-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NbeTN8NhddAauSZeNh76n63IWV7jtlocvLQk7eTVCgj3jGI3zSUB5AmOcpZzlFg/ /hNNR9GBcYLB7VuFhyryZg== 0000950005-98-000890.txt : 19981116 0000950005-98-000890.hdr.sgml : 19981116 ACCESSION NUMBER: 0000950005-98-000890 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BROADVISION INC CENTRAL INDEX KEY: 0000920448 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 943184303 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-28252 FILM NUMBER: 98748172 BUSINESS ADDRESS: STREET 1: 333 DISTEL CIRCLE CITY: LOS ALTOS STATE: CA ZIP: 94022 BUSINESS PHONE: 4159433600 MAIL ADDRESS: STREET 1: 333 DISTEL CIRCLE CITY: LAS ALTOS STATE: CA ZIP: 94022 10-Q 1 FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended September 30, 1998 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-28252 BROADVISION, INC. (Exact name of registrant as specified in its charter) Delaware 94-3184303 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 585 Broadway, Redwood City, California 94063 (Address of principal executive offices) (Zip code) (650) 261-5100 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES _X_ NO ___ As of October 31, 1998 there were 24,566,393 shares of the Registrant's Common Stock issued and outstanding. ================================================================================ BROADVISION, INC. AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1998 TABLE OF CONTENTS Page No. -------- PART I FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - September 30, 1998 and December 31, 1997 3 Consolidated Statements of Operations - Three and nine months ended September 30, 1998 and 1997 4 Consolidated Statements of Cash Flows - Nine months ended September 30, 1998 and 1997 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk 17 PART II OTHER INFORMATION Item 1. Legal Proceedings 18 Item 2. Changes in Securities and Use of Proceeds 18 Item 3. Defaults upon Senior Securities 18 Item 4. Submission of Matters to a Vote of Security Holders 18 Item 5. Other Information 18 Item 6. Exhibits and Reports on Form 8-K 18 SIGNATURES 18 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS BROADVISION, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except per share data)
September 30, December 31, 1998 1997 -------- -------- ASSETS Cash and cash equivalents $ 61,914 $ 8,277 Restricted cash -- 1,400 Short-term investments, restricted -- 796 Accounts receivable, less allowance for doubtful accounts and returns of $628 and $671, for 1998 and 1997, respectively 11,625 9,586 Prepaids and other 1,876 566 -------- -------- Total current assets 75,415 20,625 Property and equipment, net 7,572 6,467 Long-term investments, at cost 5,525 -- Prepaids and other 1,161 250 -------- -------- Total assets $ 89,673 $ 27,342 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 1,812 $ 1,863 Accrued expenses 3,237 2,168 Unearned revenue 2,182 1,335 Deferred maintenance 4,300 2,552 Current portion of capital lease obligations 844 773 Current portion of long-term debt 548 449 -------- -------- Total current liabilities 12,923 9,140 Capital lease obligations 346 803 Long-term debt 3,061 2,202 Other 58 76 -------- -------- Total liabilities 16,388 12,221 Commitments Stockholders' equity: Convertible preferred stock, $0.0001 par value; 5,000 shares authorized; none issued and outstanding -- -- Common stock, $0.0001 par value; 50,000 shares authorized; 24,334 and 20,343 shares issued and outstanding for 1998 and 1997, respectively 2 2 Additional paid-in capital 95,620 40,366 Deferred compensation (643) (1,605) Accumulated deficit (21,694) (23,642) -------- -------- Total stockholders' equity 73,285 15,121 -------- -------- Total liabilities and stockholders' equity $ 89,673 $ 27,342 ======== ======== See Accompanying Notes to Consolidated Financial Statements
3 BROADVISION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts)
Three Months Ended Nine Months Ended September 30, September 30, 1998 1997 1998 1997 -------- -------- -------- -------- Revenues: Software licenses $ 9,158 $ 5,513 $ 24,455 $ 12,759 Services 4,273 1,641 10,439 5,713 -------- -------- -------- -------- Total revenues 13,431 7,154 34,894 18,472 Cost of revenues: Cost of software licenses 237 460 637 1,099 Cost of services 2,553 1,010 6,264 3,154 -------- -------- -------- -------- Total cost of revenues 2,790 1,470 6,901 4,253 -------- -------- -------- -------- Gross profit 10,641 5,684 27,993 14,219 Operating expenses: Research and development 2,394 2,113 6,476 5,595 Sales and marketing 6,285 4,630 18,389 13,091 General and administrative 977 763 2,562 2,209 -------- -------- -------- -------- Total operating expenses 9,656 7,506 27,427 20,895 -------- -------- -------- -------- Operating income (loss) 985 (1,822) 566 (6,676) Interest and other income 837 133 1,751 541 Interest and other expense (68) (2) (369) (152) -------- -------- -------- -------- Net income (loss) $ 1,754 $ (1,691) $ 1,948 $ (6,287) ======== ======== ======== ======== Basic and diluted earnings (loss) per share $ 0.07 $ (0.08) $ 0.08 $ (0.31) ======== ======== ======== ======== Shares used in computing basic earnings (loss) per share 24,264 20,284 22,924 20,169 ======== ======== ======== ======== Shares used in computing diluted earnings (loss) per share 26,722 20,284 25,214 20,169 ======== ======== ======== ======== See Accompanying Notes to Consolidated Financial Statements
4 BROADVISION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Nine Months Ended September 30, 1998 1997 -------- -------- Cash flows from operating activities: Net income (loss) $ 1,948 $ (6,287) Adjustments to reconcile net income (loss) to net cash used for operating activities: Depreciation and amortization 2,074 1,148 Amortization of deferred compensation 269 331 Allowance for doubtful accounts and returns 403 345 Revenue resulting from nonmonetary transactions (2,917) -- Amortization of prepaid royalties 167 -- Changes in operating assets and liabilities: Accounts receivable (2,442) (4,084) Prepaids and other (995) (281) Accounts payable and accrued expenses 1,018 (266) Unearned revenue and deferred maintenance 237 (301) -------- -------- Net cash used for operating activities (238) (9,395) Cash flows from investing activities: Additions to property and equipment (2,932) (2,004) Purchase of long-term investment (1,500) -- Other assets (161) -- Purchase of short-term investments -- (1,532) Maturity of short-term investments 796 3,644 -------- -------- Net cash provided by (used for) investing activities (3,797) 108 Cash flows from financing activities: Net change in restricted cash 1,400 -- Proceeds from issuance of common stock 55,947 730 Proceeds from borrowings, net 958 238 Capital lease payments (633) (288) -------- -------- Net cash provided by financing activities 57,672 680 Net increase (decrease) in cash and cash equivalents 53,637 (8,607) Cash and cash equivalents at beginning of period 8,277 17,608 -------- -------- Cash and cash equivalents at end of period $ 61,914 $ 9,001 ======== ======== Supplemental disclosures of cash flow information: Prepaids and investment acquired in nonmonetary transactions $ 5,275 $ -- ======== ======== Unearned revenue and deferred maintenance from nonmonetary transactions $ 2,358 $ -- ======== ======== Cash paid for interest $ 294 $ 82 ======== ======== Non-cash investing and financing activities: Equipment acquired under capital leases $ 247 $ 178 ======== ======== Deferred compensation forfeited due to voluntary terminations $ 693 $ -- ======== ======== See Accompanying Notes to Consolidated Financial Statements
