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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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-28252
BROADVISION, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3184303
-------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
585 Broadway, Redwood City, California 94063
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(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:
Name of each exchange
Title of each class which registered
------------------- ---------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 par value
------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if the disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Based on the closing sales price of March 1, 1998 the aggregate market
value of the voting stock held by nonaffiliates of the registrant was
$147,002,786.
As of March 1, 1998, registrant had outstanding 20,403,996 shares of Common
Stock.
----------------
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Proxy Statement for Registrant's 1997 Annual Meeting of
Stockholders to be held May 11, 1998 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, 1997
TABLE OF CONTENTS
Page No.
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Part I
Item 1. Business ............................................................... 3
Item 2. Properties ............................................................. 20
Item 3. Legal Proceedings ...................................................... 20
Item 4. Submission of Matters to a Vote of Security Holders .................... 20
Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters ................................................................ 21
Item 6. Selected Consolidated Financial Data ................................... 22
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations .................................................. 23
Item 8. Financial Statements and Supplementary Data ............................ 39
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ............................................... 53
Part III
Item 10. Directors and Executive Officers of the Registrant .................... 53
Item 11. Executive Compensation ................................................ 53
Item 12. Security Ownership of Certain Beneficial Owners and Management ........ 53
Item 13. Certain Relationships and Related Transactions ........................ 53
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ...... 53
SIGNATURES ..................................................................... 54
2
PART I.
ITEM 1. BUSINESS
The following discussion of the Company's business contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those anticipated in these forward- looking
statements as a result of certain factors, including, but not limited to, those
set forth under "Risk Factors" and elsewhere in this Form 10-K.
Overview
BroadVision develops, markets and supports application software solutions
for one-to-one relationship management for the extended enterprise. These
solutions enable businesses to use the Internet as a platform to conduct
commerce, provide self-service, and deliver targeted information to their
customers, suppliers, distributors, employees, and other constituents of their
extended enterprises. The BroadVision One-To-One product family allows
businesses to tailor World Wide Web (the "Web") site content to the needs and
interests of individual users by personalizing each visit on a real-time basis.
BroadVision One-To-One applications achieve this result by interactively
capturing Web site visitor profile information, organizing the enterprise's
content, targeting that content to each visitor based on easily constructed
business rules, and executing transactions. The Company believes the benefits of
these applications include enhanced customer satisfaction and loyalty, increased
business volume, reduced costs to service customers and execute transactions,
and enhanced employee productivity.
Background
Trends in One-to-One Relationship Management
To prevail in the intensely competitive global marketplace, business
managers must continually devise new strategies to market, sell, distribute, and
support their products and services. From the 1950s to the 1980s, leading
businesses in North America, Europe, and Asia advanced the sciences of mass
production, mass communication, and mass distribution to establish world markets
for their products and services. During the 1980s, these mass marketers began
using new technologies and analytical techniques to better segment and define
targeted markets in order to reach customer groups most likely to buy their
products. These new approaches helped marketers respond to increasing
competition and customer demands for improved quality, service, and product
choice. The trend toward greater specialization has continued to increase as
many marketers have used targeted marketing tools and new delivery media, such
as direct mail and telemarketing, to reach more precisely targeted market
segments.
In the latter half of the 1990s, many marketing executives in both
business-to-consumer and business-to-business industries have turned their
attention to the ultimate target market segment: the market of one. One-to-one
relationship management involves a systematic, interactive approach to
developing and managing a detailed knowledge base that integrates individual
customers' product and business requirements, personal preferences, and purchase
histories with traditional demographic statistics. This information provides the
foundation for businesses to serve customers in the form of individually
tailored products, services, information, incentives, and transactions. By
focusing on individual customers and one-to-one relationship management,
business managers can develop more productive relationships with their customers
that maximize customer satisfaction, develop customer loyalty, and contain the
high costs associated with new customer acquisition.
One-to-One Relationship Management on the Internet
With the emergence of the Internet as a globally accessible, interactive,
and individually addressable communications and computing platform, businesses
have the opportunity to implement one-to-one relationship management on a mass
basis. The proliferation of inexpensive, easy-to-use Web browsers and affordable
Internet access services has made the Internet easy to navigate, accessible to
millions of homes and businesses, and readily adaptable to a broad range of
business, education, commerce, entertainment, and marketing applications.
Technologies such as Java from Sun Microsystems, Inc. ("Sun") are facilitating
the delivery of content over the Internet and accelerating adoption of the
Internet as a mainstream business and personal computing platform. In addition,
businesses are utilizing the Internet to create internal enterprise networking
3
environments called "intranets" or "extranets." These networks are enabling
businesses to create Internet applications that provide new ways of interacting
with employees, partners, and customers.
As Internet use has grown, industry experts have described the Internet as
the ideal platform for deploying applications that enable companies to develop
individual one-to-one relationships across their entire enterprise. Whether an
Internet application is designed primarily for delivering knowledge, conducting
commerce, or customer self-service, it offers businesses an opportunity to
extend front office services in a personalized and cost effective way to all
constituents in their extended enterprise. By recognizing the
relationship-building potential of the Internet--in particular, the ability to
interactively capture visitor profile information, observations, and feedback
and to dynamically target useful information to visitors based on this
data--business managers can utilize advanced Internet technologies to engage in
personalized dialogs with millions of customers on a one-to-one basis.
The Business Challenge on the Internet
While the Internet is increasingly becoming a global platform for providing
and accessing information, there remain significant challenges to doing business
on the Internet. The Internet is characterized by fluid and dynamic content,
where information is continually being updated and enhanced. Visitors perceive
the value of Web sites to be directly correlated to the frequency of content
updates and the dynamic behavior of the site. Creating the best Web sites
generally requires sophisticated creative and technical expertise. Although the
market has been flooded with numerous inexpensive tools for building and
updating Web sites, many of the companies producing and using these tools have
failed to take full advantage of the Internet's dynamic one-to-one relationship
potential.
Many Web sites today simply present text and graphics electronically in a
static format, much like a product brochure. There has recently been a dramatic
shift away from companies simply building these "brochureware" sites to
companies making a significant investment in building mission-critical Internet
applications. These Internet applications have the interactive capability to
capture visitor profiles, conduct personalized interactions, remember
information from one visit to the next, enable business managers to manage the
site on a real-time basis, and integrate into existing business systems.
Providing these additional capabilities is a valuable next step for companies
that plan to maximize the potential of the Internet for relationship management
across their extended enterprise.
However, most of the Web sites that have moved beyond brochureware to
provide electronic commerce or knowledge management applications still have
failed to capitalize fully on the Internet's potential for building one-to-one
relationships. Sites that do support commerce often fail to satisfy customer
expectations, providing commercial experiences that are less enjoyable and
cost-effective than traditional alternatives. Most lack any form of real-time
personalization and cannot dynamically target information based on a visitors'
preferences and past histories. Others lack integration with mainstream business
systems for supporting visitors interactively or exchanging information with
corporate databases. While some of these sites use advanced applications to
support online order and payment transactions, many still require buyers to
place orders by telephone, defeating a basic objective of online businesses.
The Technology Gap on the Internet
Web sites are generally cumbersome for business managers to operate.
Business rules and content, such as product and pricing data, financial
policies, promotions, and advertising campaigns, are often "hard-coded" into
programs and virtually impossible for non-technical managers to change
dynamically. Most applications are not scalable and require ongoing tuning and
re-engineering to keep up with visitor growth and changes in Internet
technology. Development is often slow and defects are common due to the
limitations of most productivity tools. Generally, with currently available
application servers, business managers do not have the capability to react to
market conditions with real-time control and management of Web sites, but
instead are often constrained by slow "change request" processes that take
technical specialists days or even weeks to implement.
In part, the limited capabilities of these static Web sites are a result of
the inadequacies of the technologies used to develop Internet applications. Many
Web developers still rely on general purpose publishing tools, such as HTML
(Hypertext Mark-up Language) editors, to develop Web pages and the links between
them. Many
4
of today's Web development toolkits that assist in Web site development do not
offer capabilities for generating personalized, dynamic Web pages or for easily
maintaining site content and page generation logic. These tools were not
designed to be used in the development of sophisticated applications offering
enterprise-scale implementations of business processes, such as product
marketing, sales, or customer support. Using low-level toolkits and commerce
and merchant servers to develop and maintain sophisticated Internet
applications, such as managing customer relationships and defining dynamic
business rules, is a highly complex process requiring a breadth of expertise
that is often beyond the capabilities of in-house information technology
organizations. In addition, the cost, time, and effort of building and
maintaining Internet applications in this manner is often beyond the funding
capacity of internal application development budgets.
Application Systems for One-to-One Relationship Management
The recent trends toward one-to-one relationship management and the rapid
adoption of the Internet as a technology platform for conducting business have
fueled the need for sophisticated packaged application software that enables
companies to create applications that build personalized, long-term
relationships with customers, partners, and employees. Early adopting companies
have built successful online relationship management applications and these
online businesses are creating pressures for their competitors to come to market
quickly with online business sites. To build these sites, the Company believes
that more of these companies are turning toward the purchase of packaged
enterprise Internet applications. These packaged applications provide an
attractive alternative to in-house or third-party custom application
development, enabling companies to get to market more quickly with a solution
that is more readily extensible and maintainable as the business evolves.
