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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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-28252
BROADVISION, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3184303
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
585 Broadway, Redwood City, California 94063
(Address of principal executive offices) (Zip Code)
(650) 261-5100
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 March 24, 2000 the aggregate market value of
the voting stock held by nonaffiliates of the registrant was $16,841,974,970.
As of March 24, 2000, registrant had outstanding 248,359,090 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Proxy Statement for Registrant's 1999 Annual Meeting of
Stockholders to be held May 31, 2000 are incorporated by reference in Part III
of this Form 10-K Report.
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BROADVISION, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
Page No.
--------
Part I
Item 1. Business-----------------------------------------------------------------------------------------------3
Item 2. Properties--------------------------------------------------------------------------------------------19
Item 3. Legal Proceedings-------------------------------------------------------------------------------------20
Item 4. Submission of Matters to a Vote of Security Holders---------------------------------------------------20
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters---------------------------------20
Item 6. Selected Consolidated Financial Data------------------------------------------------------------------21
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-----------------22
Item 7A. Quantitative and Qualitative Disclosure About Market Risk--------------------------------------------37
Item 8. Financial Statements and Supplementary Data-----------------------------------------------------------38
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure------------------55
Part III
Item 10. Directors and Executive Officers of the Registrant---------------------------------------------------56
Item 11. Executive Compensation-------------------------------------------------------------------------------56
Item 12. Security Ownership of Certain Beneficial Owners and Management---------------------------------------56
Item 13. Certain Relationships and Related Transactions-------------------------------------------------------56
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K-------------------------------------56
SIGNATURES----------------------------------------------------------------------------------------------------57
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PART I.
ITEM 1. BUSINESS
The following discussion of the Company's business contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including, but not limited to, those
set forth under "Risk Factors" and elsewhere in this Form 10-K.
Overview and Industry Background.......................................................3
The BroadVision Solution...............................................................6
BroadVision Business Strategies........................................................6
Extend and Expand our Leadership in Business-to-Consumer E-Commerce..................6
Become a Recognized Leader in Business-to-Business E-Commerce........................7
Develop New and Enhance Existing Targeted Application Solutions......................7
Enhance our Service and Support Infrastructure.......................................7
Expand and Leverage Alliances with Key Business Partners.............................7
Support Diverse Customer Business Models.............................................8
Grow Our International Presence......................................................8
BroadVision Products...................................................................8
BroadVision One-To-One Packaged Applications.........................................9
BroadVision One-To-One Business Tools...............................................10
Other Products......................................................................11
Product Development.................................................................11
BroadVision Worldwide Professional Services...........................................12
Strategic Services..................................................................12
Interactive Services................................................................12
Content and Creative Services.......................................................12
Technical Support Services..........................................................12
Education Services..................................................................12
BroadVision University..............................................................12
Strategic Alliances...................................................................13
Customers and Markets.................................................................13
Competition...........................................................................15
Technology............................................................................16
Adherence to Industry Standards.......................................................16
Intellectual Property and Other Proprietary Rights....................................18
Employees.............................................................................18
Executive officers..................................................................18
Overview and Industry Background
We develop, market and support application software solutions that
personalize e-business. These solutions enable e-businesses to use the web and
an expanding array of wireless devices as platforms to conduct electronic
commerce, offer online customer self-service and support, deliver targeted
information and provide financial services such as online billing, consumer
banking and brokerage. These capabilities can be provided to all constituents of
the extended enterprise, including customers, suppliers, partners, distributors
and employees.
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The BroadVision One-To-One(TM) applications 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.
Our applications interactively capture Web and wireless visitor profile
information, organize the enterprise's content, dynamically target that content
to each visitor based on easily constructed business rules, deliver stylized
content to the specified device, and execute transactions. We believe the
benefits of these personalized applications include enhanced customer
satisfaction and loyalty, increased business volume, greater brand awareness,
reduced costs to service customers and execute transactions, and enhanced
employee productivity.
BroadVision One-To-One applications are used throughout the world. For
example, over 50 financial institutions in 25 countries use our applications to
personalize financial transactions with their customers.
---------------------------------------------------------------------------------------
Countries Where BroadVision One-To-One Financial is Deployed
---------------------------------------------------------------------------------------
Andorra Czech Israel Luxembourg Sweden
Republic
----------------- ---------------- ------------- ------------------- ------------------
Austria England Italy Malaysia Switzerland
----------------- ---------------- ------------- ------------------- ------------------
Belgium Estonia Japan The Netherlands Taiwan
----------------- ---------------- ------------- ------------------- ------------------
Canada France Korea Singapore Turkey
----------------- ---------------- ------------- ------------------- ------------------
China Germany Kuwait Spain United States
----------------- ---------------- ------------- ------------------- ------------------
Six of the largest Fortune 500 retailers in the United States use our
applications for e-business.
-------------------------------- ------------------------- ------------------
Retailer Fortune 500 Ranking 1999 Revenues
-------------------------------- ------------------------- ------------------
Wal-Mart Stores 3 $139 billion
-------------------------------- ------------------------- ------------------
Sears Roebuck & Co. 15 $41 billion
-------------------------------- ------------------------- ------------------
The Home Depot 32 $30 billion
-------------------------------- ------------------------- ------------------
Federated Stores (Fingerhut) 95 $15 billion
-------------------------------- ------------------------- ------------------
Circuit City 182 $10 billion
-------------------------------- ------------------------- ------------------
Office Max 358 $5 billion
-------------------------------- ------------------------- ------------------
In addition to traditional brick-and-mortar retailers using BroadVision as
their business-to-consumer e-commerce solution, over 140 companies worldwide use
BroadVision applications to customize interactions and transactions between
themselves and their suppliers in a business-to-business environment or to
create online marketplaces where multiple buyers and vendors purchase and sell
goods and services. Among our retail and business-to-business commerce customers
are over 70 recently formed "dot com" companies who have chosen to deploy their
e-businesses using BroadVision. We believe that our customers, particularly
those in Europe, are at the leading edge of deploying applications that display
content and conduct transactions on wireless devices. Additionally,
information-intensive businesses have found our applications to be well-suited
for employee intranet sites, where enterprise information is centralized,
personalized and delivered.
Personalizing Web and Wireless Interactions and Transactions
The Web has changed the nature of business operations and competition by
creating more efficient marketplaces. Since information is now much more readily
available, companies and their customers, suppliers, partners, distributors,
employees and other constituents, have the means to instantaneously share
information, automate business processes and conduct business on a global scale.
However, the sheer volume of information, combined with the constituents'
ability to change vendors at the click of a button on a mouse, has led directly
to the need for differentiation. Personalization through one-to-one relationship
management has become the solution. In the past, personalization of products or
services was often inefficient and expensive for companies which had to rely on
inefficient mass marketing or a costly, direct sales
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model. Moving from these channels to efficient and economical one-to-one
relationship management became possible with the advent of the Web.
With the appropriate applications in place, companies could react to the
informational and self-service needs of individual customers, partners and
employees in real time. More specifically, when the Web was coupled with
personalized e-business applications, business managers were given the ability
to capture visitor profile information, observations and feedback interactively,
and to use rule-driven tools to target, in real time, useful information to
visitors based on this data. One-to-one relationship management allows a company
to use its knowledge of its customers, suppliers, partners, distributors and
employees to personalize interactions and thus strengthen relationships, foster
loyalty, and create and sustain competitive advantage. One-to-one relationship
management provides the foundation for delivering individually tailored
products, services, information, incentives and transactions. Whether a Web or
wireless application is designed primarily for conducting commerce or providing
customer self-service, it offers businesses an opportunity to extend
front-office services or deliver knowledge in a personalized and cost-effective
way to all constituents of the extended enterprise. In particular, business
managers can use advanced technologies to engage in personalized dialogues with
millions of customers, or with just one.
The Next Wave of Web and Wireless Technologies
BroadVision was one of the first companies to pioneer the technologies for
managing personalized customer relationships and high volume online transactions
on the Web. Our scalable, patented technology enabled business managers to
easily define business rules for managing highly complex business processes and
displaying dynamic content in areas such as product and pricing data, financial
policies, promotions and advertising campaigns. We debuted tools that eased Web
site development, introduced real-time control and management of Web sites, and
generated page logic. Not surprisingly, new technology requirements have
surfaced since we first introduced our BroadVision One-To-One(TM) applications
to market in 1995. With our proposed acquisition of Interleaf, we demonstrated
our commitment to XML for creating, publishing, managing, styling and
re-purposing electronic content. The acquisition of Interleaf will also provide
to us WAP and XSL technologies for styling and delivering content to wireless
devices. Our commitment to Java, Enterprise JavaBeans and J2EE is measured by
the signing of a significant co-development and co-marketing agreement with Sun
Microsystems in March 2000, which will result in a new family of Java-based
BroadVision applications. And we are committed to helping customers leverage
their existing back- and front-office applications infrastructure through the
availability of packaged interfaces to a growing number of third-party
applications, including those from Siebel Systems and SAP, as demonstrated by
agreements with both Siebel Systems and STC Technologies to develop interfaces.
The Ascendancy of Packaged Applications
Packaged applications are a proven alternative to in-house or third-party
custom applications development. The trend toward packaged solutions is typical
of business automation software, with the markets for accounting, manufacturing,
human resources and sales force automation systems dominated by packaged
applications. Packaged solutions end a company's dependence on home-grown,
custom-built systems, enabling them to increase the resources available for core
business initiatives. To realize the potential of one-to-one relationship
management, packaged applications must support the following goals:
o Attract, retain and service visitors that range from the casual to the
sophisticated by providing dynamic content, interactive dialogues and
communities of interest in a friendly, easy-to-use Web and wireless
environment;
o Provide non-technical business managers with the ability to define and
modify the application's business rules and content in real time;
o Develop and maintain visitor profiles, observe and remember interactions
and engage in ongoing personalized dialogues while empowering individuals
to control the privacy of their personal data;
o Dynamically target personalized content, products and incentives to
correspond to profile data in order to motivate visitors to interact and
conduct transactions;
o Integrate and interact with back and front office systems to fully
utilize a company's data and information resources;
o Fulfill financial and information transactions with secure electronic
commerce processes; and
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o Offer a consistent end-user experience across multiple constituent touch
points such as wireless devices, including cellular telephones, pagers
and personal digital assistants, or PDAs, interactive voice response
systems and the traditional call center.
The BroadVision Solution
We offer a suite of packaged applications and related services that
personalize e-businesses. The BroadVision One-To-One applications suite enables
companies to capitalize on the Web (internet, intranet and extranet sites) and
wireless devices for selling, marketing and servicing the constituents of their
extended enterprise: customers, suppliers, partners, distributors, employees and
others. Our products enable businesses to organize dynamic profiles of Web site
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.
Surrounding this applications suite is an e-business "ecosystem" created by
over 200 partner firms around the world who ensure our customers' success
through complementary technology, applications, tools and services offerings
that can be used to extend and enhance a BroadVision environment.
We believe our products enhance our customers' revenue opportunities by
enabling them to build long-term relationships. Web and wireless visitors are
engaged by highly personalized real-time interactions, are able to transact
business securely, and are encouraged to remain online and to 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. In
addition, the packaged solution nature of our products decreases our customers'
time to market and allows them to easily manage and expand their Web and
wireless application deployments in a cost-effective manner. Our targeted
applications, BroadVision One-To-One Retail Commerce, BroadVision One-To-One
Business Commerce, BroadVision One-To-One Financial, BroadVision One-To-One
Billing and BroadVision One-To-One Knowledge, have the specific benefits of
addressing personalization needs in the areas of Web commerce, Web financial
services, online billing, and corporate information distribution and
development.
BroadVision Business Strategies
Our objective is to become the leading provider of personalized e-business
applications worldwide. In order to achieve that objective, we have adopted the
following key elements of our strategy:
Extend and Expand our Leadership in Business-to-Consumer E-Commerce. The
BroadVision One-To-One Retail Commerce and Financial applications are widely
used for conducting retail and financial commerce on the Web. The BroadVision
One-To-One Retail Commerce application enjoys 24% market share (ABN AMRO, 1998)
and is used by six of the largest Fortune 500 U.S. retailers. BroadVision
One-To-One Financial is used by over 50 banks in 25 countries around the world
to automate and personalize consumer banking and brokerage transactions.
These applications enable our customers to manage relationships and
transactions with consumers over the Web and wireless devices. We have witnessed
the growth of one-to-one relationship management that allows businesses to
capitalize more fully on the Web and wireless devices as business venues for
interacting and transacting with consumers. We believe that we offer the most
complete solution available today for one-to-one relationship management in a
business-to-consumer environment.
