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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Year Ended December 31, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-28252
BROADVISION, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3184303
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
585 Broadway, Redwood City, California 94063
- -------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(650) 261-5100
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Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange which registered
------------------- --------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 par value
------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|
Based on the closing sales price of 5.2188 on March 28, 2001, the aggregate
market value of the voting stock held by nonaffiliates of the registrant was
$1,142,674,573.
As of March 28, 2001, registrant had outstanding 272,101,531 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Proxy Statement for Registrant's 2001 Annual Meeting of
Stockholders to be held May 24, 2001 are incorporated by reference in Part III
of this Form 10-K Report.
BROADVISION, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 2000
TABLE OF CONTENTS
Page No.
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Part I
Item 1. Business...............................................................3
Item 2. Properties............................................................14
Item 3. Legal Proceedings.....................................................14
Item 4. Submission of Matters to a Vote of Security Holders...................14
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.15
Item 6. Selected Consolidated Financial Data..................................16
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................17
Item 7A. Quantitative and Qualitative Disclosure About Market Risk............35
Item 8. Financial Statements and Supplementary Data...........................38
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..................................................56
Part III
Item 10. Directors and Executive Officers of the Registrant...................57
Item 11. Executive Compensation...............................................58
Item 12. Security Ownership of Certain Beneficial Owners and Management.......58
Item 13. Certain Relationships and Related Transactions.......................58
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8.K.....59
SIGNATURES....................................................................60
2
PART I.
ITEM 1. BUSINESS
CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995
Certain statements set forth or incorporated by reference in this Form
10-K, as well as in our Annual Report to Stockholders for the year ended
December 31, 2000, constitute "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. Words such as
`believes", "anticipates", "expects", "intends", "estimates" and similar
expressions are intended to identify forward-looking statements, but are not
the exclusive means of identifying such statements. These statements involve
known and unknown risks, uncertainties and other factors that may cause our
actual results, performance or achievements, or industry results, to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors
include, but are not limited to, those risk factors set forth under "Risk
Factors" and elsewhere in this Form 10-K. We expressly disclaim any
obligation to update or publicly release any revision to these
forward-looking statements after the date of this Form 10-K.
Overview and Industry Background................................4
The BroadVision Solution........................................4
BroadVision Business Strategies.................................4
Extend and Expand our Product Portfolio.......................4
Develop Targeted Application Solutions........................4
Enhance our Service and Support Infrastructure................5
Expand and Leverage Alliances with Key Business Partners......5
Support Diverse Customer Business Models......................5
Grow Our International Presence...............................5
BroadVision Solutions...........................................5
BroadVision Demand Suite......................................6
BroadVision Workplace.........................................6
BroadVision Supply............................................6
Enterprise Relationship Management Tools......................7
Key Capabilities of BroadVision's Applications................7
Other Products................................................8
Product Development...........................................8
BroadVision Global Services.....................................8
Strategic Services............................................8
Technical Services............................................8
Content and Creative Services.................................8
Technical Support Services....................................9
Education Services............................................9
Client Services, Project and Program Management...............9
Partner Services..............................................9
Strategic Alliances.............................................9
Platform Alliances..............................................9
Customers and Markets..........................................10
Sales and Marketing............................................11
Competition....................................................12
Intellectual Property and Other Proprietary Rights.............12
Employees......................................................13
Executive officers...........................................13
3
Overview and Industry Background
BroadVision develops and sells an integrated suite of packaged
applications for conducting e-business interactions, transactions and services.
Global enterprises and government entities use these applications to sell, buy,
and exchange goods, services and information over the Web and on wireless
devices. The BroadVision e-business application suite enables a corporation to
establish and sustain high-yield relationships with customers, suppliers,
partners, distributors, employees and other constituents of the extended
enterprise. Our consulting, education and support services in more than 34
countries, supported by over 190 partner organizations worldwide, transform
these applications into business value for our customers.
BroadVision, which was founded in 1993 and has been a publicly traded
company since 1996, has more than 1,100 customers and is a component stock of
the Standard & Poor's 500 index. IDC ranks BroadVision as the world's leading
provider of e-commerce software applications (International Data Corp.,
E-Commerce Software Applications Market Forecast and Analysis, 2000-2004).
The BroadVision Solution
The BroadVision e-business application suite allows businesses to tailor Web and
wireless content to the needs and interests of individual users by personalizing
content and transactions on a real-time basis. These personalized self-service
applications have demonstrated that they can enhance customer satisfaction and
loyalty, increase business volume and brand awareness, reduce costs to service
customers and execute transactions, and enhance employee productivity and
retention.
Our products enable companies to organize dynamic profiles of Web and
wireless users from volunteered data and observed behavior, deliver highly
specialized content in response to these profiles and execute transactions
securely. Business managers are able to modify business rules and content in
real time, offering a personalized experience to each visitor. Because of the
open architecture of our applications, they are easily integrated with our
customers' existing systems and easily expanded as our customers' needs and
businesses grow.
Supporting this application infrastructure are more than 190 partner firms
around the world who are working to ensure our joint customers' success through
complementary technology, applications, tools and services offerings that extend
and enhance customers' BroadVision implementations.
We believe our products enhance our customers' revenue opportunities by
enabling them to establish more effective and efficient "one-to-one"
relationships with their customers and business partners. Web and wireless users
are engaged by highly personalized real-time interactions, are able to transact
business securely and are encouraged to remain online and make return visits.
Our applications also improve the cost-effectiveness of one-to-one relationship
management by enabling non-technical managers to modify business rules and
content in real time and by helping to reduce costs of customer acquisition and
retention, business development and technical support as well as employee
workplace initiatives. In addition, the packaged solution nature of our products
decreases our customers' time to deployment and allows them to easily manage and
expand their Web and wireless application usage in a cost-effective manner.
BroadVision Business Strategies
Our objective is to be the leading provider of self-service e-business
applications. In order to achieve this objective, we have adopted the following
key strategic elements:
Extend and Expand our Product Portfolio. In order to enable our customers to
effectively manage all of their key e-business processes, we have focused our
product development and marketing efforts in the following areas:
o Continuing to enhance our core technology through heavy investment
in research and development activities;
o Incorporating industry-leading application components into our
products; and
o Partnering with leading technology and platform providers.
Develop Targeted Application Solutions. We were among the first companies to
introduce packaged Web applications for electronic commerce, financial services
and knowledge management. We are now extending our "best of breed" applications
with new applications designed for specific vertical industries. These
applications are being developed in conjunction with industry leaders, system
integration firms and key technology vendors.
4
Enhance our Service and Support Infrastructure. We have changed the name of our
services organization to BroadVision Global Services, or BVGS, to more
accurately reflect the expanding nature of the services provided to our clients
and partners. BVGS provides a broad range of consulting, training and technical
support services for all of our products. This organization provides business
application and technical expertise, along with extensive product knowledge, to
complement our products and provide solutions that meet customer business
requirements. By using BVGS, customers are able to build customized application
solutions to maximize the benefits of one-to-one relationship management and
self-service.
We are committed to extending the service offerings and the resources available
to our customers and have implemented programs such as an online BroadVision
University, "train-the-trainer" and third-party educational centers to extend
the breadth and depth of our service offerings. We have also tiered our
technical support offerings to offer standard, enterprise and personalized
support programs for our customers.
Expand and Leverage Alliances with Key Business Partners. We partner with
leading systems integrators, technology partners, application service providers,
or ASPs, value-added resellers, or VARs, software partners and hardware platform
partners. These alliances provide additional sales and marketing channels for
our products, enable us to more rapidly incorporate additional functions and
platforms into our products and facilitate the successful deployment of customer
applications.
To accelerate the acceptance of our products, we have developed the BroadVision
Partner Program. This Partner Program is a comprehensive, structured partnership
relationship designed to drive effective partner alliances and ensure the
success of these relationships by jointly identifying and pursuing specific
business objectives. The BroadVision Partner Program operates within a framework
of proactive business planning, revenue targeting initiatives, structured sales
enablement and enhanced BroadVision training as well as marketing and sales
engineering support. The Partner Program is intended to help our partners
successfully develop, promote, and sell their services and solutions in close
coordination with our newly expanded network of sales engineering, channel and
partner marketing and professional consulting services. The Partner Program
assists our partners in growing their businesses by incorporating our core
competency, personalizing interactions and transactions with a wide range of
constituencies, into a focused execution matrix.
Support Diverse Customer Business Models. We intend to continue our commitment
to flexibility by offering our customers choices for the deployment of our
applications. Customers can choose to deploy our applications using their own
in-house technical resources or can engage with BVGS to assist with
implementation. Customers can also choose to work with a BroadVision-trained
systems integrator or distribution partner, or with a combination of our
resources and those of a partner. Another option is for a customer to utilize an
ASP who hosts the customer's BroadVision application deployment at a remote
facility and is responsible for its ongoing service and support.
Grow Our International Presence. To capitalize on the emergence of the Web as a
global network, we have established, and will continue to add to, our worldwide
distribution capabilities. Our partners include multinational systems
integrators, as well as partners with a single-country scope of operations. Our
product architecture is designed to support multiple languages, multiple
currencies and remote, distributed publishing.
Our strategies involve substantial risks. We may be unable to implement our
strategies and our strategies, even if implemented, may not lead to successful
achievement of our objectives. If we are unable to implement our strategies
effectively, our business may be harmed. We will continue to place an emphasis
on establishing additional alliances as new technologies and standards emerge,
although we may be unable to establish or maintain certain alliances.
BroadVision Solutions
We offer enterprise-class solutions to connect companies to their customers,
suppliers, partners and employees. These solutions enable companies to maintain
and expand existing relationships in an online environment via a single,
integrated e-business platform.
BroadVision One-to-One(R) Enterprise is the application system on top of which
all BroadVision solutions are built. One-To-One Enterprise provides a secure and
flexible, standards-based architecture that supports large volume transactions,
large scale catalogs, distributed content management, enterprise system
integration and dynamic personalization. It is based on open standards such as
CORBA, Java and XML.