To realize the potential of one-to-one relationship management, Internet
applications must support the following activities:
* Attract and retain visitors by providing dynamic content, interactive
dialogs, and communities of interest
* Develop and maintain visitor profiles, observe and remember
interactions, and engage in ongoing personalized dialogs while
empowering individuals to control the privacy of their personal data
* Provide business managers the ability to define and modify the Internet
application's business rules and content in real time
* Dynamically target personalized content, products, and incentives to
correspond to profile data in order to motivate visitors to interact
and conduct transactions
* Fulfill financial and information transactions with secure electronic
commerce processes
The BroadVision Solution
BroadVision offers a family of packaged applications for automating
relationship management in the extended enterprise. The BroadVision One-To-One
product family enables companies to use the Internet for selling, marketing, and
supporting all of their business constituents: employees, customers, suppliers,
distributors, and others.
The Company develops, markets, and supports its BroadVision One-to-One
family of Internet applications for relationship management and associated
software tools that are used to customize and maintain these applications. These
applications are designed to allow non-technical business managers to build
relationships by tailoring content to the needs and interests of individual
visitors, personalizing each experience on a real-time basis. The Company's
customers use BroadVision solutions to deploy Internet applications that engage
visitors and encourage return visits through personalized interactions, capture
marketing information from volunteered data and observed behavior, and generate
revenues from electronic commerce. The Company believes that these capabilities
are needed by business managers and Internet application developers to take full
advantage of the potential of the Internet as a marketplace for conducting
business and for building long-term relationships with customers.
5
Strategy
The Company's objective is to establish one-to-one relationship management
as a standard feature of Web sites worldwide. To achieve this objective, the
Company has adopted the following strategies:
Focus on Extended Enterprise Relationship Management ("EERM") by Providing
Packaged Application Solutions
The Company is focusing exclusively on developing packaged application
solutions for businesses developing Web sites as profitable business channels
for managing relationships with their customers, partners, employees, and other
constituents. The Company believes that the next major phase of Internet growth
will be driven by complete packaged application solutions that allow businesses
to capitalize more fully on the Internet as a business venue for interacting
with the constituents of their extended enterprise. Businesses will implement
these packaged applications in order to speed time to market, rely on a vendor
rather than an internal development organization to maintain and update the
technology underlying the business application, and reduce total cost and risk
of application deployment.
Enhance Targeted Application Solutions
The Company will continue to leverage its BroadVision One-To-One
Application System to enhance its Web application products and services focused
on specific horizontal and/or vertical markets. Utilizing its expanding
libraries of reusable application objects and templates and working closely with
customers and strategic partners, the Company believes it can deliver a targeted
application solution for one-to-one relationship management faster, of a higher
quality, and at a lower cost than its competitors. The Company has delivered
targeted application solutions for business-to-consumer and business-to-business
commerce, for retail financial services and for knowledge management. The
Company intends to remain nimble and flexible at developing other applications
products in the general area of relationship management, in response to market
opportunities that may arise.
Expand and Leverage Alliances with Key Business Partners
To accelerate the acceptance of the BroadVision One-To-One products and to
promote the adoption of the Web as a commercial marketplace, the Company has
developed cooperative alliances with leading Internet technology vendors,
systems integrators, and Web site developers. The Company believes that these
alliances will provide additional marketing and sales channels for the Company's
products, enable the Company to more rapidly incorporate additional functions
and platforms into the BroadVision One-To-One products, and facilitate the
successful deployment of customer applications. The Company has signed nearly 50
partnerships to date worldwide, which has expanded the Company's sales and
support infrastructure and post-sales implementation capabilities, and broadened
market awareness for the Company.
Maintain Technology Leadership
The Company believes that it offers the most complete EERM solution
available today. The Company intends to maintain this leadership position by
continuing to enhance its technology through heavy investment in research and
development activities, incorporating industry-leading components into its
products, and employing its own technology and human resources as a source of
ongoing technological advantage. Having employed the Common Object Request
Broker Architecture ("CORBA") standard as a cornerstone of its product
architecture, the Company has integrated other CORBA-compatible technologies,
such as the Java development language, into its products. Utilizing in-house
expertise and experiences with customers, the Company intends to maintain its
leadership position in providing a scalable, innovative, and open architecture.
Grow International Presence
To capitalize on the emergence of the Internet as a global network, the
Company has established sales operations in Amsterdam, Basel, Hong Kong, London,
Munich, Paris, and Tokyo. In addition, the Company distributes its products in
these and additional countries through licensed distributors, value-added
resellers, and systems integrators in Brazil, Finland, Korea, South Africa,
Spain, and Sweden. The Company intends to continue to certify providers of
professional services for BroadVision products in these and other countries. The
Company's partners include multinational systems integrators, as well as
partners with single-country scope of
6
operations. The Company's product architecture is designed to support
international languages, and the Company is currently shipping localized
versions of its BroadVision One-To-One Application System in English, German,
Japanese, Korean, and Chinese.
The Company's strategy involves substantial risk. There can be no assurance
that the Company will be successful in implementing its strategy or that its
strategy, even if implemented, will lead to successful achievement of the
Company's objectives. If the Company is unable to implement its strategy
effectively, the Company's business, financial condition, and operating results
would be materially adversely affected.
Products and Services
The Company develops, markets and supports a family of EERM applications
products and associated software tools for use in customizing and maintaining
solutions built with these applications.
Applications
BroadVision offers four applications products--the BroadVision One-To-One
Application System, One-To-One Commerce, One-To-One Financial, and One-To-One
Knowledge--that provide a spectrum of capabilities that offer numerous business
functions and support the needs of companies in different industries.
BroadVision One-To-One Application System is the Company's core product. It
is a flexible, generic yet robust application for deploying relationship
management processes on the Internet. It utilizes an open, scalable application
architecture for Web session management, secure user authentication and
authorization, dynamic and personalized page generation, user profiling, content
management, and transaction handling. The BroadVision One-To-One Application
System provides the following capabilities designed to meet the needs of
companies delivering personalized relationship management on their Web sites:
Profiling -- BroadVision One-To-One applications store and maintain
dynamic profiles of Web site visitors. Profile data can be collected from
information in existing customer information files, from information
provided explicitly by site visitors, and by observation of visitors'
behavior on the site. Visitors' session information is saved in a
transaction log and can be used to update and enrich the visitors'
profiles. Profile information is stored in any of several widely used
third-party relational databases.
Content Management -- BroadVision One-To-One applications deliver
dynamic content to the user in response to their interests and needs.
Content items available for display to visitors comprise one of six types:
templates (Web page designs and layouts), products, editorials,
advertisements, incentives, and discussion groups. Each of these content
types has a rich set of attributes that describe its properties and key
features. This content is managed within a BroadVision One-To-One
application with tools to create, classify, organize, and publish the
content.
Matching -- BroadVision One-To-One applications provide tools for
business managers to create and manage "if-then" rules and taxonomy-based
matching schemes that determine which content to deliver to Web site
visitors and the conditions under which the content should be delivered.
The criteria for content selection can include the visitor's demographic or
psychographic variables, historical behavior, current session behavior,
context information such as date and time, and marketing logic for
delivering incentives, promotions, and recommendations. This allows Web
sites to personalize product information, editorials, pricing, advertising,
coupons, incentives, and promotions for Web site visitors who fit specified
profiles or the predetermined criteria as established by the company's
business managers.
Transactions -- BroadVision One-To-One applications incorporate a
number of transactional capabilities required for merchandising and
financial services applications. These capabilities include electronic
wallets, order tracking, persistent shopping cart, taxing and shipping
charge computation, discount and coupon handling, payment authorization,
between- and within-account exchanges, and news and stock feeds.
7
Features of the Broadvision One-To-One Solution
[GRAPHIC OMITTED]
During 1997, the Company expanded its product line by introducing three new
applications products in the BroadVision One-To-One family: One-To-One Commerce,
One-To-One Financial, and One-To-One Knowledge. These three additional
applications products are built upon and extend the functionality of the
flagship BroadVision One-To-One Application System. They are designed to meet
the needs of customers in certain industries and the needs of customers with
more specific one-to-one relationship management requirements for product
merchandising, retail financial services, or knowledge management.
One-To-One Commerce is a turnkey application solution for rapid deployment
and dynamic personalization of high-end Internet commerce services. Companies
implementing One-To-One Commerce can rapidly implement an end-to-end commerce
solution offering a personalized storefront to visitors and full commerce
transaction capabilities at the back end. The application includes rich
functionality for product catalog management, electronic wallets, ordering, tax
and shipping charge computation, payment handling, and discount and incentive
tracking. One-To-One Commerce provides businesses with a sample commerce
application (including reusable objects), business rules, and templates that can
be easily customized to meet critical time-to-market demands.
One-To-One Financial enables banks and other financial institutions to
rapidly deploy secure, personalized, retail relationship management Internet
sites to their financial services customers. The product delivers a financial
transaction framework and a set of core financial services that allows customers
to access account information and a rich set of transactions within and between
accounts.