We intend to maintain our strong position and become the standard by which
other business-to-consumer e-commerce applications are measured by:
o continuing to enhance our technology through heavy investment in research
and development activities;
o incorporating industry-leading components into our products;
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o partnering with leading technology and platform providers;
o influencing technology directions via membership on key standard-setting
committees; and
o employing our technology and human resources as a source of ongoing
technological advantage.
Become a Recognized Leader in Business-to-Business E-Commerce. We have nearly
150 customers who have deployed the BroadVision One-To-One applications to
manage relationships between their companies and their suppliers. Some of these
companies in the business-to-business arena are using our applications to build
"exchanges," where many sellers and many buyers come together at a Web site to
buy and sell goods and services. We intend to expand our number of customers,
partnerships and targeted applications for the growing business-to-business
e-commerce market.
Develop New and Enhance Existing 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 offerings we have developed ourselves,
co-developed with partners or licensed third parties to develop. These offerings
include BroadVision One-To-One Billing, developed by BroadVision; a one-to-one
business portal application co-funded and co-developed with Hewlett-Packard that
is shipping in year 2000; and a new family of vertical applications for
industries ranging from automotive to travel that will ship in year 2000. These
vertical applications are developed in conjunction with large system integration
firms partnered with technology vendors; together, we possess the industry
domain knowledge necessary for the creation of these specialized applications.
We will continue to enhance the core BroadVision One-To-One Enterprise
relationship management system that underlies each of our application solutions.
We intend to apply the experience gained from each customer engagement to
enhance our applications and services. Our plan is to host ongoing Technical
Advisory Councils with leading customers and partners to incorporate their
feedback into product planning. We will continue to utilize our expanding
libraries of reusable application objects and templates.
Enhance our Service and Support Infrastructure. Our Worldwide Professional
Services Organization provides a broad range of consulting services in support
of all of our products. This organization provides business application
expertise, technical know-how and product knowledge to complement our products
and to provide solutions that meet customer business requirements. By using our
services, customers are able to build a customized application solution to
maximize the benefits of one-to-one relationship management.
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 services 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. To accelerate the
acceptance of our products, we have developed the BroadVision Partner Program.
The Partner Program is a comprehensively 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 Partner Program operates within a framework of proactive business planning,
revenue targeting initiatives, structured sales enablement and enhanced
BroadVision training 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, marketing and professional consulting services. The Partner
Program assists our partners in growing their business by incorporating our core
competency, personalizing interactions and transactions with a wide range of
constituencies, into a focused execution matrix.
We partner with leading systems integrators, Web technology vendors, creative
agencies, application solution providers/ASPs, value-added resellers,
distributors and consultants. 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.
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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.
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 our Worldwide Professional
Services Organization 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 a partner's. 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 continue to add, worldwide
distribution capabilities with direct or distributor sales personnel in 35
cities and 23 countries worldwide. Our reseller relationship with
Hewlett-Packard has made our suite of products available in over 120 countries.
We intend to continue to certify providers of professional services for our
products in countries where there is customer demand.
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. We currently have available for shipping versions of our BroadVision
One-To-One Enterprise product that support the display of content and interface
in Arabic, Chinese, Hebrew, Japanese, Korean, Slovakian and Turkish as well as
most Western European languages.
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.
BroadVision Products
We offer a suite of personalized e-business applications focused on
empowering business-to-business and business-to-consumer companies to build
relationships and sell online.
Product Category and Name Description
------------------------- -----------
Application Foundation:
BroadVision One-To-One Enterprise The core product. BroadVision One-To-One Enterprise provides the foundation
for rapid development and real-time operation of large-scale, personalized
e-business applications. Each of the following targeted applications
includes and leverages the functionality of BroadVision One-To-One
Enterprise.
Targeted Applications:
BroadVision One-To-One Retail Commerce Packaged application for consumer e-commerce and merchandising.
BroadVision One-To-One Business Commerce Packaged application for business-to-business relationship management and
channel automation.
BroadVision One-To-One Financial Packaged application for rapid creation of personalized consumer financial
services sites.
BroadVision One-To-One Knowledge Packaged application for intranet and extranet information sharing and
collaboration.
BroadVision One-To-One Billing Packaged application for online bill presentment and payment.
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Product Name Product Description
------------ -------------------
BroadVision One-To-One Business Tools:
BroadVision One-To-One Design Center An authoring tool that allows Web designers to quickly and easily build
dynamic Web page templates.
BroadVision One-To-One Command Center A point-and-click tool that allows users to quickly write rules that match
users with content whether they are anonymous or registered.
BroadVision One-To-One Publishing Center A powerful tool for setting content publishing rights, creating approval
workflow and empowering distributed publishing.
BroadVision One-To-One Instant Publisher An intuitive tool that allows casual content developers to publish content
using a Web browser.
BroadVision One-To-One Packaged Applications
We offer a suite of five integrated applications, BroadVision One-To-One
Retail Commerce, BroadVision One-To-One Business Commerce, BroadVision
One-To-One Financial, BroadVision One-To-One Billing and BroadVision One-To-One
Knowledge, which are built on top of BroadVision One-To-One Enterprise, the
application system that serves as the functional core of each targeted
application. These applications are designed to integrate the e-business channel
with a company's existing business infrastructure, providing a consistent view
of the customer and delivering an experience optimized for that customer.
BroadVision One-To-One Enterprise. As the application system on top of which
BroadVision One-To-One applications 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, XML and Javascript.
BroadVision One-To-One Retail Commerce. One-To-One Retail Commerce is a
highly scalable, retail-focused application used by Fortune 500 retailers such
as Sears Roebuck and The Home Depot and by "dot coms" such as Mercata and
Pets.com. It has strong and comprehensive packaged functionality such as
shopping cart, shopping list, search, custom pricing, incentives, advertising,
communities, targeted marketing through Web, email and wireless content
distribution, tax calculation, payment integration and more. It allows dot com
and traditional retailers to target anonymous users on their first visit to
increase the ratio of those who visit a site to those who purchase from a site,
and it enables targeted promotions designed to increase "share" of customer.
BroadVision One-To-One Business Commerce. One-To-One Business Commerce
facilitates online trade between business partners whether they are merchants,
resellers, distributors or manufacturers. Features such as quotes, search,
persistent requisition, contract pricing, purchasing list and contract pricing
allow businesses to automate their channel relationships, reducing order time
and errors. Large-scale business-to-business sellers such as W.W. Grainger,
General Electric and Toshiba use BroadVision One-To-One Business Commerce to
create e-businesses that integrate with structured back-end business system.
BroadVision One-To-One Financial. This financial services application enables
banks, brokerages, mutual fund companies and other financial institutions to
enable their online customers to perform a complete set of secure transactions
within and between accounts. BroadVision One-To-One Financial provides financial
institutions with the ability to deploy quickly customer-centric Web sites that
offer customized interactions, thereby enabling a financial institution to
differentiate itself by enhancing the customer relationship.
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BroadVision One-To-One Knowledge. One-To-One Knowledge is an intranet- and
extranet-focused application that allows employees and partners to easily access
and share information no matter where they are. A strong, secure infrastructure
allows users to see only the content that they are entitled to see. It allows
administrators to finely tune publishing rights on a group or individual basis
so that specific users can be restricted to publishing in specific areas of the
site. Comprehensive workflow allows administrators to see changes before they
are actually published.
BroadVision One-To-One Billing. One-To-One 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. The application is designed for use by direct and aggregate
billers.
Key Capabilities of Our Applications
We designed all of the BroadVision One-To-One applications 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:
Ease of use -- tools designed with graphical user interfaces allowing
non-technical business managers to modify business rules and content in real
time.
Scalability -- robust embedded application server functionality allows
BroadVision One-To-One applications to support large numbers of concurrent
customers and transactions.
Flexible integration -- a comprehensive set of APIs allows integration
with a variety of legacy business systems such as SAP and Peoplesoft, and
custom mainframe systems
Open standards-based architecture -- object-oriented application code
written in C++, 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 meet
specific business requirements. Support for the CORBA standard for
object-oriented computing permits distribution of the application across
multiple processors. This design enables high-volume performance, flexible
application deployment and easy integration with other third-party or legacy
applications.
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.
Multi- platform 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.
Multi-Lingual/Multi-Currency -- 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.
BroadVision One-To-One Business Tools
Our applications are customized and managed using tools that are licensed
separately from the applications. Inherent to the functionality of our
applications is a set of building blocks comprised of customizable components,
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application templates and business rules implemented and managed by these tools
that are instrumental to rapidly build and easily maintain BroadVision
One-To-One applications. A description of our tools products is as follows:
BroadVision One-To-One Design Center. Based on the Macromedia(R)'s
Dreamweaver 2 Web authoring tool, the One-To-One Design Center allows Web
authors and Web application developers faster time to market by shortening the
development cycle. This tool gives Web authors direct access to powerful
personalization and functional components through a series of Dreamweaver
wizards. These wizards generate server-side JavaScript, which is the primary
programming language for our applications. By making simple point-and-click
choices, the Web author can visually construct a complete, dynamic application
without having to write HTML or JavaScript.
BroadVision One-To-One Command Center. One-To-One Command Center allows
business users to change the way users are matched with content through an
intuitive point-and-click interface. With this tool, business managers can
create rules based on profile information, transaction history, session behavior
and other data. They can also develop business rules that evaluate user
information gathered during previous interactions and use it to target products
and services during subsequent interactions. Rules allow business managers to
target users whether they are anonymous or registered, allowing businesses to
increase their browse-to-buy ratio.
BroadVision One-To-One Publishing Center. One-To-One Publishing Center allows
a distributed and remote team of non-technical content experts to manage most
aspects of site content collaboratively, including creating, editing, staging,
producing and archiving. This tool provides personal and shared in-boxes that
enable teams of content creators to collaborate in developing content. A
programming calendar facilitates staging, scheduling and coordination of content
publishing. This tool provides the ability to preview content prior to
publishing, to control access to publishing and to capture content
classification information. It supports content created with HTML editors,
Microsoft Office products and Lotus Domino.
BroadVision One-To-One Instant Publisher. One-To-One Instant Publisher
provides simple, personalized publishing forms, so that employees can publish
content through a Web-based point-and-click interface. Because publishing rights
are tied to their login name and password, publisher profiles remain the same
regardless of where users are physically located.
Other Products
In addition to our products, we have entered into agreements that enable us
to resell third-party software products from Bluegill, Interwoven, IONA
Technologies, Interleaf, 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 was insignificant and constituted less
than 1% of total software product license revenues for each of the years ended
December 31, 1997 and 1998, and approximately 7% for the year ended December 31,
1999.
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.
11
As of December 31, 1999, there were 119 employees in our product development
organization. Our research and development expenses were $7.4 million in the
year ended December 31, 1997, $9.2 million in the year ended December 31, 1998
and $14.6 million in the year ended December 31, 1999.
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 Worldwide Professional Services
Our Worldwide Professional Services Organization provides a broad range of
consulting services in support of all of our products. This organization
provides business application expertise, technical know-how and product
knowledge to complement our products and to provide solutions that meet customer
business requirements. By using our services, customers are able to build a
customized application solution to maximize the benefits of one-to-one
relationship management. A summary of the professional services that we provide
is as follows:
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 software products. Strategic Services
consulting is generally offered on a time and materials basis.
Interactive 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 and application design,
development and implementation. These consultants also provide advanced
technology services focused on application development for custom objects and
templates and database administration and tuning. Interactive Services
consulting is generally offered on a time and materials basis.
Content and Creative Services. This group specializes in content management,
sourcing, workflow processes and user-interface design. The group is made up of
BroadVision One-To- One product design experts and a variety of leading design
houses. This team combines extensive interactive design and marketing experience
to build effective user interfaces. Content and Creative Services consulting is
generally offered on a time and materials basis.
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; Personalized
Support assigns a specific individual to an account. 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. The annual
maintenance fee for these services is based upon a percentage of the
then-current list price for the licensed software fee, payable annually in
advance.
Education Services. These services are offered to customers either at our
education facilities or at the customers' locations, as either standard or
customized classes. These classes are priced at either fixed daily rates or on a
per-class basis. We expect our course offerings to grow from six to 20 classes
in 2000.
BroadVision University. To provide comprehensive, high-quality training
solutions for our customers, partners and employees worldwide, we have
established BroadVision University. Courses are delivered through various means
and methods, including traditional instructor-led courses as well as various
Web-based training mechanisms to facilitate distance learning.
12
Our goal is to transfer knowledge in "Web time" to a large worldwide
audience. Technical facilities will be located worldwide, including Redwood City
and Chicago in the United States, the United Kingdom in Europe and Hong Kong in
Asia.
We also enroll our employees in BroadVision University, to ensure high
quality and consistent training of our own personnel. This extensive training
program provides a series of foundation courses that are general in content for
all audiences, which is followed by a specific series of courses based on the
employee's role in our Worldwide Professional Services Organization.