5
Ours solution offerings fall into three major categories:
o The BroadVision Demand Suite enables one-to-one marketing, automates
complex transactions and personalizes self-service for customers.
o BroadVision Business Commerce facilitates online trade between
business partners, whether they are merchants, resellers,
distributors or manufacturers. Large-scale business-to-business
sellers such as W.W. Grainger, General Electric and Toshiba use
BroadVision Business Commerce to create e-businesses that integrate
with structured back-end business system .
o BroadVision Retail Commerce: A highly scalable, consumer-focused
application used by Fortune 500 retailers such as Circuit City,
Sears Roebuck and The Home Depot to maximize the profitability and
efficiency of the online retailing channel.
o BroadVision MarketMaker attracts and retains buyers and suppliers by
focusing on their specific business needs. It facilitates the
formation of trading communities with automated order processing,
attribute-based request for quotes, or RFQs, sophisticated catalog
management, dynamic auctioning and robust analytic and reporting
capabilities.
o BroadVision Finance combines business rules and intelligent matching
to dynamically customize content, news, quotes and service
recommendations according to a customer's profile or a visitor's
behavior. These advanced personalization capabilities can result in
more transactions, increased opportunities for cross-selling and
up-selling and greater customer loyalty.
o BroadVision Billing brings electronic bill payment and delivery
capabilities to e-commerce and marketing Web sites. It enables
companies that want to personalize interactions with customers
during their ongoing billing cycles to streamline routine billing
practices while gaining knowledge of their customers' needs,
preferences and buying activities using the Web.
o The BroadVision Workplace offering enables companies to share information
via an enterprisewide portal and decrease the cost of procuring indirect
goods via a centralized e-procurement site.
o BroadVision Information Exchange Portal is a ready-to-use
application for building powerful enterprise information portals,
enabling businesses to reach customers, partners, suppliers and
employees through a single, personalized gateway. It allows users to
perform sophisticated publishing, access relevant information,
perform analysis, manage business processes and collaborate across
organizational boundaries through user-defined Web pages.
o BroadVision Procurement is a complete, Web-based self-service
purchasing system for maintenance, repair and operations, or MRO,
goods. It simplifies purchasing administration and facilitates
business planning through advanced administrative, analytical and
reporting tools.
o The BroadVision Supply offering provides businesses with a robust online
marketplace for buying and selling goods.
o BroadVision MarketMaker, as described above.
o BroadVision Information Exchange Portal, as described above.
6
These offerings are underpinned by a set of common enterprise relationship
management tools and capabilities, including the following:
o BroadVision Command Center is a tool that allows managers to
add, alter or delete information and manage relationships
across the extended enterprise. It enables a personalized,
dynamic and interactive experience for site visitors.
o BroadVision Design Center offers Web authors and Internet
application developers faster time-to-market by shortening the
site development cycle.
o BroadVision One-To-One Publishing is a powerful tool for
creating, publishing, updating and versioning a company's
electronic assets.
o BroadVision Publishing Center is an easy-to-use tool with a
Web-based interface for managing distributed, collaborative
online content development. It allows a distributed team of
non-technical content experts to manage every aspect of site
content, including creation, editing, staging, production and
archiving.
o BroadVision Instant Publisher allows casual content
contributors to leverage the functionality of BroadVision
Publishing Center without extensive training. It uses
customized, business-specific forms that permit easy data
entry and are usually specific to a content type.
Key Capabilities of BroadVision's Applications
We designed all of the BroadVision solutions for use in mission-critical,
high-performance environments by companies with demanding architecture,
deployment and maintenance requirements. Some of the key capabilities of the
applications include:
o Ease of use--tools designed with graphical user interfaces allowing
non-technical business managers to modify business rules and content
in real time.
o Scalability--robust embedded application server functionality allows
BroadVision One-To-One applications to support large numbers of
concurrent customers and transactions.
o Flexible integration--a comprehensive set of APIs allows integration
with a variety of legacy business systems such as Oracle,
PeopleSoft, SAP, and custom mainframe systems.
o Open standards-based architecture--object-oriented application
code written in C++ and J2EE programming environments, including
Java and JavaScript, allows developers and system integrators to
use, integrate, modify, adapt or extend the applications with
minimal impact on other areas to create a rapidly customized
product that meets specific business requirements. Support for
the CORBA standard for object-oriented computing enables
high-volume performance, flexible application deployment and easy
integration with other third-party or legacy applications. Our
applications fully support XML, which is the emerging standard
for managing and exchanging data between e-business systems as
well as for re-purposing and sending information to wireless
devices. In addition, we use other widely accepted standards in
developing our products, including Structured Query Language
(SQL) for accessing relational database management systems;
Common Gateway Interface (CGI) and Hypertext Transfer Protocol
(HTTP) for Web access; Netscape Application Programming Interface
(NAPI) for access to Netscape's Web servers; Secure Socket Layer
(SSL) for secure transmissions over networks; and the RC2 and MD5
encryption algorithms supplied by RSA. Our applications can be
operated in conjunction with relational database management
systems provided by Informix, Microsoft, Oracle and Sybase.
o Secure transaction processing--secure handling of a wide range of
commerce and financial services transactions includes order pricing
and discount/incentive handling, tax computation, shipping and
handling charges, payment authorization, credit card processing,
order tracking, news and stock feeds through a combination of
built-in functionality and integration with other products.
o Multiplatform availability--BroadVision One-To-One Enterprise and
its associated applications are available on a variety of platforms
including Sun Solaris, Microsoft Windows NT and Hewlett-Packard's
HP-UX. Supported databases include Oracle, Sybase, Informix and
Microsoft SQL Server.
o Multilingual/Multicurrency--availability of content display and
interface in Arabic, Chinese, Hebrew, Japanese, Korean, Slovakian,
Turkish and most Western European languages and support for a wide
range of currencies, including the Euro, enable worldwide use of our
applications.
7
Other Products
In addition to our products, we have entered into agreements that enable
us to resell third-party software products from Broadbase, Interwoven, IONA
Technologies, Macromedia and Verity. These are sublicensed to end users and
either incorporated in or sold as options to our products. License revenue from
these third-party products constituted approximately 5%, 7% and less than 1% of
total software product license revenues for each of the years ended December 31,
2000, 1999 and 1998, respectively.
Product Development
We believe that our future success will depend in large part on our
ability to enhance the BroadVision One-To-One applications suite, develop new
products, maintain technological leadership and satisfy an evolving range of
customer requirements for large-scale interactive online relationship management
applications.
Our product development organization is responsible for product
architecture, core technology, product testing and quality assurance, writing
product user documentation and expanding the ability of BroadVision One-To-One
products to operate with the leading hardware platforms, operating systems,
database management systems and key electronic commerce transaction processing
standards.
Since inception, we have made substantial investments in product
development and related activities. Certain technologies have been acquired and
integrated into BroadVision One-To-One products through licensing arrangements.
As of December 31, 2000, there were 348 employees in our product
development organization. Our research and development expenses were $51.6
million in the year ended December 31, 2000, $14.6 million in the year ended
December 31, 1999 and $9.2 million in the year ended December 31, 1998.
To date, we have not capitalized any software development costs as
products are made available for general release relatively concurrently with the
establishment of technological feasibility. We expect to continue to devote
substantial resources to our product development activities.
BroadVision Global Services (BVGS)
BroadVision Global Services, or BVGS, provides a broad range of
consulting, training and technical support services to all of our customers
and implementation partners. This organization provides business application
and technical expertise, along with extensive product knowledge, to
complement our products and provide solutions that meet customers' unique
business requirements. By using our services, customers are able to build
customized application solutions to maximize the benefits of one-to-one
relationship management and self-service.
A summary of the services provided by BVGS is as follows:
o Strategic Services. We provide business strategy and process consulting to
assist customers in defining and planning profitable online businesses,
while optimally utilizing the functionality of our products. Services
include in-depth needs analysis, customer segmentation, one-to-one
marketing expertise, storyboarding and business organizational planning to
achieve timely and successful implementation of our e-business solutions.
Strategic Services consulting is generally offered on a time and materials
basis.
o Technical Services. We provide technical services for development of
customized BroadVision One-To-One applications, custom interfaces, data
conversions and system integration. These consultants participate in a
wide range of activities, including requirements definition, solution
design, development and implementation and performance planning,
architecture and tuning. These consultants also provide advanced
technology services focused on application development for custom objects
and templates and database administration and tuning. Technical Services
consulting is generally offered on a time and materials basis.
o Content and Creative Services. This group specializes in information
architecture, content management, sourcing, workflow processes and user
experience design. The group is made up of BroadVision One-To-One product
design experts and a variety of leading third party design companies. This
team combines extensive interactive design and marketing experience to
build effective user experiences. Content and Creative Services consulting
is generally offered on a time and materials basis.
