System for our common stock was $5.2188 per share. In May 2000, we
exchanged equity securities worth $3.0 million with netalone.com. We issued
to netalone.com 76,665 shares of our Common Stock in exchange for the receipt
from netalone.com of 23,366,700 shares of its Common Stock. In September
2000, in connection with Compaq Computer Corporation entering into a master
marketing and license agreement with us, we issued a warrant to Compaq for
43,478 shares of our 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.
We have never declared or paid cash dividends on our common stock, and it
is our present intention to retain earnings to finance the expansion of our
business. In addition, our credit facility with our commercial lender contains
certain covenants that may limit our ability to pay cash dividends.
15
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Consolidated Financial Statements of the Company
and Notes thereto, and other financial information included elsewhere herein of
this Form 10-K. Historical results are not necessarily indicative of results
that may be expected for future periods.
Years Ended December 31,
-----------------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(in thousands, except per share data)
Consolidated Statement of Operations Data:
Revenues:
Software licenses ....................... $ 250,838 $ 75,383 $ 36,067 $ 18,973 $ 7,464
Services ................................ 163,078 40,131 14,844 8,132 3,418
----------- ----------- ----------- ----------- -----------
Total revenues .................... 413,916 115,514 50,911 27,105 10,882
Cost of revenues:
Cost of software licenses ............... 7,827 3,703 1,001 1,664 330
Cost of services ........................ 117,808 25,108 8,704 4,284 2,164
----------- ----------- ----------- ----------- -----------
Total cost of revenues ............ 125,635 28,811 9,705 5,948 2,494
----------- ----------- ----------- ----------- -----------
Gross profit .............................. 288,281 86,703 41,206 21,157 8,388
Operating expenses:
Research and development ................ 51,621 14,568 9,227 7,392 4,985
Sales and marketing ..................... 167,415 48,903 26,269 18,413 12,066
General and administrative .............. 28,195 7,970 3,786 2,990 2,034
Goodwill and intangible
amortization .......................... 187,748 -- -- -- --
Charge for acquired in-process technology 10,100 -- -- -- --
----------- ----------- ----------- ----------- -----------
Total operating expenses .......... 445,079 71,441 39,282 28,795 19,085
----------- ----------- ----------- ----------- -----------
Operating (loss) income ................. (156,798) 15,262 1,924 (7,638) (10,697)
Other, net .............................. (4,831) 3,547 2,115 265 552
----------- ----------- ----------- ----------- -----------
Net (loss) income ....................... $ (161,629) $ 18,809 $ 4,039 $ (7,373) $ (10,145)
=========== =========== =========== =========== ===========
Net (loss) income per share:
Basic (loss) earnings per share ........... $ (0.62) $ 0.08 $ 0.02 $ (0.04) $ (0.06)
=========== =========== =========== =========== ===========
Shares used in computation -- basic (loss)
earnings per share ........................ 259,780 229,128 210,114 181,872 169,335
=========== =========== =========== =========== ===========
Diluted (loss) earnings per share ......... $ (0.62) $ 0.07 $ 0.02 $ (0.04) $ (0.06)
=========== =========== =========== =========== ===========
Shares used in computation -- diluted (loss)
earnings per share ........................ 259,780 260,712 230,877 181,872 169,335
=========== =========== =========== =========== ===========
As of December 31,
-----------------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents ................. $ 153,137 $ 279,823 $ 61,878 $ 8,277 $ 17,608
Working capital ........................... 215,831 324,156 63,620 11,485 18,258
Total assets .............................. 1,143,024 406,128 101,562 26,539 26,714
Debt and capital leases, less current
portion ................................... 3,897 4,890 3,194 3,005 495
Accumulated deficit ....................... (162,423) (794) (19,603) (23,642) (16,269)
Total stockholders' equity ................ 1,009,298 345,188 81,809 15,121 21,016
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
We develop and sell an integrated suite of packaged applications for
conducting e-business interactions, transactions and services. Global
enterprises and government entities use these applications to sell, buy, and
exchange goods, services and information over the Web and on wireless devices.
Our e-business application suite enables a corporation to establish and sustain
high-yield relationships with customers, suppliers, partners, distributors,
employees and other constituents of the extended enterprise.
The BroadVision e-business application suite allows businesses to tailor
Web and wireless content to the needs and interests of individual users by
personalizing content and transactions on a real-time basis. These personalized
self-service applications have demonstrated that they can enhance customer
satisfaction and loyalty, increase business volume and brand awareness, reduce
costs to service customers and execute transactions, and enhance employee
productivity and retention.
Our products enable companies to organize dynamic profiles of Web and
wireless users from volunteered data and observed behavior, deliver highly
specialized content in response to these profiles and securely execute
transactions. Business managers are able to modify business rules and content in
real time, offering a personalized experience to each visitor. Because of the
open architecture of our applications, they are easily integrated with our
customers' existing systems and easily expanded as our customers' needs and
businesses grow.
Supporting this application infrastructure are more than 190 partner firms
around the world who are working to ensure our joint customers' success through
complementary technology, applications, tools, and services offerings that
extend and enhance customers' BroadVision implementations.
We believe our products enhance our customers' revenue opportunities by
enabling them to establish more effective and efficient "one-to-one"
relationships with their customers and business partners. Web and wireless users
are engaged by highly personalized real-time interactions, are able to transact
business securely and are encouraged to remain online and make return visits.
Our applications also improve the cost-effectiveness of one-to-one relationship
management by enabling non-technical managers to modify business rules and
content in real time and by helping to reduce costs of customer acquisition and
retention, business development and technical support as well as employee
workplace initiatives. In addition, the packaged solution nature of our products
decreases our customers' time to deployment and allows them to easily manage and
expand their Web and wireless application usage in a cost-effective manner.
We sell our products and services worldwide through a direct sales force and a
channel of independent distributors, value-added resellers, or VARs, and
application service providers, or ASPs. In addition, our 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. We also engage in strategic business alliances to assist with the
marketing, selling and development of our customers' applications. We place a
strategic emphasis on technology alliances to ensure that our products are based
on industry standards and to position us 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
us to focus on our core competencies while reducing time to market and
simplifying the task of designing and developing applications for us and our
customers.
On April 14, 2000, we acquired Interleaf pursuant to a statutory merger
involving a stock-for-stock exchange. The acquisition occurred primarily to
enable us to add significant wireless technology capabilities and substantially
increase our ability to provide enhanced personalized e-business applications
across multi-touch points. We accounted for this acquisition as a purchase
business combination. Accordingly, the results of operations of Interleaf are
included in our combined results from the date of the acquisition. Please see
Note 2 of Notes to Consolidated Financial Statements for more detailed
information.
17
STATEMENT OF OPERATIONS AS A PERCENT OF TOTAL REVENUES
The following table sets forth certain items reflected in our consolidated
statements of operations expressed as a percent of total revenues for the
periods indicated.
Years Ended December 31,
---------------------------
2000 1999 1998
------ ------ ------
Revenues:
Software licenses ............................. 61% 65% 71%
Services ...................................... 39 35 29
---- ---- ----
Total revenues ........................ 100 100 100
---- ---- ----
Cost of revenues:
Cost of software licenses ..................... 2 3 2
Cost of services .............................. 28 22 17
---- ---- ----
Total cost of revenues ..................... 30 25 19
---- ---- ----
Gross profit .......................... 70 75 81
---- ---- ----
Operating expenses:
Research and development ...................... 13 13 18
Sales and marketing ........................... 41 42 52
General and administrative .................... 7 7 7
Goodwill and intangible amortization .......... 45 -- --
Charge for acquired in-process technology ..... 2 -- --
---- ---- ----
Total operating expenses ................... 108 62 77
---- ---- ----
Operating (loss) income ............... (38) 13 4
Other, net ................................. 4 4 4
---- ---- ----
(Loss) Income before income taxes ..... (34) 17 8
Income tax provision ....................... 5 1 --
---- ---- ----
Net (loss) income ..................... (39)% 16% 8%
==== ==== ====
RESULTS OF OPERATIONS
Revenues
Our revenues are derived from software licensing arrangements and fees
charged for services. Software is generally licensed for development use and
for its use in deployment of the customer's website. Deployment licenses are
generally based on the number of persons who register on a customer's website
using our software. Our revenue recognition policies are in accordance with
Statement of Position ("SOP") 97-2, Software Revenue Recognition, as amended
and SOP 98-9, Software Revenue Recognition, With Respect to Certain
Transactions. In general, software license revenues are recognized 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;
professional services revenues are recognized as such services are performed;
and maintenance revenues, or post-contract customer support, or PCS,
including revenues bundled with software agreements which entitle the
customers to technical support and future unspecified enhancements to our
products, are deferred and recognized ratably over the related contract
period, generally twelve months. Revenues recognized from multiple-element
software arrangements are allocated to each element of the arrangement based
on the fair values of the elements, such as software products, post contract
customer support, installation or training. The determination of fair value
is based on objective evidence which is specific to us. If evidence of fair
value does not exist for all elements of a license agreement and PCS is the
only undelivered element, then all revenue for the license arrangement is
recognized ratably over the term of the agreement as license revenue. If
evidence of fair value of all undelivered elements exists but evidence does
not exist for one or more delivered elements, then revenue is recognized
using the residual method. Under the residual method, the fair value of the
undelivered elements is deferred and the remaining portion of the arrangement
fee is recognized as revenue. Services that the Company provides are not
essential to the functionality of the software.
We record unearned revenue for software arrangements when cash has been
received from the customer and the arrangement does not qualify for revenue
recognition under our revenue recognition policy. We record accounts receivable
for software arrangements when the arrangement qualifies for revenue recognition
but cash or other consideration has not been received from the customer.
Our professional services are delivered through our BroadVision Global
Services Organization, or BVGS, presently comprised of the Strategic Services
Group, the Technical Services Group, the Content and Creative Services Group,
the Client Services, Project and Program Management Group, the Partner
Services Group, the Education Services Group and the Technical Support
Services Group. The first three groups provide consulting services, the
fourth group manages projects and client relationships, the fifth group
manages the needs of our partner community, the sixth group provides
training-related services to employees, customers and partners, and the last
group provides software maintenance services, including technical
18
support, to our customers and partners. Revenue from consulting services is
typically recognized as services are performed. Maintenance fees relating to
technical support and upgrades are recognized ratably over the maintenance
period. A summary of our software and services revenues by geographic region for
the periods indicated is as follows:
Software % Services % Total %
-------- -------- -------- -------- -------- --------
(dollars in thousands)
Year Ended December 31, 2000:
Americas .................. $155,337 62% $125,994 77% $281,331 68%
Europe .................... 75,046 30 28,565 18 103,611 25
Asia/Pacific .............. 20,455 8 8,519 5 28,974 7
-------- -------- -------- -------- -------- --------
Total ....................... $250,838 100% $163,078 100% $413,916 100%
======== ======== ======== ======== ======== ========
Year Ended December 31, 1999:
Americas .................. $ 48,822 65% $ 30,501 76% $ 79,323 69%
Europe .................... 18,918 25 7,293 18 26,211 22
Asia/Pacific .............. 7,643 10 2,337 6 9,980 9
-------- -------- -------- -------- -------- --------
Total ....................... $ 75,383 100% $ 40,131 100% $115,514 100%
======== ======== ======== ======== ======== ========
Year Ended December 31, 1998:
Americas .................. $ 19,301 54% $ 10,029 67% $ 29,330 58%
Europe .................... 13,879 38 3,065 21 16,944 33
Asia/Pacific .............. 2,887 8 1,750 12 4,637 9
-------- -------- -------- -------- -------- --------
Total ....................... $ 36,067 100% $ 14,844 100% $ 50,911 100%
======== ======== ======== ======== ======== ========
2000 versus 1999
Total revenues for the year ended December 31, 2000 increased $298.4
million or 258% on a year-over-year basis, and consisted of an increase in
software license revenue of $175.5 million or 233% and an increase in
professional services revenue of $122.9 million or 306%.
The 233% increase in software license revenues is a result of continued
strong demand by existing and new customers for our expanding product line
and core competencies and the growing market for business-to-business and
business-to-consumer e-commerce software application solutions. Our
aggressive growth and enhanced presence in global markets were contributing
factors in our overall increase in revenues. Also contributing to increased
revenues are sales of software licenses of products acquired in the Interleaf
transaction. Revenues attributed to the sales of software licenses for
products acquired as a result of the Interleaf acquisition were approximately
$11 million from the date of acquisition through December 31, 2000. During
the year, we continued to expand the functionality and personalization
attributes of our application products that contributed to a broadened
customer base and an increased level of repeat business. In addition, our
deployment license revenues, which are based upon related user profiles,
continued to accelerate as a result of an increasingly large number of live
sites.
Software product license revenues for our Enterprise applications
increased to $18.6 million in 2000 as compared to $14.6 million in 1999.
Software license revenues for our web applications and tools, or packaged
solutions, increased to $232.2 million in 2000 as compared to $60.8 million
in 1999. Deployment license revenues increased to $81.8 million in 2000 as
compared to $31.2 million in 1999. During the year ended December 31, 2000,
we licensed 557 new end-user customers, including customers acquired as part
of the Interleaf acquisition, and 74 new partners which compares with
approximately 217 new end-user customers and 47 new partners for the year
ended December 31, 1999. As of December 31, 2000, we had a total installed
license base of 1,169 consisting of 972 end-user customers, including
customers acquired as part of the Interleaf acquisition, and 197 partners,
which compares with 415 end-user customers and 123 partners as of December
31, 1999.
The 306% 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 $46.2 million in 2000 which compares to $13.4 million
in 1999. We also experienced increases in services and maintenance revenues
as a result of the Interleaf acquisition. Total services revenues related to
customers acquired as a result of the Interleaf acquisition were
approximately $17 million. During fiscal 2000, we expanded our corporate
training facilities by building new training centers in Chicago, Illinois,
the United Kingdom and Taipei, Taiwan.
To date we have achieved good market acceptance for our products and have
experienced continued revenue growth. We anticipate that international revenues
will continue to account for a significant amount of total revenues, and expect
to continue to commit significant time and financial resources to the
maintenance and ongoing development of direct and indirect international sales
and support channels. However, we may be unable to maintain or continue to
increase international or domestic market acceptance for our family of products.
19
1999 versus 1998
Total revenues for the year ended December 31, 1999 increased $64.6
million or 127% on a year-over-year basis, and consisted of an increase in
software license revenue of $39.3 million or 109% and an increase in
professional services revenue of $25.3 million or 170%.
The 109% increase in software license revenues was a result of continued
strong demand for our expanding product line and core competencies; our
strategic positioning within a high momentum market for business-to-business and
business-to-consumer personalization focused software application solutions; and
the ability to achieve greater penetration into our existing customer base while
continuing to add significant numbers of new quality customers. During the year,
we continued to expand the functionality and personalization attributes of our
application products that contributed to a broadened customer base and an
increased level of repeat business. In addition, our deployment related user
profile based licensing revenues continued to accelerate as a result of an
increasingly larger number of live sites. Software product license revenues for
our Enterprise applications decreased to $14.6 million in 1999 as compared to
$19.3 million in 1998. Deployment related user profile license revenues
increased to $31.2 million in 1999 as compared to $14.8 million in 1998. During
the year ended December 31, 1999, we licensed approximately 217 new end-user
customers and 47 new partners which compares with approximately 94 new end-user
customers and 27 new partners for the year ended December 31, 1998. As of
December 31, 1999, we had a total installed license base of over 410 end-user
customers and 120 partners, which compares with over 195 end-user customers and
75 partners as of December 31, 1998.