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, 1999, we had developed key strategic business alliances
with over 200 systems integration, design, consulting and other services
organizations throughout the world, including Andersen Consulting, Deloitte
Consulting, Hewlett-Packard, Itochu Techno-Sciences Corp., NTT Data,
PricewaterhouseCoopers, Security First Technologies and Sema Group.
In April 1999, we announced a strategic alliance with Hewlett-Packard.
Hewlett-Packard has 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.
Hewlett-Packard is leveraging its approximately 5,000 person global sales
force to resell and support the current BroadVision One-To-One product suite.
The new co-developed products are being developed to run on multiple platforms
and to enable enterprise customers to deploy quickly and easily a series of
advanced, personalized business-portal solutions that provide integrated
commerce, marketing and customer-relationship management across Web sites,
e-mail, call centers, PCs, kiosks, mobile phones and personal digital
assistants.
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, 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, E.Piphany, Interwoven, IONA
Technologies, Macromedia, Moai Technologies, Security First and STC.
Our technology partnerships support our strategy of integrating throughout
the extended enterprise, from multiple touchpoints such as Nuance's voice
recognition/voice response technology, to integration with enterprise
applications using technology such as STC.
Customers and Markets
As of December 31, 1999, we had licensed our products to over 400 end-user
customers and 100 partners. As of December 31, 1999, our products were
commercially deployed in over 200 live Web sites.
We have targeted a number of markets that we believe to be especially
conducive to one-to-one relationship management applications such as financial
services, travel and leisure, retail and distribution, telecommunications,
chemicals, computer hardware and software, energy and utilities, industrial
equipment and automotive.
13
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.
During the year ended December 31, 1997, approximately 11% of our revenues
were attributable to one customer. During the years ended December 31, 1998, and
December 31, 1999, no customer accounted for more than 10% of our total
revenues.
The following table sets forth a representative list of our customers
organized by industry segment.
Target Industry Sample Applications Sample Customers
--------------- ------------------- ----------------
Financial services Home banking CCF France
Online brokerage Citigroup
Obtaining information on and Credit Suisse
selecting:
-Loans Liberty Financial
-Mutual funds USAA
-Insurance
Knowledge management (intranets)
Retail Online shopping Circuit City
Interactive catalogues
The Home Depot
Office Max
Rand McNally
Sears Roebuck
Telecommunications Commerce: Business to-business and British Telecom
business-to-consumer
Online services
Customer self-service Nortel Networks
Telia
TELUS
Vodafone
Travel and leisure Reservations Air Miles
Travel planning
Brand projection, loyalty programs and American Airlines
affinity marketing Budget Rental Cars
Carlson Companies
TAM Airlines
Industrial manufacturing Knowledge management General Electric
Business-to-business Hewlett-Packard
purchasing Hilti
Business-to-consumer purchasing Philips PC Peripherals
Xerox
14
Target Industry Sample Applications Sample Customers
--------------- ------------------- ----------------
Dot com's Electronic storefronts Chipshot.com
Exchanges/market makers e-Greenbiz.com
Mercata
Pets.com
Zones.com
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,
1999, our direct sales organization included 164 sales representatives, managers
and sales support.
We have a sales office at our headquarters in Redwood City, California and
have North American sales offices in Atlanta, Georgia; Bellevue, Washington;
Burlington, Massachusetts; Dallas, Texas; Denver, Colorado; Irvine, California;
Minneapolis, Minnesota; New York, New York; Portland, Oregon; Schaumberg,
Illinois; and Vancouver, British Columbia. We have a sales and service office in
McLean, Virginia for the U.S. Federal Government.
We have international sales offices in Melbourne, Australia; Wanchai, Hong
Kong; Hare Hatch, England; Coorbevoie, France; Munich, Germany; Milan, Italy;
Tokyo, Japan; Seoul, Korea; Amersfoot, The Netherlands; Wheelock Place,
Singapore; Madrid, Spain; Stockholm, Sweden; Basel, Switzerland; and Taipei,
Taiwan.
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 BroadVision
One-To-One 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 professional services organization
typically plays a key role in helping customers to design, and then develop,
their applications.
As of December 31, 1999, 68 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;
o creating brand awareness and visibility;
o producing and maintaining marketing information and sales tools;
o generating and developing customer leads; and
o sourcing and managing relationships with systems integrators, value-added
resellers, creative design and advertising agencies and technology
partners.
15
Competition
The market for personalized e-business 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 the following:
o in-house development efforts by prospective customers or partners using
application development tools;
o other vendors of application software or application development
platforms and tools directed at content management, interactive commerce
and financial services, like InterWorld, Open Market and Vignette;
o Web content developers that develop custom software or integrate other
application software into custom solutions;
o International Business Machines; and
o Microsoft.
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.
We believe that we presently compete favorably with respect to each of these
factors. However, our market is still evolving, and we may be unable to compete
successfully with current or future competitors.
Technology
The technical demands of interactive, personalized one-to-one e-business
applications, deployable on the Web, extranets and intranets, require an
architectural design that is standards-based, open, interoperable and flexible.
Our applications are based on a modular, component-based architecture that
provides for robust, scalable and extensible e-business applications. By
emphasizing reusable code, separation of application logic, business rules and
data, and adherence to open standards such as Java, XML and CORBA, our
applications provide an efficient architecture for customers and partners to
deploy, modify, and control applications, as well as to integrate them with
external business systems. This architecture also provides a robust foundation
upon which we can rapidly develop new products.
Our advanced technology enables the delivery of robust, scalable and
innovative e-business solutions into the market faster and at a lower cost than
alternatives. Our technology consists of the following key elements:
Adherence to Industry Standards
Industry standards protect a customer's investment by providing compatibility
with existing applications, enabling ease of modification, and reducing the need
for software to be rewritten. Our architecture complies with CORBA, a
16
standard for applications software design and development widely adopted in the
commercial software industry. Applications that are CORBA-compliant can:
o run on either single computers with one or more processors or across
large networks;
o allow replication and relocation of object servers to improve system
performance;
o are platform independent; and
o have strongly defined application programming interfaces through the use
of the Interface Definition Language specified by CORBA.
Java. We are strongly committed to Java and Java-based technologies such as
Enterprise Java Beans (EJB). Our application templates, which define the
front-end look-and-feel of pages on the web site, are written in JavaScript.
Most of our backend programs are written in C++ and Java, which are
widely-accepted standard programming languages for developing Web applications.
Our commitment to industry standards such as Java and C++, along with open,
published programming interfaces into the applications, delivers an e-business
solution that is open and extensible. Customers benefit by needing fewer
resources to modify the application, and by having simplified integrations with
other applications, such as ERP systems.
XML. Our applications fully support XML, which is an emerging standard for
managing and exchanging data between systems. In addition, XML facilitates
re-purposing information so that it can be sent to non-browser interfaces such
as those used by wireless devices including mobile telephones, pagers and PDA's.
Our adoption and support of XML for content management allows customers to
publish information in a structured manner, which can then be directed toward
either a browser or communication devices such as email or mobile telephones.
In addition to Java, XML, C++ and CORBA, we use other widely accepted
standards in developing our products, including Structured Query Language for
accessing relational database management systems; Common Gateway Interface and
Hypertext Transfer Protocol for Web access; Netscape Application Programming
Interface for access to Netscape's Web servers; Secure Socket Layer 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.
N-Tier Architecture. Our applications use a modular, N-tier architecture that
logically separates application presentation, business rules and data. Between
each of these tiers are session managers and adapters that facilitate
integration with external business systems interface technologies, described
below, that establish seamless interoperability between application components.
This architecture partitions applications across:
o a front-end tier that manages the application presentation and interface
to Web site visitors;
o application engine tiers that manage application activities such as
community, profiling, targeting and transactions, and the business rules
that define the interactive characteristics and behavior of one-to-one,
personalized applications. This layer utilizes a lightweight component
model, which can be distributed across multiple logical and physical
processors, thus enabling the N-tier design of the application; and
o a back-end tier that integrates underlying database management systems
with external business systems, such as ERP and CRM solutions, that
perform specialized relationship management functions.
Interaction Manager. Our "session manager" technology is designed to manage
the high volume of dynamic interactions that occur in online sessions between
many concurrent Web site visitors and an e-business application. The session
manager, called the BroadVision Interaction Manager, enables three key
activities:
o maintaining user profile information between visitors and sites so that
each current and future interaction can trigger a response appropriate to
the objectives of both visitor and site provider;
o interpreting application objects and templates in real time and
retrieving profile data and business rules to dynamically generate HTML
code that tailors content, Web pages and interactions to the needs and
interests of individual Web site visitors; and
o enabling application scalability by allowing Web site providers to add
additional software processes or hardware processors to their Web systems
to support more concurrent Web site visitors without incurring
performance degradation or additional overhead in application
maintenance.
17
Components and Applications. We believe the costs and time associated with
Web application development and maintenance can be substantially reduced with
our technology. Our applications are comprised of reusable application
components and presentation templates. Application components, such as customer
account information for a business-to-business transaction, are designed to be
open and customizable. Used in combination with our structured development
methodology, these technologies are designed to help customers and partners
create reusable program components that increase application quality and reduce
cost and time-to-market of new and maintained applications. Application
templates, written in JavaScript, enable business managers to define and
implement business rules through the BroadVision One-To-One Command Center on a
real-time basis. Our customers, partners and consultants use these templates and
JavaScript to develop e-business application solutions. Our Education Services
Group offers training classes to customers and partners on the use of components
and application templates.
Content Management. Key to successful e-business applications is the ability
to deliver relevant, current and accurate information to the application's users
such as customers, employees and business partners. Our personalization
capabilities enable business managers to define rules to deliver the right
information to the right user at the right time. Content management discipline
ensures that this information is kept current and accurate. Our content
management system, which is based on XML standards, provides a rich environment
for users to create and publish information to the web and to other formats,
such as wireless. In addition, XML enables automatic data feeds and syndication
of information to other systems and business partners. For example, a vendor's
catalog information can be automatically and easily included in a e-business Web
site.
Intellectual Property and Other Proprietary Rights
Our success and ability to compete are dependent to a significant degree on
our proprietary technology. We rely on a combination of patent, copyright,
trademark, service mark, trade secret laws and contractual restrictions to
protect our proprietary rights in products and services. We hold a patent issued
to us on January 20, 1998, covering certain elements of our BroadVision
One-To-One Enterprise product. Our success and competitive position depends on
our ability to protect our proprietary technology. We have registered
"BroadVision" and "BroadVision One-To-One" as trademarks in the United States.
However, the steps taken by us may not prevent misappropriation of our
technology and agreements entered into for that purpose may not be enforceable.
In addition, litigation like the lawsuit against ATG, which was recently
settled, 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 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 Rogue Wave
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.
Employees
As of December 31, 1999, we employed a total of 652 full-time employees, of
whom 507 are based in the United States, 96 in Europe and 49 in Asia. Of these
full-time employees, 232 are in sales and marketing, 119 are in product
development, 246 are in professional services and client support, and 55 are in
finance, administration and operations. As of December 31, 1998 and 1997, we
employed 271 and 188 full-time employees, respectively.
18
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............................... 42 Chairman of the Board, Chief Executive Officer and
President
Randall C. Bolten......................... 47 Chief Financial Officer and Executive Vice President,
Operations
Clark W. Catelain......................... 52 Executive Vice President, Engineering
James W. Thanos........................... 51 Executive Vice President and General Manager, Worldwide
Field Organization
Nancy Mills-Turner........................ 47 Executive Vice President and General Manager, Worldwide
Professional Services
Rani Merritt.............................. 35 Executive Vice President and General Manager, Worldwide
Marketing Organization
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.
Clark W. Catelain has served as our Vice President, Engineering, since June
1995 and as our Executive Vice President, Engineering since January 2000. From
1989 to May 1995, Mr. Catelain served as the Senior Vice President, Engineering
of Gupta, a supplier of client-server database products. Mr. Catelain received a
B.S. in Mathematics and Computer Science from Purdue University.
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 Organization, 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 and in January 2000, was named Executive Vice
President and General Manager, Worldwide Professional Services. 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
19
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.
Rani Merritt has served as Executive Vice President and General Manager,
Worldwide Marketing Organization since January 2000. In 1997, Ms. Merritt
co-founded Icarian, Inc., a provider of business-to-business workforce
eServices, and served as Icarian's Vice President of Marketing until December
1999. From September 1995 to August 1997, Ms. Merritt was Vice President of
Strategic Services at BroadVision. From June 1994 to August 1995, she served as
Director of Online Product Development/Director of Operations at U.S. West. Ms.
Merritt received a B.A. and an M.S. in Industrial Engineering from Stanford
University.
