SEPARATION AGREEMENTS WITH EXECUTIVE OFFICERSUNITED STATES
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WASHINGTON, D.C.
Washington, DC 20549FORM
10-K |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 193410-K/A
Amendment No. 1
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the
Year Endedfiscal year ended December 31,20002001OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission
File Numberfile number 0-28252BROADVISION, INC.
(Exact name
(Exact Name ofregistrantRegistrant asspecifiedSpecified inits charter) Delaware 94-3184303 -------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization)Its Charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)94-3184303
(I.R.S. Employer
Identification No.)585 Broadway
Redwood City, California 94063- -------------------------------------- ----- (Address
(Address ofprincipal executive offices) (ZipPrincipal Executive Offices)(Zip Code)(650) 261-5100
--------------
(Registrant's telephone number, including areacodecode)Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange which registered ------------------- --------------------------------------None
NoneSecurities 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|ý No|_|oIndicate by check mark if
thedisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best oftheregistrant'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.|_|oBased on the closing
salessale price of5.2188the Company's Common Stock onMarch 28, 2001,April 22, 2002, the aggregate market value of the voting stock held by nonaffiliates of the registrant was$1,142,674,573.$293,305,621.As of
March 28, 2001,April 22, 2002, registrant had outstanding272,101,531288,294,098 shares of Common Stock.DOCUMENTS INCORPORATED BY REFERENCE Parts of the Proxy Statement for Registrant's 2001BroadVision, Inc. hereby amends its Annual
Meeting of Stockholders to be held May 24, 2001 are incorporated by reference in Part III of this Form 10-K Report.BROADVISION, INC. ANNUAL REPORT ON FORM 10-K YEAR ENDED DECEMBER 31, 2000 TABLE OF CONTENTS Page No. -------- Part I Item 1. Business...............................................................3 Item 2. Properties............................................................14 Item 3. Legal Proceedings.....................................................14 Item 4. Submission of Matters to a Vote of Security Holders...................14 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.15 Item 6. Selected Consolidated Financial Data..................................16 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................17 Item 7A. Quantitative and Qualitative Disclosure About Market Risk............35 Item 8. Financial Statements and Supplementary Data...........................38 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................................................56 Part III Item 10. Directors and Executive Officers of the Registrant...................57 Item 11. Executive Compensation...............................................58 Item 12. Security Ownership of Certain Beneficial Owners and Management.......58 Item 13. Certain Relationships and Related Transactions.......................58 Part IV Item 14. Exhibits, Financial Statement Schedules, and ReportsReport on Form8.K.....59 SIGNATURES....................................................................60 2PART I. ITEM 1. BUSINESS CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Certain statements set forth or incorporated by reference in this Form10-Kas well as in our Annual Report to Stockholdersfor the year ended December 31,2000, constitute "forward-looking statements" within2001 (the "Form 10-K") to add themeaninginformation required by Part III of Form 10-K.ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following is certain information about the current members of the
Private Securities Litigation Reform ActCompany's Board of1995. Words suchDirectors.