5 BROADVISION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Organization and Summary of Significant Accounting Policies Nature of Business - BroadVision, Inc. ("BroadVision" or the "Company") develops, markets and supports fully integrated application software solutions exclusively designed to manage one-to-one relationships for the extended enterprise. These total end-to-end solutions enable a business to capitalize on the Internet as a unique platform, which empowers businesses to enhance commerce, provide critical self-service functions or deliver targeted personalized information to customers, suppliers, distributors, employees, or any other constituent of their extended enterprise on a real-time interactive basis. Basis of Presentation - The accompanying consolidated financial statements include the accounts of BroadVision and its wholly owned subsidiaries. They have been prepared in accordance with the established guidelines for interim financial information as provided by the instructions to Form 10-Q and Article 10 of Regulation S-X. All significant intercompany transactions have been eliminated in consolidation. The financial results and related information as of September 30, 1998, and for the three and nine months ended September 30, 1998, and 1997 are unaudited. The balance sheet at December 31, 1997, has been derived from the audited financial statements at that date but does not necessarily reflect all informational disclosures previously reported in accordance with Generally Accepted Accounting Principles. In the Company's opinion, the financial statements presented herein include all necessary adjustments, consisting of normal recurring adjustments, to fairly state the Company's financial position, results of operations, and cash flows for the periods indicated. The accompanying financial statements should be read in conjunction with the financial statements and notes thereto included with the Company's annual report on Form 10-K and other documents filed with the Securities and Exchange Commission. The results of the Company's operations for the interim periods presented are not necessarily indicative of operating results for the full fiscal year or any future interim periods. Prepaid Royalties - Prepaid royalties relating to purchased software to be incorporated and sold with the Company's software products are amortized as a cost of revenue either on a straight-line basis over the remaining term of the royalty agreement or on the basis of projected product revenues, whichever results in greater amortization. Long-term Investments - The Company accounts for nonmarketable equity investments (consisting of less than 20% of an investee's outstanding voting stock) based on the cost method; given the Company does not have the ability to significantly influence the operating and financial policies of the investee. Any impairment in value, which is other than a temporary decline, is charged to the period in which such loss occurs. Non-monetary Transactions - During the quarter ended June 30, 1998, the Company renegotiated an existing royalty arrangement with a vendor. Concurrently, the Company sold this vendor an end-use software license totaling $1,250,000, inclusive of maintenance and support. As a result of the renegotiation, the Company paid the vendor a fixed fee of $1,250,000 for royalties through 2001 and certain internal development rights through 1999. Previously the Company had an existing arrangement with this vendor whereby the Company made quarterly royalty payments based on a percentage of product revenues. The sale to this vendor resulted in software license revenues of approximately $1,031,000 during the quarter ended June 30, 1998. 6 On July 22, 1998, the Company finalized a strategic alliance with Security First Technologies (S1), a publicly traded company. In conjunction with the strategic alliance, the Company received restricted shares of S1 common stock with a fair value of approximately $4,025,000 and, in return, licensed software to S1 for S1's internal use in its data centers, entered into a license and joint development agreement with S1 involving the integration of S1's suite of Internet-based products and BroadVision's One-to-One Financial (combined solution), entered into a reseller agreement with S1 allowing S1 to resell the combined solution to its customers, and entered into a joint marketing agreement for the marketing of products to the financial services industry. During the quarter ended September 30, 1998, the Company recognized license revenue of approximately $1,886,000 or 14% of total revenue for the quarter ended September 30, 1998 related to the licensing of software to S1 for internal use. In conjunction with the agreement with S1, the Company recorded deferred revenue of approximately $2,139,000, which includes maintenance obligations to be recognized ratably over three years, license revenues and joint development costs to be recognized as the joint development services are provided, and training to be recognized as the services are performed. In addition, subsequent to September 30, 1998, the Company issued 123,000 shares of common stock with a value of $1,322,000 in exchange for 129,700 shares of common stock of S1. Comprehensive Income - Effective January 1, 1998, the Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting of Comprehensive Income. Comprehensive income includes all changes in equity during a period except those resulting from the issuance of shares of stock and distributions to stockholders. There were no material differences between net income (loss) and comprehensive income (loss) during the three and nine month periods ended September 30, 1998 and 1997. Net Loss Per Share - SFAS No. 128, Earnings Per Share, requires the presentation of basic and diluted earnings per share. Earnings per share are calculated by dividing net income applicable to common stockholders by a weighted average number of shares outstanding for the period. Basic earnings per share are determined solely on common shares, whereas, diluted earnings per share includes common equivalent shares, as determined under the treasury stock method. The following table sets forth the basic and diluted earnings (loss) per share computational data for the periods presented.