8
o Technical Support Services. We have tiered our support programs to
better serve the needs of our worldwide customer base. Standard Support
provides technical assistance during regular business hours; Enterprise
Support is designed for customers with mission-critical environments,
providing customers with access to support experts 24 hours a day, 7
days a week; and Personalized Support assigns a specific individual to
a customer along with other customer specified support services,
including on-site support engineers. We have technical support centers
in North America, Europe and Asia. Under our standard maintenance
agreement, we provide telephone support and upgrade rights to new
releases, including patch releases as necessary, and product
enhancements.
o Education Services. Under the banner of BroadVision University, we deliver
training solutions that ensure our customers and partners have access to
timely and effective training for successful implementation of BroadVision
One-to-One Applications globally. Our advanced delivery infrastructure
allows us to deliver courses throughout the world at our facilities or at
customer locations. In addition to instructor led courses, BroadVision
University has launched a global e-learning platform to facilitate the
delivery of web-based on-demand courses. BroadVision University also
delivers an extensive training program to BroadVision employees to ensure
high-quality and consistent training of our own personnel. This program
provides a series of foundation courses that are general in content for
all audiences as well as specific courses based on the employee's role in
BroadVision.
o Client Services, Project and Program Management. This management team
drives project discipline from discovery through deployment and into
production support based on our client and partner needs. Our Client
Services Managers manage multiple projects with a variety of customers and
provide deep knowledge and best practices advocacy within BroadVision for
appropriate implementation, training and support services. Our Project
Managers are responsible for the day-to-day project management activities,
which can include project scope, deliverables, change management and
resource coordination. Our Project Managers also leverage our BVGS iGuide
methodology and work closely with our clients, partners and consultants to
collaboratively deliver each project plan. Our Program Managers are also
responsible for managing our national and global accounts where our
clients are implementing enterprise-wide solutions. These Program Managers
establish processes and coordinate knowledge and relationships between
corporate functions and individual line or field business units to re-use
information, resulting in speed to market and low cost of ownership.
o Partner Services. The goal of partner services is to provide the partner
community with the appropriate integration of BVGS services, tools,
resources and best practices required to deliver the highest level of
customer satisfaction. This team works directly with our extensive partner
community including system integrators, technology partners, platform
partners and application service providers to ensure partner readiness and
enable knowledge transfer between BVGS and the partner community. Specific
activities include the creation and execution of partner specific training
and development plans utilizing BroadVision University, development of a
Partner Framework that clearly outlines the working relationship between
BVGS and a given partner, and the ongoing measurement of partner
capabilities and readiness.
Strategic Alliances
A significant element of our sales strategy is to engage in strategic business
alliances to assist us in marketing, selling and developing customer
applications.
As of December 31, 2000, we had developed key strategic business alliances with
over 190 systems integration, design, consulting and other services
organizations throughout the world, including Accenture, Deloitte Consulting,
Hewlett-Packard Consulting, IBM Global Services, KPMG Consulting, Leapnet,
PricewaterhouseCoopers and Roundarch. Moreover, as of December 31, 2000, we had
trained over 15,000 external consultants.
In April 1999, we announced a strategic alliance with Hewlett-Packard in which
Hewlett-Packard agreed to resell and support the current BroadVision One-To-One
product suite and to co-develop, sell and support integrated business-portal
solutions that will act as the interface to next generation e-services for
enterprise customers. In June 2000, the companies deepened their strategic
relationship by signing a consulting Systems Integration Partner Agreement. As a
result of this agreement, more than 400 consultants trained by HP Consulting are
engaged in the implementation of more than 40 BroadVision customer sites
worldwide. Hewlett-Packard is leveraging its approximately 5,000 person global
sales force to resell and support the current BroadVision One-To-One product
suite.
Throughout 2000, PricewaterhouseCoopers and BroadVision have been working
together on more than 20 engagements, across many major industries, for Fortune
500 and new economy clients. The expanded alliance will combine the global
reach, e-business acumen, consulting and systems integration experience of
PricewaterhouseCoopers with BroadVision's comprehensive suite of integrated
e-business software products and services.
Platform Alliances
Our platform alliances are partnerships formed to integrate technologies to
drive business growth.
NCR Corporation. In November 2000, data warehousing and automatic teller
machine, or ATM, leader NCR Corporation and BroadVision announced a worldwide
agreement to enable companies to drive business growth with personalized
communications to consumers and businesses. This $17 million commitment
represents the two companies' joint investment in research and development,
marketing and the development and operation of Centers of Expertise.
Through this agreement, NCR and BroadVision plan to work together to develop
software adapters between our industry-leading e-business applications and NCR's
world-class Teradata database, Customer Relationship Management solutions and
ATMs.
9
Intel Corporation. In November 2000, BroadVision and Intel Corporation announced
an e-business alliance to develop and market solutions built on BroadVision's
suite of e-business applications and Intel-based servers. The agreement advances
both companies' commitment to deliver cost-effective, enterprise-class
e-business solutions.
BEA Systems. Also in November 2000, BroadVision and BEA Systems announced a
strategic alliance under which BEA Systems' WebLogic Server would be marketed
with BroadVision One-To-One Enterprise. This arrangement is intended to allow
users to combine BEA's leading Java-based application server technology with
our leading e-business software applications.
I2 Technologies. In October 2000, i2 Technologies and BroadVision announced a
joint development agreement to deliver a comprehensive e-commerce solution. The
combined offering will integrate the i2 TradeMatrix Sell and i2 TradeMatrix
Content Solutions with our suite of e-business applications to create a
best-of-breed solution for managing the entire e-commerce value chain. Aimed at
companies that want to accelerate their time-to-market and reduce cost of
ownership as they establish new e-businesses, this is one of the first
e-business solutions to integrate front-end multi-enterprise order capture and
creation to back-end order management and fulfillment capabilities.
Compaq Computer Corporation. In September 2000, acting on our commitment to
deliver enterprise-ready solutions to the Windows marketplace, we announced a
strategic relationship with Compaq Computer Corporation for the development and
marketing of solutions built on our suite of e-business applications and
Compaq's ProLiant servers.
IBM Corporation. Also in September 2000, IBM and BroadVision announced an
agreement that will enable IBM to integrate our full suite of e-business
applications on IBM's RS/6000 servers that employ high-performance copper
technology. The agreement provides customers with more choices for building and
deploying their e-business solutions, as well as increasing network performance
and availability. In addition, IBM Global Services will create a practice of
service professionals around the world to help customers implement our
applications.
Additionally, we have developed key technology partnerships with leading Web-
and wireless-focused companies in areas complementary to our solutions, such as
data analysis and reporting, enterprise application integration, enterprise Web
management, call center management, content management, voice recognition,
payment processing, auctioning and XML. These technology partnerships enhance
our ability to base our products on industry standards and to take advantage of
current and emerging technologies. These alliances include companies such as
Broadbase, Documentum, E.Piphany, Genesys, i2, Interwoven, Nuance, Tibco,
WebMethods and Yantra.
Customers and Markets
As of December 31, 2000, we had licensed our products to over 970 end-user
customers, including customers acquired as part of the Interleaf acquisition,
and over 190 partners and the total number of our installed customer base as
of December 31, 2000 was over 1,100 accounts across top vertical markets
worldwide. As of December 31, 2000, our products were commercially deployed
in over 572 live Web sites. During the years ended December 31, 2000, and
December 31, 1999, no customer accounted for more than 10% of our total
revenues.
Our primary target customers are Global 2000 organizations that are at the
forefront of building innovative Web applications to increase revenues and
reduce operational costs. We also target pure-play Web companies that have built
or are building their core businesses on the Web.
A sample listing of our customers by industry is as follows:
o Financial Services: ABN AMRO, Bank of America, Barclay's Bank, Bear
Stearns, China Trust Bank, Citibank, Credit Suisse, e-Trade,
FleetBoston, GMAC, Hartford Life, ING Bank, Northern Trust and TD
Waterhouse.
o Manufacturing:
o High-Tech: Agilent, Compaq, Hewlett-Packard, Intel, NEC, NCR,
Macromedia, Molex, Motorola, Novell, RS Components, Siemens,
Sony, Toshiba, Unisys and Xerox;
o Industrial Equipment: GE Supply, Hilti, MRO.com, WW Grainger
and Sealed Air;
o Oil/Gas: Aramco Service Company, Cooper Cameron, Fuel Quest
and Tosco;
o Automobile: Ferrari, Fiat and Maserati
o Consumer Packaged Goods: Coors, GE and Georgia Pacific;
o Aircraft/Transport: Aviall, Boeing and Rockwell.
10
o Government/Public Sector: San Diego Workforce, Singapore Post,
State of California, Swiss Post, US General Services
Administration, US Postal Service and World Health
Organization.
o Retail: Blackwell's, Brookstone, Circuit City, Hallmark, Home
Depot, Maytag, OfficeMax, Pitney Bowes, RedEnvelope, Sears
Roebuck, Shop At Home, Swatch, and Wal*Mart.
o Telecom: British Telecom, ConnectOne, Eircom, Ericsson, France
Telecom, Genuity, Japan Telecom, KPN, MCI Worldcom, Nortel
Networks, Telia, Telus, UUNet, Verizon and Vodafone.
o Travel: Aer Lingus, Air Canada, Air France, Amadeus, Budget
Canada, Carlson Companies, Club Med, Forte Hotels, Japan
Airlines, RailEurope, Rand McNally, TAM Airlines and Nippon
Travel.
o Pharmaceuticals/Healthcare: Advance PCS, formerly Advance
Paradigm, Cardinal Health Inc./Allegiance Healthcare ,
Fresenius Medical Care, Hawaii Medical Service Association,
Highmark, Janssen Pharmaceutica, Longs Drugs, Medimania, Merck
Medco, NTT Data Healthcare, Pfizer and Premier Healthcare.
o Media/Publishing/Entertainment: Electronic Arts, Grolier,
Loftus Multimedia, NextMedia and Primedia.
Sales and Marketing
We market our products primarily through a direct sales organization with
operations in North America, Europe, Australia and Asia/Pacific. On December 31,
2000, our direct sales organization included 544 sales representatives, managers
and sales support.
We have sales offices located throughout the world to support the sales
and marketing of our products. In support of the Americas sales and marketing
organizations, offices are located in the United States in Arizona, California,
Colorado, Florida, Georgia, Illinois, Kansas, Maryland, Massachusetts, Michigan,
Minnesota, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania,
Texas, Virginia, Washington and Wisconsin; in Canada, in Toronto, Ontario and
Vancouver, British Columbia; in Latin America, in Argentina, Brazil and Mexico.
Sales and marketing offices for our EMEA, or Europe/Middle East/Africa,
region are located in Austria, Denmark, Finland, France, Germany, Italy, the
Netherlands, Spain, Sweden, Switzerland and the United Kingdom.
Our sales and marketing offices in the Asia Pacific/Japan/India region are
located in Australia, India, Japan, the People's Republic of China, including
Hong Kong, the Republic of China (Taiwan), Singapore and South Korea.