Name Age Principal Occupation/
Position Held With The CompanyPehong Chen 44 Chairman of the Board of Directors, President and Chief Executive Officer David L. Anderson 58 Managing Director, Sutter Hill Ventures Todd A. Garrett 60 Private Investor Koh Boon Hwee 51 Executive Director, MediaRing.com Ltd Klaus Luft 60 President, Market Access for Technology Services GmbH Carl Pascarella 59 President and Chief Executive Officer, Visa U.S.A. Pehong Chen has served as
`believes", "anticipates", "expects", "intends", "estimates" and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, those risk factors set forth under "Risk Factors" and elsewhere in this Form 10-K. We expressly disclaim any obligation to update or publicly release any revision to these forward-looking statements after the date of this Form 10-K. Overview and Industry Background................................4 The BroadVision Solution........................................4 BroadVision Business Strategies.................................4 Extend and Expand our Product Portfolio.......................4 Develop Targeted Application Solutions........................4 Enhance our Service and Support Infrastructure................5 Expand and Leverage Alliances with Key Business Partners......5 Support Diverse Customer Business Models......................5 Grow Our International Presence...............................5 BroadVision Solutions...........................................5 BroadVision Demand Suite......................................6 BroadVision Workplace.........................................6 BroadVision Supply............................................6 Enterprise Relationship Management Tools......................7 Key Capabilities of BroadVision's Applications................7 Other Products................................................8 Product Development...........................................8 BroadVision Global Services.....................................8 Strategic Services............................................8 Technical Services............................................8 Content and Creative Services.................................8 Technical Support Services....................................9 Education Services............................................9 Client Services, Project and Program Management...............9 Partner Services..............................................9 Strategic Alliances.............................................9 Platform Alliances..............................................9 Customers and Markets..........................................10 Sales and Marketing............................................11 Competition....................................................12 Intellectual Property and Other Proprietary Rights.............12 Employees......................................................13 Executive officers...........................................13 3has served as a director of the Company since November 1993. Since 1974, Mr. Anderson has been a managing director of Sutter Hill Ventures, a venture capital investment firm. Mr. Anderson currently serves on the Board of Directors of Overview and Industry Background BroadVision develops and sells an integrated suite of packaged applications for conducting e-business interactions, transactions and services. Global enterprises and government entities use these applications to sell, buy, and exchange goods, services and information over the Web and on wireless devices. The BroadVision e-business application suite enables a corporation to establish and sustain high-yield relationships with customers, suppliers, partners, distributors, employees and other constituents of the extended enterprise. Our consulting, education and support services in more than 34 countries, supported by over 190 partner organizations worldwide, transform these applications into business value for our customers. BroadVision, which was founded in 1993 and has been a publicly traded company since 1996, has more than 1,100 customers and is a component stock of the Standard & Poor's 500 index. IDC ranks BroadVision as the world's leading provider of e-commerce software applications (International Data Corp., E-Commerce Software Applications Market Forecast and Analysis, 2000-2004). The BroadVision Solution The BroadVision e-business application suite allows businesses to tailor Web and wireless content to the needs and interests of individual users by personalizing content and transactions on a real-time basis. These personalized self-service applications have demonstrated that they can enhance customer satisfaction and loyalty, increase business volume and brand awareness, reduce costs to service customers and execute transactions, and enhance employee productivity and retention. Our products enable companies to organize dynamic profiles of Web and wireless users from volunteered data and observed behavior, deliver highly specialized content in response to these profiles and execute transactions securely. Business managers are able to modify business rules and content in real time, offering a personalized experience to each visitor. Because of the open architecture of our applications, they are easily integrated with our customers' existing systems and easily expanded as our customers' needs and businesses grow. Supporting this application infrastructure are more than 190 partner firms around the world who are working to ensure our joint customers' success through complementary technology, applications, tools and services offerings that extend and enhance customers' BroadVision implementations. We believe our products enhance our customers' revenue opportunities by enabling them to establish more effective and efficient "one-to-one" relationships with their customers and business partners. Web and wireless users are engaged by highly personalized real-time interactions, are able to transact business securely and are