Three Months Ended Nine Months Ended September 30, September 30, ------------------------- ------------------------- (In thousands, except per share amounts) 1998 1997 1998 1997 -------- -------- -------- -------- Net income (loss) $ 1,754 $ (1,691) $ 1,948 $ (6,287) ======== ======== ======== ======== Weighted average common shares outstanding utilized for basic earnings (loss) per share 24,264 20,284 22,924 20,169 Weighted average common equivalent shares outstanding: Employee common stock options 2,436 -- [1] 2,272 -- [1] Common stock warrant 22 -- [1] 18 -- [1] -------- -------- -------- -------- Total weighted average common and common equivalent shares outstanding utilized for diluted earnings (loss) per share 26,722 20,284 25,214 20,169 ======== ======== ======== ======== Basic earnings (loss) per share $ 0.07 $ (0.08) $ 0.08 $ (0.31) ======== ======== ======== ======== Diluted earnings (loss) per share $ 0.07 $ (0.08) $ 0.08 $ (0.31) ======== ======== ======== ======== [1] The Company incurred a net loss for the indicated period. Accordingly, common equivalent shares are excluded from the diluted loss per share calculation because they are antidilutive.
7 New Accounting Pronouncements - The Financial Accounting Standards Board ("FASB") recently issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 addresses the accounting for derivative instruments, including certain derivative instruments embedded in other contracts. Under SFAS No. 133, entities are required to carry all derivative instruments in the balance sheet at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, if so, the reason for holding it. The Company must adopt SFAS No. 133 by January 1, 2000. The Company has not determined the impact that SFAS No. 133 will have on its financial statements. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. SOP 98-1 requires that certain costs related to the development or purchase of internal-use software be capitalized and amortized over the estimated useful life of the software. SOP 98-1 is effective for financial statements issued for fiscal years beginning after December 15, 1998. The Company does not expect the adoption of SOP 98-1 to have a material impact on its results of operations. Note 2. Selective Balance Sheet Detail Property and Equipment consisted of the following (in thousands): September 30, December 31, 1998 1997 -------- -------- Furniture and fixtures $ 963 $ 636 Computers and software 7,615 5,458 Leasehold improvements 3,475 2,780 -------- -------- 12,053 8,874 Less accumulated depreciation and amortization (4,481) (2,407) -------- -------- $ 7,572 $ 6,467 ======== ======== Accrued expenses consisted of the following (in thousands): September 30, December 31, 1998 1997 -------- -------- Employee benefits $ 589 $ 420 Commissions and bonuses 1,364 833 Taxes payable 446 366 Contractors fees 180 162 Other 658 387 -------- -------- $ 3,237 $ 2,168 ======== ======== Note 3. Commercial Credit Facilities As of September 30, 1998, the Company has a credit facility with a commercial lender which includes outstanding borrowings of $3.6 million under a note payable, an available term debt credit facility of $1.0 million and a revolving line of credit that provides for up to $2.3 million of total borrowings (based on eligible accounts receivable). As of September 30, 1998, the Company has outstanding commitments totaling $2.2 million in the form of standby letters of credit under its revolving line of credit. 8 The Company's credit facilities include covenants that impose certain restrictions on the payment of dividends and other distributions and require the Company to maintain monthly financial covenants, including a minimum quick ratio, tangible net worth ratio and minimum cash reserves. The minimum cash reserves covenant is replaced with a minimum debt service coverage ratio upon six consecutive quarters of profitability. Borrowings are collateralized by a security interest in substantially all of the Company's owned assets. As of September 30, 1998 the Company was in compliance with its commercial credit facility covenants. Note 4. Common Stock In March 1998, the Company completed a successful secondary public stock offering and issued 3,000,000 shares of common stock for net proceeds of approximately $46.6 million. In April 1998, the Company's Underwriters exercised their over-allotment option and the Company issued an additional 455,850 shares of common stock for net proceeds of approximately $7.1 million. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER SIGNIFICANTLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED HEREIN WITH THIS QUARTERLY REPORT ON FORM 10-Q, THE COMPANY'S ANNUAL REPORT ON FORM 10-K, AND OTHER DOCUMENTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ANY SUCH FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE SUCH STATEMENTS ARE MADE. OVERVIEW BroadVision develops, markets and supports real time interactive fully integrated application software solutions exclusively designed to manage one-to-one relationships for the extended enterprise. These total end-to-end solutions allow a business to capitalize on the Internet as a unique platform, which empowers businesses to enhance commerce, provide critical self-service functions, and deliver targeted personalized information to their customers, suppliers, distributors, employees, or any other constituent of their extended enterprise. BroadVision's product line provides a competitive advantage for businesses by allowing them to specifically tailor Web site content to the personalized needs and interests of individual visitors on a real-time interactive basis. The BroadVision One-To-One applications accomplish this by capturing Web site visitor profiles, dynamically organizing enterprise information, targeting content to each individual visitor based on easily constructed business rules, and by providing the means to facilitate the execution of secure transactions. The Company believes the competitive advantages of these