A component of our strategy is continued expansion of our international
activities. We intend to broaden our presence in international markets by
expanding our international sales force and by entering into additional
distribution agreements. We also contract with third-party resellers,
distributors and systems integrators in North America, South America, Europe,
Australia and Asia. We intend to increase our use of this distribution channel.
Initial sales activities typically include a demonstration of our
e-business product suite capabilities at the prospect's site, followed by one or
more detailed technical reviews, often presented at our headquarters. The sales
process usually involves collaboration with the prospective customer in order to
specify the scope of the application. Our global services organization typically
plays a key role in helping customers to design, and then develop and deploy,
their applications.
As of December 31, 2000, 196 employees were engaged in a variety of
marketing activities, including preparing marketing research, product planning
and collateral marketing materials, managing press coverage and other public
relations, identifying potential customers, attending trade shows, seminars and
conferences, establishing and maintaining close relationships with recognized
industry analysts and maintaining our Web site.
Our marketing efforts are targeted at:
o Product strategy development and product management;
o Building market awareness through press and analysts relations;
o Creating brand awareness and visibility;
o Producing and maintaining marketing information and sales tools;
o Generating and developing customer leads;
o Sourcing and managing relationships with systems integrators,
value-added resellers and creative designers; and
o Advertising agencies and technology partners.
11
Competition
The market for personalized e-business and one-to-one relationship management
applications is rapidly evolving and intensely competitive. We expect
competition to persist and intensify in the future.
Our primary competition currently includes:
o in-house development efforts by prospective customers or
partners;
o other vendors of application software or application
development platforms and tools directed at interactive
commerce and financial services, such as Allaire, Ariba, Art
Technology Group Inc., Blue Martini, CommerceOne, InterWorld
Corporation, Open Market, Inc., Oracle, Plumtree, Siebel and
Vignette Corporation;
o Web content developers that develop custom software or
integrate other application software into custom solutions;
o International Business Machines Corporation; and
o Microsoft Corporation.
The principal competitive factors affecting the market for our products are:
o Depth and breadth of functionality offered;
o Ease of application development;
o Availability of knowledgeable developers;
o Time required for application development;
o Reliance on industry standards;
o Product reliability;
o Proven track record;
o Scalability;
o Maintainability;
o Personalization and other features;
o Product quality;
o Price; and
o Customer support.
Compared to us, many of these and other current and future competitors
have longer operating histories and significantly greater financial,
technical, marketing and other resources than those of us. As a result, they
may be able to respond more quickly to new or changing opportunities,
technologies and customer requirements. Many of these companies also can use
their greater name recognition and more extensive customer base to gain
market share at our expense. Competitors may be able to undertake more
extensive promotional activities, adopt more aggressive pricing policies and
offer more attractive terms to purchasers. Current and potential competitors
may bundle their products to discourage users from purchasing our products.
In addition, competitors have established or may establish cooperative
relationships among themselves or with third parties to enhance their
products. Accordingly, it is possible that new competitors or alliances among
competitors may emerge and rapidly acquire significant market share.
Competitive pressures may make it difficult for us to acquire and retain
customers and may require us to reduce the price of our products. We may be
unable to compete successfully with current or new competitors.
Intellectual Property and Other Proprietary Rights
Our success and ability to compete are dependent to a significant
degree on our proprietary technology. Although we hold a U.S patent, issued
in January 1998, on elements of the BroadVision One-To-One Enterprise
product, this patent may not provide an adequate level of intellectual
property protection. In addition, litigation like the lawsuit we filed
against Art Technology Group, which was settled in February 2000, may be
necessary in the future to enforce our intellectual property rights, to
protect our trade secrets, to determine the validity and scope of the
proprietary rights of others, or to defend against claims of infringement or
invalidity. We cannot guarantee that infringement or other claims will not be
asserted or prosecuted against us in the future, whether resulting from our
intellectual property or licenses from third parties. Claims or litigation,
whether successful or unsuccessful, could result in substantial costs and
diversions of resources, either of which could harm our business.
We also rely on copyright, trademark, service mark, trade secret laws
and contractual restrictions to protect our proprietary rights in products
and services. We have registered "BroadVision" and "BroadVision One-To-One"
as trademarks in the United States and in other countries. It is possible
that our competitors or other companies will adopt product names similar to
these trademarks, impeding our ability to build brand identity and possibly
confusing customers.
As a matter of company policy, we enter into confidentiality and
assignment agreements with our employees, consultants and vendors. We also
control access to and distribution of our software, documents and other
proprietary information. Notwithstanding these precautions, it may be
possible for an unauthorized third party to copy or otherwise obtain and use
our software or other proprietary information or to develop similar software
independently. Policing unauthorized use of our products will be difficult,
particularly because the global nature of the Internet makes it difficult to
control the ultimate destination or security of software and other
transmitted data. The laws of other countries may afford us little or no
effective protection of our intellectual property. We rely upon certain
software that we license from third parties, including relational database
management systems from Oracle and Sybase, object request broker software
from IONA Technologies, database access technology from RogueWave Software
and other software that is integrated with internally developed software and
used in our software to perform key functions. In this regard, all of our
services incorporate data encryption and authentication technology licensed
from RSA. Our third-party technology licenses may not continue to be
available to us on commercially reasonable terms, if at all. The loss of or
inability to maintain any of these technology licenses could result in delays
in introduction of our products and services until equivalent technology, if
available, is identified, licensed and integrated, which could harm our
business.
12
Recent Acquisitions
On April 14, 2000, we acquired Interleaf, Inc. and its subsidiaries
("Interleaf") pursuant to a statutory merger involving a stock-for-stock
exchange. We acquired Interleaf primarily to enable us to add significant
wireless technology capabilities and substantially increase our ability to
provide enhanced personalized e-business applications across multi-touch points.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview" and Note 2 of "Notes to Consolidated Financial Statements"
for more detailed information.
Employees
As of December 31, 2000, we employed a total of 2,412 full-time employees,
of whom 1,828 are based in North America and South America, 372 in Europe and
212 in Asia. Of these full-time employees, 740 are in sales and marketing, 348
are in product development, 1,135 are in global services and client support, and
189 are in finance, administration and operations. As of December 31, 1999 and
1998, we employed 652 and 271 full-time employees, respectively.
We believe that our future success depends on attracting and retaining
highly skilled personnel. Competition for personnel is intense, and we may be
unable to attract and retain high-caliber employees. Our employees are not
represented by any collective bargaining unit. We have never experienced a work
stoppage and consider our employee relations to be good.
Executive Officers
The following table sets forth certain information regarding our current
executive officers.
Name Age Position
---- --- --------
Pehong Chen............43 Chairman of the Board, Chief Executive
Officer and President
Randall C. Bolten......48 Chief Financial Officer and Executive Vice
President, Operations
James W. Thanos........52 Executive Vice President and General
Manager, Worldwide Field Operations
Nancy Mills-Turner.....48 Executive Vice President and General
Manager, Worldwide Products Organization
Chris M. Grejtak.......52 Executive Vice President, Worldwide
Marketing and Business Development, and
Chief Marketing Officer
Pehong Chen has served as our Chairman of the Board, Chief Executive
Officer and President since our incorporation in May 1993. From 1992 to 1993,
Dr. Chen served as the Vice President of Multimedia Technology at Sybase, a
supplier of client-server software products. Dr. Chen founded and, from 1989 to
1992, served as President of Gain Technology, a provider of multimedia
applications development systems, which was acquired by Sybase. He received a
B.S. in Computer Science from National Taiwan University, an M.S. in Computer
Science from Indiana University and a Ph.D. in Computer Science from the
University of California at Berkeley.
Randall C. Bolten has served as our Chief Financial Officer since
September 1995 and as Chief Financial Officer and Executive Vice President,
Operations from January 2000. From 1994 to 1995, Mr. Bolten served as a
financial consultant to various entrepreneurial enterprises. From 1992 to 1994,
Mr. Bolten served as Chief Financial Officer of BioCad Corporation, a supplier
of drug discovery software products. From 1990 to 1992, Mr. Bolten served as
Chief Financial Officer, Business Development Unit and then Vice President,
Finance of Teknekron, a company engaged in the management of various high
technology companies. He received an A.B. in Economics from Princeton University
and an M.B.A. from Stanford University.
13
James W. Thanos has served as our Vice President and General Manager,
Americas since January 1998 and as our Executive Vice President and General
Manager, Worldwide Field Operations, since January 2000. From January 1995 to
January 1998, Mr. Thanos served as Vice President of North American Operations
of Aurum Software, a sales force automation company. From May 1994 to January
1995, Mr. Thanos served as Vice President of Sales of Digital Equipment
Corporation. From January 1993 to December 1994, Mr. Thanos served as Vice
President of Sales of Harvest Software, an optical character recognition
software company. From December 1988 to January 1993, Mr. Thanos served as Vice
President of Sales Operations of Metaphor, a decision support software company.
Mr. Thanos holds a B.A. in International Relations from Johns Hopkins
University.
Nancy Mills-Turner joined BroadVision in September 1999 as Vice President
of Worldwide Professional Services, in January 2000, was promoted to Executive
Vice President and General Manager, Worldwide Professional Services and in
January 2001 was named Executive Vice President and General Manager, Worldwide
Products Organization. Prior to BroadVision, she worked for Oracle managing the
professional services groups including Consulting and Education. Before joining
Oracle in 1995, she served as director of Federal, State and Local practice
consultants at PricewaterhouseCoopers LLP. Prior to PricewaterhouseCoopers LLP,
she was Vice President, Software at BIS Computer Solutions directing the
activities of product development divisions specializing in commercial and
criminal justice applications and implementations services. Ms. Mills-Turner
received a B.A./B.S. in Business Administration and Biochemistry from Arizona
State University and a Master's degree in Business Administration and
Information Management Sciences from University of Southern California.
Chris M. Grejtak joined us in January 2001 as Executive Vice President,
Worldwide Marketing and Business Development, and Chief Marketing Officer.