One-To-One Knowledge is designed to increase the productivity of a
knowledge-intensive extended enterprise in its management of information
delivery to employees, customers, channels, and other partners. The product
enables a repository of corporate information (e.g., sales and marketing
information, technical information, human resources information) to be organized
into customizable channels accessible through Web browsers. Documents in the
content archive are "tagged" with attributes that describe their subject matter,
content category, viewing permissions, and other factors pertinent to
determining how to target readers. Business rules used in conjunction with
visitors' self-declared preferences determine the selection, filtering, and
display of "tagged" information presented to the visitors on each trip to the
Web site.
The Company designed all of these applications products for use in
mission-critical, high-performance environments by customers with demanding
architecture, deployment, and maintenance requirements. The key capabilities of
the applications include:
* Broad applicability -- robust functionality to support
business-to-business, business-to-consumer, and business-to-employee
relationship management, including personalized marketing and
communications, selling and commerce transaction handling, and customer
self-service.
8
* Scalability -- architected for high performance and fast response while
supporting large numbers of simultaneous users accessing the system
over the public Internet or private intranets or extranets.
* Component-based, reusable application code -- object-oriented
application code written in C++, which allows developers and
integrators to use, modify, adapt, or extend the dynamic objects to
rapidly customize products to meet the specific business requirements
of a particular corporate customer.
* Support for industry standards -- supports the CORBA standard for
object-oriented computing, to permit distribution of the application
across multiple processors. This design enables high-volume
performance, flexible application deployment, and easy integration with
other third party or legacy applications.
* Transaction processing -- handles a wide-range of commerce and
financial services transactions -- including order pricing and
discount/incentive handling, tax computation, shipping and handling
charges, payment authorization, credit card charge processing, order
tracking, news and stock feeds--through a combination of built-in
functionality and integration with other products.
* Platform independence -- versions available for multiple operating
systems, including Sun Solaris, Windows NT, and HP-UX. Databases
supported include Oracle, Sybase, Informix, and Microsoft SQL Server.
* Multi-lingual -- available in English, German, Japanese, Korean, and
Chinese.
Tools
BroadVision applications are customized and maintained using tools that are
licensed to customers separately from the applications products. Inherent to the
functionality of the Company's applications is a set of building blocks called
"dynamic objects," "application templates," and "rule sets" that are
instrumental in rapidly building and easily maintaining One-To-One-based
applications. A description of the Company's tools products follows.
Visual Development Center. The BroadVision One-To-One Visual Development
Center (the "VDC") provides advanced Web site development tools rich in
object-oriented features for building BroadVision One-To-One applications.
Because most businesses have little time for application development, the
BroadVision One-To-One VDC supports visual, point-and-click application
construction; default templates for basic business functions (order entry,
payment clearing) for rapid application creation and deployment; and browser-
independent, dynamic Web page generation. In addition, there is an extensive
library of dynamic objects that provide access to One-To-One services, including
profile management, electronic commerce services such as virtual shopping carts
and order processing, targeted content, and ad insertion. These features enhance
existing templates and provide an extensive amount of sub-classes, which can be
used to build new objects. Furthermore, the VDC supports HTML, Java, and
JavaScript as well as any third-party HTML editor.
Dynamic Command Center. The BroadVision One-To-One Dynamic Command Center
(the "DCC") is a Windows 95 client application for editorial, advertising,
marketing, and merchandising business managers. The DCC offers managers the
ability to define and manage the customer segments, the content organization,
and the matching rules of a Web site in real time using familiar, non-technical
concepts. For example, a business manager can initiate a sale or promotion, send
coupons to specifically targeted consumers, or change prices dynamically. The
rules editor of the DCC enables the business manager to define in English the
"if-then" relationships that determine the selection and presentation of various
types of content to the site visitor, based on profile attributes or session
information. The DCC also provides a means for managers to monitor the activity
on Web sites, enabling them to evaluate the effectiveness of content and
services being offered on the site.
Content Management Center. The BroadVision One-To-One Content Management
Center (the "CMC") provides workflow tools to automate the content creation and
classification process. The CMC is a Java-based Web application that enables
business people to easily manage the process of developing, indexing, tagging,
staging, publishing, and updating content. This content can then be effectively
targeted and matched based on user preferences and profiles. Site administrators
can control who can create and update specific areas in the
9
Web site. Editors can track the overall efficiency and quality of the content
while carefully managing a content calendar. The CMC also enables a process of
collaboration between all authors, editors, and Web site administrators working
from remote locations.
Other Products
In addition to its proprietary products, the Company has entered into
agreements which enable it to resell third-party software products from
CyberSource Corporation, Verity, Inc., Oracle Corporation ("Oracle"), and
Sybase, Inc. ("Sybase"). These are sublicensed to end users and either
incorporated in or sold as options to the Company's own products. License
revenue from these third-party products was insignificant and constituted less
than 1% of total software product license revenues in 1997 and 1996.
The table below summarizes certain features of and price information for
each of the Company's products:
U.S. List Price for
Product Description Perpetual License
- -------------------------------------------------------------------------------------------------------
Application Products: Full object-oriented environ- * $25,000 and up per
ment for developing, testing, developer seat
* BroadVision One-To-One and tuning EERM applications
Application System
* One-To-One Commerce
* One-To-One Financial
* One-To-One Knowledge
- -------------------------------------------------------------------------------------------------------
Deployment System Full environment for deploying * License fee based on num-
production EERM applications ber of profiled users tracked
by application and number
of services accessing profiled
user base.
* Ranges from $30,000 mini-
mum configuration to more
than $1 million for large
complex configurations
- -------------------------------------------------------------------------------------------------------
Visual Development Center PC-based application enabling * One copy included with
applications developers to development license
quickly and easily build dynamic
Web page templates * Additional copies start at
$600 per seat
- -------------------------------------------------------------------------------------------------------
Dynamic Control Command PC-based application enabling * $5,000 per seat
Center business managers to monitor
state of Web applications, inter-
actively change business rules in
real time, and generate reports
- -------------------------------------------------------------------------------------------------------
Content Management Center Browser-based application en- * Starts at $2,500 per seat
abling content developers and
editors to manage the publish-
ing of new content to the Web
site
- -------------------------------------------------------------------------------------------------------
10
Professional Services
The Company's Worldwide Professional Services Organization ("WPSO")
provides a broad range of consulting services in support of BroadVision's total
product line. The Company's WPSO provides comprehensive business application
expertise, technical know-how, and product knowledge to complement its products
and to provide total solutions to customer business requirements. A summary of
the consulting services provided by the Company follows.
Strategic Services provides business strategy and process consulting,
assisting customers in defining and planning profitable online businesses.
Services include in-depth needs analysis, customer segmentation, site
storyboarding, and preparing detailed plans and procedures necessary to achieve
timely and successful implementations of the Company's software products.
Strategic Services consulting is generally offered on a time and materials
basis.
Interactive Services provides technical services for development of
customized BroadVision-based applications, custom interfaces, data conversions,
and system integration. These consultants participate in a wide range of
activities, including requirements definition and application design,
development and implementation. These consultants also provide advanced
technology services focused on application development for custom objects and
templates and database administration and tuning. Interactive Services
consulting is generally offered on a time and materials basis.
Content and Creative Services is a group specializing in content
management, sourcing, workflow processes, and user-interface design. The group
is made up of One-To-One design experts and a variety of leading design houses.
This unique team combines years of interactive design and marketing experience
to build purposeful user-interfaces that meet customers pre-defined goals.
Content and Creative Services consulting is generally offered on a time and
materials basis.
Education Services are offered to customers either at the Company's
education facilities or at the customers' locations, as either standard or
customized classes. These classes are priced at either fixed daily rates or on a
per-class basis.
Technical Support
The Company provides technical support, including telephone support,
upgrade rights to new releases, including patch releases as necessary, and
product enhancements, under the Company's standard maintenance agreements, which
all of the Company's licensed customers have entered into. The annual
maintenance fee for these services is based upon a percentage of the
then-current list price for the perpetual licensed software fee, payable
annually in advance.
Customers and Markets
The Company has licensed its product to over 150 customers, including
approximately 50 partners worldwide. The types of applications being developed
by licensees using BroadVision software include product merchandising, retail
financial services, and corporate knowledge management for employees, partners,
and customers. Over 30 customers have commercially deployed applications using
BroadVision products. The Company's target customers include Global 2000
organizations that are at the forefront of building innovative Internet
applications to increase revenues and reduce operational costs. In 1997,
software license and service revenues from Metronet, Kommunikationsdienste Gmbh
& Co.KG. ("Metronet") accounted for approximately 11% of the Company's total
revenues.
11
The Company has targeted a number of markets that it believes to be
especially conducive to one-to-one relationship management applications. These
markets, identified in the table below, have historically been characterized by
early adoption of online technology or could otherwise benefit from providing
significant interactive service to their end-user customers.