The 170% increase in professional services revenue was 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
$13.4 million in 1999 which compares to $5.1 million in 1998. During the year
ended December 31, 1999, we continued to expand and enhance our professional
services group and, during August 1999, we completed our greatly expanded
corporate training facility located in Redwood City, California. We also added
additional training and professional consulting related facilities in Europe and
Asia as of December 31, 1999.
Cost of Revenues
Cost of license revenues includes 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, our
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.
Years Ended December 31,
-----------------------------------------------------------------
2000 % 1999 % 1998 %
-------- -------- -------- -------- -------- --------
(dollars in thousands)
Cost of software licenses [1] $ 7,827 3% $ 3,703 5% $ 1,001 3%
Cost of services [2] 117,808 72 25,108 63 8,704 59
-------- -------- --------
Total cost of revenues [3] .. $125,635 30% $ 28,811 25% $ 9,705 19%
======== ======== ========
[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
2000 versus 1999
For the year ended December 31, 2000, cost of license revenues increased
$4.1 million or 111% on a year-over-year basis. Cost of software licenses as a
percent of license revenues was 3% in 2000 as compared to 5% in 1999. Cost of
services revenues during 2000 increased $92.7 million or 369% on a
year-over-year basis. Cost of services as a percent of services revenues was 72%
in 2000 as compared to 63% in 1999.
In absolute dollar terms, the increase in cost of software licenses was
principally a result of increased sales of our products and of royalty-bearing
third party products. In relative percentage terms, cost of software licenses
decreased principally as a result of renegotiating the royalty provisions of
agreements with software suppliers from per copy royalties to fixed fee prepaid
license fees.
20
The increase in cost of services revenues in absolute dollar terms
during 2000 as compared to 1999 is a result of higher business volumes as
evidenced by increased services revenues. The increase in cost of services as
a percentage of revenues can primarily be attributed to an increase in
personnel who do not generate revenue during their initial training period.
Total employees in global services and client support were 1,135 as of
December 31, 2000 as compared to 246 as of December 31, 1999. This includes
employees added as a result of the Interleaf acquisition. In addition, we
increased our use of outside consultants from the prior year in order to meet
our short-term demands.
1999 versus 1998
For the year ended December 31, 1999, cost of license revenues increased
$2.7 million or 270% on a year-over-year basis. Cost of software licenses as a
percent of license revenues was 5% in 1999 as compared to 3% in 1998. Cost of
services revenues during 1999 increased $16.4 million or 188% on a
year-over-year basis. Cost of services as a percent of services revenues was 63%
in 1999 as compared to 59% in 1998.
The increase in cost of license revenues, in both absolute dollar and
relative percentage terms, was principally a result of the higher mix of third
party software bundled and sold with our products and the related third party
royalty fees payable on those sales. Third party royalty costs relative to
license revenues have been offset to some extent as a result of our
renegotiating previously existing percentage-based royalty arrangements into
prepaid fixed fee royalties for periods extending through 2004.
The increase in cost of services revenues in absolute dollar terms during
1999 as compared to 1998 was 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 was a result of the assimilation of new
professional consultants added to the group during the year 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 our products.
Costs incurred for the research and development of new software products
are expensed as incurred until the time that technological feasibility, in the
form of a working model, is established, at which point these costs are
capitalized subject to recoverability. The costs we have incurred subsequent to
the establishment of a working model but prior to general release have not been
significant. To date, we have 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-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.
A summary of operating expenses is set forth in the following table. The
percentage of expenses is calculated based on total revenues.
Years Ended December 31,
-------------------------------------------------------------------
2000 % 1999 % 1998 %
-------- -------- -------- -------- -------- --------
(dollars in thousands)
Research and development ................. $ 51,621 13% $ 14,568 13% $ 9,227 18%
Sales and marketing ...................... 167,415 41 48,903 42 26,269 52
General and administrative ............... 28,195 7 7,970 7 3,786 7
Goodwill and intangible amortization ..... 187,748 45 -- -- -- --
Charge for acquired in-process technology 10,100 2 -- -- -- --
-------- -------- --------
Total operating expenses ................. $445,079 108% $ 71,441 62% $ 39,282 77%
======== ======== ======== ======== ======== ========
Interest income .......................... $ 16,706 4% $ 5,142 4% $ 2,484 5%
======== ======== ======== ======== ======== ========
Other income (expense), net .............. $ 1,511 0% $ (599) 1% $ (448) 1%
======== ======== ======== ======== ======== ========
21
2000 versus 1999
Research and development expenses for the year were $51.6 million in
2000 as compared to $14.6 million in 1999 which represents an increase of
253% year-over-year. Sales and marketing expenses for the year were $167.4
million in 2000 as compared to $48.9 million in 1999 which represents an
increase of 242% year-over-year. General and administrative expenses for the
year were $28.2 million in 2000 as compared to $8.0 million in 1999 which
represents an increase of 253% year-over-year. Interest income for the year
was $16.7 million in 2000 as compared to $5.1 million in 1999 that represents
an increase of 227% year-over-year. Net other income (expense) for the year
was $1.5 million in 2000 as compared to $(599,000) in 1999 that represents an
increase of 350% year-over-year.
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
our next generation of products. We added personnel and a development
facility in Waltham, Massachusetts in conjunction with the Interleaf
acquisition. The increases in sales and marketing expenses reflects the cost
of hiring additional sales and marketing personnel including sales
commissions, the continued development of sales distribution channels and the
expansion of promotional activities and marketing-related programs. The
increase in general and administrative expenses is attributable to additional
administrative and management personnel, higher professional fees, increase
in bad debt reserve as a result of an increase in accounts receivable due to
our rapid growth, and additional infrastructure to support the expansion of
our operations. The increase in interest income is attributable to a higher
level of investment income during the year as a result of an increase in
investments and cash in interest bearing accounts. The increase in other
income, net is primarily a result of realized gains on the sale of
investments partially offset by realized losses on investments due to
impairment as well as interest expense.
Amortization of Goodwill and Other Intangible Assets
Our acquisition of Interleaf was accounted for under the purchase
method of accounting. Accordingly, we recorded goodwill and other intangible
assets representing the excess of the purchase price paid over the fair value
of net assets acquired of approximately $1.9 million. Gross goodwill recorded
as a result of the acquisition was $765.8 million. The aggregate amortization
of goodwill and other intangible assets related to the Interleaf acquisition
was $187.6 million in fiscal 2000. The goodwill and other intangible assets
are being amortized on a straight-line basis over the expected useful life of
three years and will amount to $264.9 million in 2001, $264.9 million in 2002
and $77.3 million in 2003. It is possible that we may continue to expand our
business through acquisitions and internal development. Any additional
acquisitions or impairment of goodwill and other purchased intangibles could
result in additional merger and acquisition related costs.
On November 24, 1999, the Company acquired all of the registered shares
of Fidutec Information Technology SA for a cash payment of 6,000,000 Swiss
Francs (equivalent U.S. dollar value of $3,765,000, net of cash acquired); of
which 1,200,000 Swiss Francs are held in escrow, subject to employee
retention conditions lasting 12 to 24 months depending on named employees.
The acquisition was accounted for as a purchase. The acquired assets and
assumed liabilities, and the related results of operations, are included in
the consolidated financial statements of the Company from the date of
acquisition. The name of the acquired business has been subsequently changed
to BroadVision Professional Services. Amortization of goodwill was
approximately $200,000 in fiscal 2000.
Charge for Acquired In-Process Technology
In connection with the Interleaf acquisition, we recorded a charge of
$10.1 million in the quarter ended June 30, 2000 for acquired in-process
technology that had not reached technological feasibility. Based upon our
estimates prepared in conjunction with a third-party valuation consultant,
$10.1 million was allocated to Acquired In-Process Technology and $796.0
million was allocated to goodwill and intangible assets. The amounts
allocated to intangible assets include completed technologies of $20.4
million and assembled workforces of $8.5 million. We 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 Interleaf up to the time of acquisition. This amount was estimated through
application of the "stage of 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% to 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.
22
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.
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. The value
attributed to this project was $1.3 million. The application from this
project has been integrated into our products. The efforts required to
complete the acquired in-process technology included the completion of all
planning, designing and testing activities that were necessary to establish
that the product can be produced to meet its design requirements, including
functions, features and technical performance requirements. The costs to
complete this project were included in the year ending December 31, 2000 and
there are no expected remaining costs. Another In-Process Technology project
is an upgrade to an existing product that will take into account new W3C
standards being developed for XML and 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. The value
attributed to this project was $300,000. This project was subsequently
canceled and the project has no future alternative use. Costs incurred to
complete this project were not material. A 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 personal
digital assistants. As of the valuation date, this project was approximately
57% complete. The value attributed to this project was $8.5 million. The
application from this project has been integrated into our products. The
efforts required to complete the acquired in-process technology included the
completion of all planning, designing and testing activities that were
necessary to establish that the product can be produced to meet its design
requirements, including functions, features and technical performance
requirements. The costs to complete this project were included in the year
ending December 31, 2000 and there are no expected remaining costs.
Core Technology 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. It is
therefore not appropriate to consider the value of the Core Technology to be
part of the estimated value of In-Process Technology. Thus, the value of the
In-Process Technology has been isolated by allocating a portion of the cash flow
to this Core 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 Technology and the Completed 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. We believe that these discount rates are
consistent with the overall costs of capital and the relative risks of the
completed technologies and the research and development project. We have
valued the In-Process Technology using the "Percentage Completion Approach"
as suggested by the U.S. Securities and Exchange Commission. This approach
varies from the traditional discounted cash flow approach that is used to
value 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.
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.
As part of the Purchase and Sale Agreement and the closing compilation
documents, Non-Compete Agreements (the "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 BroadVision and the effect on our performance
these employees would have should they leave the Company and were not barred
from competing.
1999 versus 1998
Research and development expenses for the year were $14.6 million in 1999
as compared to $9.2 million in 1998 which represents an increase of 58%
year-over-year. Sales and marketing expenses for the year were $48.9 million in
1999 as compared to $26.3 million in 1998 which represents an increase of 86%
year-over-year. General and administrative expenses for the year were $8.0
million in 1999 as compared to $3.8 million in 1998 which represents an increase
of 111% year-over-year. Net other income for the year was $4.5 million in 1999
as compared to $2.0 million in 1998 which represents an increase of 123%
year-over-year.
The increase in research and development expenses was primarily
attributable to personnel costs for added headcount within those operations
involved in the enhancement of existing applications and the development of our
23
next generation of products. The increases in sales and marketing expenses
reflects the cost of hiring additional sales and marketing personnel, the
continued development of sales distribution channels and the expansion of
promotional activities and marketing-related programs. In addition, commission
rates were higher during 1999 as result of sales people exceeding their sales
quotas. The increase in general and administrative expenses is attributable to
additional administrative and management personnel, higher professional fees and
additional infrastructure to support the expansion of our operations. The
increase in net other income is attributable to a higher level of investment
income during the year as a result of earnings on proceeds received from a
follow-on public stock offering in November 1999.
Income Taxes
For the year ended December 31, 2000, we recorded an income tax
provision of $23.0 million consisting of current expense of $28.6 million and
deferred tax benefit of $5.6 million relating to federal, state and foreign
income taxes. For the year ended December 31, 1999, we recorded an income tax
provision of $996,000 consisting solely of current expense relating to
federal and foreign income taxes. For the year ended December 31, 1998, we
recorded a net income tax benefit of $79,000, comprised of a deferred tax
benefit of $700,000 and current tax expense of $621,000.
The effective tax rate includes the write-off of acquired in-process
technology and amortization of Goodwill and other intangibles of
approximately $197.8 million for 2000. The effective tax rate after this
adjustment is 39%. The effective tax rates were 5% for 1999 and 0 for 1998.
Liquidity and Capital Resources
December 31,
-------------------------------
2000 1999 1998
-------- -------- -------
(dollars in thousands)
Cash, cash equivalents and
short-term
Investments.................... $222,534 $348,581 $61,878
Working capital.................. $215,831 $324,156 $63,620
Working capital ratio............ 2.7 6.8 4.9
As of December 31, 2000, cash, cash equivalents and liquid short-term
investments totaled $222.5 million, which represents a decrease of $126.1
million as compared to December 31, 1999. We currently have $4.9 million of
outstanding term debt under our existing credit facility with our commercial
bank.
We have funded our operations by cash generated from operations and public
offerings of our common stock. Public stock offerings during June 1996, March
1998 and November 1999 netted for us proceeds of $20.7 million, $53.7 million
and $210.4 million, respectively. Cash provided by operating activities was
$55.3 million for the year
24
ended December 31, 2000, $33.3 million for the year ended December 31, 1999
and $1.2 million for the year ended December 31, 1998. Operating activities
consisted primarily of the net operating income for the year after adding
back various non-cash items such as amortization of goodwill and other
intangibles and charge for acquired in-process technology and depreciation,
increase in accounts payable and other accrued expenses, increase in unearned
revenue and deferred maintenance, all partially offset by increases in
accounts receivable, prepaid expenses and other current assets. Cash used for
investing activities was $220.9 million for the year ended December 31, 2000,
$38.6 million for the year ended December 31, 1999 and $6.4 million for the
year ended December 31, 1998. Investing activities consisted primarily of
capital expenditures and the acquisition of strategic investments. We expect
that our capital expenditures will continue to increase in the future. We
currently estimate that planned capital expenditures for fiscal 2001 will be
approximately $32.0 million. We plan to fund these capital expenditures from
cash provided by operations. Cash provided by financing activities was $38.9
million for the year ended December 31, 2000, $223.2 million for the year
ended December 31, 1999 and $58.8 million for the year ended December 31,
1998. Financing activities consisted primarily of proceeds from the issuance
of stock.
We believe that our existing cash and cash equivalents and our anticipated
cash flows from operations will be sufficient to meet our working capital and
operating resource expenditure requirements for at least the next year.
Thereafter, we may find it necessary to obtain additional equity or debt
financing. In the event additional financing is required, we may not be able to
raise it on acceptable terms or at all. We have 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 $10.0 million of additional
borrowings, based on eligible accounts receivable. As of December 31, 2000 and
1999, outstanding term debt borrowings were $4.9 million and $5.9 million,
respectively. As of December 31, 2000 and 1999, we had no outstanding borrowings
under our revolving line of credit. However, commitments totaling $2.4 million
and $2.8 million, in the form of standby letters of credit were issued under its
revolving line of credit facility as of December 31, 2000 and 1999, respectively
(see Note 7). Commitments totaling $23.0 million in the form of standby letters
of credit were also issued from separate financial institutions as of December
31, 2000.
25
Quarterly Results of Operations
The following tables set forth certain unaudited consolidated statement of
operations data for the eight quarters ended December 31, 2000, as well as that
data expressed as a percentage of our total revenues for the periods indicated.
This data has been derived from unaudited consolidated financial
statements that, in the opinion of management, include all adjustments
consisting only of normal recurring adjustments, necessary for a fair
presentation of such information when read in conjunction with the Consolidated
Financial Statements and Notes thereto.
The unaudited quarterly information should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included elsewhere herein on
this Form 10-K. We believe that period-to-period comparisons of our financial
results are not necessarily meaningful and should not be relied upon as an
indication of future performance.