From January 2000 to January 2001, he served as Chief Executive Officer of
Viquity, Inc., a provider of hosted universal connectivity services for
internet-based integration of mission critical business systems. From
December 1996 to January 2000, Mr. Grejtak was the Executive Vice President,
Worldwide Marketing for Brio Technology, a provider of analytics software for
enterprise infrastructure management. From December 1995 to December 1996,
Mr. Grejtak was the Vice President of Marketing for Red Brick Systems, Inc.,
which developed database management system technology to support data
warehouse and business intelligence applications. Mr. Grejtak received a B.A.
in Sociology from Middlebury College.
ITEM 2. PROPERTIES
Our principal administration, research and development, sales, consulting,
training and support facilities are located in Redwood City, California, where
we occupy approximately 162,000 square feet pursuant to leases expiring through
2008. We recently entered into a lease for a new facility currently under
construction that will provide us with an additional approximately 519,000
square feet in Redwood City, California. The facility is expected to be
available for occupancy during June 2001.
Our European headquarters are located in Green Park, Reading, in the
United Kingdom where we lease approximately 19,000 square feet. Our Asia Pacific
headquarters are located in Taipei, Taiwan where we lease approximately 19,000
square feet.
In addition, we have offices throughout the world to support the
development, sales, marketing and support of our products and services. See
"Sales and Marketing" above.
ITEM 3. LEGAL PROCEEDINGS
On February 22, 2000, we reached a settlement agreement and entered into a
license agreement with Art Technology Group, or ATG, in connection with the
lawsuit we filed on December 11, 1998 against ATG alleging infringement of our
U.S. Patent No. 5,710,887. In accordance with the terms of the settlement
agreement, we granted ATG a nonexclusive, nontransferable, worldwide, perpetual
license and we were paid by ATG $8 million at the effective date of the
settlement. In addition, we will receive an additional $7 million payable in
quarterly installments, which payments commenced February 24, 2000, in the form
of four consecutive quarterly payments of $750,000 during 2000 and eight
consecutive quarterly payments of $500,000 during 2001 and 2002. There are no
material pending legal proceedings to which we or any of our subsidiaries is a
party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is quoted on the Nasdaq National Market under the symbol
"BVSN." The following table shows high and low sale prices per share of the
common stock as reported on the Nasdaq National Market:
High Low
---- ---
Fiscal Year 2000
First Quarter......................... $ 90.67 $ 42.44
Second Quarter........................ 61.56 26.88
Third Quarter......................... 54.56 25.69
Fourth Quarter........................ 36.19 11.81
Fiscal Year 1999
First Quarter......................... $ 8.04 $ 3.01
Second Quarter........................ 8.19 4.35
Third Quarter......................... 15.54 6.82
Fourth Quarter........................ 59.67 14.10
As of March 28, 2001, there were 1,831 holders of record of our common
stock. On March 28, 2001, the last sale price reported on the Nasdaq National
Market System for our common stock was $5.2188 per share. In May 2000, we
exchanged equity securities worth $3.0 million with netalone.com. We issued
to netalone.com 76,665 shares of our Common Stock in exchange for the receipt
from netalone.com of 23,366,700 shares of its Common Stock. In September
2000, in connection with Compaq Computer Corporation entering into a master
marketing and license agreement with us, we issued a warrant to Compaq for
43,478 shares of our Common Stock with an exercise price of $34.50 per share.
The exercise period for the warrant began on September 1, 2000 and expires on
September 1, 2005.
We have never declared or paid cash dividends on our common stock, and it
is our present intention to retain earnings to finance the expansion of our
business. In addition, our credit facility with our commercial lender contains
certain covenants that may limit our ability to pay cash dividends.
15
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Consolidated Financial Statements of the Company
and Notes thereto, and other financial information included elsewhere herein of
this Form 10-K. Historical results are not necessarily indicative of results
that may be expected for future periods.
Years Ended December 31,
-----------------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(in thousands, except per share data)
Consolidated Statement of Operations Data:
Revenues:
Software licenses ....................... $ 250,838 $ 75,383 $ 36,067 $ 18,973 $ 7,464
Services ................................ 163,078 40,131 14,844 8,132 3,418
----------- ----------- ----------- ----------- -----------
Total revenues .................... 413,916 115,514 50,911 27,105 10,882
Cost of revenues:
Cost of software licenses ............... 7,827 3,703 1,001 1,664 330
Cost of services ........................ 117,808 25,108 8,704 4,284 2,164
----------- ----------- ----------- ----------- -----------
Total cost of revenues ............ 125,635 28,811 9,705 5,948 2,494
----------- ----------- ----------- ----------- -----------
Gross profit .............................. 288,281 86,703 41,206 21,157 8,388
Operating expenses:
Research and development ................ 51,621 14,568 9,227 7,392 4,985
Sales and marketing ..................... 167,415 48,903 26,269 18,413 12,066
General and administrative .............. 28,195 7,970 3,786 2,990 2,034
Goodwill and intangible
amortization .......................... 187,748 -- -- -- --
Charge for acquired in-process technology 10,100 -- -- -- --
----------- ----------- ----------- ----------- -----------
Total operating expenses .......... 445,079 71,441 39,282 28,795 19,085
----------- ----------- ----------- ----------- -----------
Operating (loss) income ................. (156,798) 15,262 1,924 (7,638) (10,697)
Other, net .............................. (4,831) 3,547 2,115 265 552
----------- ----------- ----------- ----------- -----------
Net (loss) income ....................... $ (161,629) $ 18,809 $ 4,039 $ (7,373) $ (10,145)
=========== =========== =========== =========== ===========
Net (loss) income per share:
Basic (loss) earnings per share ........... $ (0.62) $ 0.08 $ 0.02 $ (0.04) $ (0.06)
=========== =========== =========== =========== ===========
Shares used in computation -- basic (loss)
earnings per share ........................ 259,780 229,128 210,114 181,872 169,335
=========== =========== =========== =========== ===========
Diluted (loss) earnings per share ......... $ (0.62) $ 0.07 $ 0.02 $ (0.04) $ (0.06)
=========== =========== =========== =========== ===========
Shares used in computation -- diluted (loss)
earnings per share ........................ 259,780 260,712 230,877 181,872 169,335
=========== =========== =========== =========== ===========
As of December 31,
-----------------------------------------------------------------------
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents ................. $ 153,137 $ 279,823 $ 61,878 $ 8,277 $ 17,608
Working capital ........................... 215,831 324,156 63,620 11,485 18,258
Total assets .............................. 1,143,024 406,128 101,562 26,539 26,714
Debt and capital leases, less current
portion ................................... 3,897 4,890 3,194 3,005 495
Accumulated deficit ....................... (162,423) (794) (19,603) (23,642) (16,269)
Total stockholders' equity ................ 1,009,298 345,188 81,809 15,121 21,016
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
We develop and sell an integrated suite of packaged applications for
conducting e-business interactions, transactions and services. Global
enterprises and government entities use these applications to sell, buy, and
exchange goods, services and information over the Web and on wireless devices.
Our e-business application suite enables a corporation to establish and sustain
high-yield relationships with customers, suppliers, partners, distributors,
employees and other constituents of the extended enterprise.
The BroadVision e-business application suite allows businesses to tailor
Web and wireless content to the needs and interests of individual users by
personalizing content and transactions on a real-time basis. These personalized
self-service applications have demonstrated that they can enhance customer
satisfaction and loyalty, increase business volume and brand awareness, reduce
costs to service customers and execute transactions, and enhance employee
productivity and retention.
Our products enable companies to organize dynamic profiles of Web and
wireless users from volunteered data and observed behavior, deliver highly
specialized content in response to these profiles and securely execute
transactions. Business managers are able to modify business rules and content in
real time, offering a personalized experience to each visitor. Because of the
open architecture of our applications, they are easily integrated with our
customers' existing systems and easily expanded as our customers' needs and
businesses grow.
Supporting this application infrastructure are more than 190 partner firms
around the world who are working to ensure our joint customers' success through
complementary technology, applications, tools, and services offerings that
extend and enhance customers' BroadVision implementations.
We believe our products enhance our customers' revenue opportunities by
enabling them to establish more effective and efficient "one-to-one"
relationships with their customers and business partners. Web and wireless users
are engaged by highly personalized real-time interactions, are able to transact
business securely and are encouraged to remain online and make return visits.
Our applications also improve the cost-effectiveness of one-to-one relationship
management by enabling non-technical managers to modify business rules and
content in real time and by helping to reduce costs of customer acquisition and
retention, business development and technical support as well as employee
workplace initiatives. In addition, the packaged solution nature of our products
decreases our customers' time to deployment and allows them to easily manage and
expand their Web and wireless application usage in a cost-effective manner.
We sell our products and services worldwide through a direct sales force and a
channel of independent distributors, value-added resellers, or VARs, and
application service providers, or ASPs. In addition, our sales are promoted
through independent professional consulting organizations, known as systems
integrators, or consulting partners and through members of a global network of
strategic business relationships with key industry platform and Web developer
partners. We also engage in strategic business alliances to assist with the
marketing, selling and development of our customers' applications. We place a
strategic emphasis on technology alliances to ensure that our products are based
on industry standards and to position us to take advantage of current and
emerging technologies. All of these independent entities are often referred to
in this document as "partners." The benefits of this approach include enabling
us to focus on our core competencies while reducing time to market and
simplifying the task of designing and developing applications for us and our
customers.
On April 14, 2000, we acquired Interleaf pursuant to a statutory merger
involving a stock-for-stock exchange. The acquisition occurred primarily to
enable us to add significant wireless technology capabilities and substantially
increase our ability to provide enhanced personalized e-business applications
across multi-touch points. We accounted for this acquisition as a purchase
business combination. Accordingly, the results of operations of Interleaf are
included in our combined results from the date of the acquisition. Please see
Note 2 of Notes to Consolidated Financial Statements for more detailed
information.