- --------------------------------------------------------------------------------------------------------------
Target Sample
Industry Sample Applications Benefits of BroadVision Solutions Customers
- --------------------------------------------------------------------------------------------------------------
Telecom- * Commerce: Business- * Selectively share visitor profiles Hongkong Telecom
munications to-business and between aggregators and content TELUS Advanced
business-to-consumer providers Communications
US West Communications
* Online services * Online, real-time control of
business rules, such as pricing and
promotions
* Self-service
(e.g., call centers)
- --------------------------------------------------------------------------------------------------------------
Retail and * Online shopping * Create branded communities Eastman Kodak
distribution based on visitor profiles The Good Guys
* Interactive Metronet
catalogues * Online, real-time control of Phillips Electronics
business rules, such as pricing and RS Components
promotions, by content providers
* Reduce ransaction costs of direct
purchases
- --------------------------------------------------------------------------------------------------------------
Travel and * Reservations * Provide travel planning advice and American Airlines
leisure transaction services without agents Thomas Cook
* Travel planning or other intermediaries
* Brand projection, * Opportunity, based on user profiles,
loyalty programs, and to cross-sell or up-sell services in
affinity addition to basic travel reservations
marketing
- --------------------------------------------------------------------------------------------------------------
Media and * Purchasing digital * Price digital products and Grolier
publishing media services in real time Metromail
Milwaukee Journal
* Knowledge * Dynamically target relevant Virgin.net
management information to individuals
- --------------------------------------------------------------------------------------------------------------
Financial * Home banking * Target investment content based Banco Santander
services on profiles of visitors Citibank
* Obtaining information JP Morgan
on and * Nationwide service can be locally Liberty Financial
selecting: targeted Quick & Reilly
--Loans * Low-cost distribution channel
--Mutual funds * Tremendous cross-selling and
--Insurance up-selling opportunity
- --------------------------------------------------------------------------------------------------------------
High * Knowledge * Disseminate large amounts Baan Company
technology management of knowledge/information in a Hewlett-Packard
and personalized way based on IBM
manufacturing purchaser's profile Micron Technology
Siemens-Nixdorf
* Business-to-business * Maintain and make available
purchasing up-to-date information related to
complex purchasing decisions
- --------------------------------------------------------------------------------------------------------------
12
The market for the Company's products and services is at an early stage of
development and is rapidly evolving. As is typical for new and rapidly evolving
industries, demand and market acceptance for recently introduced products and
services are subject to a high level of uncertainty, especially where, as is
true of the Company, acquisition of the product requires a large capital
commitment or other significant commitment of resources. With respect to the
Company, this uncertainty is compounded by the risks that consumers and
enterprises will not adopt electronic commerce and knowledge management and that
an appropriate infrastructure necessary to support increased commerce and
communication on the Internet will fail to develop, in each case, to a
sufficient extent and within an adequate time frame to permit the Company to
succeed.
Adoption of electronic commerce and knowledge management, particularly by
those individuals and enterprises that have historically relied upon traditional
means of commerce and communication, will require a broad acceptance of new and
substantially different methods of conducting business and exchanging
information. Moreover, the Company's products and services involve a new
approach to the conduct of online business and, as a result, intensive marketing
and sales efforts may be necessary to educate prospective customers regarding
the uses and benefits of the Company's products and services in order to
generate demand for the Company's systems. For example, enterprises that have
already invested substantial resources in other methods of conducting business
may be reluctant or slow to adopt a new approach that may replace, limit, or
compete with their existing systems. Similarly, individuals with established
patterns of purchasing goods and services may be reluctant to alter those
patterns or may otherwise be resistant to providing the personal data which is
necessary to support the Company's consumer profiling capability. Moreover, the
security and privacy concerns of existing and potential users of the Company's
products and services may inhibit the growth of online business generally and
the market's acceptance of the Company's products and services in particular.
Accordingly, there can be no assurance that a viable market for the Company's
products will emerge or be sustainable.
Sales and Marketing
The Company markets its products primarily through a direct sales
organization with operations in North America, Europe, and Asia/Pacific. On
December 31, 1997, the Company's direct sales organization included 63 sales
representatives, managers, applications consultants, and pre-sales support and
post-sales support personnel. The Company has a sales office at its headquarters
in Redwood City, California and has North American sales offices in Atlanta,
Chicago, Dallas, and New York. The Company has subsidiaries in France, Germany,
Japan, the Netherlands, Switzerland, and the United Kingdom and has an
established sales office in Hong Kong. A component of the Company's strategy is
continued planned expansion of its international activities. The Company intends
to broaden its presence in international markets by expanding its international
sales force and by entering into additional distribution agreements. The Company
also contracts with commissioned agents in the Republic of Korea, Spain, and in
selected portions of the Japanese market.
Although the Company generates leads from many sources, the majority of the
Company's early leads have come from businesses seeking partners to develop
one-to-one relationship management applications. Initial sales activities
typically include a demonstration of BroadVision One-To-One capabilities at the
prospect's site, followed by one or more detailed technical reviews, often
presented at the Company's headquarters. The sales process usually involves a
collaboration with the prospective customer in order to specify the scope of the
application. The Company's professional services organization typically plays a
key role in helping customers to design, and then develop, their applications.
The Company's marketing efforts are targeted at product strategy
development and product management; building market awareness through press and
analysts; producing and maintaining marketing information and sales tools;
generating and developing customer leads; and sourcing and managing
relationships with systems integrators, value-added resellers, creative design
and advertising agencies, and technology partners. As of December 31, 1997, 20
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 the Company's Web site.
The license of the Company's software products is often an enterprise-wide
decision by prospective customers, requiring the Company to engage in a lengthy
sales cycle to provide a significant level of education
13
to prospective customers regarding the use and benefits of the Company's
products. In addition, the implementation of the Company's products involves a
significant commitment of resources by the customers or by the Company's WPSO
consultants over an extended period of time. As a result, the Company's sales
and customer implementation cycles are subject to a number of significant
delays over which the Company has little or no control. Delays in license
transactions as a result of the lengthy sales cycle or delays in customer
production or deployment of a system could have a material adverse effect on
the Company's business, financial condition, and operating results, and can be
expected to cause the Company's operating results to vary significantly from
quarter to quarter.
To date, the Company has primarily derived sales through its direct sales
force. The Company's ability to achieve significant revenue growth in the future
will depend in large part on its success in recruiting and training sufficient
direct sales personnel and establishing and maintaining relationships with
distributors, resellers, system integrators, and other third parties.
Strategic Business Alliances
A critical element of the Company's sales strategy is to engage in
strategic business alliances to assist the Company in marketing, selling, and
developing customer applications. This approach is intended to increase the
number of personnel available to perform application design and development
services for the Company's customers; enhance the Company's market credibility,
potential for lead generation, and access to large accounts; and provide
additional marketing expertise in certain vertical industry segments and
technical expertise in the development of reusable objects and templates. The
Company has developed business alliances with approximately 50 systems
integration, design, consulting, and other services organizations, including
Andersen Consulting, LLP, Cambridge Technology Partners, Cap Gemini U.K. plc,
Computer Sciences Corporation, Daimler-Benz Information Systems AG (Debis),
Dimension AB, Gran Via, NTT Data Corporation, Sage IT Partners, Inc., Sema Group
plc, Siemens-Nixdorf Information System AG, Silicon Valley Internet Partners,
and others.
Competition
The market for online interactive relationship management applications is
new, rapidly evolving, and intensely competitive. The Company expects
competition to persist and intensify in the future. The Company's primary
competition comes from in-house development efforts by potential customers or
partners. The Company's competitors also include other vendors of application
software directed at interactive commerce and financial services and Web content
developers engaged to develop custom software or to integrate other application
software into custom solutions. The Company currently encounters direct
competition from Edify Corporation ("Edify"), InterWorld Corporation
("InterWorld"), Microsoft Corporation ("Microsoft"), Netscape Communications
Corporation ("Netscape"), and Open Market Inc. ("OMI"), among others. Many of
these competitors have longer operating histories, and significantly greater
financial, technical, marketing, and other resources than the Company and thus
may be able to respond more quickly to new or changing opportunities,
technologies, and customer requirements. Also, many current and potential
competitors have greater name recognition and more extensive customer bases that
could be leveraged, thereby gaining market share to the Company's detriment.
Such competitors may be able to undertake more extensive promotional activities,
adopt more aggressive pricing policies, and offer more attractive terms to
purchasers than the Company. Moreover, certain of the Company's current and
potential competitors, such as Netscape and Microsoft, are likely to bundle
their products in a manner that may discourage users from purchasing products
offered by the Company. In addition, current and potential 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.
The principal competitive factors affecting the market for the Company's
products are depth and breadth of functionality offered, ease of application
development, time required for application development, reliance on industry
standards, reliability, scalability, maintainability, personalization and other
features, product quality, price, and customer support. The Company believes it
presently competes favorably with respect to each of these factors. However, the
Company's market is still evolving, and there can be no assurance that the
Company will be able to compete successfully with current or future competitors,
or that competitive pressures faced by the Company will not have a material
adverse effect on the Company's business, financial condition, and operating
results.
14
Technology
The Company believes its advanced technology enables the delivery of
robust, scalable, and innovative Internet relationship management solutions into
the market faster and at a lower cost than alternatives. The Company's
technology consists of the following key elements:
Architectural Design
The Company believes that the technical demands of interactive one-to-one
relationship management on the Internet require an architectural design that
stresses standards, openness, interoperability, and flexibility. The Company has
designed its current application system as an architectural solution for
building dynamic, scalable, and extensible Internet applications. By emphasizing
reusable methods, separation of application logic, business rules, and data, and
adherence to open standards, the BroadVision One-To-One applications family
provides an efficient architecture for customers and partners to build, modify,
and control applications, as well as to integrate them with external business
systems. The Company believes this architecture also provides a robust
foundation on which the Company can rapidly develop new products.