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 115,000 square feet pursuant to leases expiring through
2007. We recently entered into a lease for a new building currently under
construction that will provide us with approximately 400,000 square feet in
Redwood City, California. The building is expected to be available for occupancy
during June 2001.
Our European headquarters were recently relocated to Green Park, Reading, in
the United Kingdom where we lease approximately 19,000 square feet. We also rent
space in various cities to support our sales and field support activities. We
have North American sales offices in Atlanta, Georgia; Bellevue, Washington;
Burlington, Massachusetts; Dallas, Texas; Denver, Colorado; Irvine, California;
Minneapolis, Minnesota; New York, New York; Portland, Oregon; Schaumberg,
Illinois; and Vancouver, British Columbia. We have a sales and service office in
McClean, Virginia for the U.S. Federal Government. We have international sales
offices in Melbourne, Australia; Wanchai, Hong Kong; Hare Hatch, England;
Coorbevoie, France; Munich, Germany; Milan, Italy; Tokyo, Japan; Seoul, Korea;
Amersfoot, The Netherlands; Wheelock Place, Singapore; Madrid, Spain; Stockholm,
Sweden; Basel, Switzerland; and Taipei, Taiwan.
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 and will receive an additional $7 million payable in quarterly
installments commencing 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
20
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 1997
First Quarter.......................... $ 1.15 $ 0.83
Second Quarter......................... 1.01 0.49
Third Quarter.......................... 0.82 0.56
Fourth Quarter......................... 0.97 0.65
Fiscal Year 1998
First Quarter.......................... $ 2.11 $ 0.67
Second Quarter......................... 2.79 1.64
Third Quarter.......................... 3.28 1.12
Fourth Quarter......................... 4.92 1.03
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
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.
21
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,
-------------------------------------------------------------
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- -------
(in thousands, except per share data)
Consolidated Statement of Operations Data:
Revenues:
Software licenses...................... $ -- $ 7,464 $ 18,973 $ 36,067 $ 75,383
Services............................... 540 3,418 8,132 14,844 40,131
-------- -------- -------- -------- --------
Total revenues................... 540 10,882 27,105 50,911 115,514
Cost of revenues:
Cost of software licenses.............. -- 330 1,664 1,001 3,703
Cost of services....................... 249 2,164 4,284 8,704 25,108
-------- -------- -------- -------- --------
Total cost of revenues........... 249 2,494 5,948 9,705 28,811
-------- -------- -------- -------- --------
Gross profit............................. 291 8,388 21,157 41,206 86,703
Operating expenses:
Research and development............... 2,575 4,985 7,392 9,227 14,568
Sales and marketing.................... 1,348 12,066 18,413 26,269 48,903
General and administrative............. 846 2,034 2,990 3,786 7,970
-------- -------- -------- -------- --------
Total operating expenses......... 4,769 19,085 28,795 39,282 71,441
-------- -------- -------- -------- --------
Operating income (loss)................ (4,478) (10,697) (7,638) 1,924 15,262
Other.................................. 160 552 265 2,115 3,547
-------- -------- -------- -------- --------
Net income (loss)...................... $ (4,318) $(10,145) $ (7,373) $ 4,039 $ 18,809
======== ======== ======== ======== ========
Net income (loss) per share:
Basic earnings (loss) per share.......... $ (0.04) $ (0.06) $ (0.04) $ 0.02 $ 0.08
======== ========= ======== ======== ========
Shares used in computation-- basic earnings
(loss) per share......................... 107,784 169,335 181,872 210,114 229,128
======== ======== ======== ======== ========
Diluted earnings (loss) per share........ $ (0.04) $ (0.06) $ (0.04) $ 0.02 $ 0.07
======== ========= ======== ======== ========
Shares used in computation-- diluted
earnings (loss) per share................ 107,784 169,335 181,872 230,877 260,712
======== ======== ======== ======== ========
As of December 31,
--------------------------------------------------------------
1995 1996 1997 1998 1999
---------- ---------- ---------- ---------- ----------
(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents.................. $ 4,311 $ 17,608 $ 8,277 $ 61,878 $279,823
Working capital............................ 3,916 18,258 11,485 63,620 342,024
Total assets............................... 5,857 26,714 26,539 101,562 406,128
Debt and capital leases, less current
portion.................................. 516 495 3,005 3,194 4,875
Accumulated deficit........................ (6,124) (16,269) (23,642) (19,603) (794)
Total stockholders' equity................. 4,254 21,016 15,121 81,809 346,238
22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for historical information contained or incorporated by reference herein,
the following discussion contains forward-looking statements that involve risks
and uncertainties. The Company's actual results could differ significantly from
those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below under the
caption "Risk Factors" and elsewhere herein of this Form 10-K. Any such
forward-looking statements speak only as of the date such statements are made.
Overview
We develop, market and support fully integrated scalable application software
solutions specifically designed for one-to-one relationship management across
the extended enterprise. These total end-to-end solutions enable businesses to
use the Internet as a unique platform to conduct electronic commerce, provide
online financial services, offer online interactive customer self-service, and
deliver targeted information to all constituents of the extended enterprise.
These constituents include but are not limited to customers, suppliers,
distributors, partners, and employees. The BroadVision One-To-One product suite
allows businesses to tailor their Web site content to the special needs and
interests of individual users by personalizing each constituent's visit on a
real-time interactive basis. Our applications accomplish this by capturing Web
site visitor profile information and targeting an enterprise's organized content
to each visitor based on easily constructed business rules. We believe the
benefits of these applications include greater customer satisfaction and
loyalty, increased business volume, enhanced brand awareness, reduced costs to
service customers and execute transactions, as well as higher employee
productivity.
We sell our products and services worldwide through direct sales forces,
independent distributors, resellers and system integrators. We also have a
global network of strategic business relationships with key industry platform
and Web developer partners. We also engage in strategic business alliances to
assist us in marketing, selling and developing customer applications. In
addition, we place a strategic emphasis on technology alliances to ensure that
our products are based on industry standards and that we are positioned to take
advantage of current and emerging technologies. 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.
Proposed Business Acquisition - Interleaf
On January 26, 2000, we announced a definitive agreement to acquire all of
the outstanding stock of Interleaf, subject to stockholder and regulatory
approval and other conditions. Under the terms of the agreement, Interleaf
shareholders will receive 1.0395 shares of BroadVision common stock in exchange
for each share of Interleaf common stock; or estimated purchase consideration of
approximately $802 million, inclusive of approximately $18 million of
acquisition and severance costs. We expect to account for the acquisition as a
purchase.
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,
---------------------------------
1997 1998 1999
--------- --------- -------
Revenues:
Software licenses........................ 70% 71% 65%
Services................................. 30 29 35
--- --- ---
Total revenues................... 100 100 100
--- --- ---
Cost of revenues:
Cost of license revenues................. 6 2 3
Cost of services revenues................ 16 17 22
--- --- ---
Total cost of revenues................ 22 19 25
--- --- ---
Gross profit..................... 78 81 75
--- --- ---
Operating expenses:
Research and development................. 27 18 13
Sales and marketing...................... 68 52 42
General and administrative............... 11 7 7
--- --- ---
Total operating expenses.............. 106 77 62
--- --- ---
Operating income (loss).......... (28) 4 13
Other................................. 1 4 4
--- --- ---
Income (loss) before income taxes (27) 8 17
Income tax provision.................. -- -- 1
--- --- ---
Net income (loss)................ (27)% 8% 16%
=== === ===
23
RESULTS OF OPERATIONS
Revenues
Our revenues are derived from software licensing arrangements and fees
charged for services. Our software licensing arrangements include fees for
software application products and fees for profiled users associated with the
deployment of purchased applications. In general, revenues related to software
licensing arrangements are recognized upon the consummation of a sale. A sale is
considered consummated when a non-cancelable license agreement has been executed
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. Our professional services are delivered by our Strategic Services
Group, Interactive Services Group, Content and Creative Services Group,
Education Services Group and Technical Support Group. Revenues for consulting
related services are typically recognized when the services are performed.
Maintenance fees for technical support and software product upgrades are
recognized ratably over the contracted 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, 1997:
Americas..................... $ 8,584 45% $ 4,288 53% $12,872 48%
Europe....................... 8,835 47 2,015 25 10,850 40
Asia/Pacific................. 1,554 8 1,829 22 3,383 12
------- --- -------- --- ------- ---
Total.......................... $18,973 100% $ 8,132 100% $27,105 100%
======= === ======== === ======= ===
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%
======= === ======== === ======= ===
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%
======= === ======== === ======== ===
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 is 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 targeted web enabling applications increased to $25.9 million in 1999 as
compared to $10.2 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
24
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 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
$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 have also
added additional training and professional consulting related facilities in
Europe and Asia as of December 31, 1999.
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. Our Asia/Pacific operations have experienced lower growth
rates over the previous years as a result of the generally weak economic
conditions of that region. As a result, we expect that any significant growth in
international revenues will most likely come from European operations. However,
we may be unable to maintain or continue to increase international or domestic
market acceptance for our family of products.
1998 versus 1997
Total revenues for the year ended December 31, 1998 increased $23.8 million
or 88% on a year-over-year basis, and consisted of software license revenue
increases of $17.1 million or 90% and professional services revenue increases of
$6.7 million or 83%.
The 90% increase in software license revenues was primarily attributable to
the expanding sales volumes of our three complementary packaged application
products, higher deployment license revenues and to a lesser extent, product
pricing increases that were effective October 1, 1998. Application
license-related revenues for our three complementary products increased to $10.2
million in 1998 as compared to $2.4 million in 1997. Deployment-related license
revenues increased to $14.8 million in 1998 as compared to $8.1 million in 1997.
During the year ended December 31, 1998, we licensed approximately 94 new
end-user customers and 27 new partners, which compares with approximately 70 new
end-user customers and 34 new partners for the year ended December 31, 1997. As
of December 31, 1998, we had a total installed license base of over 195 end-user
customers and 75 partners, which compares with over 105 end-user customers and
48 partners as of December 31, 1997.
The 83% increase in professional services revenue results from a higher
level of consulting related services associated with increased business volumes
and higher levels of customer support revenues derived from a larger installed
customer base. Maintenance revenues were $5.1 million in 1998 as compared to
$2.1 million in 1997.
Cost of Revenues
Cost of license revenues includes royalties payable to third parties for
software that is either embedded in, or bundled and sold with, our products;
commissioned agent fees paid to distributors; and the costs of product media,
duplication, packaging and other associated manufacturing costs. Cost of
services consists primarily of employee-related costs, third-party consultant
fees incurred on consulting projects, post-contract customer support and
instructional training services.
Years Ended December 31,
----------------------------------------------------
1997 % 1998 % 1999 %
------- ------- ------- ------- ------- -----
(dollars in thousands)
Cost of license revenues [1].......... $1,664 9% $1,001 3% $3,703 5%
Cost of services revenues [2]......... 4,284 53 8,704 59 25,108 63
------ ------ ------
Total cost of revenues [3]............ $5,948 22% $9,705 19% $28,811 25%
====== ====== =======
[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
25
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 is a result of higher business volumes as evidenced by
increased services revenues. Overall costs increased as a result of additions to
our professional services staff and the employment of outside consultants to
meet short-term consulting demands. The increase in cost of services as a
percentage of services revenues is a result of the assimilation of new
professional consultants added to the group during the year and higher use of
outside consultants in relation to the extent previously used during the prior
year period.
1998 versus 1997
For the year ended December 31, 1998, cost of license revenues decreased
$663,000 or 40% on a year-over-year basis. Cost of software licenses as a
percent of license revenues was 3% in 1998 as compared to 9% in 1997. Cost of
services revenues during 1998 increased $4.4 million or 103% on a year-over-year
basis. Cost of services as a percent of services revenues was 59% in 1998 as
compared to 53% in 1997.
The decrease in cost of license revenues, in both absolute dollar and
relative percentage terms, was principally a result of lower commissioned agent
fees and third party royalty rates. We continued to expand our in-house sales
force capabilities and during 1998 direct sales were higher and commissioned
agent sales were lower relative to 1997. In addition, royalty costs relative to
total license revenues decreased as a result of our renegotiating a previously
existing percentage based royalty arrangement into a prepaid fixed fee royalty
for a period through 2001.
The increase in cost of services revenues in absolute dollar terms during
1998 as compared to 1997 is a result of expanded business volumes as evidenced
by increased services revenues. Overall costs increased as a result of additions
to our professional services staff and the employment of outside consultants to
meet short-term consulting demands. The increase in cost of services as a
percentage of services revenues is a result of 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.