encouraged to remain online and make return visits. Our applications also improve the cost-effectiveness of one-to-one relationship management by enabling non-technical managers to modify business rules and content in real time and by helping to reduce costs of customer acquisition and retention, business development and technical support as well as employee workplace initiatives. In addition, the packaged solution nature of our products decreases our customers' time to deployment and allows them to easily manage and expand their Web and wireless application usage in a cost-effective manner. BroadVision Business Strategies Our objective is to be the leading provider of self-service e-business applications. In order to achieve this objective, we have adopted the following key strategic elements: Extend and Expand our Product Portfolio. In order to enable our customers to effectively manage all of their key e-business processes, we have focused our product development and marketing efforts in the following areas: o Continuing to enhance our core technology through heavy investment in research and development activities; o Incorporating industry-leading application components into our products; and o Partnering with leading technology and platform providers. Develop Targeted Application Solutions. We were among the first companies to introduce packaged Web applications for electronic commerce, financial services and knowledge management. We are now extending our "best of breed" applications with new applications designed for specific vertical industries. These applications are being developed in conjunction with industry leaders, system integration firms and key technology vendors. 4Enhance our Service and Support Infrastructure. We have changed the name of our services organization to BroadVision Global Services, or BVGS, to more accurately reflect the expanding nature of the services provided to our clients and partners. BVGS provides a broad range of consulting, training and technical support services for all of our products. This organization provides business application and technical expertise, along with extensive product knowledge, to complement our products and provide solutions that meet customer business requirements. By using BVGS, customers are able to build customized application solutions to maximize the benefits of one-to-one relationship management and self-service. We are committed to extending the service offerings and the resources available to our customers and have implemented programs such as an online BroadVision University, "train-the-trainer" and third-party educational centers to extend the breadth and depth of our service offerings. We have also tiered our technical support offerings to offer standard, enterprise and personalized support programs for our customers. Expand and Leverage Alliances with Key Business Partners. We partner with leading systems integrators, technology partners, application service providers, or ASPs, value-added resellers, or VARs, software partners and hardware platform partners. These alliances provide additional sales and marketing channels for our products, enable us to more rapidly incorporate additional functions and platforms into our products and facilitate the successful deployment of customer applications. To accelerate the acceptance of our products, we have developed the BroadVision Partner Program. This Partner Program is a comprehensive, structured partnership relationship designed to drive effective partner alliances and ensure the success of these relationships by jointly identifying and pursuing specific business objectives. The BroadVision Partner Program operates within a framework of proactive business planning, revenue targeting initiatives, structured sales enablement and enhanced BroadVision training as well as marketing and sales engineering support. The Partner Program is intended to help our partners successfully develop, promote, and sell their services and solutions in close coordination with our newly expanded network of sales engineering, channel and partner marketing and professional consulting services. The Partner Program assists our partners in growing their businesses by incorporating our core competency, personalizing interactions and transactions with a wide range of constituencies, into a focused execution matrix. Support Diverse Customer Business Models. We intend to continue our commitment to flexibility by offering our customers choices for the deployment of our applications. Customers can choose to deploy our applications using their own in-house technical resources or can engage with BVGS to assist with implementation. Customers can also choose to work with a BroadVision-trained systems integrator or distribution partner, or with a combination of our resources and those of a partner. Another option is for a customer to utilize an ASP who hosts the customer's BroadVision application deployment at a remote facility and is responsible for its ongoing service and support. Grow Our International Presence. To capitalize on the emergence of the Web as a global network, we have established, and will continue to add to, our worldwide distribution capabilities. Our partners include multinational systems integrators, as well as partners with a single-country scope of operations. Our product architecture is designed to support multiple languages, multiple currencies and remote, distributed publishing. Our strategies involve substantial risks. We may be unable to implement our strategies and our strategies, even if implemented, may not lead to successful achievement of our objectives. If we are unable to implement our strategies effectively, our business may be harmed. We will continue to place an emphasis on establishing additional alliances as new technologies and standards emerge, although we may be unable to establish or maintain certain alliances. BroadVision Solutions We offer enterprise-class solutions