Adherence to Industry Standards
The Company has invested substantially in developing its architecture to
comply with CORBA, a standard for applications software design and development
widely adopted in the commercial software industry. Applications that are
CORBA-compliant can run on either single computers with one or more processors
or across large networks, allow replication and relocation of object servers to
improve system performance, are platform independent, and have strongly defined
Application Programming Interfaces through the use of the Interface Definition
Language specified by CORBA. Through CORBA compliance, the Company's products
are fully compatible with other CORBA-based technologies, such as Java.
In addition to CORBA, the Company uses other widely accepted standards in
developing its products, including SQL (Structured Query Language) for accessing
relational database management systems ("RDBMSs"), CGI (Common Gateway
Interface), and HTTP (Hypertext Transfer Protocol) for Internet access, NSAPI
(Netscape Application Programming Interface) for access to Netscape's Internet
servers, SSL (Secure Socket Layer) for secure transmissions over networks, and
the RC2 and MD5 encryption algorithms supplied by RSA Data Security, Inc.
("RSA"). BroadVision One-To-One can be operated in conjunction with RDBMSs
provided by Oracle, Informix Corporation ("Informix"), Microsoft, and Sybase.
Most of the Company's programs are written in C++, a widely accepted standard
programming language for developing object-oriented applications. Adherence to
industry standards provides compatibility with existing applications, enables
ease of modification, and reduces the need for software to be rewritten, thus
protecting the customer's investment.
N-Tier Architecture
The BroadVision One-To-One application system utilizes an N-tier
architecture that logically separates application presentation, business rules,
and data. Between each of these tiers are session manager and project adapter
interface technologies, described below, that establish seamless
interoperability between application components. This architecture partitions
applications across:
* A front-end tier that manages the application presentation and
interface to Web site visitors
* Application engine tier(s) that manage the one-to-one life cycle
activities--community, profiling, targeting, and transactions--and the
business rules that define the interactive characteristics and behavior
of one-to-one relationship management applications. Due to the
object-oriented design of this code and the reliance on CORBA, this
code can be distributed across multiple logical and physical
processors, thus enabling the N-tier design of the application.
* A back-end tier that integrates underlying database management systems
for storing BroadVision One-To-One data with external business systems
that perform specialized relationship management functions, such as
online credit card authorization and payment handling, sales tax and
shipping computation, online and off-line order fulfillment, inventory
management, visitor demographic analysis, and data mining.
15
The Company believes this N-tier architecture offers significant
advantages over alternative approaches, including:
* Bandwidth, database, and platform independence
* Modularity, to enable changes to be made to one area of an application
with minimal impact on other areas
* The ability for business managers to define and control business rules
in real time without requiring programming changes to application logic
* The ability to support specialized "object adapters" that reduce time
and cost to integrate BroadVision One-To-One applications with existing
business systems, the ability to perform such integration with a
minimum of programming, and the ability to localize applications to
different language and currency requirements
Session Manager
The Company has developed proprietary "session manager" technology designed
to manage the high volume of dynamic interactions that occur in online sessions
between many concurrent Web site visitors and a relationship management
application. The session manager enables three key activities:
* Maintaining context, or "state," between visitors and sites so that
each current and future interaction can trigger a response appropriate
to the objectives of both visitor and site provider
* Interpreting application objects and templates at runtime, and
retrieving profile data and business rules to dynamically generate HTML
that creates content, Web pages, and interactions tailored to the needs
and interests of individual Web site visitors
* Enabling application scalability by allowing Web site providers to add
additional software processes or hardware processors to their Web
systems to support more concurrent Web site visitors without incurring
performance degradation or additional overhead in application
maintenance
Dynamic Objects and Application Templates
The Company believes that the costs and time associated with Internet
application development and maintenance can be substantially reduced with its
technology for object-oriented application development. This technology consists
of two primary components, dynamic objects and application templates. Utilized
in combination with the Company's structured development methodology, these
technologies are designed to help customers and partners create libraries of
reusable program components that increase application quality and reduce cost
and time-to-market of new and maintained applications. In addition, the dynamic
object technology enables business managers to define and implement business
rules through the BroadVision One-To-One DCC on a real-time basis. The Company's
consultants currently use these technologies to develop application solutions
for customers, and the Company's Education Services Group offers training
classes to customers and partners on the use of dynamic objects and application
templates.
Product Development
The Company believes that its future success will depend in large part on
its ability to enhance the BroadVision One-To-One product family, develop new
products, maintain technological leadership, and satisfy an evolving range of
customer requirements for large-scale interactive online relationship management
applications. The Company's 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, the Company has 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, 1997, there were 52 employees in the Company's product
development organization. The Company's research and development expenses were
$7.4 million, $5.0 million,
16
and $2.6 million in 1997, 1996, and 1995, respectively. To date, the Company
has not capitalized any software development costs. The Company expects to
continue to devote substantial resources to its product development activities.
The information services, software, and communications industries are
characterized by rapid technological change, changes in customer requirements,
frequent new product and service introductions and enhancements, and emerging
industry standards. The introduction of products and services embodying new
technologies and the emergence of new industry standards and practices can
render existing products and services obsolete and unmarketable. The Company's
future success will depend, in part, on its ability to develop leading
technologies, enhance its existing products and services, develop new products
and services that address the increasingly sophisticated and varied needs of its
prospective customers, and respond to technological advances and emerging
industry standards and practices on a timely and cost-effective basis. There can
be no assurance that the Company will be successful in effectively using new
technologies, adapting its products to emerging industry standards, developing,
introducing, and marketing product and service enhancements, or new products and
services, or that it will not experience difficulties that could delay or
prevent the successful development, introduction, or marketing of these products
and services, or that its new product and service enhancements will adequately
meet the requirements of the marketplace and achieve market acceptance. If the
Company is unable, for technical or other reasons, to develop and introduce new
products and services or enhancements of existing products and services in a
timely manner in response to changing market conditions or customer
requirements, or if new products and services do not achieve market acceptance,
the Company's business, financial condition, and operating results will be
materially adversely affected.
Strategic Technology Alliances
In order to ensure that the Company's products are based on industry
standards and take advantage of current and emerging technologies, the Company
emphasizes strategic technology alliances. The benefits of this approach include
enabling the Company to focus on its core competencies, reducing time to market,
and simplifying the task of designing and developing applications by both the
Company and its customers. Key strategic technology alliances to date have
included alliances with Sun, Hewlett-Packard Company, and Silicon Graphics,
Inc., providers of enterprise server hardware and systems software; IONA
Technologies, Inc. ("IONA"), a provider of a CORBA-compliant development
platform; Oracle, Sybase, and Informix, providers of standard RDBMSs; RSA, a
provider of encryption technology; and VeriFone, Inc. and CyberCash, Inc.,
providers of payment systems. The Company's strategy is to establish additional
such alliances as new technologies and standards emerge, although no assurance
can be given that the Company will be successful in establishing or maintaining
such alliances.
Intellectual Property and Other Proprietary Rights
The Company's success and ability to compete are dependent to a significant
degree on its proprietary technology. The Company provides its products to end
users generally under nonexclusive, nontransferable licenses during the term of
the agreement, which is usually in perpetuity. Under the general terms and
conditions of the Company's standard license agreement, the licensed software
may be used solely for internal operations pursuant to BroadVision's published
licensing practices.
The Company holds a patent on its core technology for personalized business
on the Internet. The United States Patent Office issued Patent 5,710,887 on
January 20, 1998 to the Company, covering certain elements of the BroadVision
One-To-One(TM) Application System. There can be assurance that this patent would
survive a legal challenge to its validity or provide significant protection.
The Company has registered "BroadVision" and applied for registration of
"BroadVision One-To-One" as trademarks in the United States. Although the
Company takes steps to protect its trade secrets, there can be no assurance that
misappropriation will not occur or that copyright and trade secret protection
will be available in certain countries.
The source code for the Company's proprietary software is protected both as
a trade secret and as a copyrighted work. The Company makes source code
available for certain portions of its products. In addition, some of the
Company's agreements with its customers contain provisions requiring release of
source code for
17
limited, non-exclusive use by the customer in the event that the Company ceases
to do business or the Company fails to support its products. The provision of
source code may increase the likelihood of misappropriation by third parties.
The Company's policy is to enter into confidentiality and assignment agreements
with its employees, consultants, and vendors and generally to control access to
and distribution of its software, documentation, and other proprietary
information. Notwithstanding these precautions, it may be possible for a third
party to copy or otherwise obtain and use the Company's software or other
proprietary information without authorization or to develop similar software
independently. Policing unauthorized use of the Company's products is
difficult, particularly because the global nature of the Internet makes it
difficult to control the ultimate destination or security of software or other
data transmitted. The laws of other countries may afford the Company little or
no effective protection of its intellectual property. There can be no assurance
that the steps taken by the Company will prevent misappropriation of its
technology or that agreements entered into for that purpose will be
enforceable. In addition, litigation may be necessary in the future to enforce
the Company's intellectual property rights, to protect the Company's trade
secrets, to determine the validity and scope of the proprietary rights of
others, or to defend against claims of infringement or invalidity. Such
litigation, whether successful or unsuccessful, could result in substantial
costs and diversions of resources, either of which could have a material
adverse effect on the Company's business, financial condition, and operating
results.