17
STATEMENT OF OPERATIONS AS A PERCENT OF TOTAL REVENUES
The following table sets forth certain items reflected in our consolidated
statements of operations expressed as a percent of total revenues for the
periods indicated.
Years Ended December 31,
---------------------------
2000 1999 1998
------ ------ ------
Revenues:
Software licenses ............................. 61% 65% 71%
Services ...................................... 39 35 29
---- ---- ----
Total revenues ........................ 100 100 100
---- ---- ----
Cost of revenues:
Cost of software licenses ..................... 2 3 2
Cost of services .............................. 28 22 17
---- ---- ----
Total cost of revenues ..................... 30 25 19
---- ---- ----
Gross profit .......................... 70 75 81
---- ---- ----
Operating expenses:
Research and development ...................... 13 13 18
Sales and marketing ........................... 41 42 52
General and administrative .................... 7 7 7
Goodwill and intangible amortization .......... 45 -- --
Charge for acquired in-process technology ..... 2 -- --
---- ---- ----
Total operating expenses ................... 108 62 77
---- ---- ----
Operating (loss) income ............... (38) 13 4
Other, net ................................. 4 4 4
---- ---- ----
(Loss) Income before income taxes ..... (34) 17 8
Income tax provision ....................... 5 1 --
---- ---- ----
Net (loss) income ..................... (39)% 16% 8%
==== ==== ====
RESULTS OF OPERATIONS
Revenues
Our revenues are derived from software licensing arrangements and fees
charged for services. Software is generally licensed for development use and
for its use in deployment of the customer's website. Deployment licenses are
generally based on the number of persons who register on a customer's website
using our software. Our revenue recognition policies are in accordance with
Statement of Position ("SOP") 97-2, Software Revenue Recognition, as amended
and SOP 98-9, Software Revenue Recognition, With Respect to Certain
Transactions. In general, software license revenues are recognized when a
non-cancelable license agreement has been signed and the customer
acknowledges an unconditional obligation to pay, the software product has
been delivered, there are no uncertainties surrounding product acceptance,
the fees are fixed and determinable and collection is considered probable;
professional services revenues are recognized as such services are performed;
and maintenance revenues, or post-contract customer support, or PCS,
including revenues bundled with software agreements which entitle the
customers to technical support and future unspecified enhancements to our
products, are deferred and recognized ratably over the related contract
period, generally twelve months. Revenues recognized from multiple-element
software arrangements are allocated to each element of the arrangement based
on the fair values of the elements, such as software products, post contract
customer support, installation or training. The determination of fair value
is based on objective evidence which is specific to us. If evidence of fair
value does not exist for all elements of a license agreement and PCS is the
only undelivered element, then all revenue for the license arrangement is
recognized ratably over the term of the agreement as license revenue. If
evidence of fair value of all undelivered elements exists but evidence does
not exist for one or more delivered elements, then revenue is recognized
using the residual method. Under the residual method, the fair value of the
undelivered elements is deferred and the remaining portion of the arrangement
fee is recognized as revenue. Services that the Company provides are not
essential to the functionality of the software.
We record unearned revenue for software arrangements when cash has been
received from the customer and the arrangement does not qualify for revenue
recognition under our revenue recognition policy. We record accounts receivable
for software arrangements when the arrangement qualifies for revenue recognition
but cash or other consideration has not been received from the customer.
Our professional services are delivered through our BroadVision Global
Services Organization, or BVGS, presently comprised of the Strategic Services
Group, the Technical Services Group, the Content and Creative Services Group,
the Client Services, Project and Program Management Group, the Partner
Services Group, the Education Services Group and the Technical Support
Services Group. The first three groups provide consulting services, the
fourth group manages projects and client relationships, the fifth group
manages the needs of our partner community, the sixth group provides
training-related services to employees, customers and partners, and the last
group provides software maintenance services, including technical
18
support, to our customers and partners. Revenue from consulting services is
typically recognized as services are performed. Maintenance fees relating to
technical support and upgrades are recognized ratably over the maintenance
period. A summary of our software and services revenues by geographic region for
the periods indicated is as follows:
Software % Services % Total %
-------- -------- -------- -------- -------- --------
(dollars in thousands)
Year Ended December 31, 2000:
Americas .................. $155,337 62% $125,994 77% $281,331 68%
Europe .................... 75,046 30 28,565 18 103,611 25
Asia/Pacific .............. 20,455 8 8,519 5 28,974 7
-------- -------- -------- -------- -------- --------
Total ....................... $250,838 100% $163,078 100% $413,916 100%
======== ======== ======== ======== ======== ========
Year Ended December 31, 1999:
Americas .................. $ 48,822 65% $ 30,501 76% $ 79,323 69%
Europe .................... 18,918 25 7,293 18 26,211 22
Asia/Pacific .............. 7,643 10 2,337 6 9,980 9
-------- -------- -------- -------- -------- --------
Total ....................... $ 75,383 100% $ 40,131 100% $115,514 100%
======== ======== ======== ======== ======== ========
Year Ended December 31, 1998:
Americas .................. $ 19,301 54% $ 10,029 67% $ 29,330 58%
Europe .................... 13,879 38 3,065 21 16,944 33
Asia/Pacific .............. 2,887 8 1,750 12 4,637 9
-------- -------- -------- -------- -------- --------
Total ....................... $ 36,067 100% $ 14,844 100% $ 50,911 100%
======== ======== ======== ======== ======== ========
2000 versus 1999
Total revenues for the year ended December 31, 2000 increased $298.4
million or 258% on a year-over-year basis, and consisted of an increase in
software license revenue of $175.5 million or 233% and an increase in
professional services revenue of $122.9 million or 306%.
The 233% increase in software license revenues is a result of continued
strong demand by existing and new customers for our expanding product line
and core competencies and the growing market for business-to-business and
business-to-consumer e-commerce software application solutions. Our
aggressive growth and enhanced presence in global markets were contributing
factors in our overall increase in revenues. Also contributing to increased
revenues are sales of software licenses of products acquired in the Interleaf
transaction. Revenues attributed to the sales of software licenses for
products acquired as a result of the Interleaf acquisition were approximately
$11 million from the date of acquisition through December 31, 2000. During
the year, we continued to expand the functionality and personalization
attributes of our application products that contributed to a broadened
customer base and an increased level of repeat business. In addition, our
deployment license revenues, which are based upon related user profiles,
continued to accelerate as a result of an increasingly large number of live
sites.
Software product license revenues for our Enterprise applications
increased to $18.6 million in 2000 as compared to $14.6 million in 1999.
Software license revenues for our web applications and tools, or packaged
solutions, increased to $232.2 million in 2000 as compared to $60.8 million
in 1999. Deployment license revenues increased to $81.8 million in 2000 as
compared to $31.2 million in 1999. During the year ended December 31, 2000,
we licensed 557 new end-user customers, including customers acquired as part
of the Interleaf acquisition, and 74 new partners which compares with
approximately 217 new end-user customers and 47 new partners for the year
ended December 31, 1999. As of December 31, 2000, we had a total installed
license base of 1,169 consisting of 972 end-user customers, including
customers acquired as part of the Interleaf acquisition, and 197 partners,
which compares with 415 end-user customers and 123 partners as of December
31, 1999.
The 306% increase in professional services revenue is a result of
higher levels of consulting related services associated with increased
business volumes and higher customer support revenues derived from a larger
installed customer base. Maintenance related fees for technical support and
product upgrades were $46.2 million in 2000 which compares to $13.4 million
in 1999. We also experienced increases in services and maintenance revenues
as a result of the Interleaf acquisition. Total services revenues related to
customers acquired as a result of the Interleaf acquisition were
approximately $17 million. During fiscal 2000, we expanded our corporate
training facilities by building new training centers in Chicago, Illinois,
the United Kingdom and Taipei, Taiwan.
To date we have achieved good market acceptance for our products and have
experienced continued revenue growth. We anticipate that international revenues
will continue to account for a significant amount of total revenues, and expect
to continue to commit significant time and financial resources to the
maintenance and ongoing development of direct and indirect international sales
and support channels. However, we may be unable to maintain or continue to
increase international or domestic market acceptance for our family of products.
19
1999 versus 1998
Total revenues for the year ended December 31, 1999 increased $64.6
million or 127% on a year-over-year basis, and consisted of an increase in
software license revenue of $39.3 million or 109% and an increase in
professional services revenue of $25.3 million or 170%.
The 109% increase in software license revenues was a result of continued
strong demand for our expanding product line and core competencies; our
strategic positioning within a high momentum market for business-to-business and
business-to-consumer personalization focused software application solutions; and
the ability to achieve greater penetration into our existing customer base while
continuing to add significant numbers of new quality customers. During the year,
we continued to expand the functionality and personalization attributes of our
application products that contributed to a broadened customer base and an
increased level of repeat business. In addition, our deployment related user
profile based licensing revenues continued to accelerate as a result of an
increasingly larger number of live sites. Software product license revenues for
our Enterprise applications decreased to $14.6 million in 1999 as compared to
$19.3 million in 1998. Deployment related user profile license revenues
increased to $31.2 million in 1999 as compared to $14.8 million in 1998. During
the year ended December 31, 1999, we licensed approximately 217 new end-user
customers and 47 new partners which compares with approximately 94 new end-user
customers and 27 new partners for the year ended December 31, 1998. As of
December 31, 1999, we had a total installed license base of over 410 end-user
customers and 120 partners, which compares with over 195 end-user customers and
75 partners as of December 31, 1998.
The 170% increase in professional services revenue was a result of higher
levels of consulting related services associated with increased business volumes
and higher customer support revenues derived from a larger installed customer
base. Maintenance related fees for technical support and product upgrades were
$13.4 million in 1999 which compares to $5.1 million in 1998. During the year
ended December 31, 1999, we continued to expand and enhance our professional
services group and, during August 1999, we completed our greatly expanded
corporate training facility located in Redwood City, California. We also added
additional training and professional consulting related facilities in Europe and
Asia as of December 31, 1999.