applications include, among other things, enhanced customer satisfaction and loyalty, increased business volumes, lower costs to service customers and execute transactions, as well as significantly enhanced employee productivity. The Company's core product, the BroadVision One-To-One Application System, was first made commercially available in December 1995. The Company's latest commercially available version, Version 4.0, was made available for general release on September 30, 1998 and supports five languages (English, German, Japanese, Chinese, and Korean) and four major client server databases (Oracle, Sybase, Informix, and Microsoft SQL Server). A complementary family of three packaged application products based on the BroadVision One-To-One Application System, One-To-One Commerce, One-To-One Financial, and One-To-One Knowledge were first made commercial available in 1997. The WebApp products are built upon and tightly integrated with the Company's core technology and provide specifically enhanced functionality for the distinct customer requirements involved in managing one-to-one relationships within product merchandising, financial services, and knowledge management. The Company sells its products and services worldwide through direct sales forces, 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. To date the Company has achieved good market acceptance for its products. However, the Company has a relatively limited operating history, and its prospects must be evaluated in light of the risks and uncertainties frequently encountered by a company within its early stages of development. Some of the risks and uncertainties associated with the Company's stage of development relate to the new and rapidly evolving markets in which it operates. These related market risks include, among other things, the early stage of development for online commerce, the dependence of online commerce on the continued development of the Internet and its related infrastructure, the uncertainty of widespread adoption of online commerce and the risk of government regulation of the Internet. Other risks and uncertainties facing the Company relate to the Company's ability to continue to, among other things, successfully implement its marketing strategies, respond to competitive developments, develop and upgrade its products and technologies more rapidly than its competitors, and commercialize its products and services by incorporating these enhanced technologies. There can be no assurance that the Company will succeed in addressing any or all of these risks. A more complete description of these and other risks relating to the Company's business is set forth herein under the caption "Factors Affecting Quarterly Operating Results"; in the Company's annual report on Form 10-K under the caption "Risk Factors" and elsewhere therein; and in other documents filed with the Securities and Exchange Commission. 10 RESULTS OF OPERATIONS Revenues The Company's revenues are derived from software license fees and fees charged for its services. The Company recognizes software license revenues when a non-cancelable license agreement has been signed, the software product has been shipped, there are no uncertainties surrounding product acceptance, the fees are fixed and determinable, and collection is considered probable. Revenues allocated to software license fees, in general, are recognized upon consummation of the sale and the portion allocated to maintenance and support is recognized over the contracted period, which is typically one year. Professional services revenues, in general, are recognized as services are performed. Total Company revenues increased 88% during the current quarter ended September 30, 1998 to $13.4 million as compared to $7.2 million for the quarter ended September 30, 1997. For the nine months ended September 30, 1998, total Company revenues increased 89% to $34.9 million as compared to $18.5 million for the comparable period during 1997. A summary of the Company's revenues by geographic region is as follows:
(In thousands) Software % Services % Total % -------------- --------- ------------- ---------- -------------- ----------- Quarter Ended: September 30, 1998 North America $ 4,777 52% $ 3,013 71% $ 7,790 58% Europe 3,897 43 771 18 4,668 35 Asia/Pacific 484 5 489 11 973 7 - ---------------------------------------------------------------------------------------------------------------------- Total $ 9,158 100% $ 4,273 100% $ 13,431 100% ====================================================================================================================== September 30, 1997 North America $ 2,628 48% $ 721 44% $ 3,349 47% Europe 2,584 47 662 40 3,246 45 Asia/Pacific 301 5 258 16 559 8 - ---------------------------------------------------------------------------------------------------------------------- Total $ 5,513 100% $ 1,641 100% $ 7,154 100% ====================================================================================================================== Nine Months Ended: September 30, 1998 North America $ 12,278 50% $ 7,327 70% $ 19,605 56% Europe 9,628 39 1,843 18 11,471 33 Asia/Pacific 2,549 11 1,269 12 3,818 11 - ---------------------------------------------------------------------------------------------------------------------- Total $ 24,455 100% $ 10,439 100% $ 34,894 100% ====================================================================================================================== September 30, 1997 North America $ 5,221 41% $ 2,709 47% $ 7,930 43% Europe 6,237 49 1,456 26 7,693 42 Asia/Pacific 1,301 10 1,548 27 2,849 15 - ---------------------------------------------------------------------------------------------------------------------- Total $ 12,759 100% $ 5,713 100% $ 18,472 100% ======================================================================================================================