The Company may, in the future, receive notices of claims of infringement
of other parties' trademark, copyright, and other proprietary rights. There can
be no assurance that claims for infringement or invalidity (or claims for
indemnification resulting from infringement claims) will not be asserted or
prosecuted against the Company. In particular, claims could be asserted against
the Company for violation of trademark, copyright, or other laws as a result of
the use by the Company, its customers, or other third parties of the Company's
products to transmit, disseminate, or display information over or on the
Internet. Any such claims, with or without merit, could be time consuming to
defend, result in costly litigation, divert management's attention and
resources, cause product shipment delays, or require the Company to enter into
royalty or licensing agreements. There can be no assurance that such licenses
would be available on reasonable terms, if at all, and the assertion or
prosecution of any such claims could have a material adverse effect on the
Company's business, financial condition, and operating results.
The Company relies upon certain software that it licenses from third
parties, including RDBMSs from Oracle and Sybase, object request broker software
from IONA, database access technology from Rogue Wave Software, Inc. ("Rogue
Wave"), and other software which is integrated with internally developed
software and used in the Company's software to perform key functions. In this
regard, all of the Company's services incorporate data encryption and
authentication technology licensed from RSA. There can also be no assurance that
the Company's third-party technology licenses will continue to be available to
the Company on commercially reasonable terms, if at all. The loss or inability
to maintain any of these technology licenses could result in delays in
introduction of the Company's products and services until equivalent technology,
if available, is identified, licensed, and integrated, which could have a
material adverse effect on the Company's business, financial condition, and
operating results.
Employees
As of December 31, 1997, the Company employed a total of 188 full-time
employees, including 83 in sales and marketing, 52 in product development, 34 in
professional services and client support, and 19 in finance, administration, and
operations.
The Company believes that its future success is dependent on attracting and
retaining highly skilled engineering, sales and marketing, and senior management
personnel. Competition for such personnel is intense, and there can be no
assurance that the Company will continue to be able to attract and retain
high-caliber employees. The Company's employees are not represented by any
collective bargaining unit. The Company has never experienced a work stoppage
and considers its employee relations to be good.
18
Executive Officers and Key Personnel
The executive officers and key personnel of the Company and their ages at
February 28, 1998 are as follows:
Name Age Position
- ---------------------------- ----- --------------------------------------------------------------------
Pehong Chen ................ 40 Chairman of the Board, Chief Executive Officer and President
Randall Bolten ............. 45 Chief Financial Officer and Vice President, Operations
Clark W. Catelain .......... 50 Vice President, Engineering
Eric J. Golin .............. 38 Vice President of Worldwide Professional Services
Michael A. Kennedy ......... 35 Vice President of Global Strategic Alliances
Giuseppe Kobayashi ......... 42 Vice President and General Manager of Japan/Asia-Pacific Operations
Francois Stieger ........... 48 Vice President and General Manager of European Operations
James W. Thanos ............ 49 Vice President and General Manager, Americas
Perry W. Thorndyke ......... 48 Vice President, Marketing
Pehong Chen has served as Chairman of the Board, Chief Executive Officer
and President of the Company since its 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 ("Gain"), 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 Bolten has served as Chief Financial Officer and Vice President,
Operations, of the Company since September 1995. 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 Corporation, a company engaged in the
management of various high technology companies. He received an A.B. in
Economics from Princeton University and an M.B.A. from Stanford University.
Clark W. Catelain has served as Vice President, Engineering, of the Company
since June 1995. From 1989 to May 1995, Mr. Catelain served as the Senior Vice
President, Engineering of Gupta Corporation, a supplier of client/server
database products. Mr. Catelain received a B.S. in Mathematics and Computer
Science from Purdue University.
Eric J. Golin has been employed at the Company since September 1994 and has
served as Vice President of Worldwide Professional Services of the Company since
September 1997. From September 1993 to September 1994, Mr. Golin was a principal
architect for OpenVision Technology. From September 1989 to September 1993, Mr.
Golin was Assistant Professor of Computer Science at the University of Illinois
at Champaign-Urbana. Mr. Golin received an Sc.B., Sc.M., and a Ph.D. in Computer
Science from Brown University.
Michael A. Kennedy has served as Vice President, Global Strategic
Alliances, since September 1997. From September 1995 to August 1997, Mr. Kennedy
served as Senior Director, Marketing of the Company. From August 1993 to August
1995, Mr. Kennedy served as Director, New Media Business Development for Oracle
Corporation, supplier of database software. From December 1989 to July 1993, Mr.
Kennedy served as Senior Product Marketing Manager for Oracle Corporation. Mr.
Kennedy received a B.Sc. in Computer Science from the Aberdeen University,
Scotland.
Giuseppe Kobayashi has served as Vice President and General Manager of
Japan/Asia-Pacific Operations of the Company since January 1995. From 1994 to
the present, Mr. Kobayashi has also served as consultant to Wind River Systems,
Inc., a supplier of software development systems. During 1993, Mr. Kobayashi was
General Manager, Japan Operations, Gain Group at Sybase. During 1992, Mr.
Kobayashi was General Manager
19
of Operations at Gain. From 1990 to 1992, Mr. Kobayashi served as Managing
Director of Asia Pacific Operations at Teradata Corporation, a supplier of
database software. Mr. Kobayashi holds a B.S. in Computer Science from the
University of San Francisco.
Francois Stieger has served as Vice President and General Manager of
European Operations of the Company since January 1996. From July 1994 to
December 1995, Mr. Stieger was employed as Senior Vice President, Europe and
Middle East, for OpenVision Technologies, Inc., a supplier of distributed
systems management products and services. From 1993 to 1994, Mr. Stieger served
as Vice President, Europe of the Gain Division of Sybase. From 1987 to 1992, Mr.
Stieger served as Vice President, Europe, Central and Southern region of Oracle,
a supplier of relational database software. Mr. Stieger holds a Diplome
Universitaire De Technologie in Mathematics and Mechanics from the University of
Strasbourg.
James W. Thanos has served as Vice President and General Manager, Americas
of the Company since January 1998. From January 1995 to January 1998, Mr. Thanos
served as Senior Vice President of Worldwide Operations of Aurum Software, a
sales force automation company. 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, Inc., a decision
support software company. Mr. Thanos holds a B.A. in International Relations
from Johns Hopkins University.
Perry W. Thorndyke has served as Vice President, Marketing, of the Company
since August 1996. From February 1995 to January 1996, Dr. Thorndyke served as a
management consultant to and then Vice President, Marketing for Quintus
Corporation, a supplier of client/server solutions for customer information
management. From February 1994 to January 1995, Dr. Thorndyke served as an
management consultant on technology strategy for customer information management
systems to independent software vendors and user organizations. From May 1992 to
January 1994, Dr. Thorndyke served as Vice President and Division Manager for
retail banking systems at Wells Fargo Bank. From 1990 to May 1992, Dr. Thorndyke
served as Senior Manager of Marketing and Business Development at Metaphor
Computer Systems. a supplier of client/server software applications for PC-based
support decision products. Dr. Thorndyke received a B.A. in Computer and
Information Sciences from Yale University and a Ph.D. in Cognitive Psychology
from Stanford University.
ITEM 2. PROPERTIES
The Company's principal administration, research and development, sales,
consulting, and support facilities are located in Redwood City, California,
where the Company occupies approximately 60,000 square feet pursuant to a lease
that expires in 2007. The Company also rents space in various cities to support
its sale and field support activities. The Company believes that its existing
facilities are adequate to meet its needs for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
20
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "BVSN." Public trading of the Common Stock commenced on June 26,
1996. Prior to that, there was no public market for the Common Stock. As of
March 2, 1998, there were approximately 254 holders of record of the Company's
Common Stock.
The following table sets forth, for the periods indicated, the high and low
sale price per share of the Common Stock on the Nasdaq National Market.
1996 High Low
---- ---- ---
Second Quarter (from June 26, 1996) ........... $ 7.13 $ 6.88
Third Quarter ................................. $ 8.38 $ 5.38
Fourth Quarter ................................ $ 9.06 $ 6.56
1997
----
First Quarter ................................. $ 10.38 $ 7.50
Second Quarter ................................ $ 9.13 $ 4.38
Third Quarter ................................. $ 7.38 $ 5.00
Fourth Quarter ................................ $ 8.69 $ 5.88
1998
----
First Quarter (through March 3, 1998) ......... $ 15.38 $ 6.00
The Company has never declared or paid cash dividends on its Common Stock
and it is the Company's present intention to retain earnings to finance the
expansion of its business. In addition, the Company's credit facility with its
commercial lender contains certain covenants which limit the Company's ability
to pay cash dividends.