Three Months Ended
---------------------------------------------------------------------------------------------------
Dec. 31, Sep. 30, June 30, Mar. 31, Dec. 31, Sep. 30, June 30, Mar. 31,
2000 2000 2000 2000 1999 1999 1999 1999
--------- --------- --------- --------- --------- --------- --------- ---------
(dollars in thousands)
Statement of Operations
Data:
Revenues:
Software licenses ......... $ 80,926 $ 72,351 $ 56,848 $ 40,713 $ 28,161 $ 18,954 $ 15,484 $ 12,783
Services .................. 55,951 47,843 38,496 20,788 15,582 10,877 7,992 5,681
--------- --------- --------- --------- --------- --------- --------- ---------
Total revenues ...... 136,877 120,194 95,344 61,501 43,743 29,831 23,476 18,464
Cost of revenues:
Cost of software licenses . 2,805 1,395 1,563 2,064 1,243 676 1,037 747
Cost of services .......... 37,838 34,015 30,282 15,673 9,994 7,241 4,624 3,321
--------- --------- --------- --------- --------- --------- --------- ---------
Total cost of
revenues ........... 40,643 35,410 31,845 17,737 11,237 7,917 5,661 4,068
Gross profit ................ 96,234 84,784 63,499 43,764 32,506 21,914 17,815 14,396
Operating expenses:
Research and development .. 21,168 14,988 9,706 5,759 4,582 3,816 3,268 2,901
Sales and marketing ....... 64,846 43,799 33,570 25,200 19,012 12,136 10,019 7,665
General and
administrative .......... 9,600 8,198 6,786 3,611 2,969 2,119 1,611 1,271
Goodwill and intangible
amortization ............ 66,089 66,308 55,351 -- -- -- -- --
Charge for acquired
in-process technology ... -- -- 10,100 -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Total operating
expenses ........... 161,703 133,293 115,513 34,570 26,563 18,071 14,898 11,837
--------- --------- --------- --------- --------- --------- --------- ---------
Operating (loss) income ..... (65,469) (48,509) (52,014) 9,194 5,943 3,843 2,917 2,559
Other, net .................. 1,431 (4,247) (2,857) 842 2,120 651 398 378
--------- --------- --------- --------- --------- --------- --------- ---------
Net (loss) income ........... $ (64,038) $ (52,756) $ (54,871) $ 10,036 $ 8,063 $ 4,494 $ 3,315 $ 2,937
========= ========= ========= ========= ========= ========= ========= =========
As a Percentage of Revenues:
Revenues:
Software licenses ......... 59% 60% 60% 66% 64% 63% 66% 69%
Services .................. 41 40 40 34 36 37 34 31
--------- --------- --------- --------- --------- --------- --------- ---------
Total revenues ...... 100 100 100 100 100 100 100 100
Cost of revenues:
Cost of software licenses . 2 1 1 3 3 2 4 4
Cost of services .......... 28 28 32 26 23 24 20 18
--------- --------- --------- --------- --------- --------- --------- ---------
Total cost of
revenues ........... 30 29 33 29 26 26 24 22
Gross profit ................ 70 71 67 71 74 74 76 78
Operating expenses:
Research and development .. 16 13 10 9 10 13 14 16
Sales and marketing ....... 47 36 35 41 44 41 43 41
General & administrative .. 7 7 7 6 7 7 7 7
Goodwill and intangible
amortization ............ 48 55 58 -- -- -- -- --
Charge for acquired
in-process technology ... -- -- 11 -- -- -- -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Total operating
expenses ........... 118 111 121 56 61 61 64 64
--------- --------- --------- --------- --------- --------- --------- ---------
Operating (loss) income ..... (48) (40) (54) 15 14 13 12 14
Other, net .................. 1 (4) (3) 1 5 2 2 2
--------- --------- --------- --------- --------- --------- --------- ---------
Net (loss) income ........... (47)% (44)% (57)% 16% 19% 15% 14% 16%
========= ========= ========= ========= ========= ========= ========= =========
Our quarterly operating results have fluctuated in the past and may
fluctuate significantly in the future as a result of a variety of factors, many
of which are outside of our control. It is likely that our operating results in
one or more future quarters may be below the expectations of securities analysts
and investors. In that event, the trading price of our common stock almost
certainly would decline.
26
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standard, or 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, we adopted 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 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. We do not
believe that the adoption of SFAS No. 133 will have a significant impact on our
consolidated financial statements or related disclosures. In June 2000, the FASB
issued Statement No. 138, Accounting for Certain Derivative Instruments and
Certain Hedging Activities. FASB Statement No. 138 addresses certain issues
related to the implementation of SFAS No. 133, but does not change the basic
model of SFAS No. 133 or further delay the implementation of SFAS No. 133.
In December 1999, the Securities and Exchange Commission, or SEC, issued
Staff Accounting Bulletin No. 101, or 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. We adopted SAB
101 during the fourth quarter of 2000, as required. There was no material effect
on our financial position or results of operations as a result of the adoption
of SAB 101.
In March 2000, the FASB issued Interpretation No. 44, or FIN 44,
Accounting for Certain Transactions Involving Stock Compensation-an
Interpretation of APB 25. This Interpretation clarifies (a) the definition of
employee for purposes of applying Opinion 25, (b) the criteria for determining
whether a plan qualifies as a non-compensatory plan, (c) the accounting
consequence of various modifications to the terms of a previously fixed stock
option or award and (d) the accounting for an exchange of stock compensation
awards in a business combination. This Interpretation became effective July 1,
2000, but certain conclusions in this Interpretation cover specific events that
occur after either December 15, 1998 or January 12, 2000. However, before the
effective date of July 1, 2000, the effects of applying this Interpretation are
recognized on a prospective basis from July 1, 2000. We adopted FIN 44
27
in July,2000. There was no material effect on our financial position or results
of operations as a result of the adoption of FIN 44.
RISK FACTORS
The risks and uncertainties described below are not the only ones facing
us. Additional risks and uncertainties not presently known to us or that we
currently deem immaterial also may impair our business operations. If any of the
following risks actually occur, our business could be harmed. In that event, the
trading price of our common stock could decline.
Risks related to our business
Fluctuations in our quarterly operating results may cause our stock price
to decline and make it difficult for us to forecast quarterly revenue and
operating results.
Our quarterly operating results have fluctuated in the past and may
fluctuate significantly in the future as a result of a variety of factors, many
of which are outside of our control. It is likely that our operating results in
one or more future quarters may be below the expectations of securities analysts
and investors. In that event, the trading price of our common stock almost
certainly would decline.
Factors that may affect our quarterly operating results include the
following:
o the timing of introductions or enhancements of our
products and services or our competitors;
o timing of receipt and fulfillment of significant orders;
o market acceptance of new products;
o the mix of products sold by us;
o changes in our pricing policies or our competitors;
o changes in our sales incentive plans;
o the budgeting cycles of our customers;
o customer order deferrals in anticipation of new products
or enhancements by us or our competitors or because of
macro-economic conditions
o nonrenewal of our service agreements, which generally
automatically renew for one-year terms unless earlier
terminated by either party upon 90-days notice;
o product life cycles;
o changes in strategy;
o seasonal trends;
o the mix of distribution channels through which our
products are sold;
o the mix of international and domestic sales;
o the rate at which new sales people become productive;
and
o changes in the level of operating expenses to support
projected growth.
Due to these and other factors, it is difficult to accurately forecast our
quarterly revenues and operating results. We believe that period-to-period
comparisons of our operating results may not be meaningful and you should not
rely upon them as any indication of our future performance.
Our future financial performance is largely dependent on the successful
upgrading of our current products and introduction of new products.
Our future financial performance will depend, in significant part, on the
successful development and sale of new and enhanced versions of our BroadVision
One-To-One application products and other new products. We may be unable to
upgrade and continue to market the BroadVision One-To-One application products.
We may be unable to successfully develop new products and new products may not
achieve market acceptance.
28
Our sales may be subject to macro-economic conditions that could have an
effect on the willingness of our customers and prospects to make large capital
spending decisions.
The average size of transactions involving the licensing of our products
is over $400,000 and has increased over the last few years. The current
macro-economic forecast for the United States and some other countries indicate
an economic slowdown. Many customers and prospective customers have issued
public announcements regarding workforce reductions and spending controls in
response to this slowdown. Because of these corporate pronouncements and
economic conditions, our customers and prospects may defer large capital
spending decisions that, in turn, could result in shortfalls in our revenue and
operating result expectations.
Our lengthy sales and product implementation cycles could cause delays in
revenue recognition and make it difficult to predict ours quarterly results.
Our sales and product implementation cycles are subject to delays over
which we have little or no control. These delays can affect the timing of
revenue recognition and make it difficult to predict our quarterly results.
Licensing the BroadVision One-to-One application products is often an
enterprise-wide decision by prospective customers. The importance of this
decision requires that we engage in a lengthy sales cycle with prospective
customers. During the sales process, we provide a significant level of education
regarding the uses and benefits of our products. Once the decision has been made
to implement our products, our customers or our BroadVision Global Services
consultants then must commit significant resources over an extended period of
time. Slowdowns in general economic conditions may result in decisions by
customers to defer decisions to purchase our products. Delays in license
transactions due to unusually lengthy sales cycles could cause our operating
results to vary significantly from quarter to quarter.
The market for our products and services is in its early stages of
development and may fail to mature into a sustainable market.
Our products and services facilitate online commerce and communication
over public and private networks. The market for these products and services is
in its early stages of development and is rapidly evolving. A viable market may
fail to emerge or be sustainable. We cannot predict the level of demand for and
market acceptance of our products and services, especially because acquisition
of our products and services requires a large capital or other significant
resource commitment. If the market for our products and services does not
continue to mature, we will be unable to execute successfully our business plan.
Adoption of electronic commerce and knowledge management, particularly by those
individuals and companies that have historically relied upon traditional means
of commerce and communication, will require a broad acceptance of new and
different methods of conducting business and exchanging information. Our future
revenues and profits will substantially depend on the Internet being accepted
and widely used for commerce and communication. If Internet commerce does not
continue to grow or grows more slowly than expected, our future revenues and
profits may not meet our expectations or those of analysts. In the emerging
marketplace of Internet commerce, our products and services involve a new
approach to the conduct of online business. As a result, intensive marketing and
sales efforts may be necessary to educate prospective customers regarding the
uses and benefits of our products and services, thereby generating demand.
Companies that have already invested substantial resources in other methods of
conducting business may be reluctant to adopt a new approach that may replace,
limit or compete with their existing systems. Similarly, purchasers with
established patterns of commerce may be reluctant to alter those patterns or may
otherwise resist providing the personal data necessary to support our consumer
profiling capability. In addition, the security and privacy concerns of existing
and potential online purchasers may inhibit the growth of online business
generally and the market's acceptance of our products and services in
particular. Accordingly, a viable market for our products and services may not
emerge or be sustainable.
Our success is substantially dependent on revenues from our BroadVision
One-to-One Enterprise product suite and related services.
To date, substantially all of our revenues have been attributable to
license sales of the BroadVision One-To-One Enterprise product and related
packaged application products and associated services. We currently expect these
products and services to account for most of our future revenues. The inability
of our customers to successfully develop and deploy an online marketplace using
BroadVision One-To-One application products could damage our reputation and
cause a loss of customers. In addition, factors negatively affecting the pricing
of or demand for the BroadVision One-To-One application products, such as
increased competition or rapid technological change, could cause our revenues to
decline.
29
We have substantially expanded our business and operations and will need
to manage and support this expansion effectively in order for our business plan
to succeed.
We have substantially expanded our business and operations since our
inception in 1993; in particular, we grew from 652 employees at the end of
1999 to 2,412 employees at the end of 2000. If we are unable to support this
growth effectively, we may have to divert additional resources away from
executing our business plan and toward internal administration. Our past
expansion has placed significant demands on our administrative, operational,
financial and other resources. If our revenues do not increase in proportion
to our operating expenses, our management systems do not expand to meet
increasing demands or our management otherwise fails to support our expansion
effectively, our business plan may not succeed.
We are dependent on direct sales personnel and third-party distribution
channels to achieve revenue growth.
To date, we have sold our products primarily through our direct sales
force. Our ability to achieve significant revenue growth in the future largely
will depend on our success in recruiting and training sufficient direct sales
personnel and establishing and maintaining relationships with distributors,
resellers and systems integrators. Our products and services require a
sophisticated sales effort targeted at the senior management of our prospective
customers. New hires as well as employees of our distributors, resellers and
systems integrators require training and take time to achieve full productivity.
Our recent hires may not become as productive as necessary, and we may be unable
to hire sufficient numbers of qualified individuals in the future. We have
entered into strategic alliance agreements with partners, including
Hewlett-Packard Company, under which partners have agreed to resell and support
our current BroadVision One-to-One product suite. These contracts are generally
terminable by either party upon 30 days' notice of an uncured material breach.
Termination of the Hewlett-Packard or other similar alliances could harm our
expected revenues. We may be unable to expand our other distribution channels,
and any expansion may not result in revenue increases. If we fail to expand our
direct sales force or other distribution channels, our revenues may not grow or
they may decline.
Our customers may rely on third-party systems integrators for the success
of online marketplaces.
Our current and prospective customers may rely on third-party systems
integrators to develop, deploy and manage online marketplaces. If we are unable
to adequately train these systems integrators who, as a result, ineffectively
assist customers with their online marketplaces, our reputation may be harmed
and we may lose customers. In addition, if for any reason a large number of
these integrators adopt a different product or technology instead of the
BroadVision One-To-One application products, sales of these products may not
grow or they may decline.
We are susceptible to numerous risks associated with international
operations.
Our international activities expose us to numerous additional risks. In
the year ended December 31, 2000, approximately 32% of our revenues were derived
from sales outside of North America. We have twenty six offices in Europe and
Asia and two offices in Australia. A key component of our business strategy is
to expand our international activities.
As we continue to expand internationally, we will be increasingly subject
to risks of doing business internationally, including:
o unexpected changes in regulatory requirements;
o export controls relating to encryption technology and
other export restrictions; o tariffs and other trade
barriers;
o difficulties in staffing and managing foreign
operations;
o political and economic instability;
o fluctuations in currency exchange rates; o reduced
protection for intellectual property rights in some
countries;
o cultural barriers;
30
o seasonal reductions in business activity during the
summer months in Europe and certain other parts of the
world; and
o potentially adverse tax consequences.
Our international sales growth will be limited if we are unable to
establish additional foreign operations, expand international sales channel
management and support, hire additional personnel, customize products for local
markets and develop relationships with international service providers,
distributors and system integrators. Even if we are able to successfully expand
our international operations, we may not succeed in maintaining or expanding
international market demand for our products.
Our products are especially susceptible to product defects because they
are complex.
Sophisticated software products, like those sold by us, may contain
undetected errors that will not become apparent until after the products are
introduced or when the volume of provided services increases. It is possible
that, despite testing by us and our prospective customers, errors will be found
in our products. Product defects could result in all or any of the following
consequences to our business:
o loss of revenues;
o delay in market acceptance;
o diversion of development resources;
o damage to our reputation; or
o increased service and warranty costs.
Because a significant portion of our sales activity occurs at the end of
each fiscal quarter, delays in a relatively small number of license transactions
could adversely affect our operating results for the quarter.
Like most software companies, a significant proportion of our sales are
concentrated near the end of each fiscal quarter. Gross margins are high for our
license transactions. Customers and prospective customers are aware of these
facts and use these conditions in an attempt to obtain concessions. While we
have consistently avoided making concessions that could result in lower margins,
the tactic often results in delays in the closing of license transactions. Small
delays in a relatively small number of license deals could have a significant
impact on our reported operating results for that quarter.
Current and potential competitors could make it difficult for us to
acquire and retain customers now and in the future.
If we fail to compete successfully with current or future competitors, we
may lose market share. The market for e-business solutions is rapidly evolving
and intensely competitive. Our customers' requirements and the technology
available to satisfy those requirements will continually change. We expect
competition in this market to persist and increase in the future. Our primary
competition currently includes:
o in-house development efforts by prospective customers or
partners;
o other vendors of application software or application
development platforms and tools directed at interactive
commerce and financial services, such as Allaire, Ariba,
Art Technology Group Inc., Blue Martini, CommerceOne,
InterWorld Corporation, Open Market, Inc., Oracle,
Plumtree, Siebel and Vignette Corporation;
o Web content developers that develop custom software or
integrate other application software into custom
solutions;
o International Business Machines Corporation; and
o Microsoft Corporation.