26
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,
------------------------------------------------------
1997 % 1998 % 1999 %
-------- -------- -------- -------- -------- -----
(dollars in thousands)
Research and development.................. $ 7,392 27% $ 9,227 18% $14,568 13%
Sales and marketing....................... 18,413 68 26,269 52 48,903 42
General and administrative................ 2,990 11 3,786 7 7,970 7
------- --- ------- ------
Total operating expenses.................. $28,795 106% $39,282 77% $71,441 62%
======= === ======= == ======= ==
Other income, net......................... $ 265 1% $ 2,036 4% $4,543 4%
======= === ======= == ====== ==
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 that represents an increase of 123%
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. 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.
1998 versus 1997
Research and development expenses for the year were $9.2 million in 1998 as
compared to $7.4 million in 1997 which represents an increase of 25%
year-over-year. Sales and marketing expenses for the year were $26.3 million in
1998 as compared to $18.4 million in 1997 which represents an increase of 43%
year-over-year. General and administrative expenses for the year were $3.8
million in 1998 as compared to $3.0 million in 1997 which represents an increase
of 27% year-over-year. Net other income for the year was $2.0 million in 1998 as
compared to $265,000 in 1997 that represents an increase of 668% 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. 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
1998 as result of sales people exceeding their sales quotas. The increase in
general and administrative expenses in absolute dollar terms is attributable to
additional administrative and management personnel, higher professional fees and
27
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 March 1998.
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. We recorded current tax expense during 1998 primarily
related to foreign withholding and alternative minimum taxes. During 1997, we
generated pre-tax losses of $7.4 million.
As of December 31, 1999, the Company has provided a valuation allowance for a
significant portion of its deferred tax assets. The total valuation allowance
increased $15.4 million from December 31, 1998 to December 31, 1999.
Approximately $15.1 million of 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. In 1998, as a result of the intraperiod income
tax allocation provisions of SFAS No. 109, the deferred tax liability related to
the unrealized gain on marketable securities decreased the valuation allowance
for the deferred tax assets and was not charged to accumulated other
comprehensive income in stockholders' equity for that period.
As of December 31, 1999, the Company had federal and state net operating loss
carryforwards of approximately $47.2 million and $17.0 million, respectively,
available to offset future regular and alternative minimum taxable income. In
addition, the Company had federal and state research and development credit
carryforwards of approximately $3.0 million and $1.2 million, respectively,
available to offset future tax liabilities. The Company's federal net operating
loss and tax credit carryforwards expire in the years 2010 through 2019, if not
utilized. The state net operating loss carryforwards expire in the years 2000
through 2019. The state research and development credits can be carried forward
indefinitely. As of December 31, 1999, the Company's foreign subsidiaries had
net operating loss carryforwards in foreign jurisdictions of approximately $4.2
million that can be used to offset future foreign income. Of these losses,
approximately $1.7 million expires in the years 2000 through 2003. Approximately
$2.5 million of these losses can be carried forward indefinitely. 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. The Company
believes such an ownership change, as defined, may have occurred and,
accordingly, certain of the Company's federal and state net operating loss
carryforwards may be limited in their annual usage.
Liquidity and Capital Resources
December 31,
-----------------------------------
(dollars in thousands) 1997 1998 1999
----------- ----------- ------------
Cash, cash equivalents and
short-term Investments........... $10,473 $61,878 $348,581
Working capital.................. $11,485 $64,320 $340,774
Working capital ratio............ 2.4 4.9 9.6
As of December 31, 1999, cash, cash equivalents and liquid short-term
investments totaled $348.6 million, which represents an increase of $286.7
million as compared to December 31, 1998. We currently have no significant
capital commitments other than obligations under equipment and operating leases
and $5.9 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
$33.3 million for the year ended December 31, 1999 and $1.2 million for the year
ended December 31, 1998. Cash used for operating activities was $8.7 million for
the year ended December 31, 1997. Cash used for investing activities was $38.6
28
million for the year ended December 31, 1999, $6.4 million for the year ended
December 31, 1998, and $3.6 million for the year ended December 31, 1997.
Investing activities consisted primarily of capital expenditures and the
acquisition of strategic investments. Cash provided by financing activities was
$223.2 million for the year ended December 31, 1999, $58.8 million for the year
ended December 31, 1998 and $2.9 million for the year ended December 31, 1997.
Financing activities consisted primarily of proceeds from the issuance of stock
and, to a lesser extent, proceeds from borrowings.
29
Quarterly Results of Operations
The following tables set forth certain unaudited consolidated statement of
operations data for the eight quarters ended December 31, 1999, as well as that
data expressed as a percentage of our total revenues for the periods indicated.
This data has been derived from unaudited consolidated financial statements
that, in the opinion of management, include all adjustments consisting only of
normal recurring adjustments, necessary for a fair presentation of such
information when read in conjunction with the Consolidated Financial Statements
and Notes thereto.
The unaudited quarterly information should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included elsewhere herein on
this Form 10-K. We believe that period-to-period comparisons of our financial
results are not necessarily meaningful and should not be relied upon as an
indication of future performance.
Three Months Ended
--------------------------------------------------------------------------------------------
Mar. 31, June 30, Sep. 30, Dec. 31, Mar. 31, June 30, Sep. 30, Dec. 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- -------- -------- -------- -------- -------- --------
(dollars in thousands)
Statement of Operations Data:
Revenues:
Software licenses..........$ 7,279 $ 8,018 $ 9,158 $ 11,612 $ 12,783 $ 15,484 $ 18,954 $ 28,161
Services................... 2,800 3,367 4,273 4,404 5,681 7,992 10,877 15,582
-------- -------- -------- -------- -------- -------- -------- --------
Total revenues....... 10,079 11,385 13,431 16,016 18,464 23,476 29,831 43,743
Cost of revenues:
Cost of software licenses.. 187 213 237 364 747 1,037 676 1,243
Cost of services........... 1,620 2,092 2,553 2,439 3,321 4,624 7,241 9,994
-------- -------- -------- -------- -------- -------- -------- --------
Total cost of
revenues........... 1,807 2,305 2,790 2,803 4,068 5,661 7,917 11,237
Gross profit................. 8,272 9,080 10,641 13,213 14,396 17,815 21,914 32,506
Operating expenses:
Research and development... 2,033 2,049 2,394 2,751 2,901 3,268 3,816 4,582
Sales and marketing........ 5,861 6,243 6,285 7,880 7,665 10,019 12,136 19,012
General and administrative. 824 760 977 1,225 1,271 1,611 2,119 2,969
-------- -------- -------- -------- -------- -------- -------- --------
Total operating
expenses........... 8,718 9,052 9,656 11,856 11,837 14,898 18,071 26,563
-------- -------- -------- -------- -------- -------- -------- --------
Operating income (loss)...... (446) 28 985 1,357 2,559 2,917 3,843 5,943
Other, net................... (53) 665 769 734 378 398 651 2,120
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)............$ (499) $ 693 $ 1,754 $ 2,091 $ 2,937 $ 3,315 $ 4,494 $ 8,063
======== ======== ======== ======== ======== ======== ======== ========
As a Percentage of Revenues:
Revenues:
Software licenses.......... 72% 70% 68% 73% 69% 66% 63% 64%
Services................... 28 30 32 27 31 34 37 36
-------- -------- -------- -------- -------- -------- -------- --------
Total revenues....... 100 100 100 100 100 100 100 100
Cost of revenues:
Cost of software licenses.. 2 2 2 2 4 4 2 3
Cost of services........... 16 18 19 16 18 20 24 23
-------- -------- -------- -------- -------- -------- -------- --------
Total cost of
revenues........... 18 20 21 18 22 24 26 26
Gross profit................. 82 80 79 82 78 76 74 74
Operating expenses:
Research and development... 20 18 18 17 16 14 13 10
Sales and marketing........ 58 55 47 49 41 43 41 44
General and administrative. 8 7 7 8 7 7 7 7
-------- -------- -------- -------- -------- -------- -------- --------
Total operating
expenses.......... 86 80 72 74 64 64 61 61
-------- -------- -------- -------- -------- -------- -------- --------
Operating income (loss)...... (4) -- 7 8 14 12 13 14
Other, net................... (1) 6 6 5 2 2 2 5
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss)............ (5)% 6% 13% 13% 16% 14% 15% 19%
======== ======== ======== ======== ======== ======== ======== ========
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 the common stock of BroadVision
almost certainly would decline.
30
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;
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.
In addition, we intend, in the near term to increase significantly our
personnel, including our domestic and international direct sales force. The
timing of this expansion and the rate at which new sales people become
productive could also cause our quarterly operating results to fluctuate. Due to
these and other factors, it is difficult for us to accurately forecast quarterly
revenues and operating results. We believe that period-to-period comparisons of
the company's operating results may not be meaningful and you should not rely
upon them as any indication of our future performance.
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 will adopt SFAS No. 133, as amended, beginning on January 1,
2001. SFAS No. 133 establishes standards for the accounting and reporting of
derivative instruments and hedging activities, including certain derivative
instruments embedded in other contracts. Under SFAS No. 133, entities are
required to carry all derivative instruments at fair value on their 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 December 1998, the Accounting Standards Executive Committee of the AICPA
issued SOP 98-9 Software Revenue Recognition, With Respect to Certain
Transactions, which requires recognition of revenue using the "residual method"
in a multiple-element arrangement when fair value does not exist for one or more
of the delivered elements in the arrangement. Under the "residual method", the
total fair value of the undelivered elements is deferred and subsequently
recognized in accordance with SOP 97-2. There was no material change to our
revenue accounting as a result of the provisions of SOP 98-9.
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.
31
We will adopt SAB 101 effective April 1, 2000, as required. We do not expect the
adoption of SAB 101 to have any material effect on our financial position or
results of operations.
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 BroadVision's quarterly operating results may cause
BroadVision's stock price to decline and make it difficult for BroadVision to
forecast quarterly revenue and operating results.
Our quarterly operating results have in the past fluctuated and may in the
future fluctuate significantly 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 the common stock of BroadVision
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 pricing policies by us 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;
o nonrenewal of BroadVision's 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 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
32
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.
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.
Our lengthy sales and product implementation cycles could cause delays in
revenue recognition and make it difficult to predict the company's 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 Worldwide Professional Services Organization
consultants then must commit significant resources over an extended period of
time. 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.
A breach of the encryption technology that we use could expose the company to
liability and harm our reputation, causing a loss of customers.
33
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.
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.
We are continuing to substantially expand 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 its
inception in 1993. We expect to continue to experience periods of rapid change.
If we are unable to support this growth effectively, we will have to divert
additional resources away from executing our business plan and toward internal
administration. Our past expansion has placed, and any future expansion is
expected to place, significant demands on our administrative, operational,
financial and other resources. We expect operating expenses and staffing levels
to increase substantially in the future. In particular, we intend to continue
hiring a significant number of additional personnel this year and in later
years. We also expect to expend resources on expanding accounting and internal
management systems and implementing a variety of new systems and procedures. If
our revenues do not increase in proportion to our operating expenses, our
management systems do not expand to meet increasing demands or the company's
management otherwise fails to support its 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, Sema Group and Security First Network Bank, under which
these 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, Sema, Security First 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.
34
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 it 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, 1999, approximately 31% of our revenues were derived
from sales outside of North America. We have ten offices in Europe and Asia and
one office in Australia. A key component of our business strategy is to expand
our international activities. Reflecting our commitment to a significant
international presence, we listed our shares of common stock on the Neuer Markt
segment of the Frankfurt Stock Exchange beginning on November 3, 1999.
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;
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 success and competitive position will depend on our ability to
protect our proprietary technology.
It will be essential to the success of our business that we adequately
protect 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. We
also rely on copyright, trade secret and trademark laws to protect our
technology. We have registered "BroadVision" and "BroadVision One-To-One" as
trademarks in the United States. 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. We provide our
products to end users generally under nonexclusive, nontransferable licenses
during the term of the relevant agreement, which is usually in perpetuity. We
make the source code available for some portions of our products. We protect the
source code for our proprietary software both as a trade secret and as a
copyrighted work. However, disclosing the source code may increase the
likelihood of third-party misappropriation.
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. The steps we have taken to prevent
35
misappropriation of our technology, including entering into agreements for that
purpose, may be insufficient. In addition, litigation 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. Litigation like this,
whether successful or unsuccessful, could result in substantial costs and
diversions of our management resources, either of which could harm our business.
We will 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 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 Sybase, object request broker
software from IONA Technologies PLC, database access technology from Rogue Wave
Software Inc. and other software. We integrate or sublicenses 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 will substantially depend on the performance of our executive
officers and key employees. We also will 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 will continue to
experience difficulty in hiring and retaining sufficient numbers of highly
skilled employees.
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;
36
o other vendors of application software or application development
platforms and tools directed at interactive commerce and financial
services, such as Art Technology Group Inc., InterWorld Corporation, Open
Market, Inc. 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.
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.