21
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Consolidated Financial Statements of the Company
and Notes thereto, and other financial information included elsewhere in this
Form 10-K. Historical results are not necessarily indicative of the results to
be expected in the future.
Period from
May 13, 1993
(Inception) to Year Ended December 31,
December 31, ------------------------------------------------------
1993 1994 1995 1996 1997
--------------- ----------- ----------- ------------ -----------
(in thousands, except per share data)
Statement of Operations Data:
Revenues:
Software licenses .............................. $ -- $ -- $ -- $ 7,464 $ 18,973
Services ....................................... -- -- 540 3,418 8,132
------ -------- -------- --------- --------
Total revenues ............................... -- -- 540 10,882 27,105
------ -------- -------- --------- --------
Cost of revenues:
Cost of software licenses ...................... -- -- -- 330 1,664
Cost of services ............................... -- -- 249 2,164 4,284
------ -------- -------- --------- --------
Total cost of revenues ....................... -- -- 249 2,494 5,948
------ -------- -------- --------- --------
Gross profit .................................... -- -- 291 8,388 21,157
------ -------- -------- --------- --------
Operating expenses:
Research and development ....................... 12 748 2,575 4,985 7,392
Sales and marketing ............................ 31 512 1,348 12,066 18,413
General and administrative ..................... 100 511 846 2,034 2,990
------ -------- -------- --------- --------
Total operating expenses ..................... 143 1,771 4,769 19,085 28,795
------ -------- -------- --------- --------
Operating loss .................................. (143) (1,771) (4,478) (10,697) (7,638)
Other income, net ............................... 7 101 160 552 265
------ -------- -------- --------- --------
Net loss ........................................ $ (136) $ (1,670) $ (4,318) $ (10,145) $ (7,373)
====== ======== ======== ========= ========
Basic and diluted net loss per share(1) ......... $ (0.36) $ (0.54) $ (0.36)
========= ========= =========
Shares used in per share computation(1) ......... 11,976 18,815 20,208
========= ========= =========
December 31,
--------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(in thousands)
Balance Sheet Data:
Cash and cash equivalents $ 1,503 $ 808 $ 4,311 $ 17,608 $ 8,277
Working capital .......... 2,358 2,208 3,916 18,258 11,485
Total assets ............. 2,634 2,640 5,857 28,930 27,342
Long-term obligations .... -- -- 593 587 3,081
Accumulated deficit ...... (136) (1,806) (6,124) (16,269) (23,642)
Total stockholders' equity 2,478 2,526 4,254 21,016 15,121
- ------------
(1) See Note 1 of Notes to Consolidated Financial Statements for information
concerning the computation of per share amounts.
22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for historical information contained or incorporated by reference
herein, the following discussion contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
significantly from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
below under the caption "Risk Factors" and elsewhere in this Form 10-K. Any such
forward-looking statements speak only as of the date such statements are made.
Overview
BroadVision develops, markets and supports application software solutions
for one-to-one relationship management for the extended enterprise. These
solutions enable businesses to use the Internet as a platform to conduct
commerce, provide self-service, and deliver targeted information to their
customers, suppliers, distributors, employees, and other constituents of their
extended enterprises. The BroadVision One-To-One product family allows
businesses to tailor Web site content to the needs and interests of individual
users by personalizing each visit on a real-time basis. BroadVision One-To-One
applications achieve this result by interactively capturing Web site visitor
profile information, organizing the enterprise's content, targeting that content
to each visitor based on easily constructed business rules, and executing
transactions. The Company believes the benefits of these applications include
enhanced customer satisfaction and loyalty, increased business volume, reduced
costs to service customers and execute transactions, and enhanced employee
productivity.
The Company's core product, the BroadVision One-To-One Application System,
was first made commercially available in December 1995. Version 3.0, the
Company's latest version, was released during the fourth quarter of 1997 and
supports five languages (English, German, Japanese, Chinese, and Korean) and
four major client/server databases (Oracle, Sybase, Informix and Microsoft SQL
Server). In 1997, the Company released a complementary family of three packaged
application products: One-To-One Commerce, One-To-One Financial, and One-To-One
Knowledge. These products are built upon and tightly integrated with the
Company's core technology and provide specifically enhanced functionality. They
are designed to address the distinct customer requirements for managing
one-to-one relationships with product merchandising, financial services, and
knowledge management.
The Company sells its products and services worldwide through a direct
sales force, independent distributors, value-added resellers, and system
integrators. It also has a global network of strategic business relationships
with key industry platform and Web developer partners.
The Company's revenues are derived from software license fees and fees
charged for its services. The Company generally recognizes license fees when the
software has been delivered, the customer acknowledges an unconditional
obligation to pay, and the Company has no significant obligations remaining.
Professional services revenues generally are recognized as services are
performed. Software maintenance revenues are recognized ratably over the term of
the support period, which is typically one year.
23
Results of Operations
The following table sets forth certain items reflected in the Company's
consolidated statements of operations as a percentage of total revenues for the
periods indicated.
Year Ended December 31,
------------------------------------------
1995 1996 1997
------------- ------------ -----------
Revenues:
Software licenses .................. --% 68.6% 70.0%
Services ........................... 100.0 31.4 30.0
------ ----- -----
Total revenues ................... 100.0 100.0 100.0
------ ----- -----
Cost of revenues:
Cost of software licenses .......... -- 3.0 6.1
Cost of services ................... 46.1 19.9 15.8
------ ----- -----
Total cost of revenues ........... 46.1 22.9 21.9
------ ----- -----
Gross profit ........................ 53.9 77.1 78.1
------ ----- -----
Operating expenses:
Research and development ........... 476.9 45.8 27.3
Sales and marketing ................ 249.6 110.9 67.9
General and administrative ......... 156.7 18.7 11.1
------ ----- -----
Total operating expenses ......... 883.2 175.4 106.3
------ ----- -----
Operating loss ...................... (829.3) (98.3) (28.2)
Other income, net ................... 29.7 5.1 1.0
------ ----- -----
Net loss ............................ (799.6)% (93.2)% (27.2)%
====== ===== =====
Revenues
Total revenues for the Company were $27.1 million in 1997 as compared to
$10.9 million in 1996, which represents an increase of 149% year-over-year.
During 1995, the Company's software products were under development and total
revenues were $540,000, consisting principally of domestic consulting services.
In 1997 and 1996, North American revenues were $12.9 million and $4.4 million,
or 48% and 41% of total revenues, respectively; revenues to Europe were $10.9
million and $3.3 million, or 40% and 30% of total revenues, respectively; and
revenues to Asia/Pacific were $3.4 million and $3.2 million, or 12% and 29% of
total revenues, respectively. The 149% increase in total revenues for 1997 as
compared to 1996 is a result of strong market acceptance of the Company's
cornerstone product, the BroadVision One-to-One Application System, which was
facilitated by the introduction in 1997 of new complementary application
products, One-To-One Commerce, One-To-One Financial, and One-To-One Knowledge.
The significant increase for 1996 as compared to 1995 is a result of the
introduction of the BroadVision One-To-One Application System in late 1995.
Although the Company has experienced revenue growth in recent periods,
historical growth rates may not be sustained and may not be indicative of future
operating results. The Company anticipates that international revenues will
continue to account for a significant amount of total revenues, and management
expects to continue to commit significant time and financial resources to the
maintenance and ongoing development of direct and indirect international sales
and support channels. There can be no assurance, however, that the Company will
be able to maintain or increase international market acceptance for its family
of products.
Software Licenses. The Company's software license revenues were $19.0
million in 1997 as compared to $7.5 million in 1996, which represents an
increase of 154% year-over-year. There were no software license revenues in
1995. In 1997 and 1996, North American software license revenues were $8.6
million and $3.1 million, or 45% and 41% of the Company's total software license
revenues, respectively; software license revenues to Europe were $8.8 million
and $2.3 million, or 47% and 30% of the Company's total software license
revenues, respectively; and software license revenues to Asia/Pacific were $1.6
million and $2.1 million, or 8% and 29% of the Company's total software license
revenues, respectively.
24
Services. Services revenues consist primarily of professional services and
maintenance. The Company's professional services include its Strategic Services
Group, its Interactive Services Group, its Content and Creative Services Group
and its Education Services Group. Professional services are generally offered on
a time and materials basis. Maintenance revenue is generally derived from annual
service agreements and is recognized ratably over the period of the agreement.
Maintenance fees are based on a percentage of the list price for the related
software.
Total services revenues were $8.1 million in 1997 as compared to $3.4
million in 1996, which represents an increase of 138% year-over-year. During
1995, the Company was in its early stages of development and services revenues
were $540,000. In 1997 and 1996, North American services revenues were $4.3
million and $1.3 million, or 53% and 39% of the Company's total services
revenues, respectively; services revenues in Europe were $2.0 million and $1.0
million, or 25% and 30% of the Company's total services revenues, respectively;
and services revenues in Asia/Pacific were $1.8 million and $1.1 million, or 22%
and 31% of the Company's total services revenues, respectively.