The principal competitive factors affecting the market for our products
are:
o Depth and breadth of functionality offered;
o Ease of application development;
o Availability of knowledgeable developers;
o Time required for application development;
o Reliance on industry standards;
31
o Product reliability;
o Proven track record;
o Scalability;
o Maintainability;
o Personalization and other features;
o Product quality;
o Price; and
o Customer support.
Compared to us, many of these and other current and future competitors
have longer operating histories and significantly greater financial,
technical, marketing and other resources. As a result, they may be able to
respond more quickly to new or changing opportunities, technologies and
customer requirements. Many of these companies also can use their greater
name recognition and more extensive customer base to gain market share at our
expense. Competitors may be able to undertake more extensive promotional
activities, adopt more aggressive pricing policies and offer more attractive
terms to purchasers. Current and potential competitors may bundle their
products to discourage users from purchasing our products. In addition,
competitors have established or may establish cooperative relationships among
themselves or with third parties to enhance their products. Accordingly, it
is possible that new competitors or alliances among competitors may emerge
and rapidly acquire significant market share. Competitive pressures may make
it difficult for us to acquire and retain customers and may require us to
reduce the price of our products. We may be unable to compete successfully
with current or new competitors.
Our success and competitive position will depend on our ability to
protect our proprietary technology.
Our success and ability to compete are dependent to a significant
degree on our proprietary technology. Although we hold a U.S patent, issued
in January 1998, on elements of the BroadVision One-To-One Enterprise
product, this patent may not provide an adequate level of intellectual
property protection. In addition, litigation like the lawsuit we filed
against Art Technology Group, which was settled in February 2000, may be
necessary in the future to enforce our intellectual property rights, to
protect our trade secrets, to determine the validity and scope of the
proprietary rights of others, or to defend against claims of infringement or
invalidity. We cannot guarantee that infringement or other claims will not be
asserted or prosecuted against us in the future, whether resulting from our
intellectual property or licenses from third parties. Claims or litigation,
whether successful or unsuccessful, could result in substantial costs and
diversions of resources, either of which could harm our business.
We also rely on copyright, trademark, service mark, trade secret laws and
contractual restrictions to protect our proprietary rights in products and
services. We have registered "BroadVision" and "BroadVision One-To-One" as
trademarks in the United States and in other countries. It is possible that
our competitors or other companies will adopt product names similar to these
trademarks, impeding our ability to build brand identity and possibly
confusing customers.
As a matter of company policy, we enter into confidentiality and
assignment agreements with our employees, consultants and vendors. We also
control access to and distribution of our software, documents and other
proprietary information. Notwithstanding these precautions, it may be
possible for an unauthorized third party to copy or otherwise obtain and use
our software or other proprietary information or to develop similar software
independently. Policing unauthorized use of our products will be difficult,
particularly because the global nature of the Internet makes it difficult to
control the ultimate destination or security of software and other
transmitted data. The laws of other countries may afford us little or no
effective protection of our intellectual property.
A breach of the encryption technology that we use could expose the company
to liability and harm our reputation, causing a loss of customers.
If any breach of the security technology embedded in our products were to
occur, we would be exposed to liability and our reputation could be harmed,
which could cause us to lose customers. A significant barrier to online commerce
and communication is the secure exchange of valuable and confidential
information over public networks. We rely on encryption and authentication
technology, including public key cryptography technology licensed from RSA
Security Inc., to provide the security and authentication necessary to effect
the secure exchange of confidential information. Advances in computer
capabilities, new discoveries in the field of cryptography or other events or
developments could cause a breach of the RSA or other algorithms that we use to
protect customer transaction data.
We could be subject to claims of intellectual property infringement, which
could divert management resources, cause product delays or require that we enter
into licensing or royalty agreements.
Third parties may claim that we have infringed their patent, trademark,
copyright or other proprietary rights. It is also possible that claims will be
made for indemnification resulting from allegations of infringement. In
addition, intellectual property infringement claims may be asserted against us
as a result of the use by us, our customers or other third parties of our
products for the transmission, dissemination or display of information on the
Internet. Any claims, with or without
32
merit, could be time consuming, costly, cause product shipment delays or require
that we enter into royalty or licensing agreements. These licenses might not be
available on reasonable terms, or at all.
The loss or malfunction of technology licensed from third parties could
delay the introduction of our products and services.
We rely in part on technology that we license from third parties,
including relational database management systems from Oracle, Sybase, and
Informix object request broker software from IONA Technologies PLC, database
access technology from Rogue Wave Software Inc. and other software. We
integrate or sublicense this technology with internally developed software to
perform key functions. For example, our products and services incorporate
data encryption and authentication technology licensed from RSA. Third-party
technology licenses might not continue to be available to us on commercially
reasonable terms, or at all. Moreover, the licensed technology may contain
defects that we cannot control. The loss of any of these technology licenses
could cause delays in introducing our products or services until equivalent
technology, if available, is identified, licensed and integrated. Delays in
introducing our products and services could harm our business.
Our executive officers, key employees and highly skilled technical and
managerial personnel are critical to our business, and they may not remain with
us in the future.
Our performance substantially depends on the performance of our
executive officers and key employees. We also rely on our ability to retain
and motivate qualified personnel, especially our management and highly
skilled development teams. The loss of the services of any of our executive
officers or key employees, particularly our founder and Chief Executive
Officer, Dr. Pehong Chen, could cause us to incur increased operating
expenses and divert senior management resources in searching for
replacements. The loss of their services also could harm our reputation if
our customers were to become concerned about our future operations. We do not
carry "key person" life insurance policies on any of our employees. Our
future success also depends on our continuing ability to identify, hire,
train and retain other highly qualified technical and managerial personnel.
Competition for these personnel is intense, especially in the Internet
industry. We have in the past experienced, and may continue to experience,
difficulty in hiring and retaining sufficient numbers of highly skilled
employees.
If we are unable to meet the rapid technological changes in online
commerce and communication, our products and services may fail to be
competitive.
Our products and services may fail to be competitive if we do not maintain
or exceed the pace of technological developments in Internet commerce and
communication. The information services, software and communications industries
are characterized by rapid technological change, changes in customer
requirements, frequent new product and service introductions and enhancements
and evolving industry standards and practices. The introduction of products and
services embodying new technologies and the emergence of new industry standards
and practices can render existing products and services obsolete. Our future
success will depend, in part, on our ability to:
o develop leading technologies;
o enhance our existing products and services;
o develop new products and services that address the
increasingly sophisticated and varied needs of our prospective
customers; and
o respond to technological advances and emerging industry
standards and practices on a timely and cost-effective basis.
Internet commerce technology is complex and new products and enhancements
can require long development periods. If we are unable to develop and introduce
new products and services or enhancements in a timely manner in response to
changing market conditions or customer requirements, or if new products and
services do not achieve market acceptance, our business may fail to be
competitive.
Limitations on the online collection of profile information could impair
the effectiveness of our products.
Online users' resistance to providing personal data and laws and
regulations prohibiting use of personal data gathered online without express
consent or requiring businesses to notify their Web site visitors of the
possible dissemination of their personal data could limit the effectiveness of
our products.
33
One of the principal features of the BroadVision One-To-One application
products is the ability to develop and maintain profiles of online users to
assist business managers in determining the nature of the content to be provided
to these online users. Typically, profile information is captured when
consumers, business customers and employees visit a Web site and volunteer
information in response to survey questions concerning their backgrounds,
interests and preferences. Profiles can be augmented over time through the
subsequent collection of usage data.
Although BroadVision One-To-One products are designed to enable the
development of applications that permit Web site visitors to prevent the
distribution of any of their personal data beyond that specific Web site,
privacy concerns may nevertheless cause visitors to resist providing the
personal data necessary to support this profiling capability. The mere
perception by prospective customers that substantial security and privacy
concerns exist among online users, whether or not valid, may indirectly
inhibit market acceptance of our products. In addition, new laws and
regulations could heighten privacy concerns by requiring businesses to notify
Web site users that the data captured from them while online may be used by
marketing entities to direct product messages to them.
We are subject to increasing regulation at the federal and state levels
relating to online privacy and the use of personal user information. Several
states have proposed legislation that would limit the uses of personal user
information gathered online or require online services to establish privacy
policies. In addition, bills pending in Congress would extend online privacy
protections to adults. Laws and regulations of this kind may include
requirements that we establish procedures to disclose and notify users of
privacy and security policies, obtain consent from users for collection and
use of information, or provide users with the ability to access, correct and
delete personal information stored by us. Even in the absence of those
regulations, the Federal Trade Commission has settled several proceedings
resulting in consent decrees in which Internet companies have been required
to establish programs regarding the manner in which personal information is
collected from users and provided to third parties. We could become a party
to a similar enforcement proceeding. These regulatory and enforcement efforts
could also harm our customers' ability to collect demographic and personal
information from users, which could impair the effectiveness of our
BroadVision One-to-One application products.
New and existing laws could either directly restrict our business or
indirectly affect our business by limiting the growth of Internet commerce.
The adoption of any laws or regulations that restrict our methods of
doing business or limit the growth of the Internet could decrease demand for
our products and services and increase our cost of doing business. Today,
there are relatively few laws specifically directed towards online services.
However, due to the increasing popularity of the Internet generally and
Internet commerce specifically, we expect that federal, state or foreign
agencies will enact laws and regulations with respect to the Internet. These new
laws and regulations would be likely to address issues like online user privacy,
pricing, content and quality of products and services. If enacted, these laws
and regulations could limit the market for our products and services.
For example, because our products involve the solicitation of personal
data regarding individual consumers, our business could be limited by laws
regulating the solicitation, collection or processing of this data. The
Telecommunications Act of 1996 prohibits the transmission of some types of
information and content over the Internet. The prohibition's scope and the
liability associated with a Telecommunications Act violation are currently
unsettled. Legislation imposing potential liability upon us for information
carried on or disseminated through our products would likely cause us to
implement costly measures to reduce our exposure to this liability or to
discontinue some of our services.
Our business could be harmed by the expense involved in reacting to actual
or potential liability associated with the Telecommunications Act or other
Internet-related laws and regulations. In addition, the increased attention
focused upon liability issues as a result of the Telecommunications Act could
limit the growth of Internet commerce, which could decrease demand for our
products.
The United States government regulates the export of technology, including
encryption technology, which our products incorporate. Export regulations,
either in their current form or as may be subsequently enacted, may limit our
ability to distribute our software outside the United States. Any revocation or
modification of our export authority or adoption of new laws or regulations
relating to the export of software and encryption technology could limit our
international operations. The unlawful export of our software could also harm
our reputation. Although we take precautions against unlawful export of their
software, the global nature of the Internet makes it difficult to effectively
control the distribution of software.
34
The imposition of sales and other taxes on products sold by our customers
over the Internet could have a negative effect on online commerce and, as a
result, on demand for our products.
The imposition of new sales or other taxes could limit the growth of
Internet commerce generally and, as a result, the demand for our products.
Recent federal legislation limits the imposition of state and local taxes on
Internet-related sales. In 1998, Congress passed the Internet Tax Freedom Act,
which places a three-year moratorium on state and local taxes on:
o Internet access, unless the tax was already imposed prior to October
1, 1998; and
o discriminatory taxes on electronic commerce.
There is a possibility that Congress may not renew this legislation in
2001. If Congress chooses not to renew this legislation, state and local
governments would be free to impose taxes on electronically purchased goods.
We believe that, in accordance with current industry practice, most
companies that sell products over the Internet do not currently collect sales or
other taxes on shipments of their products into states or foreign countries
where they are not physically present. However, one or more states or foreign
countries may seek to impose sales or other tax collection obligation on
out-of-jurisdiction companies that engage in electronic commerce.
A successful assertion by one or more states or foreign countries that
companies engaged in electronic commerce should collect sales or other taxes on
the sale of their products over the Internet, even though not physically present
in the state or foreign country, could indirectly reduce demand for our
products.
Our stock price has been and is likely to continue to be highly volatile.
The trading price of our common stock has been and is likely to continue
to be highly volatile. Our stock price is subject to wide fluctuations in
response to a variety of factors, including:
o quarterly variations in operating results;
o announcements of technological innovations;
o announcements of new software or services by us or our competitors;
o changes in financial estimates by securities analysts; or
o other events or factors that are beyond our control.
In addition, the stock market has experienced significant price and volume
fluctuations that have particularly affected the trading prices of equity
securities of many high technology companies. These fluctuations have often been
unrelated or disproportionate to the operating performance of these companies.
Any negative change in the public's perception of the prospects of
Internet or electronic commerce companies could depress our stock price
regardless of our results. Other broad market fluctuations may decrease the
trading price of our common stock. In the past, following declines in the market
price of a company's securities, securities class action litigation has often
been instituted against that company. Litigation could result in substantial
costs and a diversion of management's attention and resources.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Our exposure to market risk for changes in interest rates relates
primarily to our investment portfolio. We had no derivative financial
instruments as of December 31, 2000 and 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 December 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.
35
Cash and Cash Equivalents
We consider all debt securities with remaining maturities of three
months or less at the date of purchase to be cash equivalents. Our cash and
cash equivalents consisted of the following (in thousands):
December 31,
---------------------
2000 1999
-------- --------
Cash $ 43,253 $ 16,945
Money market funds.............. 94,011 125,807
Corporate notes/bonds........... 2,937 -
Government notes/bonds.......... 10,412 -
Commercial paper................ 2,524 137,071
-------- --------
$153,137 $279,823
======== ========
Short-term Investments
Our short-term investments consist of marketable equity and debt
securities that are classified as available-for-sale. Our investment in
marketable equity securities is carried at fair value with related unrealized
gains or losses reported as other comprehensive income, net of tax. As of
December 31, 2000, our investment in marketable equity securities had a fair
value of $3.1 million and a cost basis of $5.0 million. Our debt securities
are carried at fair value. As of December 31, 2000, commercial paper
investments consisted of $11.0 million, corporate notes/bonds of $16.9
million and government bonds/notes of $38.4 million. Short-term investments,
excluding marketable equity securities, had a weighted average remaining
maturity as of December 31, 2000 of approximately three months. Total
short-term investment unrealized losses, net, were $26.0 million, net of tax,
for the year ended December 31, 2000. Total realized gains during fiscal 2000
were $3.6 million and are included in other income in the accompanying
statement of operations.
Concentrations of Credit Risk
Financial assets that potentially subject us to significant concentrations
of credit risk consist principally of cash, cash equivalents, short-term
investments, and trade accounts receivable. We maintain our cash and cash
equivalents and short-term investments with over ten separate financial
institutions. We market and sell our products throughout the world and perform
ongoing credit evaluations of our customers. We generally do not require
collateral on accounts receivable as the majority of our customers are large,
well-established companies. We maintain reserves for potential credit losses but
historically have not experienced any significant losses related to individual
customers or groups of customers in any particular industry or geographic area.
For the year ended December 31, 2000 no one customer accounted for more than 10%
of fiscal year 2000 total revenue. As of December 31, 2000, two customers
individually accounted for more than 10% of our accounts receivable. These
customers accounted for 10% and 11% of accounts receivable, respectively.
Fair Value of Financial Instruments
Our financial instruments consist of cash equivalents, short-term
investments, accounts receivable, accounts payable and debt. We do not have any
derivative financial instruments. We believe the reported carrying amounts of
our financial instruments approximates fair value, based upon the short maturity
of cash equivalents, short-term investments, accounts receivable and payable,
and based on the current rates available to us on similar debt issues.