to connect companies to their customers, suppliers, partners and employees. These solutions enable companies to maintain and expand existing relationships in an online environment via a single, integrated e-business platform. BroadVision One-to-One(R) Enterprise is the application system on top of which all BroadVision solutions are built. One-To-One Enterprise provides a secure and flexible, standards-based architecture that supports large volume transactions, large scale catalogs, distributed content management, enterprise system integration and dynamic personalization. It is based on open standards such as CORBA, Java and XML. 5Ours solution offerings fall into three major categories: o The BroadVision Demand Suite enables one-to-one marketing, automates complex transactions and personalizes self-service for customers. o BroadVision Business Commerce facilitates online trade between business partners, whether they are merchants, resellers, distributors or manufacturers. Large-scale business-to-business sellers such as W.W. Grainger, General Electric and Toshiba use BroadVision Business Commerce to create e-businesses that integrate with structured back-end business system . o BroadVision Retail Commerce: A highly scalable, consumer-focused application used by Fortune 500 retailers such as Circuit City, Sears Roebuck and The Home Depot to maximize the profitability and efficiency of the online retailing channel. o BroadVision MarketMaker attracts and retains buyers and suppliers by focusing on their specific business needs. It facilitates the formation of trading communities with automated order processing, attribute-based request for quotes, or RFQs, sophisticated catalog management, dynamic auctioning and robust analytic and reporting capabilities. o BroadVision Finance combines business rules and intelligent matching to dynamically customize content, news, quotes and service recommendations according to a customer's profile or a visitor's behavior. These advanced personalization capabilities can result in more transactions, increased opportunities for cross-selling and up-selling and greater customer loyalty. o BroadVision Billing brings electronic bill payment and delivery capabilities to e-commerce and marketing Web sites. It enables companies that want to personalize interactions with customers during their ongoing billing cycles to streamline routine billing practices while gaining knowledge of their customers' needs, preferences and buying activities using the Web. o The BroadVision Workplace offering enables companies to share information via an enterprisewide portal and decrease the cost of procuring indirect goods via a centralized e-procurement site. o BroadVision Information Exchange Portal is a ready-to-use application for building powerful enterprise information portals, enabling businesses to reach customers, partners, suppliers and employees through a single, personalized gateway. It allows users to perform sophisticated publishing, access relevant information, perform analysis, manage business processes and collaborate across organizational boundaries through user-defined Web pages. o BroadVision Procurement is a complete, Web-based self-service purchasing system for maintenance, repair and operations, or MRO, goods. It simplifies purchasing administration and facilitates business planning through advanced administrative, analytical and reporting tools. o The BroadVision Supply offering provides businesses with a robust online marketplace for buying and selling goods. o BroadVision MarketMaker, as described above. o BroadVision Information Exchange Portal, as described above. 6These offerings are underpinned by a set of common enterprise relationship management tools and capabilities, including the following: o BroadVision Command Center is a tool that allows managers to add, alter or delete information and manage relationships across the extended enterprise. It enables a personalized, dynamic and interactive experience for site visitors. o BroadVision Design Center offers Web authors and Internet application developers faster time-to-market by shortening the site development cycle. o BroadVision One-To-One Publishing is a powerful tool for creating, publishing, updating and versioning a company's electronic assets. o BroadVision Publishing Center is an easy-to-use tool with a Web-based interface for managing distributed, collaborative online content development. It allows a distributed team of non-technical content experts to manage every aspect of site content, including creation, editing, staging, production and archiving. o BroadVision Instant Publisher allows casual content contributors to leverage the functionality of BroadVision Publishing Center without extensive training. It uses customized, business-specific forms that permit easy data entry and are usually specific to a content type. Key Capabilities of BroadVision's Applications We designed all of the BroadVision solutions for use in mission-critical, high-performance environments by companies with demanding architecture, deployment and maintenance requirements. Some of the key capabilities of the applications include: o Ease of use--tools designed with graphical user interfaces allowing non-technical business managers to modify business rules and content in real time. o Scalability--robust embedded application server functionality allows BroadVision One-To-One applications to support large numbers of concurrent customers and transactions. o Flexible integration--a comprehensive set of APIs allows integration with a variety of legacy business systems such as Oracle, PeopleSoft, SAP, and custom mainframe systems. o Open standards-based architecture--object-oriented application code written in C++ and J2EE programming environments, including Java and JavaScript, allows developers and system integrators to use, integrate, modify, adapt or extend the applications with minimal impact on other areas to