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.
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.
While we are not aware of any laws or regulations like this currently in
effect or in development in the United States, other countries and political
entities, including the European Union and our member states, have adopted legal
requirements imposing restrictions on the collection, use and processing of
personal data. It is possible that similar legal requirements could be adopted
in the United States. If the privacy concerns of consumers are not adequately
addressed, the effectiveness of the BroadVision One-to-One application products
could be impaired.
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
37
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.
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 the company 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 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.
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:
38
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 believes 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, 1998 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, 1999 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.
39
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 sheet of BroadVision,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1999, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year 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 audit.
We conducted our audit 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 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 financial position of BroadVision,
Inc. and subsidiaries as of December 31, 1999, and the results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States.
Arthur Andersen LLP
San Jose, California
January 24, 2000, except with respect
to the matter discussed in the section
entitled "Stock Splits" in Note 1,
as to which the date is March 13, 2000.
40
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders of BroadVision, Inc.:
We have audited the accompanying consolidated balance sheet of BroadVision,
Inc. and subsidiaries as of December 31, 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the two-year period 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of BroadVision,
Inc. and subsidiaries as of December 31, 1998, and the results of their
operations and their cash flows for each of the years in the two-year period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
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
41
BROADVISION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
December 31,
---------------------------
1998 1999
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 61,878 $ 279,823
Short-term investments -- 68,758
Accounts receivable, less allowance for doubtful accounts of $788 and $1,446
as of December 31, 1998 and 1999, respectively 15,361 26,540
Prepaids and other 2,889 5,085
--------- ---------
Total current assets 80,128 380,206
Property and equipment, net 8,034 16,751
Long-term investments 11,546 4,414
Deferred tax assets 700 --
Other assets 1,154 4,757
--------- ---------
Total assets $ 101,562 $ 406,128
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable $ 2,243 $ 5,754
Accrued expenses 4,933 13,307
Unearned revenue 1,918 3,896
Deferred maintenance 6,157 15,228
Current portion of capital lease obligations 709 270
Current portion of long-term debt 548 977
--------- ---------
Total current liabilities 16,508 39,432
Capital lease obligations, net of current portion 270 --
Long-term debt, net of current portion 2,924 4,875
Deferred tax liabilities -- 16,618
Other liabilities 51 15
--------- ---------
Total liabilities 19,753 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; 500,000 shares
authorized; 223,164 and 244,812 shares issued and
outstanding as of December 31, 1998 and 1999, respectively 21 24
Additional paid-in capital 98,748 320,259
Deferred compensation (555) (226)
Accumulated other comprehensive income 3,198 25,925
Accumulated deficit (19,603) (794)
--------- ---------
Total stockholders' equity 81,809 345,188
--------- ---------
Total liabilities and stockholders' equity $ 101,562 $ 406,128
========= =========
The accompanying notes are an integral part of these consolidated financial statements
42
BROADVISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Years Ended December 31,
-----------------------------------
1997 1998 1999
--------- --------- ---------
Revenues:
Software licenses $ 18,973 $ 36,067 $ 75,383
Services 8,132 14,844 40,131
--------- --------- ---------
Total revenues 27,105 50,911 115,514
Cost of revenues:
Cost of license revenues 1,664 1,001 3,703
Cost of services revenues 4,284 8,704 25,108
--------- --------- ---------
Total cost of revenues 5,948 9,705 28,811
--------- --------- ---------
Gross profit 21,157 41,206 86,703
Operating expenses:
Research and development 7,392 9,227 14,568
Sales and marketing 18,413 26,269 48,903
General and administrative 2,990 3,786 7,970
--------- --------- ---------
Total operating expenses 28,795 39,282 71,441
--------- --------- ---------
Operating income (loss) (7,638) 1,924 15,262
Other income, net 265 2,036 4,543
--------- --------- ---------
Income (loss) before income taxes (7,373) 3,960 19,805
Income tax provision (benefit) -- (79) 996
--------- --------- ---------
Net income (loss) $ (7,373) $ 4,039 $ 18,809
========= ========= =========
Basic earnings (loss) per share $ (0.04) $ 0.02 $ 0.08
========= ========= =========
Diluted earnings (loss) per share $ (0.04) $ 0.02 $ 0.07
========= ========= =========
Shares used in computing basic
earnings (loss) per share 181,872 210,114 229,128
========= ========= =========
Shares used in computing diluted
earnings (loss) per share 181,872 230,877 260,712
========= ========= =========
The accompanying notes are an integral part of these consolidated
financial statements
43
BROADVISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except per share amounts)
Convertible Accumulated
Preferred Stock Common Stock Additional Other
--------------------- --------------------- Paid-in Deferred Comprehensive
Shares Amount Shares Amount Capital Compensation Income
------ ------ ------ ------ ------- ------------ ------
Balances as of December 31, 1996 -- -- 179,172 18 39,300 (2,033) --
Net loss and comprehensive loss -- -- -- -- -- -- --
Issuance of common stock under employee
stock purchase plan -- -- 2,178 -- 979 -- --
Issuance of common stock from exercise of
options -- -- 2,295 -- 81 -- --
Common stock repurchased -- -- (558) -- (10) -- --
Amortization of deferred compensation -- -- -- -- -- 428 --
------ ------- ------ -------- -------- ------- --------
Balances as of December 31, 1997 -- -- 183,087 18 40,350 (1,605) --
Comprehensive income:
Net income
Unrealized gain on equity securities 3,198
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 purchase plan -- -- 2,052 -- 1,599 -- --
Issuance of common stock from exercise of
options -- -- 5,697 -- 2,190 -- --
Common stock repurchased -- -- (144) -- (2) -- --
Deferred compensation forfeited due to
voluntary termination -- -- -- -- (693) 693 --
Deferred compensation on stock options -- -- -- -- 240 (240) --
Amortization of deferred compensation -- -- -- -- -- 597 --
------ ------- ------ -------- -------- ------- --------
Balances as of December 31, 1998 -- -- 223,164 21 98,748 (555) 3,198
Comprehensive income:
Net income
Unrealized gain on equity securities, net
of $17,318 tax 22,727
Total comprehensive income
Issuance of common stock under employee
stock purchase plan -- -- 1,833 -- 3,928 -- --
Issuance of common stock from exercise of
options -- -- 10,038 -- 7,201 -- --
Issuance of common stock from public
offering, net of costs of $2,285 -- -- 9,315 3 210,376 -- --
Issuance of common stock from exercise of
warrant -- -- 462 -- 6 -- --
Amortization of deferred compensation -- -- -- -- -- 329 --
------ ------- ------- -------- -------- ------- --------
Balances as of December 31, 1999 -- -- 244,812 $ 24 $320,259 $ (226) $ 25,925
====== ====== ========= ======== ======== ======= ========
Total
Accumulated Comprehensive Stockholders'
Deficit Income (loss) Equity
------- ------------- ------
Balances as of December 31, 1996 (16,269) 21,016
Net loss and comprehensive loss (7,373) $ (7,373) (7,373)
========
Issuance of common stock under employee
stock purchase plan -- 979
Issuance of common stock from exercise of
options -- 81
Common stock repurchased -- (10)
Amortization of deferred compensation -- 428
-------- --------
Balances as of December 31, 1997 (23,642) 15,121
Comprehensive income:
Net income 4,039 $ 4,039 4,039
Unrealized gain on equity securities 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 purchase plan -- 1,599
Issuance of common stock from exercise of
options -- 2,190
Common stock repurchased -- (2)
Deferred compensation forfeited due to
voluntary termination -- --
Deferred compensation on stock options -- --
Amortization of deferred compensation -- 597
-------- --------
Balances as of December 31, 1998 (19,603) 81,809
Comprehensive income:
Net income 18,809 $ 18,809 18,809
Unrealized gain on equity securities, net 22,727 22,727
of $17,318 tax --------
Total comprehensive income $ 41,536
========
Issuance of common stock under employee
stock purchase plan -- 3,928
Issuance of common stock from exercise of
options -- 7,201
Issuance of common stock from public
offering, net of costs of $2,285 -- 210,379
Issuance of common stock from exercise of -- 6
warrant
Amortization of deferred compensation -- 329
-------- --------
Balances as of December 31, 1999 $ (794) $347,288
======== ========
The accompanying notes are an integral part of these consolidated financial statements
44
BROADVISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
-----------------------------------
1997 1998 1999
--------- --------- ---------
Cash flows from operating activities:
Net income (loss) $ (7,373) $ 4,039 $ 18,809
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation and amortization 1,613 2,947 4,739
Amortization of deferred compensation 428 597 329
Provision for doubtful accounts 515 458 758
Revenue resulting from non-monetary transactions -- (2,917) --
Amortization of prepaid royalties -- 250 333
Amortization of prepaid compensation -- -- 182
Changes in operating assets and liabilities, net
of effects from acquired business:
Accounts receivable (5,966) (7,036) (11,368)
Prepaid expenses and other (194) (2,716) (403)
Accounts payable and accrued expenses 547 3,145 11,602
Unearned revenue and deferred maintenance 1,751 2,633 10,930
Increase in other noncurrent assets -- (237) (2,565)
--------- --------- ---------
Net cash provided by (used for) operating
activities (8,679) 1,163 33,346
--------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment (4,878) (4,198) (13,291)
Purchase of long-term investments -- (3,000) (1,414)
Payment for business acquisition, net of cash -- -- (3,765)
acquired
Purchase of short-term investments (796) -- (72,783)
Maturity of short-term investments 2,112 796 52,667
--------- --------- ---------
Net cash used for investing activities (3,562) (6,402) (38,586)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from sale/leaseback 987 -- --
Net change in restricted cash (1,400) 1,400 --
Proceeds from borrowings 2,651 1,424 3,000
Repayments of borrowings -- (603) (620)
Payments on capital lease obligations (378) (913) (709)
Proceeds from issuance of common stock, net 1,050 57,532 221,514
--------- --------- ---------
Net cash provided by financing activities 2,910 58,840 223,185
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (9,331) 53,601 217,945
Cash and cash equivalents, beginning of period 17,608 8,277 61,878
--------- --------- ---------
Cash and cash equivalents, end of period $ 8,277 $ 61,878 $ 279,823
========= ========= =========
Supplemental cash flow disclosures:
Cash paid for interest $ 108 $ 394 $ 404
Cash paid for income taxes 156 428 538
Long-term investments reclassified as current -- -- 48,642
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 1,165 316 --
Long-term investment acquired in exchange for
common stock -- 1,322 --
Deferred compensation on stock options -- 240 --
Deferred compensation forfeited due to voluntary
terminations -- 693 --
Net unrealized gain on equity investments -- 3,198 22,727
The accompanying notes are an integral part of these consolidated financial statements
45
BROADVISION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
Note 1 -- Organization and Summary of Significant Accounting Policies
Nature of Business
BroadVision, Inc. (collectively with its subsidiaries, the "Company") was
incorporated in the state of Delaware on May 13, 1993. The Company develops,
markets and supports application software solutions specifically designed for
one-to-one relationship management across an extended enterprise. These
solutions enable businesses to use the Internet as a platform to conduct
electronic commerce, provide online customer self-service, deliver targeted
information to constituents and provide online financial services. Each of these
capabilities can be made available to all constituents of the extended
enterprise, including: customers, suppliers, partners, distributors and
employees. The BroadVision One-To-One product suite empowers businesses to
uniquely tailor Web site content to the needs and interests of individual users
by personalizing each constituent's visit on a real-time interactive basis. The
Company's applications accomplish this by interactively capturing Web site
visitor profile information and targeting organized content of an enterprise to
each visitor based on easily constructed business rules.
Basis of Presentation 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. 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, 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, upgrades, enhancements, post contract
customer support, installation, or training. The determination of fair value is
based on objective evidence which is specific to the Company.
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 1998, AcSEC issued SOP 98-9 Software Revenue Recognition, With
Respect to Certain Transactions, which requires recognition of revenue using the
"residual method" in a multiple-element arrangement when fair value does not
exist for one or more of the delivered elements in the arrangement. Under the
"residual method", the total fair value of the undelivered elements is deferred
and subsequently recognized in accordance with SOP 97-2. There was no material
change to the Company's accounting for revenues as a result of the provisions of
SOP 98-9.
46
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.
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 revenue 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,
---------------------
1998 1999
-------- --------
Cash $ 1,978 $ 16,945
Money market funds.............. 48,900 125,807
Commercial paper................ 11,000 137,071
-------- --------
$ 61,878 $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, 1999, the Company's investment in marketable equity securities had
a fair value of $48,642,000 and a cost basis of $5,348,000. The Company's debt
securities are carried at amortized cost which approximates fair value. As of
December 31, 1999, debt security investments consisted of $9,700,000 with
maturities of approximately one year and $10,416,000 of mutual bond funds.