Long-term Investments
Included in the our long-term investments are investments in debt
securities that are classified as available-for-sale. These securities have
remaining maturities greater than one year from December 31, 2000. These
investments are carried at fair value with related unrealized gains or losses
reported as other comprehensive income, net of tax. As of December 31, 2000, our
long-term investments in debt securities had a fair value of $34.3 million in
corporate bonds/notes and $44.6 million in government bonds/notes. The remaining
weighted average days to maturity as of December 31, 2000 was approximately
twenty three months.
Also included in our long-term investments are equity investments in
public and non-public companies that are accounted for under either the cost
method of accounting or the equity method of accounting. Equity investments
are accounted for under the cost method of accounting when we have a minority
interest and do not have the ability to exercise significant influence. These
investments are classified as available for sale and are carried at fair
36
value when readily determinable market values exist or at cost when such
market values do not exist. Adjustments to fair value are recorded as a
component of other comprehensive income unless the investments are considered
permanently impaired in which case the adjustment is recorded as a component
of other income (expense), net in the consolidated statement of operations.
Equity investments are accounted for under the equity method of accounting
when we have a minority interest and have the ability to exercise significant
influence. These investments are classified as available for sale and are
carried at cost with periodic adjustments to carrying value for our equity in
net income (loss) of the equity investee. Such adjustments are recorded as a
component of other income, net. Any decline in value of our investments,
which is other than a temporary decline, is charged to earnings during the
period in which the impairment occurs.
The total fair value of our cost method long-term equity investments in
public and non-public companies was $19.4 million with a cost basis of $27.3
million. This includes a $750,000 write down of an investment due to an other
than temporary decline in fair value. There was also an additional $250,000
write down of an investment due to an other than temporary decline in fair
value. The total unrealized loss, net, during the year ended December 31,
2000 in our cost method long-term investments was $4.3 million, net of tax.
The total fair value of our equity method long-term investment was $4.4
million as of December 31, 2000. This includes $600,000 of equity in net
losses realized during the twelve months ended December 31, 2000. The equity
in net losses realized is recorded as a component of other income, net in the
accompanying statement of operations.
37
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders of BroadVision, Inc.:
We have audited the accompanying consolidated balance sheets of
BroadVision, Inc. (a Delaware corporation) and subsidiaries as of December
31, 2000 and 1999, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of BroadVision, Inc.
and subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.
Arthur Andersen LLP
San Jose, California
March 30, 2001
38
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders of BroadVision, Inc.:
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of BroadVision, Inc. and subsidiaries for
the year ended December 31, 1998. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of BroadVision, Inc. and subsidiaries for the year ended December 31,
1998, in conformity with accounting principles generally accepted in the United
States of America.
/s/ KPMG LLP
Mountain View, California
January 26, 1999, except as to the section of Note 1
entitled "Stock Splits," which is as of March 13, 2000
39
BROADVISION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
December 31,
-------------------------------
2000 1999
-------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 153,137 $ 279,823
Short-term investments 69,397 68,758
Accounts receivable, less allowance for doubtful accounts of $4,015 and
$1,446 as of December 31, 2000 and 1999, respectively 104,811 26,540
Prepaids and other 17,417 5,085
-------------- --------------
Total current assets 344,762 380,206
Property and equipment, net 76,685 16,751
Deferred tax asset 5,579 --
Long-term investments 102,555 4,414
Goodwill and other intangibles, net 607,501 --
Other assets 5,942 4,757
-------------- --------------
Total assets $ 1,143,024 $ 406,128
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital lease obligations $ 977 $ 1,247
Accounts payable 15,711 5,754
Accrued expenses 53,676 13,156
Unearned revenue 16,330 3,896
Deferred maintenance 42,237 15,228
Deferred income taxes -- 16,769
-------------- --------------
Total current liabilities 128,931 56,050
Long-term debt, net of current portion 3,897 4,890
Other noncurrent liabilities 898 --
-------------- --------------
Total liabilities 133,726 60,940
-------------- --------------
Commitments (Note 7)
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; 270,066 and 244,812 shares issued and
outstanding as of December 31, 2000 and 1999, respectively 27 24
Additional paid-in capital 1,176,042 320,259
Deferred compensation -- (226)
Accumulated other comprehensive (loss) income (4,348) 25,925
Accumulated deficit (162,423) (794)
-------------- --------------
Total stockholders' equity 1,009,298 345,188
-------------- --------------
Total liabilities and stockholders' equity $ 1,143,024 $ 406,128
============== ==============
The accompanying notes are an integral part of these consolidated financial
statements
40
BROADVISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Years Ended December 31,
-----------------------------------
2000 1999 1998
--------- --------- ---------
Revenues:
Software licenses $ 250,838 $ 75,383 $ 36,067
Services 163,078 40,131 14,844
--------- --------- ---------
Total revenues 413,916 115,514 50,911
Cost of revenues:
Cost of software licenses 7,827 3,703 1,001
Cost of services 117,808 25,108 8,704
--------- --------- ---------
Total cost of revenues 125,635 28,811 9,705
--------- --------- ---------
Gross profit 288,281 86,703 41,206
Operating expenses:
Research and development 51,621 14,568 9,227
Sales and marketing 167,415 48,903 26,269
General and administrative 28,195 7,970 3,786
Goodwill and intangible amortization 187,748 -- --
Charge for acquired in-process
technology 10,100 -- --
--------- --------- ---------
Total operating expenses 445,079 71,441 39,282
--------- --------- ---------
Operating (loss) income (156,798) 15,262 1,924
Interest income 16,706 5,142 2,484
Other income (expense), net 1,511 (599) (448)
--------- --------- ---------
(Loss) income before income taxes (138,581) 19,805 3,960
Income tax provision (benefit) 23,048 996 (79)
--------- --------- ---------
Net (loss) income $(161,629) $ 18,809 $ 4,039
========= ========= =========
Basic (loss) earnings per share $ (0.62) $ 0.08 $ 0.02
========= ========= =========
Diluted (loss) earnings per share $ (0.62) $ 0.07 $ 0.02
========= ========= =========
Shares used in computing basic
earnings (loss) per share 259,780 229,128 210,114
========= ========= =========
Shares used in computing diluted
earnings (loss) per share 259,780 260,712 230,877
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements
41
BROADVISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
Common Stock Additional
-------------------------- Paid-in
Shares Amount Capital
----------- ----------- -----------
Balances as of December 31, 1997 183,087 $ 18 $ 40,350
Comprehensive income:
Net income
Unrealized gain on equity securities
Total comprehensive income
Issuance of common stock from public offering,
net of costs 31,104 3 53,742
Issuance of common stock for long-term investments 1,107 -- 1,322
Issuance of common stock from exercise of warrants 261 -- --
Issuance of common stock under employee stock 2,052 -- 1,599
purchase plan
Issuance of common stock from exercise of options 5,697 -- 2,190
Common stock repurchased (144) -- (2)
Deferred compensation forfeited due to voluntary
terminations -- -- (693)
Deferred compensation on stock options -- -- 240
Amortization of deferred compensation -- -- --
----------- ----------- -----------
Balances as of December 31, 1998 223,164 21 98,748
Comprehensive income:
Net income
Unrealized gain on equity securities, net of
$17,318 tax
Total comprehensive income
Issuance of common stock under employee stock 1,833 -- 3,928
purchase plan
Issuance of common stock from exercise of options 10,038 -- 7,201
Issuance of common stock from public offering,
net of offering costs of $2,285 9,315 3 210,376
Issuance of common stock from exercise of warrants 462 -- 6
Amortization of deferred compensation -- -- --
----------- ----------- -----------
Balances as of December 31, 1999 244,812 $ 24 $ 320,259
=========== =========== ===========
Comprehensive loss:
Net loss
Unrealized loss on equity securities, net of
$20,069 tax
Total comprehensive loss
Issuance of common stock under employee stock 1,088 -- 12,155
purchase plan
Issuance of common stock from exercise of 9,692 1 49,561
options, including tax benefits of $22,841
Issuance of common stock in connection with
Interleaf acquisition 14,392 2 789,603
Issuance of warrants for common stock -- -- 1,459
Long-term investment in exchange for common stock 77 -- 3,000
Issuance of common stock from exercise of warrants 5 -- 5
Amortization of deferred compensation -- -- --
----------- ----------- -----------
Balances as of December 31, 2000 270,066 $ 27 $ 1,176,042
=========== =========== ===========
Accumulated
Other Total
Deferred Comprehensive Accumulated Comprehensive Stockholders
Compensation Income (loss) Deficit Income (loss) Equity
------------ ------------- ----------- ------------- ------------
Balances as of December 31, 1997 $ (1,605) $ -- $ (23,642) $ 15,121
Comprehensive income:
Net income 4,039 $ 4,039 4,039
Unrealized gain on equity securities 3,198 3,198 3,198
-----------
Total comprehensive income $ 7,237
===========
Issuance of common stock from public offering,
net of costs -- -- -- 53,745
Issuance of common stock for long-term investments -- -- -- 1,322
Issuance of common stock from exercise of warrants -- -- -- --
Issuance of common stock under employee stock -- -- -- 1,599
purchase plan
Issuance of common stock from exercise of options -- -- -- 2,190
Common stock repurchased -- -- -- (2)
Deferred compensation forfeited due to voluntary
terminations 693 -- -- --
Deferred compensation on stock options (240) -- -- --
Amortization of deferred compensation 597 -- -- 597
----------- ------------ ----------- -----------
Balances as of December 31, 1998 (555) 3,198 (19,603) 81,809
Comprehensive income:
Net income 18,809 $ 18,809 18,809
Unrealized gain on equity securities, net of 22,727 22,727 22,727
$17,318 tax -----------
Total comprehensive income $ 41,536
===========
Issuance of common stock under employee stock -- -- -- 3,928
purchase plan
Issuance of common stock from exercise of options -- -- -- 7,201
Issuance of common stock from public offering,
net of offering costs of $2,285 -- -- -- 210,379
Issuance of common stock from exercise of warrants -- -- -- 6
Amortization of deferred compensation 329 -- -- 329
----------- ------------ ----------- -----------
Balances as of December 31, 1999 $ (226) $ 25,925 $ (794) $ 345,188
=========== ============ =========== ===========
Comprehensive loss:
Net loss (161,629) $ (161,629) (161,629)
Unrealized loss on equity securities, net of (30,273) (30,273) (30,273)
$20,069 tax -----------
Total comprehensive loss $ (191,902)
===========
Issuance of common stock under employee stock -- -- -- 12,155
purchase plan
Issuance of common stock from exercise of -- -- -- 49,562
options, including tax benefits of $22,841
Issuance of common stock in connection with
Interface acquisition -- -- -- 789,605
Issuance of warrants for common stock 1,459
Long-term investment in exchange for common stock 3,000
Issuance of common stock from exercise of warrants -- -- -- 5
Amortization of deferred compensation 226 -- -- 226
----------- ------------ ----------- -----------
Balances as of December 31, 2000 $ -- $ (4,348) $ (162,423) $ 1,009,298
=========== ============ =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements
42
BROADVISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
-----------------------------------
2000 1999 1998
--------- --------- ---------
Cash flows from operating activities:
Net income (loss) $(161,629) $ 18,809 $ 4,039
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 10,477 4,739 2,947
Amortization of deferred compensation 226 329 597
Provision for doubtful accounts 2,687 758 458
Revenue resulting from non-monetary transactions -- -- (2,917)
Amortization of prepaid royalties 1,914 333 250
Amortization of prepaid compensation 1,961 182 --
Realized loss on cost method long-term investments 1,000 -- --
Equity in net loss from unconsolidated subsidiary 572 -- --
Amortization of goodwill and other intangibles 187,748 -- --
Charge for acquired in-process technology 10,100 -- --
Changes in operating assets and liabilities, net of effects from
acquired business:
Income tax benefit from stock option exercises 22,841 -- --
Accounts receivable (68,876) (11,368) (7,036)
Prepaid expenses and other (12,693) (403) (2,716)
Deferred tax asset (5,579) -- --
Accounts payable and accrued expenses 39,262 11,602 3,145
Unearned revenue and deferred maintenance 28,165 10,930 2,633
Increase in other noncurrent assets (2,842) (2,565) (237)
--------- --------- ---------
Net cash provided by operating
Activities 55,334 33,346 1,163
--------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment (67,515) (13,291) (4,198)
Purchase of long-term investments (106,864) (1,414) (3,000)
Maturity of long-term investments 2,952 -- --
Direct costs of acquisition, net of cash acquired (6,039) (3,765) --
Purchase of short-term investments (261,046) (72,783) --
Maturity of short-term investments 217,642 52,667 796
--------- --------- ---------
Net cash used for investing activities (220,870) (38,586) (6,402)
--------- --------- ---------
Cash flows from financing activities:
Net change in restricted cash -- -- 1,400
Proceeds from borrowings -- 3,000 1,424
Repayments of borrowings (1,220) (620) (603)
Payments on capital lease obligations (270) (709) (913)
Proceeds from issuance of warrants for common stock 1,459 -- --
Proceeds from issuance of common stock, net 38,881 221,514 57,532
--------- --------- ---------
Net cash provided by financing activities 38,850 223,185 58,840
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (126,686) 217,945 53,601
Cash and cash equivalents, beginning of period 279,823 61,878 8,277
--------- --------- ---------
Cash and cash equivalents, end of period $ 153,137 $ 279,823 $ 61,878
========= ========= =========
Supplemental cash flow disclosures:
Cash paid for interest $ 554 $ 404 $ 394
========= ========= =========
Cash paid for income taxes $ 1,890 $ 538 $ 428
========= ========= =========
Non-cash investing and financing activities:
Prepaids and other assets acquired through non-monetary
Transactions -- -- 1,250
Investments acquired through non-monetary
Transactions -- -- 4,025
Unearned revenue and deferred maintenance from
non-monetary transactions -- -- 2,358
Equipment acquired under capital leases -- -- 316
Long-term investment acquired in exchange for common
Stock 3,000 -- 1,322
Deferred compensation on stock options -- -- 240
Deferred compensation forfeited due to voluntary
Terminations -- -- 693
In connection with the acquisition of Interleaf, the
following non-cash transaction occurred:
Fair value of assets acquired, including cash (822,562) -- --
Liabilities assumed 26,918 -- --
Issuance of common stock 789,605 -- --
---------
Cash paid for acquisition and acquisition costs $ 6,039 -- --
In connection with the acquisition of Fidutec, the
following non-cash transaction occurred:
Fair value of assets acquired, including cash -- (4,164) --
Liabilities assumed -- 399 --
--------- --------- ---------
Cash paid for acquisition and acquisition costs $ -- $ 3,765 $ --
The accompanying notes are an integral part of these consolidated financial
statements
43
BROADVISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000
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 and
sells an integrated suite of packaged applications for conducting e-business
interactions, transactions and services. Global enterprises and government
entities use these applications to sell, buy, and exchange goods, services, and
information over the Web and on wireless devices. The BroadVision e-business
application suite enables an entity to establish and sustain high-yield
relationships with customers, suppliers, partners, distributors, employees, and
other constituents in the extended enterprise. BroadVision services, supported
by over 190 partner organizations worldwide, transform these applications into
business value for BroadVision's customers through consulting, education, and
support services in more than 34 countries.
Acquisition
On April 14, 2000, the Company completed its acquisition of Interleaf, Inc. and
its subsidiaries ("Interleaf") pursuant to a statutory merger involving a
stock-for-stock exchange. The acquisition was accounted for as a purchase. The
acquired assets and assumed liabilities, and the related results of operations,
are included in the consolidated financial statements of the Company from the
date of acquisition. Net assets were recorded at fair value at the acquisition
date. The excess of the purchase price over the fair value of net assets
acquired is included in goodwill and other intangible assets in the accompanying
consolidated balance sheet. Amounts allocated to in-process technology were
expensed in the period in which the acquisition was consummated; see Note 2.