Professional services revenues were $6.0 million in 1997 as compared to
$2.8 million in 1996, which represents an increase of 114% year-over-year. In
1995, professional services revenues were $540,000 and related principally to a
single domestic contract development project. Professional services revenues as
a percentage of total services revenues were 74%, 83%, and 100% in 1997, 1996,
and 1995, respectively. The 114% increase in professional services revenues for
1997 as compared to 1996 is a result of higher business volumes and greater
utilization of the Company's professional consultants. The significant increase
for 1996 as compared to 1995 is primarily the result of comparing a full year of
operations during 1996 with the 1995 period, which was a development stage
period. The Company's professional services revenues as a percentage of total
revenues may decline to the extent the Company's strategy of developing business
alliances with third parties, such as system integrators, continues to expand.
Maintenance revenues were $2.1 million in 1997 as compared to $599,000 in
1996, which represents an increase of 251% year-over-year. There were no
maintenance revenues in 1995. Maintenance revenues as a percentage of total
services revenues were 26%, 18%, and 0% in 1997, 1996, and 1995, respectively.
The increase in maintenance revenues is a result of expanding software sales and
the corresponding maintenance fees relating to a larger installed base of
software licenses. As the Company's installed license base grows, its
maintenance revenues as a percentage of total revenues may increase.
Operating Expenses
Cost of Software Licenses. Cost of software licenses includes royalties
payable to third parties for software that is either embedded in, or bundled and
sold with, the Company's products; commissioned agent fees paid to distributors;
and the costs of product media, duplication, packaging and other associated
manufacturing costs. In 1997 and 1996, cost of software licenses was $1.7
million and $330,000, or 9% and 4% of related software license revenues,
respectively, consisting principally of third-party royalties and commissioned
agent fees. There were no software license costs in 1995. Cost of software
licenses increased in both absolute dollar and percentage terms during 1997 as
compared to 1996 due to expanded sales volumes and higher commissioned agent
fees as a result of increased distributor sales. Commissioned agent fees were
$703,000 in 1997 as compared to $80,000 in 1996. To a lesser extent, an
increased number of third-party products bundled with or embedded in the
Company's products also contributed to the increases.
Cost of Services. Cost of services consists primarily of employee-related
costs and fees of third-party consultants incurred in providing consulting,
post-contract customer support, and training services. In 1997, 1996, and 1995,
cost of services were $4.3 million, $2.2 million, and $249,000, or 53%, 63%, and
46% of related services revenues, respectively. Cost of services increased 98%
in absolute dollars during 1997 as compared to 1996 due to expanded business
volumes, as represented by the 138% increase in total services revenues. The
higher level of costs is attributable to additions to the Company's consulting
staff, the employment of outside consultants to meet short-term consulting
arrangements, an increasing number of licenses with support or maintenance
components, and a higher level of fixed costs resulting from the Company's
expansion of its services organization to meet higher business volumes. The
decrease in cost of services as a percentage of total services revenues in 1997
as compared to 1996 is a result of increased utilization of professional staff
and overall higher business volumes in relation to fixed overhead costs. During
1995, the Company was in its development
25
stage and generally in the process of building its support services
infrastructure. The Company expects that services costs will continue to
increase in absolute dollars as the Company continues to expand its services
organization to support anticipated higher levels of business.
Research and Development. Research and development expenses consist
primarily of salaries, other employee-related costs, and consulting fees
relating to the development of the Company's products. In 1997, 1996, and 1995,
research and development expenses were $7.4 million, $5.0 million, and $2.6
million, respectively. Research and development expenses increased by 48% in
1997 as compared to 1996 and increased by 94% in 1996 as compared to 1995. The
increases in research and development expenses are primarily attributable to
costs associated with additional personnel within those operations for the
enhancement of existing products and the development of new products. The
Company anticipates that research and development expenses will continue to
increase in absolute dollars for 1998. Development costs incurred in research
and development of new software products are expensed as incurred until
technological feasibility in the form of a working model has been established,
at which time such costs are capitalized, subject to recoverability. As of
December 31, 1997, no software development costs had been capitalized.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries and other employee-related costs, commissions and other incentive
compensation, travel and entertainment, and expenditures for marketing programs
such as collateral materials, trade shows, public relations, and creative
services. In 1997, 1996, and 1995, sales and marketing expenses were $18.4
million, $12.1 million, and $1.3 million, respectively. Sales and marketing
expenses increased by 53% in 1997 as compared to 1996 and increased by 795% in
1996 as compared to 1995. During 1995, the Company was still in the development
stage and sales and marketing expenses in percentage terms increased
significantly year-over-year. The overall increases in sales and marketing
expenditures reflect the cost of hiring additional sales and marketing
personnel, developing and expanding its sales distribution channels, deploying
new products, and expanding promotional activities. The Company expects to
continue to expand its direct sales and marketing efforts and expects sales and
marketing expenses to continue to increase in absolute dollars.
General and Administrative. General and administrative expenses consist
primarily of salaries, other employee-related costs, and professional service
fees. In 1997, 1996, and 1995 general and administrative expenses were $3.0
million, $2.0 million, and $846,000, respectively. General and administrative
expenses increased by 47% in 1997 as compared to 1996 and increased by 140% in
1996 as compared to 1995. The increases in general and administrative expenses
are attributable to the hiring of additional administrative and management
personnel, increased professional fees, additional provision for doubtful
accounts, and additional infrastructure to support the expansion of the
Company's operations. The Company expects to continue to add administrative
staff to support broadened operations. As a result, the Company expects that
general and administrative expenses will continue to increase in absolute
dollars.
Prior to the Company's initial public offering in June 1996, the Company
recorded deferred compensation for the difference between the exercise price and
the deemed fair value of the Company's Common Stock with respect to 1,794,000
shares issuable upon exercise of options. The total amount was recorded as
deferred compensation and is being amortized to cost of services, research and
development, selling and marketing, and general and administrative expenses over
the vesting periods of the options, generally 60 months. Deferred compensation
amortization for 1997, 1996, and 1995 was $428,000, $513,000, and $100,000,
respectively. The amortization of deferred compensation will have an adverse
effect on the Company's reported results of operations through 2003, but such
effect will be significantly reduced beginning in the third quarter of 2001.
Income taxes. Deferred taxes are recognized as a result of temporary
differences that arise between the tax basis of assets and liabilities and the
related financial statement carrying amounts, as measured using the tax rates
that are expected to be in effect when the temporary differences reverse. During
1997, 1996, and 1995, the Company generated pre-tax losses of $7.4 million,
$10.1 million, and $4.3 million, respectively. The Company has approximately
$10.0 million in net deferred tax assets, however, it has not reported any
associated income tax benefit because the net deferred tax assets are fully
reserved due to uncertainties regarding the realization of the assets, given the
lack of earnings history for the Company. See "Risk Factors--Deferred Tax
Assets" and Note 6 to Consolidated Financial Statements.
At December 31, 1997, the Company had federal and state net operating loss
carryforwards of approximately $17.1 million and $6.4 million, respectively. In
addition, the Company had federal and state research
26
and development credit carryforwards of approximately $585,000 and $451,000,
respectively, available to offset future tax liabilities. The Company's net
operating loss and tax credit carryforwards expire in 1999 through 2013, if not
utilized. Utilization of the carryforwards may be subject to annual limitation
due to changes in the Company's ownership resulting from the Company's
preferred stock financings and its public stock offerings.
Liquidity and Capital Resources
The Company has funded its operations to date primarily through the private
placement of Common and Preferred Stock and an initial public offering of
3,360,000 shares of Common Stock. Through May 1996, private placements provided
net proceeds totaling $15.5 million, and in June 1996 the initial public
offering yielded net proceeds of $20.7 million. At December 31, 1997, the
Company had $10.5 million in cash and cash equivalents, restricted cash, and
restricted short-term investments, which represents a decrease of $9.2 million
as compared to $19.7 million at December 31, 1996. The Company currently has no
significant capital commitments other than obligations under equipment and
operating leases and $2.7 million outstanding under a term debt credit facility
with its commercial bank. Effective February 1998, the Company's commercial bank
increased its credit facility to provide for total borrowings of up to $6.5
million.
Cash used in operating activities was $8.7 million, $8.4 million, and $3.7
million in 1997, 1996, and 1995, respectively. The primary use of cash in
operating activities was to fund ongoing operations and support higher levels of
trade receivables as a result of significant year-over-year increases in
revenues. Cash used in investing activities was $3.6 million and $4.4 million in
1997 and 1996, respectively, and was primarily for the acquisition of property
and equipment, net of $2.1 million of short-term investment maturities in 1997
and inclusive of uses for the purchase of $2.1 milion of short-term investments
in 1996. Cash provided by investing activities was $614,000 in 1995 and was
primarily attributable to the maturity of short-term investments net of property
and equipment acquisitions of $679,000. Cash provided by financing activities
was $2.9 million, $26.1 million, and $6.6 million in 1997, 1996, and 1995,
respectively. The primary source of cash provided by financing activities was
proceeds from the issuance of stock and, to a lesser extent, borrowings.
The Company believes that its available cash resources, cash generated from
operations and amounts available under its commercial credit facilities, will
be sufficient to meet its expected working capital and capital expenditure
requirements for at least the next 12 months. This estimate is a forward-looking
statement that involves risks and uncertainties, and actual results may vary as
a result of a number of factors, including those discussed under "Risk Factors"
and elsewhere herein.