create a rapidly customized product that meets specific business requirements. Support for the CORBA standard for object-oriented computing enables high-volume performance, flexible application deployment and easy integration with other third-party or legacy applications. Our applications fully support XML, which is the emerging standard for managing and exchanging data between e-business systems as well as for re-purposing and sending information to wireless devices. In addition, we use other widely accepted standards in developing our products, including Structured Query Language (SQL) for accessing relational database management systems; Common Gateway Interface (CGI) and Hypertext Transfer Protocol (HTTP) for Web access; Netscape Application Programming Interface (NAPI) for access to Netscape's Web servers; Secure Socket Layer (SSL) for secure transmissions over networks; and the RC2 and MD5 encryption algorithms supplied by RSA. Our applications can be operated in conjunction with relational database management systems provided by Informix, Microsoft, Oracle and Sybase. o Secure transaction processing--secure handling of a wide range of commerce and financial services transactions includes order pricing and discount/incentive handling, tax computation, shipping and handling charges, payment authorization, credit card processing, order tracking, news and stock feeds through a combination of built-in functionality and integration with other products. o Multiplatform availability--BroadVision One-To-One Enterprise and its associated applications are available on a variety of platforms including Sun Solaris, Microsoft Windows NT and Hewlett-Packard's HP-UX. Supported databases include Oracle, Sybase, Informix and Microsoft SQL Server. o Multilingual/Multicurrency--availability of content display and interface in Arabic, Chinese, Hebrew, Japanese, Korean, Slovakian, Turkish and most Western European languages and support for a wide range of currencies, including the Euro, enable worldwide use of our applications. 7Other Products In addition to our products, we have entered into agreements that enable us to resell third-party software products from Broadbase, Interwoven, IONA Technologies, Macromedia and Verity. These are sublicensed to end users and either incorporated in or sold as options to our products. License revenue from these third-party products constituted approximately 5%, 7% and less than 1% of total software product license revenues for each of the years ended December 31, 2000, 1999 and 1998, respectively. Product Development We believe that our future success will depend in large part on our ability to enhance the BroadVision One-To-One applications suite, develop new products, maintain technological leadership and satisfy an evolving range of customer requirements for large-scale interactive online relationship management applications. Our product development organization is responsible for product architecture, core technology, product testing and quality assurance, writing product user documentation and expanding the ability of BroadVision One-To-One products to operate with the leading hardware platforms, operating systems, database management systems and key electronic commerce transaction processing standards. Since inception, we have made substantial investments in product development and related activities. Certain technologies have been acquired and integrated into BroadVision One-To-One products through licensing arrangements. As of December 31, 2000, there were 348 employees in our product development organization. Our research and development expenses were $51.6 million in the year ended December 31, 2000, $14.6 million in the year ended December 31, 1999 and $9.2 million in the year ended December 31, 1998. To date, we have not capitalized any software development costs as products are made available for general release relatively concurrently with the establishment of technological feasibility. We expect to continue to devote substantial resources to our product development activities. BroadVision Global Services (BVGS) BroadVision Global Services, or BVGS, provides a broad range of consulting, training and technical support services to all of our customers and implementation partners. This organization provides business application and technical expertise, along with extensive product knowledge, to complement our products and provide solutions that meet customers' unique business requirements. By using our services, customers are able to build customized application solutions to maximize the benefits of one-to-one relationship management and self-service. A summary of the services provided by BVGS is as follows: o Strategic Services. We provide business strategy and process consulting to assist customers in defining and planning profitable online businesses, while optimally utilizing the functionality of our products. Services include in-depth needs analysis, customer segmentation, one-to-one marketing expertise, storyboarding and business organizational planning to achieve timely and successful implementation of our e-business solutions. Strategic Services consulting is generally offered on a time and materials basis. o Technical Services. We provide technical services for development of customized BroadVision One-To-One applications, custom interfaces, data conversions and system integration. These consultants participate in a wide range of activities, including requirements definition, solution design, development and implementation and performance planning, architecture and tuning. These consultants also provide advanced technology services focused on application development for custom objects and templates and database administration and tuning. Technical Services consulting is generally offered on a time and materials basis. o Content and Creative Services. This group specializes in information architecture, content management, sourcing, workflow processes and user experience design. The group is made up of BroadVision One-To-One product design experts and a variety of leading third party design companies. This team combines extensive interactive design and marketing experience to build effective user experiences. Content and Creative Services consulting is generally offered on a time and materials basis. 