Basis of Presentation and Use of Estimates
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. The preparation
of consolidated financial statements in conformity with accounting principles
generally accepted in the United States requires management to make certain
assumptions and estimates that affect reported amounts of assets and liabilities
as of the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
estimates.
Revenue Recognition
The Company's revenue recognition policies are in accordance with Statement of
Position ("SOP") 97-2, Software Revenue Recognition, as amended and SOP 98-9,
Software Revenue Recognition, With Respect to Certain Transactions. In general,
software license revenues are recognized 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; professional services revenues are recognized
as such services are performed; and maintenance revenues or post-contract
support ("PCS"), including revenues bundled with software agreements which
entitle the customers to technical support and future unspecified enhancements
to the Company's products, are deferred and recognized ratably over the related
contract period, generally twelve months. Revenues recognized from
multiple-element software arrangements are allocated to each element of the
arrangement based on the fair values of the elements, such as software products,
post contract customer support, installation, or training. The determination of
fair value is based on objective evidence which is specific to the Company. If
evidence of fair value does not exist for all elements of a license agreement
and PCS is the only undelivered element, then all revenue for the license
arrangement is recognized ratably over the term of the agreement as license
revenue. If evidence of fair value of all undelivered elements exists but
evidence does not exist for one or more delivered elements, then revenue is
recognized using the residual method. Under the residual method, the fair value
of the undelivered elements is deferred and the remaining portion of the
arrangement fee is recognized as revenue.
The Company records unearned revenue for software arrangements when cash
has been received from the customer and the arrangement does not qualify for
revenue recognition under the Company's revenue recognition policy. The Company
records accounts receivable for software arrangements when the arrangement
qualifies for revenue recognition and cash or other consideration has not been
received from the customer.
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 adopted SAB 101 during the fourth quarter of 2000, as required. There
was no material effect on the Company's financial position, results of
operations, or cash flows.
Cost of software licenses includes 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. Cost of services consists primarily of
employee-related costs, third-party consultant fees incurred on consulting
projects, PCS and instructional training services.
44
Research and Development and Software Development Costs
Under the criteria set forth in Statement of Financial Accounting
Standards ("SFAS") No. 86, Accounting for the Cost of Computer Software to be
Sold, Leased or Otherwise Marketed, development costs incurred in the research
and development of new software products are expensed as incurred until
technological feasibility in the form of a working model has been established at
which time such costs are capitalized, subject to recoverability. Products are
made available for limited release, concurrent with the achievement of
technological feasibility. Accordingly, software development costs incurred
subsequent to the establishment of technological feasibility have not been
significant, and the Company has not capitalized any software development costs
to date.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense is
included in sales and marketing expense and amounted to $2.9 million, $1.8
million and $47,000 in 2000, 1999 and 1998, respectively.
Prepaid Royalties
Prepaid royalties relating to purchased software to be incorporated and
sold with the Company's software products are amortized as a cost of software
licenses either on a straight-line basis over the remaining term of the royalty
agreement or on the basis of projected product revenues, whichever results in
greater amortization.
Cash and Cash Equivalents
The Company considers all debt securities with remaining maturities of
three months or less at the date of purchase to be cash equivalents. The
Company's cash equivalents consisted of the following (in thousands):
December 31,
---------------------
2000 1999
-------- --------
Cash $ 43,253 $ 16,945
Money market funds.............. 94,011 125,807
Corporate notes/bonds........... 2,937 -
Government notes/bonds.......... 10,412 -
Commercial paper................ 2,524 137,071
-------- --------
$153,137 $279,823
======== ========
Short-term Investments
The Company's short-term investments consist of marketable equity and
debt securities that are classified as available-for-sale. The Company's
investment in marketable equity securities is carried at fair value with
related unrealized gains or losses reported as other comprehensive income,
net of tax. As of December 31, 2000, the Company's investment in marketable
equity securities had a fair value of $3.1 million and a cost basis of $5.0
million. The Company's debt securities are carried at fair value. As of
December 31, 2000, commercial paper investments consisted of $11.0 million,
corporate notes/bonds of $16.9 million and government bonds/notes of $38.4
million. Short-term investments, excluding marketable equity securities, had
a weighted average remaining maturity as of December 31, 2000 of
approximately three months. Total short-term investment unrealized losses,
net, were $26.0 million, net of tax, for the year ended December 31, 2000.
Total realized gains during fiscal 2000 were $3.6 million, and are included
in other income in the accompanying statement of operations.
Concentrations of Credit Risk
Financial assets that potentially subject the Company to significant
concentrations of credit risk consist principally of cash, cash equivalents,
short-term investments, and trade accounts receivable. The Company maintains
its cash and cash equivalents and short-term investments with over ten
separate financial institutions. The Company markets and sells its products
throughout the world and performs ongoing credit evaluations of its
customers. The Company generally does not require collateral on accounts
receivable as the majority of its customers are large, well-established
companies. The Company maintains reserves for potential credit losses but
historically has not experienced any significant losses related to individual
customers or groups of customers in any particular industry or geographic
area. For the years ended December 31, 2000, 1999 and 1998, no one customer
accounted for more than 10% of fiscal year total revenues. As of December 31,
2000, two customers individually accounted for more than 10% of the Company's
accounts receivable. These customers accounted for 10% and 11% of accounts
receivable, respectively. No one customer accounted for more than 10% of the
Company's accounts receivable as of December 31, 1999.
45
Fair Value of Financial Instruments
The Company's financial instruments consist of cash equivalents,
short-term investments, accounts receivable, accounts payable and debt. The
Company does not have any derivative financial instruments. The Company believes
the reported carrying amounts of its financial instruments approximates fair
value, based upon the short maturity of cash equivalents, short-term
investments, accounts receivable and payable, and based on the current rates
available to the Company on similar debt issues.
Long-term Investments
Included in the Company's long-term investments are investments in debt
securities that are classified as available-for-sale. These securities have
remaining maturities greater than one year from December 31, 2000. These
investments are carried at fair value with related unrealized gains or losses
reported as other comprehensive income, net of tax. As of December 31, 2000, the
Company's long-term investments in debt securities had a fair value of $34.3
million in corporate bonds/notes and $44.6 million in government bonds/notes.
The remaining weighted average days to maturity as of December 31, 2000 was
approximately twenty three months.
Also included in the Company's long-term investments are equity
investments in public and non-public companies that are accounted for under
either the cost method of accounting or the equity method of accounting.
Equity investments are accounted for under the cost method of accounting when
the Company has a minority interest and does not have the ability to exercise
significant influence. These investments are classified as available for sale
and are carried at fair value when readily determinable market values exist
or at cost when such market values do not exist. Adjustments to fair value
are recorded as a component of other comprehensive income unless the
investments are considered permanently impaired in which case the adjustment
is recorded as a component of other income (expense), net in the consolidated
statement of operations. Equity investments are accounted for under the
equity method of accounting when the Company has a minority interest and has
the ability to exercise significant influence. These investments are
classified as available for sale and are carried at cost with periodic
adjustments to carrying value for the Company's equity in net income (loss)
of the equity investee. Such adjustments are recorded as a component of other
income, net. Any decline in value of the Company's investments, which is
other than a temporary decline, is charged to earnings during the period in
which the impairment occurs.
The total fair value of the Company's cost method long-term equity
investments in public and non-public companies was $19.4 million with a cost
basis of $27.3 million. This includes a $750,000 write down of an investment
due to an other than temporary decline in fair value. There was also an
additional $250,000 write down of an investment due to an other than
temporary decline in fair value. The total unrealized loss, net, during the
year ended December 31, 2000 in the Company's cost method long-term
investments was $4.3 million, net of tax. The total fair value of the
Company's equity method long-term investment was $4.4 million as of December
31, 2000. This includes approximately $600,000 of equity in net losses
realized during the twelve months ended December 31, 2000. The equity in net
losses realized is recorded as a component of other income, net in the
accompanying statement of operations.
Property and Equipment
Property and equipment are stated at cost and depreciated on a
straight-line basis over their estimated useful lives (two to eight years).
Leasehold improvements are amortized over the corresponding lease term or their
estimated useful lives, whichever is shorter.
Valuation of Long-Lived Assets
In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of", the Company
periodically evaluates the carrying value of long-lived assets and certain
identifiable intangibles for impairment, when events and circumstances indicate
that the book value of an asset may not be recoverable. Recoverability of assets
is measured by a comparison of the carrying amount of an asset to future net
cash flows expected to be generated by the asset. If such assets are considered
to be impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the property and equipment exceeds its fair market
value. No SFAS No. 121 impairment losses have been identified to date.
46
Employee Stock Option and Purchase Plans
The Company accounts for employee stock-based awards in accordance with
the provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations. As such,
compensation expense is recorded on the date of grant only if the current market
price of the underlying stock exceeded the exercise price. Pursuant to SFAS No.
123, Accounting for Stock-Based Compensation, the Company discloses the pro
forma effects of using the fair value method of accounting for stock-based
compensation arrangements.
Stock Splits
On September 29, 1999, the Company's Board of Directors declared a
three-for-one common stock split in the form of a stock dividend for
Stockholders of record as of October 11, 1999. The stock dividend payment date
was October 25, 1999 and the Company's common stock traded ex-dividend starting
October 26, 1999, reflecting the three-for-one stock split.
On February 8, 2000, the Company's Board of Directors declared an
additional 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 additional three-for-one stock split.
The accompanying consolidated financial statements and related financial
information contained herein have been retroactively restated to give effect for
the September 1999 and February 2000 stock splits.
Per Share Information
Basic earnings (loss) per share is computed using the weighted-average
number of shares of common stock outstanding less shares subject to
repurchase. Diluted earnings (loss) per share is computed using the
weighted-average number of shares of common stock outstanding and, when
dilutive, common equivalent shares from outstanding stock options and
warrants using the treasury stock method and shares subject to repurchase.
The following table sets forth the basic and diluted earnings (loss) per
share computational data for the periods presented. Excluded from the
computation of diluted earnings per share for the year ended December 31,
2000, are options and warrants to acquire 34,816,000 shares of common stock
because their effects would be anti-dilutive.
Years Ended December 31,
----------------------------------
2000 1999 1998
----------- -------- --------
(in thousands, except per share amounts)
Net income (loss) for basic and
Diluted earnings (loss) per share ............. $ (161,629) $ 18,809 $ 4,039
=========== ======== ========
Weighted-average common shares
outstanding utilized for basic
earnings (loss) per share ..................... 259,780 229,128 210,114
Weighted-average common equivalent
shares outstanding:
Employee common stock options .............. -- 31,365 20,592
Common stock warrant ....................... -- 219 171
----------- -------- --------
Total weighted-average common and
common equivalent shares outstanding
utilized for diluted earnings (loss) per
share .................................. 259,780 260,712 230,877
=========== ======== ========
Basic earnings (loss) per share ................. $ (0.62) $ 0.08 $ 0.02
=========== ======== ========
Diluted earnings (loss) per share ............... $ (0.62) $ 0.07 $ 0.02
=========== ======== ========
47
Foreign Currency Transactions
The functional currency of the Company's foreign subsidiaries is the U.S.
dollar. Resulting foreign exchange gains and losses are included in the
Consolidated Statements of Operations and, to date, have not been significant.
Comprehensive Income (Loss)
The Company adopted SFAS No. 130, Reporting Comprehensive Income effective
January 1, 1998. SFAS No. 130 establishes standards for the reporting and
disclosure of comprehensive income (loss) and its components. Comprehensive
income (loss) includes all changes in equity during a period except those
resulting from investments by or distributions to owners.
For the years ended December 31, 2000, 1999 and 1998, comprehensive income
(loss) was ($191,902,000), $41,536,000 and $7,237,000, respectively. The
components of other comprehensive income (loss) for these periods relate solely
to unrealized gains and losses on available-for-sale investments.
Reclassifications
Certain prior period balances have been reclassified to conform to the
current period presentation.
Recent Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by SFAS No. 137 and SFAS No.
138, effective for all fiscal quarters of fiscal years beginning after June
15, 2000. Accordingly, the Company will adopt SFAS No. 133 beginning on
January 1, 2001. SFAS No. 133, as amended, 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 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 the Company's consolidated
financial statements or related disclosures.
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 -- Acquired Business:
On April 14, 2000, the Company completed its acquisition of Interleaf,
Inc. and its subsidiaries ("Interleaf") pursuant to a statutory merger involving
a stock-for-stock exchange. Interleaf'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 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'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"), each outstanding share of Interleaf common stock was
exchanged for
48
1.0395 shares of Company 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'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
Net tangible liabilities assumed, excluding
property and equipment .................... (1,041)
Identifiable intangible assets ............ 28,910
In-process technology ..................... 10,100
Goodwill .................................. 765,805
---------
Total ................................... $ 806,670
=========
Based upon the Company's estimates prepared in conjunction with a
third-party valuation consultant, $10.1 million was allocated to acquired
in-process technology and $28.9 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 December 31, 2000, accumulated amortization related to the goodwill and
other intangible assets acquired in the Interleaf acquisition totaled $187.6
million. Goodwill amortization was $180.8 million and other intangible asset
amortization was $6.8 million. The goodwill and other intangible assets are
being amortized over a three-year period.
The Company estimated that $10.1 million of the purchase price for
Interleaf represented acquired in-process technology that had not yet reached
technological feasibility and had no alternative future use. Accordingly,
this amount was immediately charged to expense in the consolidated statements
of operations upon consummation of the acquisition. The value assigned to
acquired in-process technology was the amounts attributable to the efforts of
Interleaf up to the time of acquisition. The amount was estimated through the
application of the "stages of completion" by multiplying the estimated
present value of future cash flows, excluding, cost of completion, by the
percentage of completion of the purchased technology at the time of the
acquisition. The discount rate included a factor that took into account the
uncertainty surrounding the successful development of the acquired in-process
technology.
The following summary, prepared on an unaudited pro forma basis, reflects
the condensed consolidated results of operations for the twelve-month period
ended December 31, 2000 and 1999 assuming Interleaf had been acquired at the
beginning of the periods presented (in thousands, except per share data):
For the twelve months ended
December 31,
--------------------------------------
2000 1999
-------------------- ----------------
Revenue................................. $ 427,579 $ 167,159
Net loss................................ $ (236,519) $ (255,180)
Basic and diluted net loss per share.... $ (0.89) $ (1.06)
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.
On November 24, 1999, the Company acquired all of the registered shares
of Fidutec Information Technology SA for a cash payment of 6,000,000 Swiss
Francs (equivalent U.S. dollar value of $3,765,000, net of cash acquired); of
which 1,200,000 Swiss Francs are held in escrow, subject to employee
retention conditions lasting 12 to 24 months depending on named employees.