Cost of Revenues
Cost of license revenues includes the costs of product media, duplication,
packaging and other manufacturing costs as well as royalties payable to third
parties for software that is either embedded in, or bundled and sold with, our
products. Cost of services consists primarily of employee-related costs,
third-party consultant fees incurred on consulting projects, post-contract
customer support and instructional training services.
Years Ended December 31,
-----------------------------------------------------------------
2000 % 1999 % 1998 %
-------- -------- -------- -------- -------- --------
(dollars in thousands)
Cost of software licenses [1] $ 7,827 3% $ 3,703 5% $ 1,001 3%
Cost of services [2] 117,808 72 25,108 63 8,704 59
-------- -------- --------
Total cost of revenues [3] .. $125,635 30% $ 28,811 25% $ 9,705 19%
======== ======== ========
[1] -- Percentage is calculated based on total software license revenues
for the period indicated
[2] -- Percentage is calculated based on total services revenues for the
period indicated
[3] -- Percentage is calculated based on total revenues for the period
indicated
2000 versus 1999
For the year ended December 31, 2000, cost of license revenues increased
$4.1 million or 111% on a year-over-year basis. Cost of software licenses as a
percent of license revenues was 3% in 2000 as compared to 5% in 1999. Cost of
services revenues during 2000 increased $92.7 million or 369% on a
year-over-year basis. Cost of services as a percent of services revenues was 72%
in 2000 as compared to 63% in 1999.
In absolute dollar terms, the increase in cost of software licenses was
principally a result of increased sales of our products and of royalty-bearing
third party products. In relative percentage terms, cost of software licenses
decreased principally as a result of renegotiating the royalty provisions of
agreements with software suppliers from per copy royalties to fixed fee prepaid
license fees.
20
The increase in cost of services revenues in absolute dollar terms
during 2000 as compared to 1999 is a result of higher business volumes as
evidenced by increased services revenues. The increase in cost of services as
a percentage of revenues can primarily be attributed to an increase in
personnel who do not generate revenue during their initial training period.
Total employees in global services and client support were 1,135 as of
December 31, 2000 as compared to 246 as of December 31, 1999. This includes
employees added as a result of the Interleaf acquisition. In addition, we
increased our use of outside consultants from the prior year in order to meet
our short-term demands.
1999 versus 1998
For the year ended December 31, 1999, cost of license revenues increased
$2.7 million or 270% on a year-over-year basis. Cost of software licenses as a
percent of license revenues was 5% in 1999 as compared to 3% in 1998. Cost of
services revenues during 1999 increased $16.4 million or 188% on a
year-over-year basis. Cost of services as a percent of services revenues was 63%
in 1999 as compared to 59% in 1998.
The increase in cost of license revenues, in both absolute dollar and
relative percentage terms, was principally a result of the higher mix of third
party software bundled and sold with our products and the related third party
royalty fees payable on those sales. Third party royalty costs relative to
license revenues have been offset to some extent as a result of our
renegotiating previously existing percentage-based royalty arrangements into
prepaid fixed fee royalties for periods extending through 2004.
The increase in cost of services revenues in absolute dollar terms during
1999 as compared to 1998 was a result of higher business volumes as evidenced by
increased services revenues. Overall costs increased as a result of additions to
our professional services staff and the employment of outside consultants to
meet short-term consulting demands. The increase in cost of services as a
percentage of services revenues was a result of the assimilation of new
professional consultants added to the group during the year and higher use of
outside consultants in relation to the extent previously used during the prior
year period.
Operating Expenses and Other Income, net
Research and development expenses consist primarily of salaries,
employee-related benefit costs and consulting fees incurred in association with
the development of our products.
Costs incurred for the research and development of new software products
are expensed as incurred until the time that technological feasibility, in the
form of a working model, is established, at which point these costs are
capitalized subject to recoverability. The costs we have incurred subsequent to
the establishment of a working model but prior to general release have not been
significant. To date, we have not capitalized any software development costs.
Sales and marketing expenses consist primarily of salaries,
employee-related benefit costs, commissions and other incentive compensation,
travel and entertainment and marketing-related expenditures such as collateral
materials, trade shows, public relations and creative services.
General and administrative expenses consist primarily of salaries,
employee-related benefit costs and professional service fees.
A summary of operating expenses is set forth in the following table. The
percentage of expenses is calculated based on total revenues.
Years Ended December 31,
-------------------------------------------------------------------
2000 % 1999 % 1998 %
-------- -------- -------- -------- -------- --------
(dollars in thousands)
Research and development ................. $ 51,621 13% $ 14,568 13% $ 9,227 18%
Sales and marketing ...................... 167,415 41 48,903 42 26,269 52
General and administrative ............... 28,195 7 7,970 7 3,786 7
Goodwill and intangible amortization ..... 187,748 45 -- -- -- --
Charge for acquired in-process technology 10,100 2 -- -- -- --
-------- -------- --------
Total operating expenses ................. $445,079 108% $ 71,441 62% $ 39,282 77%
======== ======== ======== ======== ======== ========
Interest income .......................... $ 16,706 4% $ 5,142 4% $ 2,484 5%
======== ======== ======== ======== ======== ========
Other income (expense), net .............. $ 1,511 0% $ (599) 1% $ (448) 1%
======== ======== ======== ======== ======== ========
21
2000 versus 1999
Research and development expenses for the year were $51.6 million in
2000 as compared to $14.6 million in 1999 which represents an increase of
253% year-over-year. Sales and marketing expenses for the year were $167.4
million in 2000 as compared to $48.9 million in 1999 which represents an
increase of 242% year-over-year. General and administrative expenses for the
year were $28.2 million in 2000 as compared to $8.0 million in 1999 which
represents an increase of 253% year-over-year. Interest income for the year
was $16.7 million in 2000 as compared to $5.1 million in 1999 that represents
an increase of 227% year-over-year. Net other income (expense) for the year
was $1.5 million in 2000 as compared to $(599,000) in 1999 that represents an
increase of 350% year-over-year.
The increase in research and development expenses is primarily
attributable to personnel costs for added headcount within those operations
involved in the enhancement of existing applications and the development of
our next generation of products. We added personnel and a development
facility in Waltham, Massachusetts in conjunction with the Interleaf
acquisition. The increases in sales and marketing expenses reflects the cost
of hiring additional sales and marketing personnel including sales
commissions, the continued development of sales distribution channels and the
expansion of promotional activities and marketing-related programs. The
increase in general and administrative expenses is attributable to additional
administrative and management personnel, higher professional fees, increase
in bad debt reserve as a result of an increase in accounts receivable due to
our rapid growth, and additional infrastructure to support the expansion of
our operations. The increase in interest income is attributable to a higher
level of investment income during the year as a result of an increase in
investments and cash in interest bearing accounts. The increase in other
income, net is primarily a result of realized gains on the sale of
investments partially offset by realized losses on investments due to
impairment as well as interest expense.
Amortization of Goodwill and Other Intangible Assets
Our acquisition of Interleaf was accounted for under the purchase
method of accounting. Accordingly, we recorded goodwill and other intangible
assets representing the excess of the purchase price paid over the fair value
of net assets acquired of approximately $1.9 million. Gross goodwill recorded
as a result of the acquisition was $765.8 million. The aggregate amortization
of goodwill and other intangible assets related to the Interleaf acquisition
was $187.6 million in fiscal 2000. The goodwill and other intangible assets
are being amortized on a straight-line basis over the expected useful life of
three years and will amount to $264.9 million in 2001, $264.9 million in 2002
and $77.3 million in 2003. It is possible that we may continue to expand our
business through acquisitions and internal development. Any additional
acquisitions or impairment of goodwill and other purchased intangibles could
result in additional merger and acquisition related costs.
On November 24, 1999, the Company acquired all of the registered shares
of Fidutec Information Technology SA for a cash payment of 6,000,000 Swiss
Francs (equivalent U.S. dollar value of $3,765,000, net of cash acquired); of
which 1,200,000 Swiss Francs are held in escrow, subject to employee
retention conditions lasting 12 to 24 months depending on named employees.
The acquisition was accounted for as a purchase. The acquired assets and
assumed liabilities, and the related results of operations, are included in
the consolidated financial statements of the Company from the date of
acquisition. The name of the acquired business has been subsequently changed
to BroadVision Professional Services. Amortization of goodwill was
approximately $200,000 in fiscal 2000.
Charge for Acquired In-Process Technology
In connection with the Interleaf acquisition, we recorded a charge of
$10.1 million in the quarter ended June 30, 2000 for acquired in-process
technology that had not reached technological feasibility. Based upon our
estimates prepared in conjunction with a third-party valuation consultant,
$10.1 million was allocated to Acquired In-Process Technology and $796.0
million was allocated to goodwill and intangible assets. The amounts
allocated to intangible assets include completed technologies of $20.4
million and assembled workforces of $8.5 million. We used the cost approach
to estimate the value of the assembled workforce and the income approach to
estimate the value of the business and technology projects acquired. The
income approach takes into consideration the expected future cash flows
attributable to the technology projects and discounts these cash flows to
present value at a rate that appropriately reflects their risk. The value
assigned to in-process technology was the amount attributable to the efforts
of Interleaf up to the time of acquisition. This amount was estimated through
application of the "stage of completion" calculation by multiplying the
estimated present value of future cash flows, excluding costs of completion,
by the percentage of completion of the purchased technology projects at the
time of acquisition. Based upon these estimates, material net cash flows from
the acquired business are expected to occur during the calendar year 2000.
The cash flows for the completed and in-process technologies were discounted
using discount rates of 15% to 35%.
The fair market value of the technologies acquired have been grouped in
three classifications. Completed Technology represents technology that has
successfully completed final Beta test. In-Process Technology represents
technology that, as of the valuation date, has not yet entered Beta test or has
commenced but not yet successfully completed final Beta test and has no
alternative future use. Core Technology is technology that is being used in not
only the current products and in-process technology projects, but also in
future, not yet defined projects. Completed technologies are defined as those
that have reached technological feasibility. The Company defines technological
feasibility as the point at which the technologies have successfully completed
Beta test.