8o Technical Support Services. We have tiered our support programs to better serve the needs of our worldwide customer base. Standard Support provides technical assistance during regular business hours; Enterprise Support is designed for customers with mission-critical environments, providing customers with access to support experts 24 hours a day, 7 days a week; and Personalized Support assigns a specific individual to a customer along with other customer specified support services, including on-site support engineers. We have technical support centers in North America, Europe and Asia. Under our standard maintenance agreement, we provide telephone support and upgrade rights to new releases, including patch releases as necessary, and product enhancements. o Education Services. Under the banner of BroadVision University, we deliver training solutions that ensure our customers and partners have access to timely and effective training for successful implementation of BroadVision One-to-One Applications globally. Our advanced delivery infrastructure allows us to deliver courses throughout the world at our facilities or at customer locations. In addition to instructor led courses, BroadVision University has launched a global e-learning platform to facilitate the delivery of web-based on-demand courses. BroadVision University also delivers an extensive training program to BroadVision employees to ensure high-quality and consistent training of our own personnel. This program provides a series of foundation courses that are general in content for all audiences as well as specific courses based on the employee's role in BroadVision. o Client Services, Project and Program Management. This management team drives project discipline from discovery through deployment and into production support based on our client and partner needs. Our Client Services Managers manage multiple projects with a variety of customers and provide deep knowledge and best practices advocacy within BroadVision for appropriate implementation, training and support services. Our Project Managers are responsible for the day-to-day project management activities, which can include project scope, deliverables, change management and resource coordination. Our Project Managers also leverage our BVGS iGuide methodology and work closely with our clients, partners and consultants to collaboratively deliver each project plan. Our Program Managers are also responsible for managing our national and global accounts where our clients are implementing enterprise-wide solutions. These Program Managers establish processes and coordinate knowledge and relationships between corporate functions and individual line or field business units to re-use information, resulting in speed to market and low cost of ownership. o Partner Services. The goal of partner services is to provide the partner community with the appropriate integration of BVGS services, tools, resources and best practices required to deliver the highest level of customer satisfaction. This team works directly with our extensive partner community including system integrators, technology partners, platform partners and application service providers to ensure partner readiness and enable knowledge transfer between BVGS and the partner community. Specific activities include the creation and execution of partner specific training and development plans utilizing BroadVision University, development of a Partner Framework that clearly outlines the working relationship between BVGS and a given partner, and the ongoing measurement of partner capabilities and readiness. Strategic Alliances A significant element of our sales strategy is to engage in strategic business alliances to assist us in marketing, selling and developing customer applications. As of December 31, 2000, we had developed key strategic business alliances with over 190 systems integration, design, consulting and other services organizations throughout the world, including Accenture, Deloitte Consulting, Hewlett-Packard Consulting, IBM Global Services, KPMG Consulting, Leapnet, PricewaterhouseCoopers and Roundarch. Moreover, as of December 31, 2000, we had trained over 15,000 external consultants. In April 1999, we announced a strategic alliance with Hewlett-Packard in which Hewlett-Packard agreed to resell and support the current BroadVision One-To-One product suite and to co-develop, sell and support integrated business-portal solutions that will act as the interface to next generation e-services for enterprise customers. In June 2000, the companies deepened their strategic relationship by signing a consulting Systems Integration Partner Agreement. As a result of this agreement, more than 400 consultants trained by HP Consulting are engaged in the implementation of more than 40 BroadVision customer sites worldwide. Hewlett-Packard is leveraging its approximately 5,000 person global sales force to resell and support the current BroadVision One-To-One product suite. Throughout 2000, PricewaterhouseCoopers and BroadVision have been working together on more than 20 engagements, across many major industries, for Fortune 500 and new economy clients. The expanded alliance will combine the global reach, e-business acumen, consulting and systems integration experience of PricewaterhouseCoopers with BroadVision's comprehensive suite of integrated e-business software products and services. Platform Alliances Our platform alliances are partnerships formed to integrate technologies to drive business growth. NCR Corporation. In November 2000, data warehousing and automatic teller