The acquisition was accounted for as a purchase. The acquired assets and
assumed liabilities, and the related results of operations, are included in
the consolidated financial statements of the Company from the date of
acquisition. The name of the acquired business has been subsequently changed
to BroadVision Professional Services. The purchase price was allocated based
on fair values as follows (in thousands):
Purchase price, net of cash acquired $ 3,765
Add: fair value of liabilities assumed 399
-------
Total purchase consideration 4,164
Less: fair value allocated to acquired assets 798
-------
Excess of purchase consideration over acquired
assets and assumed liabilities 3,366
Excess allocated to:
Prepaid compensation 2,749
-------
Goodwill $ 617
=======
49
Note 3 -- Property and Equipment (in thousands):
December 31,
--------------------
2000 1999
-------- --------
Furniture and fixtures $ 6,136 $ 2,323
Computer and software 79,020 17,618
Leasehold improvements 12,099 6,903
-------- --------
97,255 26,844
Less accumulated depreciation and
amortization (20,570) (10,093)
-------- --------
$ 76,685 $ 16,751
======== ========
Note 4 -- Accrued Expenses (in thousands):
December 31,
-----------------
2000 1999
------- -------
Employee benefits $ 3,900 $ 1,340
Commissions and bonuses 22,790 6,747
Taxes payable 11,439 1,122
Other 15,547 3,947
------- -------
$53,676 $13,156
======= =======
Note 5 -- Long-term Debt
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 $10.0 million of additional borrowings (based
on eligible accounts receivable, as defined). As of December 31, 2000 and
1999, outstanding term debt borrowings were $4.9 million and $5.9 million,
respectively. Borrowings bear interest at the bank's prime rate (9.50% as of
December 31, 2000). 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 December 31, 2000 and 1999, the Company had no outstanding
borrowings under its revolving line of credit. However, commitments totaling
$2.4 million and $2.8 million, in the form of standby letters of credit were
issued under its revolving line of credit facility as of December 31, 2000 and
1999, respectively. Commitments totaling $23.0 million in the form of standby
letters of credit were also issued from separate financial institutions as of
December 31, 2000 for the Company's various facilities and leasehold
improvements; see Note 7. The Company had no outstanding capital leases as of
December 31, 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's
owned assets. The Company was in compliance with its financial covenants as of
December 31, 2000 and December 31, 1999.
50
NOTE 6 -- INCOME TAXES
The components of income tax provision (benefit) are as follows (in
thousands):
YEARS ENDED DECEMBER 31,
------------------------------
2000 1999 1998
---------- ---------- -------
Current:
Federal $ 20,491 $ 458 $ 192
State 5,149 2 13
Foreign 2,987 536 416
--------- ------ ------
Total current $ 28,627 $ 996 $ 621
Deferred:
Federal (3,160) -- (600)
State (2,419) -- (100)
--------- ------ ------
Total deferred $ (5,579) $ -- $ (700)
--------- ------ ------
$ 23,048 $ 996 $ (79)
========== ====== ======
The differences between the income tax provision (benefit) computed at
the federal statutory rate of 35% and the Company's actual income tax
provision (benefit) for the periods presented are as follows (in thousands):
YEARS ENDED DECEMBER 31,
------------------------------
2000 1999 1998
---------- ---------- -------
Expected income tax provision (benefit) $ (48,503) $ 6,930 $ 1,346
Expected state income taxes (benefit), net of
federal tax benefit (7,621) 853 (58)
Foreign taxes 2,987 (1,009) 416
Alternative minimum tax -- -- 97
Utilization of foreign net operating loss
carryforwards (555) (4,124) (2,471)
Change in valuation allowance -- -- (600)
Foreign losses not benefited 177 -- 988
Non deductible Goodwill and Intangible amortization 76,038 -- --
Write off of acquired In process Technology 4,091 -- --
Research and development tax credits (2,877) (1,492) --
Foreign tax credits (1,412) -- --
Other 723 (162) 203
---------- -------- -------
Income tax provision (benefit) $ 23,048 $ 996 $ (79)
========== ======== =======
The individual components of the Company's deferred tax assets and
liabilities are as follows (in thousands):
DECEMBER 31,
--------------------
2000 1999
--------- --------
Deferred tax assets:
Depreciation and amortization $ 1,490 $ 895
Accrued liabilities 3,751 1,058
Capitalized research and development 1,371 158
Net operating losses 50,470 18,935
Tax credits 14,212 4,190
Other 463 --
Unrealized loss on Marketable securities 4,349 --
--------- --------
Total deferred tax assets 76,106 25,236
Less valuation allowance (63,894) (24,536)
--------- --------
12,212 700
Deferred tax liabilities
State tax liability (1,584) --
Unrealized gain on
Marketable securities -- (17,318)
--------- --------
Net deferred tax asset (liability) $ 10,628 $(16,618)
========= ========
The Company has provided a valuation allowance for a significant portion of
its deferred tax assets as of December 31, 2000. The total valuation
allowance increased $39,358,000 from December 31, 1999 to December 31, 2000.
Approximately $15,010,000 of the increase in the valuation allowance relating
to income tax benefits arising from the exercise of stock options will be
credited directly to stockholders' equity and will not be available to
benefit the income tax provision in any future periods. The remaining
increase in the valuation allowance relates to net operating losses and
credit carryforwards from the Interleaf acquisition. The income tax benefits
arising from the deferred tax assets acquired from Interleaf will be credited
to Goodwill and will not be available to benefit the income tax provision in
any future periods.
As of December 31, 2000, the Company had federal and state net
operating loss carryforwards of approximately $138,400,000 and $22,800,000,
respectively, available to offset future regular and alternative minimum
taxable income. In addition, the Company has federal and state research and
development and foreign tax credit carryforwards of approximately $11,990,000
and $2,222,000 respectively, available to offset future tax liabilities. The
Company's federal net operating loss and tax credit carryforwards expire in
the years 2001 through 2019, if not utilized. The state net operating loss
carryforwards expire in the years 2001 through 2019. The state research and
development credits can be carried forward indefinitely. As of December 31,
2000 the Company's foreign subsidiaries had net operating loss carryforwards
in foreign jurisdictions of approximately $2,500,000 that can be used to
offset future foreign income.
Federal and state tax laws limit the use of net operating loss
carryforwards in certain situations where changes occur in the stock
ownership of a company. An ownership change, as defined, has occurred and,
accordingly, certain of the Company's federal and state net operating loss
carryforwards acquired from Interleaf may be limited in their annual usage.
51
Note 7 -- Commitments
Leases
The Company leases its headquarters facility and its other facilities
under noncancelable operating lease agreements expiring through the year 2013.
Under the terms of the agreements, the Company is required to pay property
taxes, insurance and normal maintenance costs.
A summary of future minimum lease payments is as follows (in thousands):
Operating
Year Ended December 31, leases
----------------------- --------
2001 $ 37,126
2002 36,620
2003 34,842
2004 35,325
2005 35,024
2006 and thereafter 97,802
--------
Total minimum lease payments $276,739
========
Rental expense relating to operating leases was approximately $14,045,000,
$2,716,000, $1,101,000 for the years ended December 31, 2000, 1999 and 1998,
respectively. Minimum sublease payments to be received in the future under
noncancelable subleases total $82,000.
Standby Letter of Credit Commitments
As of December 31, 2000, the Company had various outstanding commitments
in the form of standby letters of credit, $25,380,000 in favor of the Company's
various landlords to secure obligations under the Company's facility leases.
Note 8 -- Stockholders' Equity
Convertible Preferred Stock
As of December 31, 2000, there were no outstanding shares of convertible
preferred stock. The Board of Directors and the stockholders have approved
authorized shares of convertible preferred stock to 10,000,000 shares.
Warrants
As of December 31, 2000, there were warrants outstanding to acquire 86,667
shares of common stock at an average price of $20.84. These warrants were issued
in connection with revenue transactions. The warrants were valued using the
Black-Scholes option-pricing model and revenues recorded net of the fair
value of the warrants.
Common Stock
During April, 2000, the Company completed an acquisition in which it
acquired Interleaf in a stock-for-stock transaction. Please see Note 2, Acquired
Business, to Consolidated Financial Statements.
In September 1999, the stockholders approved an increase to the
Company's authorized number of shares of Common Stock from 50,000,000 to
500,000,000, further, during May 2000, the stockholders approved an increase
in the authorized shares of common stock to 2,000,000,000 shares.
52
During May 2000, the Board of Directors and the stockholders approved an
increase in the aggregate number of shares of common stock available to be
issued under the Company's Equity Incentive Stock Option Plan by 13,125,000
shares. In addition, the Board of Directors approved 6,000,000 shares of common
stock available to be issued under the Company's Non-Officer Stock Option Plan
The Company applies APB Opinion No. 25 and related interpretations when
accounting for its stock option and stock purchase plans. As of December 31,
2000, the Company had reserved 84,000,000 shares of common stock for issuance
under its Equity Incentive Plan. Under this plan, the Board of Directors may
grant incentive or nonqualified stock options at prices not less than 100% or
85%, respectively, of the fair market value of the Company's common stock, as
determined by the Board of Directors, at the date of grant. The vesting of
individual options may vary but in each case at least 20% of the total number of
shares subject to options will become exercisable per year. These options
generally expire ten years after the grant date. When an employee option is
exercised prior to vesting, any unvested shares so purchased are subject to
repurchase by the Company at the original purchase price of the stock upon
termination of employment. The Company's right to repurchase lapses at a minimum
rate of 20% per year over five years from the date the option was granted or,
for new employees, the date of hire. Such right is exercisable only within 90
days following termination of employment. No unvested shares were repurchased by
the Company during the year ended December 31, 2000. As of December 31, 2000,
612,845 shares were subject to repurchase at a weighted-average price of $0.81.
1,438,200 and 2,119,635 shares were subject to repurchase as of December 31,
1999 and 1998, respectively.
The Company's President and Chief Executive Officer ("CEO") has options
to purchase 9,000,000 shares of common stock at an average exercise price of
$3.56 per share. On April 1, 1995, the Company's President and CEO was
granted options to purchase 4,500,000 shares of common stock at an exercise
price of $0.44 per share. These options vest ratably over a 60-month period
commencing on grant whereas the first year is subject to cliff vesting. As of
December 31, 2000, all of the 4,500,000 options were vested. On June 23,
1999, the CEO was granted additional options to purchase 4,500,000 shares of
common stock at an exercise price of $6.67 per share. The options vest
ratably, 20% after year 1 and the remainder ratably over the next 48 months,
over a 60-month period commencing on grant. As of December 31, 2000,
1,350,000 of the 4,500,000 additional options were vested.
Activity in the Company's stock option plan is as follows:
Years ended December 31,
-------------------------------------------------------------------------
2000 1999 1998
---------------------- ---------------------- ----------------------
Weighted- Weighted- Weighted-
Average Average Average
Options Exercise Options Exercise Options Exercise
Fixed Options (000's) Price (000's) Price (000's) Price
- ------------- ------- --------- -------- --------- -------- ---------
Outstanding at beginning of period 39,978 $ 6.36 31,482 $ 0.96 26,163 $0.50
Granted 10,899 30.93 20,565 11.42 14,292 1.52
Exercised (7,378) 1.83 (9,759) 0.71 (5,193) 0.40
Forfeited (3,105) 14.21 (2,310) 1.67 (3,780) 0.64
------ ------- -------
Outstanding at end of period 40,394 $13.23 39,978 $ 6.36 31,482 $0.96
====== ------ ======= =======
Options exercisable at end of period 10,115 $ 5.63 6,195 $ 0.82 7,227 $0.48
====== ------ ======= =======
Weighted-average fair value of options
Granted during the period $28.67 $ 9.36 $0.99
------ ------ =====
53
The following table summarizes stock options outstanding under the plan as
of December 31, 2000:
Outstanding
--------------------------------------------- Exercisable
Weighted-Avg. ----------------------------
Remaining Weighted-Avg. Weighted-Avg.
Range of Options Contractual Life Exercise Options Exercise
Exercise Prices (000's) In Years Price (000's) Price
- --------------- ------------ ---------------- ------------ ------------ -------------
$0.01 -- $ 1.22 8,052 6.33 0.69 4,565 $ 0.59
1.29 -- 4.40 7,857 7.69 2.51 1,891 2.49
4.42 -- 6.67 8,266 8.44 5.85 2,158 5.97
13.55 -- 28.00 8,395 9.25 19.93 992 19.35
29.33 -- 52.83 7,824 8.49 37.50 509 34.41
------ ------
40,394 8.05 13.23 10,115 $ 5.63
====== ======
The Company grants options outside of the Company's stock option plan. The
terms of these options are generally identical to those granted under the
Company's plan. A summary of options outside of the plan is presented below:
Years ended December 31,
----------------------------------------------------------------------------
2000 1999 1998
-------------------- ---------------------- ----------------------
Weighted- Weighted- Weighted-
Average Average Average
Options Exercise Options Exercise Options Exercise
Fixed Options (000's) Price (000's) Price (000's) Price
- ------------- ------- ----- ------- ----- ------- -----
Outstanding at beginning of period 15,657 $ 6.06 6,651 $ 0.47 7,155 $ 0.45
Granted 11,569 23.54 9,405 9.84 -- --
Exercised (2,384) 6.28 (333) 0.74 (504) 0.21
Forfeited (2,544) 13.36 (66) 7.49 -- --
------ ------ -----
Outstanding at end of period 22,298 $14.27 15,657 $ 6.06 6,651 $ 0.47
====== =====
Options exercisable at end of Period 8,210 $ 3.06 5,433 $ 0.45 4,473 $ 0.45
====== =====
Weighted-average fair value of options
granted during the period $31.04 $ 8.06 $ --
====== ====== ======
The following table summarizes stock options, granted outside the plan,
outstanding as of December 31, 2000:
Outstanding
-------------------------------------------------
Weighted-Avg. Exercisable
Remaining -------------------------
Range of Options Contractual Life Weighted-Avg. Options Weighted-Avg.
Exercise Prices (000's) In Years Exercise Price (000's) Exercise Price
- --------------- ------------ ---------------- -------------- --------- --------------
$0.09 -- $0.44 4,950 5.16 $ 0.41 4,950 $ 0.41
0.61 -- 7.16 4,352 5.57 4.19 2,115 2.76
7.22 -- 12.97 5,494 8.68 11.36 932 10.65
13.48 -- 26.88 5,087 9.28 26.68 78 23.24
28.74 -- 50.38 2,415 9.09 41.36 135 40.94
------ -----
22,298 7.47 $14.27 8,210 $ 3.06
====== =====
54
Pro Forma Disclosure
Employee Stock Purchase Plan
As of December 31, 2000, the Company had reserved 9,900,000 shares for
issuance under the Company's Employee Stock Purchase Plan (the "Purchase Plan").
The Purchase Plan permits eligible employees to purchase common stock equivalent
to a percentage of the employee's earnings, not to exceed 15%, at a price equal
to 85% of the fair market value of the common stock at dates specified by the
Board of Directors as provided in the Plan. Under the Purchase Plan, the Company
issued approximately 1,088,000, 1,833,000, and 2,052,000 shares to employees in
the years ended December 31, 2000, 1999 and 1998, respectively. Under SFAS No.
123, compensation cost is recognized for the fair value of the employees'
purchase rights, which was estimated using the Black-Scholes option pricing
model with no expected dividends, an expected life of approximately 7 months,
and the following weighted-average assumptions:
Years ended December 31,
---------------------------
2000 1999 1998
---- ---- ----
Risk-free interest rate 4.50% 6.00% 4.48%
Volatility 136% 97% 112%
The weighted-average fair value of the purchase rights granted in the
years ended December 31, 2000, 1999, and 1998, was $12.87, $3.24, and $0.46,
respectively.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with no expected dividends and the
following weighted-average assumptions:
Years ended December 31,
--------------------------------------
2000 1999 1998
--------- --------- ---------
Expected life 4.4 years 4.1 years 3.0 years
Risk-free interest rate 4.75% 6.55% 4.70%
Volatility 136% 97% 112%
Had compensation cost for the Company's stock option plan and stock
purchase plan been determined consistent with SFAS No. 123, the Company's
reported net income (loss) and net income (loss) per share would have been
changed to the amounts indicated below (in thousands except per share data):
Years ended December 31,
-----------------------------------------
2000 1999 1998
----------- ----------- -----------
Net income (loss):
As reported $ (161,629) $ 18,809 $ 4,039
Pro forma $ (484,587) $ (25,015) $ (1,885)
Basic net income (loss) per share:
As reported $ (0.62) $ 0.08 $ 0.02
Pro forma $ (1.87) $ (0.11) $ (0.01)
Diluted net income (loss) per share:
As reported $ (0.62) $ 0.07 $ 0.02
Pro forma $ (1.87) $ (0.11) $ (0.01)
Note 9 -- Employee Benefit Plan
The Company provides for a defined contribution employee retirement plan
in accordance with section 401(k) of the Internal Revenue Code. Eligible
employees are entitled to contribute up to 20% of their annual compensation,
subject to certain limitations ($10,500 for the year ended December 31, 2000).