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 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.
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
47
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.
Property and Equipment
Property and equipment are stated at cost and depreciated on a straight-line
basis over their estimated useful lives (two to five years). Leasehold
improvements are amortized over the corresponding lease term or their estimated
useful lives, whichever is shorter.
The Company evaluates long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate that the
carrying amount 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.
Long-term Investments
As of December 31, 1999, long-term investments consist of non-marketable
equity securities. As of December 31, 1998, long-term investments consist of
non-marketable equity securities and a marketable equity securities investment
(carrying value of $8,546,000).
The Company accounts for its non-marketable equity security investments based
on the cost method as the Company does not have the ability to significantly
influence the operating and financial policies of its investees. Any decline in
value, which is other than a temporary decline, is charged to earnings during
the period in which the impairment occurs. The Company classifies its marketable
equity security investments as available for sale. Accordingly, marketable
equity security investments are recorded at fair value with related unrealized
gains or losses reported as other comprehensive income.
As of December 31, 1998, the Company's investment in marketable equity
securities had a fair value of $8,546,000 and a cost basis of $5,348,000. As of
December 31, 1999, this investment has been classified as a short-term
investment.
Deferred Tax Assets and Deferred Tax Liabilities
The Company utilizes the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and liabilities
are established to recognize the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply in the years
in which temporary differences are expected to be recovered or settled. The
effects on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
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
48
October 25, 1999 and the Company's common stock traded ex-dividend starting
October 26, 1999, reflecting the three-for-one stock split.
Subsequently, 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. 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. 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, 1997, are options to acquire 33,318,000 shares of common
stock with a weighted-average exercise price of $0.49 and warrants to acquire
843,750 shares of common stock with a weighted-average exercise price of $0.68
because their effects would be anti-dilutive.
Years Ended December 31,
-----------------------------------
1997 1998 1999
----------- ---------- ----------
(in thousands, except per share amounts)
Net income (loss) for basic and
diluted earnings (loss) per share.......... $ (7,373) $ 4,039 $ 18,809
======== ======== ========
Weighted-average common shares
outstanding utilized for basic
earnings (loss) per share.................. 181,872 210,114 229,128
Weighted-average common equivalent
shares outstanding:
Employee common stock options........... -- 20,592 31,365
Common stock warrant.................... -- 171 219
-------- -------- --------
Total weighted-average common and
common equivalent shares outstanding
utilized for diluted earnings (loss) per
share.................................. 181,872 230,877 260,712
======== ======== ========
Basic earnings (loss) per share.............. $ (0.04) $ 0.02 $ 0.08
========= ======== ========
Diluted earnings (loss) per share............ $ (0.04) $ 0.02 $ 0.07
========= ======== ========
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 year ended December 31, 1997, the Company had no other significant
components of other comprehensive loss. Accordingly, comprehensive loss and net
loss were the same for this period. For the years ended December 31, 1998 and
1999, comprehensive income was $7,237,000 and $ 41,536,000, respectively. The
components of other comprehensive income for these periods relate solely to
unrealized gains and losses on available-for-sale investments.
49
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, 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 December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements, which provides guidance on the recognition, presentation, and
disclosure of revenue in financial statements filed with the SEC. SAB 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosure related to revenue recognition policies. The Company
will adopt SAB 101 effective April 1, 2000, as required. Management does not
expect the adoption of SAB 101 to have any material effect on the financial
position or results of the operations of the Company.
Note 2 -- Acquired Business:
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
========
50
Note 3 -- Property and Equipment (in thousands):
December 31,
-------------------
1998 1999
-------- --------
Furniture and fixtures $ 1,001 $ 2,323
Computer and software 8,662 17,618
Leasehold improvements 3,725 6,903
-------- --------
13,388 26,844
Less accumulated depreciation and
amortization (5,354) (10,093)
-------- --------
$ 8,034 $ 16,751
======== ========
Leased equipment totaled approximately $2,572,000 as of December 31, 1998 and
1999. Accumulated amortization for leased equipment totaled approximately
$1,750,000, and $2,319,000 as of December 31,1998 and 1999, respectively.
Note 4 -- Accrued Expenses (in thousands):
December 31,
-------------------
1998 1999
Employee benefits $ 678 $ 1,340
Commissions and bonuses 2,013 6,747
Taxes payable 785 1,273
Other 1,457 3,947
------- -------
$ 4,933 $13,307
======= =======
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 $5,000,000 of additional borrowings (based on eligible
accounts receivable). As of December 31, 1998 and 1999, outstanding term debt
borrowings were $3,472,000 and $5,852,000, respectively. Borrowings bear
interest at the bank's prime rate (7.75% and 8.50% as of December 31, 1998 and
1999, respectively). Principal and interest is due in consecutive monthly
payments through maturity based on the term of the facility. Principal payments
of $977,000 are due annually from 2000 through 2004, $611,000 due in 2005, and a
final payment of $357,000 due in 2006.
As of December 31, 1998 and 1999, the Company had no outstanding borrowings
under its revolving line of credit. However, commitments totaling $2,196,000 and
$2,820,000, in the form of standby letters of credit were issued under its
revolving line of credit facility as of December 31, 1998 and 1999, respectively
(see Note 7).
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, 1998 and December 31, 1999.
Note 6 -- Income Taxes
Income before taxes includes losses from foreign operations of approximately
$1,567,000 and $2,906,000 for the years ended December 31, 1997 and 1998,
respectively, and income of $1,068,000 for the year ending December 31, 1999.
The components of income tax provision (benefit) are as follows (in
thousands):
Years Ended December 31,
--------------------------------
1997 1998 1999
---------- ---------- -------
Current:
Federal $ -- $ 192 $ 458
State -- 13 2
Foreign -- 416 536
---- ------ ------
Total current $ -- $ 621 $ 996
51
Deferred:
Federal -- (600) --
State -- (100) --
---- ------ ----
Total deferred $ -- $ (700) $ --
---- ------ ----
$ -- $ (79) $ 996
==== ====== ======
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,
---------------------------------
1997 1998 1999
---------- ---------- ----------
Expected income tax provision $(2,507) $ 1,346 $ 6,930
Expected state income taxes, net of federal tax -- (58) 853
benefit
Foreign taxes -- 416 (1,009)
Alternative minimum tax -- 97 --
Utilization of net operating loss carryforwards -- (2,471) (4,124)
Change in valuation allowance -- (600) --
Foreign losses not benefitted -- 988 --
Net operating losses not benefited 2,507 -- --
R&D tax credits -- -- (1,492)
Other -- 203 (162)
------- ------- --------
Income tax provision (benefit) $ -- $ (79) $ 996
======= ======= =======
The individual components of the Company's deferred tax assets and
liabilities are as follows (in thousands):
December 31,
------------------
1998 1999
------- -------
Deferred tax assets:
Depreciation and amortization $ 766 $ 895
Accrued liabilities 723 1,058
Capitalized research and development 721 158
Net operating losses 6,737 18,935
Tax credits 2,180 4,190
------- -------
Total deferred tax assets 11,127 25,236
Less valuation allowance (9,153) (24,536)
------- -------
1,974 700
Deferred tax liabilities -- unrealized gain on
Marketable securities (1,274) (17,318)
------- -------
Net deferred tax asset (liability) $ 700 $(16,618)
======= =========
The Company has provided a valuation allowance for a significant portion of
its deferred tax assets as of December 31, 1999. The total valuation allowance
increased $15,383,000 from December 31, 1998 to December 31, 1999. Approximately
$15,075,000 of 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. In 1998, as a result of the intraperiod income tax allocation
provisions of SFAS No. 109, the deferred tax liability related to the unrealized
gain on marketable securities decreased the valuation allowance for the deferred
tax assets and was not charged to accumulated other comprehensive income in
stockholders' equity for that period.
As of December 31, 1999, the Company had federal and state net operating loss
carryforwards of approximately $47,241,000 and $16,952,000, respectively,
available to offset future regular and alternative minimum taxable income. In
addition, the Company had federal and state research and development credit
carryforwards of approximately $2,983,000 and $1,207,000, respectively,
available to offset future tax liabilities. The Company's federal net operating
loss and tax credit carryforwards expire in the years 2010 through 2019, if not
utilized. The state net operating loss carryforwards expire in the years 2000
through 2019. The state research and development credits can be carried forward
indefinitely. As of December 31, 1999, the Company's foreign subsidiaries had
net operating loss carryforwards in foreign jurisdictions of approximately
$4,228,000 that can be used to offset future foreign income. Of these losses,
approximately $1,690,000 expires in the years 2000 through 2003.
Approximately $2,538,000 of these losses can be carried forward indefinitely.
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.
The Company believes such an ownership change, as defined, may have
52
occurred and, accordingly, certain of the Company's federal and state net
operating loss carryforwards may be limited in their annual usage.
Note 7 -- Commitments
Leases
The Company leases its headquarters facility and its other facilities under
noncancelable operating lease agreements expiring through the year 2007. Under
the terms of the agreements, the Company is required to pay property taxes,
insurance and normal maintenance costs. The Company also leases certain
equipment under capital leases expiring through the year 2000.
A summary of future minimum lease payments is as follows (in thousands):
Capital Operating
Year Ended December 31, leases leases
- ----------------------- -------- --------
2000 $ 316 $ 3,425
2001 3,476
2002 -- 3,470
2003 -- 3,357
2004 -- 3,351
Thereafter -- 10,556
------- --------
Total minimum lease payments $ 27,635
========
Less amount representing imputed interest (46)
--------
Present value of net minimum capital lease payments 270
Less current portion (270)
-------
Capital leases, excluding current portion $ --
=======
Rental expense relating to operating leases was approximately $1,161,000,
$1,101,000 and $2,716,000 for the years ended December 31, 1997, 1998 and 1999,
respectively. Total minimum sublease payments to be received in the future under
noncancelable subleases total $717,000 through May 2000.
Standby Letter of Credit Commitments
As of December 31, 1999, the Company had various outstanding commitments in
the form of standby letters of credit, $1,400,000 in favor of the Company's
equipment leasing financier and $1,420,000 in favor of the Company's various
landlords to secure obligations under the Company's facility leases.
Note 8 -- Stockholders' Equity
Convertible Preferred Stock
During September 1999, the Board of Directors and the stockholders approved
an increase in the authorized shares of convertible preferred stock to
10,000,000 shares.
Warrants
As of December 31, 1999, there were warrants outstanding to acquire 42,723
shares of common stock at $0.94 per share related to a facilities lease. At the
date these warrants were granted, the fair value of these warrants was not
significant.
53
Common Stock
During September 1999, the Board of Directors and the stockholders approved
an increase in the authorized shares of common stock to 500,000,000 shares. In
addition, the Board of Directors increased the aggregate number of shares of
common stock available to be issued under the Company's Stock Option Plan by
9,000,000 shares.
During November 1999, the Company completed a follow on common stock offering
and issued 9.3 million shares for net proceeds to the Company of approximately
$210.4 million. In connection with the stock offering, the Company has been
listed on the Neuer Markt segment of the Frankfurt Stock Exchange under the
symbol "BDN".
The Company applies APB Opinion No. 25 and related interpretations when
accounting for its stock option and stock purchase plans. During the year ended
December 31, 1998, the Company recorded deferred compensation of $240,000
representing the difference between exercise price and fair value of stock
options granted. Deferred compensation is amortized to expense over the period
benefited which has been determined to be the vesting period of the individual
options (generally five years). As of December 31, 1999, the Company had
reserved 70,875,000 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. Approximately 57,303 unvested shares were repurchased by the Company
during the year ended December 31, 1999. As of December 31, 1999, 1,505,700
shares were subject to repurchase at a weighted-average price of $0.29.
The Company's President and Chief Executive Officer has options to purchase
4,500,000 shares of common stock at an exercise price of $0.44 per share. The
options were granted on April 1, 1995 and vest ratably over a 60-month period
commencing on grant whereas the first year is subject to cliff vesting. As of
December 31, 1999, 4,200,000 of the 4,500,000 options were vested. On June 23,
1999, the Company's President and Chief Executive Officer 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 over a 60-month period commencing on
grant whereas the first year is subject to cliff vesting. As of December 31,
1999, none of the 4,500,000 additional options were vested.