machine, or ATM, leader NCR Corporation and BroadVision announced a worldwide agreement to enable companies to drive business growth with personalized communications to consumers and businesses. This $17 million commitment represents the two companies' joint investment in research and development, marketing and the development and operation of Centers of Expertise. Through this agreement, NCR and BroadVision plan to work together to develop software adapters between our industry-leading e-business applications and NCR's world-class Teradata database, Customer Relationship Management solutions and ATMs. 9Intel Corporation. In November 2000, BroadVision and Intel Corporation announced an e-business alliance to develop and market solutions built on BroadVision's suite of e-business applications and Intel-based servers. The agreement advances both companies' commitment to deliver cost-effective, enterprise-class e-business solutions. BEA Systems. Also in November 2000, BroadVision and BEA Systems announced a strategic alliance under which BEA Systems' WebLogic Server would be marketed with BroadVision One-To-One Enterprise. This arrangement is intended to allow users to combine BEA's leading Java-based application server technology with our leading e-business software applications. I2 Technologies. In October 2000, i2 Technologies and BroadVision announced a joint development agreement to deliver a comprehensive e-commerce solution. The combined offering will integrate the i2 TradeMatrix Sell and i2 TradeMatrix Content Solutions with our suite of e-business applications to create a best-of-breed solution for managing the entire e-commerce value chain. Aimed at companies that want to accelerate their time-to-market and reduce cost of ownership as they establish new e-businesses, this is one of the first e-business solutions to integrate front-end multi-enterprise order capture and creation to back-end order management and fulfillment capabilities. Compaq Computer Corporation. In September 2000, acting on our commitment to deliver enterprise-ready solutions to the Windows marketplace, we announced a strategic relationship with Compaq Computer Corporation for the development and marketing of solutions built on our suite of e-business applications and Compaq's ProLiant servers. IBM Corporation. Also in September 2000, IBM and BroadVision announced an agreement that will enable IBM to integrate our full suite of e-business applications on IBM's RS/6000 servers that employ high-performance copper technology. The agreement provides customers with more choices for building and deploying their e-business solutions, as well as increasing network performance and availability. In addition, IBM Global Services will create a practice of service professionals around the world to help customers implement our applications. Additionally, we have developed key technology partnerships with leading Web- and wireless-focused companies in areas complementary to our solutions, such as data analysis and reporting, enterprise application integration, enterprise Web management, call center management, content management, voice recognition, payment processing, auctioning and XML. These technology partnerships enhance our ability to base our products on industry standards and to take advantage of current and emerging technologies. These alliances include companies such as Broadbase, Documentum, E.Piphany, Genesys, i2, Interwoven, Nuance, Tibco, WebMethods and Yantra. Customers and Markets As of December 31, 2000, we had licensed our products to over 970 end-user customers, including customers acquired as part of the Interleaf acquisition, and over 190 partners and the total number of our installed customer base as of December 31, 2000 was over 1,100 accounts across top vertical markets worldwide. As of December 31, 2000, our products were commercially deployed in over 572 live Web sites. During the years ended December 31, 2000, and December 31, 1999, no customer accounted for more than 10% of our total revenues. Our primary target customers are Global 2000 organizations that are at the forefront of building innovative Web applications to increase revenues and reduce operational costs. We also target pure-play Web companies that have built or are building their core businesses on the Web. A sample listing of our customers by industry is as follows: o Financial Services: ABN AMRO, Bank of America, Barclay's Bank, Bear Stearns, China Trust Bank, Citibank, Credit Suisse, e-Trade, FleetBoston, GMAC, Hartford Life, ING Bank, Northern Trust and TD Waterhouse. o Manufacturing: o High-Tech: Agilent, Compaq, Hewlett-Packard, Intel, NEC, NCR, Macromedia, Molex, Motorola, Novell, RS Components, Siemens, Sony, Toshiba, Unisys and Xerox; o Industrial Equipment: GE Supply, Hilti, MRO.com, WW Grainger and Sealed Air; o Oil/Gas: Aramco Service Company, Cooper Cameron, Fuel Quest and Tosco; o Automobile: Ferrari, Fiat and Maserati o Consumer Packaged Goods: Coors, GE and Georgia Pacific; o Aircraft/Transport: Aviall, Boeing and Rockwell. 10o Government/Public Sector: San Diego Workforce, Singapore Post, State of California, Swiss Post, US General Services Administration, US Postal Service and World Health Organization. o Retail: Blackwell's, Brookstone, Circuit City, Hallmark, Home Depot, Maytag, OfficeMax, Pitney Bowes, RedEnvelope, Sears Roebuck, Shop At Home, Swatch, and Wal*Mart. o Telecom: British Telecom, ConnectOne, Eircom, Ericsson, France Telecom, Genuity, Japan Telecom, KPN, MCI Worldcom, Nortel Networks, Telia, Telus, UUNet, Verizon and Vodafone. o Travel: Aer Lingus, Air Canada, Air France, Amadeus, Budget Canada, Carlson Companies, Club Med, Forte Hotels, Japan Airlines, RailEurope, Rand McNally, TAM Airlines and Nippon Travel. o Pharmaceuticals/Healthcare: Advance PCS, formerly Advance Paradigm, Cardinal Health Inc./Allegiance Healthcare , Fresenius Medical Care, Hawaii Medical Service Association, Highmark, Janssen