Software product license revenues increased 66% during the current quarter ended September 30, 1998 to $9.2 million as compared to $5.5 million for the quarter ended September 30, 1997. For the nine months ended September 30, 1998, license revenues increased 92% to $24.5 million as compared to $12.8 million for the comparable period during 1997. The increases in software license revenues are primarily attributable to continued strong market acceptance for the Company's core technology, BroadVision One-To-One, and its three complementary WebApp packaged solutions, "BroadVision One-To-One Commerce", "BroadVision One-To-One Financial", and "BroadVision One-To-One Knowledge". During the nine months ended September 30, 1998, the Company licensed approximately 85 new customers (including system integration / distributor partners) which compares with approximately 70 during the nine months ended September 30, 1997. The WebApp packaged solutions were first introduced in 1997 and have become an integral part of the Company's total applications solution, which has proven to be a successful strategy for the Company in today's highly evolving and competitive marketplace. 11 Nonmonetary transactions. During the quarter ended June 30, 1998, the Company renegotiated an existing royalty arrangement with a vendor. Concurrently, the Company sold this vendor an end-use software license totaling $1,250,000, inclusive of maintenance and support. As a result of the renegotiation, the Company paid the vendor a fixed fee of $1,250,000 for royalties through 2001 and certain internal development rights through 1999. Previously, the Company had an existing arrangement with this vendor whereby the Company made quarterly royalty payments based on a percentage of product revenues. The sale to this vendor resulted in software license revenues of approximately $1,031,000 during the quarter ended June 30, 1998. On July 22, 1998, the Company finalized a strategic alliance with Security First Technologies (S1), a publicly traded company. In conjunction with the strategic alliance, the Company received restricted shares of S1 common stock with a fair value of approximately $4,025,000 and, in return, licensed software to S1 for S1's internal use in its data centers, entered into a license and joint development agreement with S1 involving the integration of S1's suite of Internet-based products and BroadVision's One-to-One Financial (combined solution), entered into a reseller agreement with S1 allowing S1 to resell the combined solution to its customers, and entered into a joint marketing agreement for the marketing of products to the financial services industry. During the quarter ended September 30, 1998, the Company recognized license revenue of approximately $1,886,000 or 14% of total revenue for the quarter ended September 30, 1998 related to the licensing of software to S1 for internal use. In conjunction with the agreement with S1, the Company recorded deferred revenue of approximately $2,139,000, which includes maintenance obligations to be recognized ratably over three years, license revenues and joint development costs to be recognized as the joint development services are provided, and training to be recognized as the services are performed. In addition, subsequent to September 30, 1998, the Company issued 123,000 shares of common stock with a value of $1,320,000 in exchange for 129,700 shares of common stock of S1. Total services revenues increased 160% during the current quarter ended September 30, 1998 to $4.3 million as compared to $1.6 million for the quarter ended September 30, 1997. For the nine months ended September 30, 1998, services revenues increased 83% to $10.4 million as compared to $5.7 million for the comparable period during 1997. Services revenues consist primarily of professional services and maintenance. The Company's professional services include application design and implementation of BroadVision One-To-One technology, project management, custom development of application objects and templates, and product education and training. Professional services are generally offered on a time and materials basis. Maintenance revenue is derived from annual service agreements and is recognized ratably over the period of the agreement, typically one year. Maintenance fees are based on a percentage of the related software list price. Professional services revenues increased 164% during the current quarter ended September 30, 1998 to $2.9 million as compared to $1.1 million for the quarter ended September 30, 1997. For the nine months ended September 30, 1998, professional services revenues increased 65% to $7.1 million as compared to $4.3 million for the comparable period during 1997. Professional services revenues increased as a result of higher business volumes as evidenced by the increase in license revenues. The Company continues to pursue a strategy of utilizing partners to maximize deployments. This allows the Company to achieve higher product sales volumes without corresponding increases in its services organization. As the Company's strategy of developing business alliances with third parties continues to expand, professional services revenues in relative percentage terms may vary depending on the degree to which the Company leverages its professional services. Maintenance revenues increased 154% during the current quarter ended September 30, 1998 to $1.4 million as compared to $500,000 for the quarter ended September 30, 1997. For the nine months ended September 30, 1998, maintenance revenues increased 139% to $3.3 million as compared to $1.4 million for the comparable period during 1997. 12 Maintenance revenues increased as a direct result of expanding software sales and a correspondingly larger installed base of software licenses. As of September 30, 1998, the Company had licensed its products to approximately 235 customers. This compares with approximately 150 customers as of December 31, 1997, and approximately 120 customers as of September 30, 1997. As the Company's installed license base grows, its maintenance revenues in relative percentage terms may increase.