Effective January 1, 2000, the Company provided a 50% match for all
employee contributions, up to 6% of the employees' annual compensation
subject to certain limitations ($5,100 per employee for the year ended
December 31, 2000). Employees vest in Company matching contributions based on
years of service with the company, 50% upon the employees' first anniversary
and 100% on the second anniversary and thereafter. The Company contributed
$2.2 million for the year ended December 31, 2000, all of which has been
funded or accrued as of December 31, 2000.
55
Note 10 -- 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 method for determining what information to report is
based on the way that management organizes the operating segments within the
Company for making operational decisions and assessments of financial
performance. The Company's chief operating decision maker is considered to be
the Company's CEO. The CEO reviews financial information presented on a
consolidated basis accompanied by disaggregated information about revenues by
geographic region and by product for purposes of making operating decisions and
assessing financial performance. The Company operates in one segment, electronic
business commerce solutions.
The disaggregated revenue information on a product basis reviewed by the CEO
is as follows (in thousands):
Years Ended December 31,
------------------------------------
2000 1999 1998
--------- --------- -------
Software licenses:
One-To-One Enterprise $ 18,599 $ 14,569 $ 19,303
One-To-One Packaged Solutions 232,239 60,814 16,764
Services 116,928 26,737 9,739
Maintenance 46,150 13,394 5,105
-------- -------- --------
Total Company $413,916 $115,514 $ 50,911
======== ======== ========
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"). In
addition, the sales of the Company's products are promoted through independent
professional consulting organizations known as systems integrators. The Company
provides services worldwide through its BroadVision Global Services Organization
and indirectly through distributors, VARs, ASPs, and systems integrators. The
Company currently operates in three primary geographical territories, NASA,
which includes North and South America, Europe 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's products and
services and geographic revenues is as follows (in thousands):
Years Ended December 31,
------------------------------------------
2000 1999 1998
-------- -------- --------
Revenues:
Americas $281,331 $ 79,323 $ 29,330
Europe 103,611 26,211 16,944
Asia/Pacific 28,974 9,980 4,637
-------- -------- --------
Total Company $413,916 $115,514 $ 50,911
======== ======== ========
December 31,
------------------------------
2000 1999
---------- ----------
Identifiable assets:
Americas $1,102,343 $ 400,858
Europe 33,254 4,122
Asia/Pacific 7,427 1,148
---------- ----------
Total Company $1,143,024 $ 406,128
========== ==========
During the years ended December 31, 2000, 1999 and 1998 no customer
accounted for 10% or more of the Company's revenues.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
56
PART III
Certain information required by Part III is incorporated by reference in this
Report from the Company's definitive proxy statement for its 2001 Annual Meeting
of Stockholders to be filed pursuant to Regulation 14A (the "Proxy Statement").
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
OUR DIRECTORS AND EXECUTIVE OFFICERS AND THEIR AGES AS OF APRIL 1, 2001 ARE
AS FOLLOWS:
NAME Age Position
- ---- --- --------------------------------------
Pehong Chen.......................................... 43 Chief Executive Officer, President and
Chairman of the Board
David L. Anderson (3)................................ 57 Director
Yogen K. Dalal (1)(2)................................ 50 Director
Todd A. Garrett...................................... 59 Director
Koh Boon Hwee (3).................................... 50 Director
Klaus Luft........................................... 59 Director
Carl Pascarella...................................... 58 Director
Randall C. Bolten.................................... 48 Chief Financial Officer and Executive Vice
President, Operations
Chris Grejtak (4).................................... 52 Executive Vice President, Marketing and
Business Development, and Chief Marketing
Officer
Nancy Mills-Turner (5)............................... 48 Executive Vice President and General
Manager, Worldwide Products and Services
Organization
James Thanos (5)..................................... 52 Executive Vice President and General
Manager, Worldwide Field Organization
(1) Dr. Dalal is not standing for re-election of the Board of Directors in
2001.
(2) Members of the Audit Committee - Upon the expiration of Dr. Dalal's term as
a director, he will no longer serve on the Audit Committee.
(3) Members of the Compensation Committee.
(4) Became an executive officer in 2001.
(5) Became an executive officer in 2000.
Set forth below is biographical information for members of the Board of
Directors whose biography information is not provided in Item 1. See Item 1 for
the biographical information of the executive officers.
DAVID L. ANDERSON has served as a director of the Company since November 1993.
Since 1974, Mr. Anderson has been a managing director of Sutter Hill Ventures, a
venture capital investment firm. Mr. Anderson currently serves on the Board of
Directors of Cytel Corporation, Dionex Corporation, and Molecular Devices
Corporation. He holds a B.S. in Electrical Engineering from the Massachusetts
Institute of Technology and an M.B.A. from Harvard University.
YOGEN K. DALAL has served as a director of the Company since November 1993. He
joined Mayfield Fund ("Mayfield"), a venture capital firm, in September 1991 and
has been a general partner of several venture capital funds affiliated with
Mayfield since November 1992. Dr. Dalal holds a B.S. in Electrical Engineering
from the India Institute of Technology, Bombay, and an M.S. and a Ph.D. in
Electrical Engineering and Computer Science from Stanford University. Dr. Dalal
sits on the boards of directors of Nuance Communications, Inc. and TIBCO
Software, Inc.
TODD A. GARRETT has served as director of the Company since January 1999. Mr.
Garrett is currently a private consultant. In 1999, Mr. Garrett retired from
Procter & Gamble Company where he held various key executive positions within
the company since joining it in 1985. These positions included: Vice President,
Asia/Pacific; Vice President, US Beauty Care; Group President, President of
Worldwide Strategic Planning, Beauty Care Products and Senior Vice President. In
October 1996, he was appointed to the post of Chief Information Officer. Mr.
Garrett holds a B.A. from the University of Rochester and an M.B.A. from Xavier
University.
57
KOH BOON HWEE has served as a director of the Company since February 1996. Since
1991, Mr. Koh has been Executive Chairman of the Wuthelam Group of Companies, a
diversified Singapore company with subsidiaries engaged in, among other things,
real estate development, hotel management and high technology. Since 1992, he
has also served as Chairman of the Board of Singapore Telecommunications, Ltd.
Mr. Koh currently serves on the Board of Directors of Excel Machine Tools Ltd.,
Raffles Medical Group Ltd. and Qad Inc. Mr. Koh holds a B.S. in Mechanical
Engineering from the University of London and an M.B.A. from Harvard University.
KLAUS LUFT has served as a director of the Company since February 2000. Mr. Luft
is the founder, owner and President of MATCH (Market Access for Technology
Services GmbH), a private company in Munich, Germany that provides sales and
marketing services to high technology companies. He is also the founder and
Chairman of the supervisory board of Artedona AG, a privately held e-commerce
company established in 1999 and headquartered in Munich. Since August 1990, Mr.
Luft has served as Vice Chairman and International Advisor to Goldman Sachs
Europe Limited. He also serves on the Board of Directors of Dell Computer
Corporation and Sagent Technology Inc. Mr. Luft is a member of the International
Advisory Board of the Business School of International University of Germany.
Mr. Luft received his German Arbitur in Bruchsal, Germany.
CARL PASCARELLA has served as a director of the Company since September 1997.
Since August 1993, Mr. Pascarella has been President and Chief Executive Officer
of Visa USA. From January 1983 to August 1993, he was Assistant Chief General
Manager of the Asia-Pacific region of Visa USA. Before joining Visa USA, Mr.
Pascarella was Vice President of the International Division of Crocker National
Bank. He also served as Vice President of Metropolitan Bank at BankersTrust
Company. Mr. Pascarella holds a B.A. from the University of Buffalo and an
M.B.A. from Harvard University.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference from
the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference from
the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference from
the Proxy Statement.
58
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report.
1. Consolidated Financial Statements. The following Consolidated
Financial Statements of the Company are included at Part II, Item 8,
of this Annual Report on Form 10-K.
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 2000 and 1999
Consolidated Statements of Operations for each of the years in the
three-year period ended December 31, 2000.
Consolidated Statements of Stockholders' Equity for each of the years in
the three-year period ended December 31, 2000.
Consolidated Statements of Cash Flows for each of the years in the
three-year period ended December 31, 2000.
Notes to Consolidated Financial Statements
2. Financial Statement Schedule. Attached to this Annual Report on Form
10-K.
Report on Financial Statement Schedule and Consent of Independent
Auditors
Schedule II -- Valuation and Qualifying Accounts
3. Exhibits. The exhibits listed on the accompanying Index to Exhibits
immediately following the consolidated financial statement schedule
are filed as part of, or incorporated by reference into, this Annual
Report on Form 10-K.
(b) Reports on Form 8-K.
1. On January 31, 2000 we filed a Current Report on Form 8-K (File No.
0-28252) as notice of our definitive agreement to acquire Interleaf,
Inc. ("Interleaf") in a stock-for-stock transaction announced on
January 26, 2000.
2. On March 1, 2000 we filed a Current Report on Form 8-K (File No.
0-28252) as notice that the Company effected a three-for-one stock
split in the form of a two-for-one stock dividend on October 11,
1999.
3. On May 1, 2000 we filed a Current Report on Form 8-K (File No.
0-28252) as notice that the Company completed an acquisition of
Interleaf, Inc. ("Interleaf") in a stock-for-stock transaction.
59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in Redwood City, State
of California, on this 30th day of March 2001.
BroadVision, Inc.
By: /s/ Pehong Chen
-------------------------------------
Chairman of the Board, President
And Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Pehong Chen and Randall C. Bolten his
attorney-in-fact, with the power of substitution, for him in any and all
capacities, to sign any amendments to this Report on Form 10-K, and to file the
same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
the said attorneys-in-fact, or his substitute or substitutes, may do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Pehong Chen Chairman of the Board, President March 30, 2001
- ----------------------------------- and Chief Executive Officer
Pehong Chen (Principal Executive Officer)
/s/ Randall C. Bolten Executive Vice President, March 30, 2001
- ----------------------------------- Operations, Chief Financial
Randall C. Bolten Officer (Principal Financial
and Accounting Officer)
/s/ David L. Anderson Director March 30, 2001
- -----------------------------------
David L. Anderson
/s/ Yogen K. Dalal Director March 30, 2001
- -----------------------------------
Yogen K. Dalal
/s/ Todd A. Garrett Director March 30, 2001
- -----------------------------------
Todd A. Garrett
/s/ Koh Boon Hwee Director March 30, 2001
- -----------------------------------
Koh Boon Hwee
/s/ Klaus Luft Director March 30, 2001
- -----------------------------------
Klaus Luft
/s/ Carl Pascarella Director March 30, 2001
- -----------------------------------
Carl Pascarella
60
REPORT ON FINANCIAL STATEMENT SCHEDULE
OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
BroadVision, Inc.:
We have audited in accordance with auditing standards generally
accepted in the United States, the consolidated financial statements of
BroadVision, Inc. and subsidiaries included in this annual report on Form
10-K for the years ended December 31, 2000 and 1999 and have issued our
report thereon dated March 30, 2001. Our audits were made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
schedule, Schedule II, is the responsibility of the Company's management, is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
San Jose, California
March 30, 2001
61
BROADVISION, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Balance at Charged to
Beginning of Costs and Balance at
Period Expenses Deductions (1) End of Period
------------ ---------- -------------- -------------
Year Ended December 31, 2000 $1,446 $2,687 $ 118 $4,015
====== ====== ====== ======
Year Ended December 31, 1999 $ 788 $ 758 $ 100 $1,446
====== ====== ====== ======
Year Ended December 31, 1998 $ 671 $ 458 $ 341 $ 788
====== ====== ====== ======
(1) Represents net charge-offs of specific receivables.
62
BROADVISION, INC.
ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 2000
INDEX TO EXHIBITS
Exhibit Description
- ------- -----------
3.1(1) Amended and Restated Certificate of Incorporation.
3.2(6) Certificate of Amendment of Certificate of Incorporation, dated June
28, 2000.
3.3(1) Amended and restated Bylaws.
4.1(1) References are hereby made to Exhibits 3.1 to 3.2.
4.3(1) Second Amended and Restated Investor's Rights Agreement dated April
15, 1997 among the Company and certain of its stockholders.
10.1(1)(a) Form of Indemnity Agreement between the Company and each of its
directors.
10.2(6)(a) Equity Incentive Plan as amended February 8, 2000 (the "Equity
Incentive Plan").
10.3(1)(a) Form of Incentive Stock Option under the Equity Incentive Plan.
10.4(1)(a) Form of Nonstatutory Stock Option under the Equity Incentive Plan.
10.5(1)(a) Form of Nonstatutory Stock Option (Performance-Based).
10.6(1)(a) 1997 Employee Stock Purchase Plan (the "Employee Stock Purchase
Plan").
10.7(1)(a) Employee Stock Purchase Plan Offering (Initial Offering).
10.8(1)(a) Employee Stock Purchase Plan Offering (Subsequent Offering).
10.9(1)(b) Terms and Conditions dated January 1, 1997 between IONA Technologies
LTD and the Company.
10.10(1) Series D Preferred Stock Option Agreement dated February 27, 1997
between the Company and Pehong Chen.
10.11(1)(a) Stock Option Plan.
10.12(1)(a) Form of Incentive Stock Option under the Stock Option Plan.
10.13(1)(a) Form of Nonstatutory Stock Option under the Stock Option Plan.
10.14(1) Lease dated February 5, 1997 between the Company and Martin/Campus
Associates, L.P.
10.15(2) Loan and Security, dated July 2, 1997, between Silicon Valley Bank
and the Company.
10.16(3) First Amendment to Loan and Security Agreement, dated as of February
5, 1998 between the Company and Silicon Valley Bank.
10.17(4) Agreement and Plan of Merger and Reorganization dated January 26,
2000 among the Company, Infiniti Acquisition Sub, Inc. and Interleaf,
Inc.
10.18(5) 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.
10.19(5) 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.
10.20(5) 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 6, Redwood City,
California.
10.21(5)(a) 2000 Non-Officer Incentive Plan
10.22(6) Building Lease dated March 21, 2000 between VEF III Funding LLC, as
Landlord, and Interleaf, Inc., as Tenant, for premises located at 400
Fifth Avenue, Waltham, Massachusetts.
10.23(6) Amendment, dated April 26, 2000, of lease dated March 21, 2000
between VEF III Funding LLC, as Landlord, and Interleaf, Inc., as
Tenant, for premises located at 400 Fifth Avenue, Waltham,
Massachusetts
21.1 Subsidiaries of the Company.
23.1 Report on Financial Statement Schedule and Consent of KPMG LLP,
Independent Auditors.
23.2 Consent of Arthur Andersen LLP.
24.1 Power of Attorney.
(See page 60)
(1) Incorporated by reference to the Company's Proxy Statement filed on
September 13, 1999.
(2) Incorporated by reference to the Company's 10-Q for the quarter ended
September 30, 1997 filed on November 12, 1997.
63
(3) Incorporated by reference to the Company's Registration Statement on Form
S-3 filed on March 4, 1998.
(4) Incorporated by reference to the Company's Registration Statement on Form
S-4 filed on March 6, 2000.
(5) Incorporated by reference to the Company's 10-Q for the quarter ended
March 31, 2000 filed on May 15, 2000.
(6) Incorporated by reference to the Company's 10-Q for the quarter ended June
30, 2000 filed on August 14, 2000.
(a) Represents a management contract or compensatory plan or arrangement.
(b) Confidential treatment requested.
64