Activity in the Company's stock option plan is as follows:
Years ended December 31,
------------------------------------------------------------------
1997 1998 1999
-------------------- --------------------- ----------------------
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 21,537 $ 0.31 26,163 $ 0.50 31,482 $ 0.96
Granted 12,114 0.74 14,292 1.52 20,565 11.42
Exercised (2,295) 0.03 (5,193) 0.40 (9,759) 0.71
Forfeited (5,193) 0.47 (3,780) 0.64 (2,310) 1.67
------ ------ ------
Outstanding at end of period 26,163 $ 0.50 31,482 $ 0.96 39,978 $ 6.36
====== ====== =========
Options vested at end of period 5,769 $ 0.29 7,227 $ 0.48 6,195 $ 0.82
====== ====== ======
Weighted-average fair value of
options Granted during the period $ 0.74 $ 0.99 $ 9.36
====== ====== ======
The following table summarizes stock options outstanding under the plan as
of December 31, 1999:
Outstanding
-------------------------------------------------
Weighted-Avg. Vested
Remaining ------------------------
Range of Options Contractual Life Weighted-Avg. Options Weighted-Avg.
Exercise Prices (000's) In Years Exercise Price (000's) Exercise Price
- --------------- ------- -------- -------------- ------- --------------
$0.01 -- $ 0.78 7,974 6.81 $ 0.53 3,585 $ 0.49
0.79-- 1.71 8,514 8.00 1.14 2,079 0.97
1.72-- 4.42 7,485 8.85 3.05 528 2.38
4.75-- 6.67 9,036 9.44 5.78 0 0.00
13.55-- 52.83 6,969 9.83 23.72 3 19.03
----- -----
$0.01-- $ 52.83 39,978 8.57 $ 6.36 6,195 $ 0.82
====== =====
54
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,
-------------------------------------------------------------------------
1997 1998 1999
---------------------- ---------------------- -----------------------
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 the beginning of period 6,399 $ 0.39 7,155 $ 0.45 6,651 $ 0.47
Granted 1,386 0.61 -- -- 9,405 9.84
Exercised -- -- (504) 0.21 (333) 0.74
Forfeited (630) 0.09 -- -- (66) 7.49
----- ----- --------
Outstanding at the end of period 7,155 $ 0.45 6,651 $ 0.47 15,657 $ 6.06
===== ===== ========
Options vested at the end of period 3,555 $ 0.40 4,473 $ 0.45 5,433 $ 0.45
===== ===== ========
Weighted-average fair value of options granted
during the period $ 0.61 $ -- $ 8.06
======== ======= =======
The following table summarizes stock options outstanding as of December 31,
1999:
Outstanding
-------------------------------------------------
Weighted-Avg. Vested
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 6.16 $ 0.41 4,650 $ 0.41
0.61-- 6.33 2,406 3.14 2.19 771 0.61
6.67-- 8.00 2,544 9.57 7.31 9 7.33
8.06-- 11.76 2,805 9.67 10.92 3 9.70
12.97-- 13.48 2,952 9.72 12.99 0 0.00
----- -----
$0.09--$13.48 15,657 7.55 $ 6.06 5,433 $ 0.45
====== =====
Employee Stock Purchase Plan
As of December 31, 1999, 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 2,178,000, 2,052,000 and 1,833,000 shares to employees in the years ended
December 31, 1997, 1998 and 1999, 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 7 months, and the following weighted-average
assumptions:
Years ended December 31,
--------------------------------------
1997 1998 1999
----------- ----------- -----------
Risk-free interest rate 5.05% 4.48% 6.00%
Volatility 67% 112% 97%
The weighted-average fair value of the purchase rights granted in the years
ended December 31, 1997, 1998, and 1999 was $0.24, $0.46 and $3.24,
respectively.
Pro Forma Disclosure
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,
----------------------------------------
1997 1998 1999
------------ ------------ -------------
Expected life 2.8 years 3.0 years 4.1 years
Risk-free interest rate 5.91% 4.70% 6.55%
Volatility 67% 112% 97%
55
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,
----------------------------------
1997 1998 1999
----------- ----------- -----------
Net income (loss):
As reported $(7,373) $ 4,039 $18,809
Pro forma $(9,551) $(1,885) $(25,015)
Basic net income (loss) per share:
As reported $ (0.04) $ 0.02 $ 0.08
Pro forma $ (0.05) $ (0.01) $ (0.11)
Diluted net income (loss) per share:
As reported $ (0.04) $ 0.02 $ 0.07
Pro forma $ (0.05) $ (0.01) $ (0.10)
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 ($10,000 for the year ended December 31, 1999).
Effective January 1, 2000, the Company will provide 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.
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 Chief
Executive Officer ("CEO"). The CEO reviews financial information presented on a
consolidated basis accompanied by disaggregated information about revenues by
geographic region and by product for purposes of making operating decisions and
assessing financial performance.
The disaggregated revenue information on a product basis reviewed by the CEO
is as follows. The Company does not track margins on the same basis.
Years Ended December 31,
------------------------------------
(in thousdands) 1997 1998 1999
--------- --------- ----------
Software licenses:
One-To-One Enterprise $ 14,479 $ 17,799 $ 20,538
One-To-One Packaged Solutions 4,494 18,268 54,845
Services 5,981 9,739 26,737
Maintenance 2,151 5,105 13,394
-------- -------- --------
Total Company $ 27,105 $ 50,911 $115,514
======== ======== ========
The Company sells its products and provides services worldwide through a
direct sales force, independent distributors, value-added resellers, and system
integrators. It currently operates in three primary regions, the Americas which
includes North and South America, Europe which includes Eastern and Western
Europe and the Middle East, and Asia/Pacific which includes the Pacific Rim and
the Far East.
56
Information regarding the business operations of our sales regions are as
follows (in thousands):
Years Ended December 31,
-------------------------------
1997 1998 1999
--------- --------- -------
Revenues:
Americas $ 12,872 $29,330 $ 79,323
Europe 10,850 16,944 26,211
Asia/Pacific 3,383 4,637 9,980
-------- ------- --------
Total Company $ 27,105 $50,911 $115,514
======== ======= ========
December 31,
----------------------
1998 1999
--------- ---------
Identifiable assets:
Americas $ 99,343 $ 400,858
Europe 1,754 4,122
Asia/Pacific 465 1,148
--------- ---------
Total Company $ 101,562 $ 406,128
========= =========
During the year ended December 31, 1997, approximately 11% of the Company's
revenues were attributable to one customer. During the years ended December 31,
1998 and 1999, no customer accounted for 10% or more of the Company's revenues.
Note 11 -- Subsequent events (unaudited)
On January 26, 2000, the Company announced a definitive agreement to acquire
all of the outstanding stock of Interleaf, subject to stockholder and regulatory
approval and other conditions. Under the terms of the agreement, Interleaf
shareholders will receive 1.0395 shares of BroadVision common stock in exchange
for each share of Interleaf common stock; or estimated purchase consideration of
approximately $802 million, inclusive of $18 million of estimated acquisition
and severance costs. The Company expects to account for the acquisition as a
purchase.
On February 15, 2000, the Company entered into a lease for approximately
400,000 square feet of office space in a new building currently under
construction in Redwood City, California. The building is expected to be
available for occupancy during June 2001.
On February 22, 2000, the Company reached a settlement agreement and entered
into a license agreement with Art Technology Group ("ATG") in connection with
the lawsuit filed by the Company on December 11, 1998 against ATG alleging
infringement on Our U.S. Patent No. 5,710,887. In accordance with the terms of
the agreement, the Company granted ATG a nonexclusive, nontransferable,
worldwide, perpetual license and was paid $8 million by ATG at the effective
date of the settlement and will receive a total of $7 million payable in
quarterly installments commencing February 24, 2000 (four consecutive quarterly
payments of $750,000 during 2000 and eight consecutive quarterly payments of
$500,000 during 2001 and 2002).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
57
PART III
Certain information required by Part III is incorporated by reference in this
Report from the Company's definitive proxy statement for its 1999 Annual Meeting
of Stockholders to be filed pursuant to Regulation 14A (the "Proxy Statement").
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information with respect to the Company's directors and compliance with
Section 16(a) of the Securities Exchange Act of 1934, as amended required by
this Item is incorporated by reference from the Proxy Statement. The information
for the Company's executive officers required by this Item appears under the
caption "Executive Officers and Key Personnel" at Item 1 of this report.
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.
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, 1998 and 1999
Consolidated Statements of Operations for each of the years in the
three-year period ended December 31, 1999. Consolidated Statements of
Stockholders' Equity for each of the years in the three-year period
ended December 31, 1999.
Consolidated Statements of Cash Flows for each of the years in the
three-year period ended December 31, 1999.
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. On December 27, 1999, we filed a Current Report on
Form 8-K (File No. 0-28252) as notice of our Change in Registrant's
Certifying Accountants to engage Arthur Andersen LLP as our new
independent accountants as of December 20, 1999.
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 2000.
BroadVision, Inc.
By: /s/ Pehong Chen
----------------
Pehong Chen
Chairman of the Board 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 and March 30, 2000
--------------- Chief Executive Officer
Pehong Chen (Principal Executive Officer)
/s/ Randall C. Bolten Vice President, Operations, March 30, 2000
--------------------- Chief Financial Officer
Randall C. Bolten (Principal Financial
and Accounting Officer)
/s/ David L. Anderson Director March 30, 2000
---------------------
David L. Anderson
/s/ Yogen K. Dalal Director March 30, 2000
------------------
Yogen K. Dalal
/s/ Koh Boon Hwee Director March 30, 2000
-----------------
Koh Boon Hwee
/s/ Carl Pascarella Director March 30, 2000
-------------------
Carl Pascarella
/s/ Todd A. Garrett Director March 30, 2000
-------------------
Todd A. Garrett
/s/ Klaus Luft Director March 30, 2000
------------------
Klaus Luft
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 year ended
December 31, 1999 and have issued our report thereon dated January 24, 2000,
except with respect to the matter discussed in the section entitled "Stock
Splits" in Note 1, as to which the date is March 13, 2000. Our audit was 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, 2000
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, 1997 $ 191 $ 515 $ 35 $ 671
=============== =============== =============== ===============
Year Ended December 31, 1998 $ 671 $ 458 $ 341 $ 788
=============== =============== =============== ===============
Year Ended December 31, 1999 $ 788 $ 758 $ 100 $ 1,446
=============== =============== =============== ===============
(1) Represents net charge-offs of specific receivables.
62
BROADVISION, INC.
ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 1999
INDEX TO EXHIBITS
Exhibit Description
------- -----------
3.1* Amended and Restated Certificate of Incorporation.
3.2* Amended and restated Bylaws.
4.1* References are hereby made to Exhibits 3.1 to 3.2.
4.3* Second Amended and Restated Investor's Rights Agreement dated April 15, 1997 among
the Company and certain of its stockholders.
10.1* (1) Form of Indemnity Agreement between the Company and each of its directors.
10.2* (1) Equity Incentive Plan as amended September 29, 1999 (the "Equity Incentive Plan").
10.3* (1) Form of Incentive Stock Option under the Equity Incentive Plan.
10.4* (1) Form of Nonstatutory Stock Option under the Equity Incentive Plan.
10.5* (1) Form of Nonstatutory Stock Option (Performance-Based).
10.6* (1) 1997 Employee Stock Purchase Plan (the "Employee Stock Purchase Plan").
10.7* (1) Employee Stock Purchase Plan Offering (Initial Offering).
10.8* (1) Employee Stock Purchase Plan Offering (Subsequent Offering).
10.9* Master Equipment Lease Agreement dated May 23, 1997 between the Company and
Lighthouse Capital Partners, L.P.
10.10*+ Terms and Conditions dated January 1, 1997 between IONA Technologies LTD and the
Company.
10.11* Series D Preferred Stock Option Agreement dated February 27, 1997 between the
Company and Pehong Chen.
10.12* Standard Office Lease dated February 8, 1996 between the Company and GVE Distel
Associates, a California General Partnership.
10.13*(1) Stock Option Plan.
10.14*(1) Form of Incentive Stock Option under the Stock Option Plan.
10.15*(1) Form of Nonstatutory Stock Option under the Stock Option Plan.
10.16* Lease dated February 5, 1997 between the Company and Martin/Campus Associates, L.P.
10.17** Loan and Security, dated July 2, 1997, between Silicon Valley Bank and the Company.
10.18*** First Amendment to Loan and Security Agreement, dated as of February 5, 1998 between
the Company and Silicon Valley Bank.
10.19**** Agreement and Plan of Merger and Reorganization dated January 26, 2000 among the Company,
Infiniti Acquisition Sub, Inc. and Interleaf, Inc.
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.
27.1 Financial Data Schedule.
* Incorporated by reference to the Company's Proxy Statement filed on
September 13, 1999.
** Incorporated by reference to the Company's 10-Q for the quarter ended
September 30, 1997 filed on November 12, 1997.
*** Incorporated by reference to the Company's Registration Statement on Form
S-3 filed on March 4, 1998.
**** Incorporated by reference to the Company's Registration Statement on Form
S-4 filed on March 6, 2000.
(1) Represents a management contract or compensatory plan or arrangement.
+ Confidential treatment requested.
63