Cost of Revenues Three Months Ended September 30, Nine months ended September 30, ----------------------------------------- ----------------------------------------- (in thousands) 1998 % 1997 % 1998 % 1997 % --------- ----- --------- ----- --------- ----- -------- ----- Cost of software licenses[1] $ 237 2.6% $ 460 8.3% $ 637 2.6% $ 1,099 8.6% Cost of services[2] 2,553 59.7 1,010 61.5 6,264 60.0 3,154 55.2 --------- --------- --------- -------- Total cost of revenues[3] $ 2,790 20.8 $ 1,470 20.5 $ 6,901 19.8 $ 4,253 23.0 ========= ========= ========= ======== [1] -- Percentage is calculated based on total software license revenues for the period indicated [2] -- Percentage is calculated based on total services revenues for the period indicated [3] -- Percentage is calculated based on total revenues for the period indicated
Cost of software licenses 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. Cost of software licenses decreased 48% during the current quarter ended September 30, 1998 to $237,000 as compared to $460,000 for the quarter ended September 30, 1997. For the nine months ended September 30, 1998, cost of software licenses decreased 42% to $637,000 as compared to $1.1 million for the comparable period during 1997. The decrease in cost of software licenses, in both absolute dollar and relative percentage terms, was principally a result of lower commissioned agent sales and third party royalty rates. The Company continues to expand its in-house sales force, and during the current periods, Company generated sales were higher and commissioned agent sales were lower in relation to the comparable prior-year periods. In addition, royalty costs relative to total license revenues decreased as a result of the Company renegotiating a previously existing percentage based royalty arrangement into a prepaid fixed fee royalty for the period through 2001. Cost of services consists primarily of employee-related costs, third-party consultant fees incurred on consulting projects, postcontract customer support, and instructional training services. Cost of services increased 153% during the current quarter ended September 30, 1998 to $2.6 million as compared to $1.0 million for the quarter ended September 30, 1997. For the nine months ended September 30, 1998, cost of services increased 99% to $6.3 million as compared to $3.2 million for the comparable period during 1997. The increase in cost of services in absolute dollar terms during 1998 as compared to 1997 is a result of expanded business volumes as evidenced by increased services revenues. Overall costs increased as a result of additions to the Company's professional services staff and the employment of outside consultants to meet short-term consulting arrangements. The increase in cost of services as a percentage of services revenues for the nine months ended September 30, 1998 is a result of higher utilization of outside consultants in relation to the extent previously utilized during the prior period. The Company expects that services costs will continue to increase in absolute dollars as the Company continues to expand its services organization to support higher business volumes. 13 Operating Expenses
Three Months Ended Nine Months Ended September 30, September 30, ----------------------------------------- ----------------------------------------- (in thousands) 1998 % [1] 1997 % [1] 1998 % [1] 1997 % [1] --------- ----- --------- ----- --------- ----- -------- ----- Research and Development $ 2,394 17.8% $ 2,113 29.5% $ 6,476 18.6% $ 5,595 30.3% Sales and Marketing 6,285 46.8 4,630 64.7 18,389 52.7 13,091 70.9 General and Administrative 977 7.3 763 10.7 2,562 7.3 2,209 11.9 --------- ----- --------- ----- --------- ----- -------- ----- Total Operating Expenses $ 9,656 71.9% $ 7,506 104.9% $ 27,427 78.6% $ 20,895 113.1% ========= ===== ========= ===== ========= ===== ======== ===== [1] -- Expressed as a percent of total revenues for the period indicated
Research and development expenses consist primarily of salaries, employee-related benefit costs, and consulting fees incurred in association with the development of the Company's products. Costs incurred for the research and development of new software products are expensed as incurred until such time that technological feasibility, in the form of a working model, is established at which time such costs are capitalized subject to recoverability. To date, the amount of costs incurred by the Company subsequent to the establishment of a working model but prior to the general release of a product have not been significant. As of September 30, 1998, the Company has no capitalized software development costs. Research and development expenses increased 13% during the current quarter ended September 30, 1998 to $2.4 million as compared to $2.1 million for the quarter ended September 30, 1997. For the nine months ended September 30, 1998, research and development expenses increased 16% to $6.5 as compared to $5.6 million for the comparable period during 1997. The increase in research and development expenses in absolute dollars terms is primarily attributable to personnel costs for added headcount within those operations involved in the enhancement of existing applications and the development of the Company's next generation of products. Research and development expenses, as a percentage of total revenues, decreased because revenues have increased at a higher rate relative to expenses. The Company expects research and development expenses will continue to increase in absolute dollars terms. Sales and marketing expenses consist primarily of salaries, employee-related benefit costs, commissions and other incentive compensation, travel and entertainment, and marketing program related expenditures such as collateral materials, trade shows, public relations, and creative services. Sales and marketing expenses increased 36% during the current quarter ended September 30, 1998 to $6.3 million as compared to $4.6 million for the quarter ended September 30, 1997. For the nine months ended September 30, 1998, sales and marketing expenses increased 40% to $18.4 million as compared to $13.1 million for the comparable period during 1997. The increases in sales and marketing expenses in absolute dollar terms reflect the cost of hiring additional sales and marketing personnel, developing and expanding its sales distribution channels, and expanding promotional activities and marketing related programs. Sales and marketing expenses, as a percentage of total revenues, decreased because revenues have increased at a higher rate relative to expenses. The Company expects sales and marketing expenses will continue to increase in absolute dollar terms. General and administrative expenses consist primarily of salaries, employee-related benefit costs, and professional service fees. General and administrative expenses increased 28% during the current quarter ended September 30, 1998 to $977,000 as compared to $763,000 for the quarter ended September 30, 1997. For the nine months ended September 30, 1998, general and administrative expenses increased 16% to $2.6 million as compared to $2.2 million for the comparable period during 1997. 