22
The Completed Technologies include projects that enable companies to
create, manage and deliver e-content for web enabled applications, using XML as
its technology backbone and Microsoft Word for content creation. These projects
also enable companies to manage XML and non-XML documents throughout their
lifecycle in one integrated system.
The In-Process Technologies include a project to develop a version of
current software which will run on a Unix-based operating system. As of the
valuation date, the development of this project was approximately 34%
complete and there was significant technological risk remaining. The value
attributed to this project was $1.3 million. The application from this
project has been integrated into our products. The efforts required to
complete the acquired in-process technology included the completion of all
planning, designing and testing activities that were necessary to establish
that the product can be produced to meet its design requirements, including
functions, features and technical performance requirements. The costs to
complete this project were included in the year ending December 31, 2000 and
there are no expected remaining costs. Another In-Process Technology project
is an upgrade to an existing product that will take into account new W3C
standards being developed for XML and will provide the capability for a user
to author and create documents for a specific output device. As of the
valuation date, this project was approximately 6% complete. The value
attributed to this project was $300,000. This project was subsequently
canceled and the project has no future alternative use. Costs incurred to
complete this project were not material. A third In-Process Technology
project is being developed to provide a new, cost-effective means for a
website to deliver content both to full-function personal computers and to
reduced-function devices such as wireless telephones and wireless personal
digital assistants. As of the valuation date, this project was approximately
57% complete. The value attributed to this project was $8.5 million. The
application from this project has been integrated into our products. The
efforts required to complete the acquired in-process technology included the
completion of all planning, designing and testing activities that were
necessary to establish that the product can be produced to meet its design
requirements, including functions, features and technical performance
requirements. The costs to complete this project were included in the year
ending December 31, 2000 and there are no expected remaining costs.
Core Technology encompasses both leveraged code and general technological
know-how, experience and expertise regarding the design, manufacture and
development of content management technology in existing products. It is
therefore not appropriate to consider the value of the Core Technology to be
part of the estimated value of In-Process Technology. Thus, the value of the
In-Process Technology has been isolated by allocating a portion of the cash flow
to this Core Technology that gives full recognition to its contribution.
As noted above, the income forecast method was used to value the
business and technology projects acquired. The value of the acquired
In-Process Technology and the Completed Technologies was estimated by
discounting to present value the free cash flows generated by the products
with which the technologies are associated over the remaining economic lives
of the technologies. Discount rates used ranged from 15% to 35% and were
based upon the relative risk associated with the completed technologies and
the incomplete development projects and upon considerations such as stage of
completion, remaining development milestones, technological uncertainties and
projected cost to complete. We believe that these discount rates are
consistent with the overall costs of capital and the relative risks of the
completed technologies and the research and development project. We have
valued the In-Process Technology using the "Percentage Completion Approach"
as suggested by the U.S. Securities and Exchange Commission. This approach
varies from the traditional discounted cash flow approach that is used to
value In-Process Technology. The Percentage Completion Approach does not
include completion costs in the discounted cash flow analysis and the present
value of future cash flows is multiplied by the estimated percentage complete
as of the valuation date to determine the value of the acquired In-Process
Technology.
The cost approach was utilized to value the assembled workforce. This
approach considers the concept of avoided costs as an indicator of value and is
an appropriate method for estimating the fair market value of an asset where
reliable data for sales of comparable property are not available and where the
property does not directly produce an income stream. The basis of the valuation
is the estimated cost to recruit and train the new work force.
As part of the Purchase and Sale Agreement and the closing compilation
documents, Non-Compete Agreements (the "Agreements") were executed with certain
Interleaf employees. No value of the aggregate purchase price was allocated to
the Agreements based upon numerous facts and circumstances such as the
likelihood of employees leaving BroadVision and the effect on our performance
these employees would have should they leave the Company and were not barred
from competing.
1999 versus 1998
Research and development expenses for the year were $14.6 million in 1999
as compared to $9.2 million in 1998 which represents an increase of 58%
year-over-year. Sales and marketing expenses for the year were $48.9 million in
1999 as compared to $26.3 million in 1998 which represents an increase of 86%
year-over-year. General and administrative expenses for the year were $8.0
million in 1999 as compared to $3.8 million in 1998 which represents an increase
of 111% year-over-year. Net other income for the year was $4.5 million in 1999
as compared to $2.0 million in 1998 which represents an increase of 123%
year-over-year.
The increase in research and development expenses was primarily
attributable to personnel costs for added headcount within those operations
involved in the enhancement of existing applications and the development of our
23
next generation of products. The increases in sales and marketing expenses
reflects the cost of hiring additional sales and marketing personnel, the
continued development of sales distribution channels and the expansion of
promotional activities and marketing-related programs. In addition, commission
rates were higher during 1999 as result of sales people exceeding their sales
quotas. The increase in general and administrative expenses is attributable to
additional administrative and management personnel, higher professional fees and
additional infrastructure to support the expansion of our operations. The
increase in net other income is attributable to a higher level of investment
income during the year as a result of earnings on proceeds received from a
follow-on public stock offering in November 1999.
Income Taxes
For the year ended December 31, 2000, we recorded an income tax
provision of $23.0 million consisting of current expense of $28.6 million and
deferred tax benefit of $5.6 million relating to federal, state and foreign
income taxes. For the year ended December 31, 1999, we recorded an income tax
provision of $996,000 consisting solely of current expense relating to
federal and foreign income taxes. For the year ended December 31, 1998, we
recorded a net income tax benefit of $79,000, comprised of a deferred tax
benefit of $700,000 and current tax expense of $621,000.
The effective tax rate includes the write-off of acquired in-process
technology and amortization of Goodwill and other intangibles of
approximately $197.8 million for 2000. The effective tax rate after this
adjustment is 39%. The effective tax rates were 5% for 1999 and 0 for 1998.
Liquidity and Capital Resources
December 31,
-------------------------------
2000 1999 1998
-------- -------- -------
(dollars in thousands)
Cash, cash equivalents and
short-term
Investments.................... $222,534 $348,581 $61,878
Working capital.................. $215,831 $324,156 $63,620
Working capital ratio............ 2.7 6.8 4.9
As of December 31, 2000, cash, cash equivalents and liquid short-term
investments totaled $222.5 million, which represents a decrease of $126.1
million as compared to December 31, 1999. We currently have $4.9 million of
outstanding term debt under our existing credit facility with our commercial
bank.
We have funded our operations by cash generated from operations and public
offerings of our common stock. Public stock offerings during June 1996, March
1998 and November 1999 netted for us proceeds of $20.7 million, $53.7 million
and $210.4 million, respectively. Cash provided by operating activities was
$55.3 million for the year
24
ended December 31, 2000, $33.3 million for the year ended December 31, 1999
and $1.2 million for the year ended December 31, 1998. Operating activities
consisted primarily of the net operating income for the year after adding
back various non-cash items such as amortization of goodwill and other
intangibles and charge for acquired in-process technology and depreciation,
increase in accounts payable and other accrued expenses, increase in unearned
revenue and deferred maintenance, all partially offset by increases in
accounts receivable, prepaid expenses and other current assets. Cash used for
investing activities was $220.9 million for the year ended December 31, 2000,
$38.6 million for the year ended December 31, 1999 and $6.4 million for the
year ended December 31, 1998. Investing activities consisted primarily of
capital expenditures and the acquisition of strategic investments. We expect
that our capital expenditures will continue to increase in the future. We
currently estimate that planned capital expenditures for fiscal 2001 will be
approximately $32.0 million. We plan to fund these capital expenditures from
cash provided by operations. Cash provided by financing activities was $38.9
million for the year ended December 31, 2000, $223.2 million for the year
ended December 31, 1999 and $58.8 million for the year ended December 31,
1998. Financing activities consisted primarily of proceeds from the issuance
of stock.
We believe that our existing cash and cash equivalents and our anticipated
cash flows from operations will be sufficient to meet our working capital and
operating resource expenditure requirements for at least the next year.
Thereafter, we may find it necessary to obtain additional equity or debt
financing. In the event additional financing is required, we may not be able to
raise it on acceptable terms or at all. We have various credit facilities with a
commercial lender which include term debt in the form of notes payable and a
revolving line of credit that provides for up to $10.0 million of additional
borrowings, based on eligible accounts receivable. As of December 31, 2000 and
1999, outstanding term debt borrowings were $4.9 million and $5.9 million,
respectively. As of December 31, 2000 and 1999, we had no outstanding borrowings
under our revolving line of credit. However, commitments totaling $2.4 million
and $2.8 million, in the form of standby letters of credit were issued under its
revolving line of credit facility as of December 31, 2000 and 1999, respectively
(see Note 7). Commitments totaling $23.0 million in the form of standby letters
of credit were also issued from separate financial institutions as of December
31, 2000.
25
Quarterly Results of Operations
The following tables set forth certain unaudited consolidated statement of
operations data for the eight quarters ended December 31, 2000, as well as that
data expressed as a percentage of our total revenues for the periods indicated.
This data has been derived from unaudited consolidated financial
statements that, in the opinion of management, include all adjustments
consisting only of normal recurring adjustments, necessary for a fair
presentation of such information when read in conjunction with the Consolidated
Financial Statements and Notes thereto.
The unaudited quarterly information should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included elsewhere herein on
this Form 10-K. We believe that period-to-period comparisons of our financial
results are not necessarily meaningful and should not be relied upon as an
indication of future performance.
Three Months Ended
---------------------------------------------------------------------------------------------------
Dec. 31, Sep. 30, June 30, Mar. 31, Dec. 31, Sep. 30, June 30, Mar. 31,
2000 2000 2000 2000 1999 1999 1999 1999
--------- --------- --------- --------- --------- --------- --------- ---------
(dollars in thousands)