14 The increase in general and administrative expenses in absolute dollar terms is attributable to additional administrative and management personnel, higher professional fees and additional infrastructure to support the expansion of the Company's operations. General and administrative expenses, as a percentage of total revenues, decreased because revenues have increased at a higher rate relative to expenses. The Company expects general and administrative expenses will continue to increase in absolute dollar terms. The Company recorded deferred compensation relating to the difference between the exercise price and the fair value of the Company's Common Stock concerning shares issueable upon the exercise of options granted prior to its initial public stock offering in June of 1996. As of September 30, 1998 the Company had total deferred compensation of $643,000, which is being amortized to cost of services, research and development, selling and marketing, and general and administrative expenses over the vesting periods of the respective options, generally 60 months. Deferred compensation expense for the quarters ended September 30, 1998 and 1997 was $89,000 and $104,000, respectively; and for the nine months ended September 30, 1998 and 1997 it was $269,000 and $331,000, respectively. During the quarter ended June 30, 1998, the Company reversed $693,000 of paid-in capital along with an equal amount of unamortized deferred compensation as a result of unexercised stock options that were forfeited by employees due to voluntary terminations. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1998, the Company had $61.9 million of cash and cash equivalents as compared to $10.4 million of cash, cash equivalents, restricted cash and short-term investments as of December 31, 1997, which represents an increase of $51.5 million. The overall increase is principally a result of proceeds from the issuance of common stock. During March 1998, the Company issued 3,000,000 shares of common stock in connection with a secondary public stock offering that netted the Company total proceeds of approximately $46.6 million. During April 1998, the underwriters for the Company's secondary stock offering exercised their over-allotment option and the Company issued an additional 455,850 shares of common stock for net proceeds of approximately $7.1 million. For the nine months ended September 30, 1998, the Company used approximately $2.9 million for capital expenditures, approximately $1.5 million for the purchase of an equity investment in a partner and approximately $200,000 was used for operating activities; and the Company raised approximately $55.9 million from the issuance of common stock and approximately $300,000 from additional borrowings, net of capital lease and principal repayments. The Company currently has no significant capital commitments other than its obligations under equipment and operating leases, outstanding borrowings of $3.6 million under a note payable and commitments of $2.2 million relating to standby letters of credit. The Company's existing commercial credit facility provides for up to total additional borrowings of $3.3 million ($1.1 million of available credit as of September 30, 1998). 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 more than the next 12 months. FACTORS AFFECTING QUARTERLY OPERATING RESULTS The Company expects to experience significant fluctuations in quarterly operating results that may be caused by many factors including, but not limited to, those discussed below and herein with this quarterly report on Form 10-Q, as contained in the Company's annual report on Form 10-K under the caption "Risk Factors" and elsewhere therein, and as disclosed in other documents filed with the Securities and Exchange Commission. Significant fluctuations in future quarterly operating results that may be caused by many factors including, among others, the timing of introductions or enhancements of products and services by the Company or its competitors, the length of the Company's sales cycle, market acceptance of new products, the pace of development of the market for online commerce, the mix of the Company's products sold, the size and timing of significant orders and the timing of customer production or deployment, demand for the Company's products, changes in pricing policies by the Company or its 15 competitors, changes in the Company's sales incentive plans, budgeting cycles of its customers, customer order deferrals in anticipation of new products or enhancements by the Company or its competitors, nonrenewal of maintenance agreements, product life cycles, software defects and other product quality problems, changes in strategy, changes in key personnel, the extent of international expansion, seasonal trends, the mix of distribution channels through which the Company's products are sold, the mix of international and domestic sales, changes in the level of operating expenses to support projected growth, and general economic conditions. The Company anticipates that a significant portion of its revenues will be derived from a limited number of orders, and the timing of receipt and fulfillment of any such orders is expected to cause material fluctuations in the Company's operating results, particularly on a quarterly basis. As with many software companies, the Company anticipates that it will make the major portion of each quarter's deliveries near the end of each quarter and, as a result, short delays in delivery of products at the end of a quarter could adversely affect operating results for that quarter. In addition, the Company intends, in the near term, to increase significantly its personnel, including its domestic and international direct sales force. The timing of such expansion and the rate at which new sales people become productive could also cause material fluctuations in the Company's quarterly operating results. Due to the foregoing factors, quarterly revenues and operating results are difficult to forecast, and the Company believes that period-to-period comparisons of its operating results will not necessarily be meaningful and should not be relied upon as any indication of future performance. It is likely that the Company's future quarterly operating results from time to time will not meet the expectations of market analysts or investors, which may have an adverse effect on the price of the Company's Common Stock. The Company anticipates that its operating expenses will continue to be substantial in relation to total revenues as it continues the development of its technology, increases its sales and marketing activities, and creates and expands its distribution channels. In addition, the Company's limited operating history makes the prediction of future results of operations difficult and, accordingly, there can be no assurance that the Company will be able to sustain its revenue growth or profitability. The Company's limited operating history also requires that its prospects be evaluated in light of the risks and uncertainties frequently encountered by a company in its early stages of development. Some of these risks and uncertainties relate to the new and rapidly evolving nature of the markets in which the Company operates. These related market risks include, among other things, the early stage of the developing online commerce market, the dependence of online commerce on the development of the Internet and its related infrastructure, the uncertainty pertaining to widespread adoption of online commerce, and the risk of government regulation of the Internet. Other risks and uncertainties facing the Company relate to the Company's ability to, among other things, successfully implement its marketing strategies, respond to competitive developments, continue to develop and upgrade its products and technologies more rapidly than its competitors, and commercialize its products and services by incorporating these enhanced technologies. There can be no assurance that the Company will succeed in addressing any or all of these risks. A more complete description of these and other risks relating to the Company's business is set forth in the Company's annual report on Form 10-K under the caption "Risk Factors" and elsewhere therein and other documents filed with the Securities and Exchange Commission. It is also likely that the Company's future quarterly operating results from time to time will not meet the expectations of market analysts or investors, which may have an adverse effect on the price of the Company's Common Stock. Year 2000 Compliance Background and Risks - Many currently installed computer systems and software and devices with imbedded technology are coded to two digits for time sensitive dating purposes. Beginning with the year 2000, these date code fields will need to be four digit functional in order to distinguish between 21st century dates and 20th century dates. For example, computer programs that have date sensitive software may incorrectly recognize a date using "00" as the year 1900 rather than the year 2000. As a result, in less than two years, computer systems, software products and devices with imbedded technology used by many companies may need to be upgraded to comply with such "Year 2000" requirements. This type of Year 2000 error could potentially cause system failures or miscalculations that could disrupt operations, including among other things a temporary inability to process transactions, issue invoices or engage in similar normal business activities. The most likely worst case scenarios could include hardware failure and the failure of infrastructure services provided by government agencies and other third parties (e.g., electricity, telephone service, water transport, Internet services, etc.). 16 Although the Company's products are Year 2000 compliant, the Company believes that the purchasing patterns of customers could potentially be affected by Year 2000 issues as companies expend significant resources to correct or patch their current software systems for Year 2000 compliance. These expenditures may result in reduced funds available to purchase software products such as those offered by the Company, which could have a material adverse effect on the Company's business, financial condition, and operating results. In addition, even if the Company's products are Year 2000 compliant, other systems or software used by the Company's customers may not be Year 2000 compliant. The failure of such noncompliant third-party software or systems could affect the perceived performance of the Company's products, which could have a material adverse effect on the Company's business, financial condition, and operating results. State of Readiness - The Company utilizes various financial and managerial information systems within its operations in the United States, Europe and Asia which the Company believes to be or will be Year 2000 compliant. As part of its normal course of business, the Company analyses its information system requirements in relation to its business operating goals and strategic objectives and expects to implement new systems during 1999 that will be Year 2000 compliant. The Company is also analyzing its other systems to identify any potential Year 2000 issues and will take appropriate corrective action based on the results of such analysis. Such other systems include non-information technology systems and services utilized by the Company in its business operations, such as power, telecommunications, security and general facilities. The Company is in the process of assessing whether its material suppliers and vendors are Year 2000 compliant. The Company expects to complete its analysis of these other systems and the assessment of its third party vendor readiness by June 30, 1999. Costs for Year 2000 Compliance - Costs that may be incurred by the Company pertaining to Year 2000 compliance issues include identification, assessment, remediation and testing efforts, as well as potential costs to be incurred by the Company with respect to Year 2000 issues of third parties. To date, the costs incurred by the Company directly related to Year 2000 issues have been minimal, even in cases where non-compliant information technology systems were redeployed or replaced. Although the Company has not completed its assessment of all specific costs, if any, related to achieving complete Year 2000 compliance, management believes such costs would not be material to the Company's financial condition or results of operations based on its analysis to date. Contingency Plans - The Company continues to assess certain of its Year 2000 exposure areas in order to determine what additional steps, beyond those identified by the Company's internal review to date, are advisable. The Company is currently in the process of developing a contingency plan for handling Year 2000 problems that are not detected and corrected prior to their occurrence. The Company expects to complete its plan by June 30, 1999. The Company presently believes that the Year 2000 issue will not pose significant operational problems for the Company. However, any failure of the Company to adequately address any unforeseen Year 2000 issue could adversely affect the Company's business, financial condition, and results of operations. In addition, if all of the Year 2000 issues are not properly identified, or adequate assessment, remediation and testing are not effected timely with respect to Year 2000 problems that are identified, there can be no assurance that the Year 2000 issue would not have a material adverse impact the Company's results of operations or adversely affect the Company's relationships with customers, vendors, partners or others. Additionally, there can be no assurance that the Year 2000 issues of other entities will not have a material adverse impact on the Company's systems or results of operations. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. 17 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not applicable ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Not applicable ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable ITEM 5. OTHER INFORMATION Not applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Item Description ---- ----------- 27 Financial Data Schedule SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BROADVISION, INC Date: November 13, 1998 /s/ Pehong Chen ----------------- ------------------------------------ Pehong Chen President and Chief Executive Officer (Principal Executive Officer) Date: November 13, 1998 /s/ Randall C. Bolten ----------------- ------------------------------------ Randall C. Bolten Vice President, Operations and Chief Financial Officer (Principal Financial and Accounting Officer) 18 INDEX TO EXHIBITS Exhibit No. Description --- ----------- 27 Financial Data Schedule 19 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BROADVISION INC.'S FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AS REPORTED IN ITS FORM 10-Q FOR THE PERIOD THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. EPS PRIMARY REPRESENTS BASIC NET INCOME (LOSS) PER SHARE. THE COMPANY HAS NOT FILED A RESTATED FINANCIAL DATA SCHEDULE RELATING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997 BECAUSE AMOUNTS PREVIOUSLY REPORTED FOR EPS-PRIMARY AND EPS-DILUTED DO NOT DIFFER FROM THE AMOUNTS THAT WOULD BE REPORTED UNDER CURRENT GUIDELINES FOR BASIC AND DILUTED EARNINGS PER SHARE, RESPECTIVELY. 1,000 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 61,914 0 12,253 (628) 0 75,415 12,053 (4,481) 89,673 12,923 0 0 0 95,622 (22,337) 89,673 24,455 34,894 637 6,901 27,427 0 369 1,948 0 1,948 0 0 0 1,948 0.08 0.08
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