Pharmaceutica, Longs Drugs, Medimania, Merck Medco, NTT Data Healthcare, Pfizer and Premier Healthcare. o Media/Publishing/Entertainment: Electronic Arts, Grolier, Loftus Multimedia, NextMedia and Primedia. Sales and Marketing We market our products primarily through a direct sales organization with operations in North America, Europe, Australia and Asia/Pacific. On December 31, 2000, our direct sales organization included 544 sales representatives, managers and sales support. We have sales offices located throughout the world to support the sales and marketing of our products. In support of the Americas sales and marketing organizations, offices are located in the United States in Arizona, California, Colorado, Florida, Georgia, Illinois, Kansas, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Texas, Virginia, Washington and Wisconsin; in Canada, in Toronto, Ontario and Vancouver, British Columbia; in Latin America, in Argentina, Brazil and Mexico. Sales and marketing offices for our EMEA, or Europe/Middle East/Africa, region are located in Austria, Denmark, Finland, France, Germany, Italy, the Netherlands, Spain, Sweden, Switzerland and the United Kingdom. Our sales and marketing offices in the Asia Pacific/Japan/India region are located in Australia, India, Japan, the People's Republic of China, including Hong Kong, the Republic of China (Taiwan), Singapore and South Korea. A component of our strategy is continued expansion of our international activities. We intend to broaden our presence in international markets by expanding our international sales force and by entering into additional distribution agreements. We also contract with third-party resellers, distributors and systems integrators in North America, South America, Europe, Australia and Asia. We intend to increase our use of this distribution channel. Initial sales activities typically include a demonstration of our e-business product suite capabilities at the prospect's site, followed by one or more detailed technical reviews, often presented at our headquarters. The sales process usually involves collaboration with the prospective customer in order to specify the scope of the application. Our global services organization typically plays a key role in helping customers to design, and then develop and deploy, their applications. As of December 31, 2000, 196 employees were engaged in a variety of marketing activities, including preparing marketing research, product planning and collateral marketing materials, managing press coverage and other public relations, identifying potential customers, attending trade shows, seminars and conferences, establishing and maintaining close relationships with recognized industry analysts and maintaining our Web site. Our marketing efforts are targeted at: o Product strategy development and product management; o Building market awareness through press and analysts relations; o Creating brand awareness and visibility; o Producing and maintaining marketing information and sales tools; o Generating and developing customer leads; o Sourcing and managing relationships with systems integrators, value-added resellers and creative designers; and o Advertising agencies and technology partners. 11Competition The market for personalized e-business and one-to-one relationship management applications is rapidly evolving and intensely competitive. We expect competition to persist and intensify in the future. Our primary competition currently includes: o in-house development efforts by prospective customers or partners; o other vendors of application software or application development platforms and tools directed at interactive commerce and financial services, such as Allaire, Ariba, Art Technology Group Inc., Blue Martini, CommerceOne, InterWorld Corporation, Open Market, Inc., Oracle, Plumtree, Siebel and Vignette Corporation; o Web content developers that develop custom software or integrate other application software into custom solutions; o International Business Machines Corporation; and o Microsoft Corporation. The principal competitive factors affecting the market for our products are: o Depth and breadth of functionality offered; o Ease of application development; o Availability of knowledgeable developers; o Time required for application development; o Reliance on industry standards; o Product reliability; o Proven track record; o Scalability; o Maintainability; o Personalization and other features; o Product quality; o Price; and o Customer support. Compared to us, many of these and other current and future competitors have longer operating histories and significantly greater financial, technical, marketing and other resources than those of us. As a result, they may be able to respond more quickly to new or changing opportunities, technologies and customer requirements. Many of these companies also can use their greater name recognition and more extensive customer base to gain market share at our expense. Competitors may be able to undertake more extensive promotional activities, adopt more aggressive pricing policies and offer more attractive terms to purchasers. Current and potential competitors may bundle their products to discourage users from purchasing our products. In addition, competitors have established or may establish cooperative relationships among themselves or with third parties to enhance their products. Accordingly, it is possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share. Competitive pressures may make it difficult for us to acquire and retain customers and may require us to reduce the price of our products. We may be unable to compete successfully with current or new competitors. Intellectual Property and Other Proprietary Rights Our success and ability to compete are dependent to a significant degree on our proprietary technology. Although we hold a U.S patent, issued in January 1998, on elements of the BroadVision One-To-One Enterprise product, this patent may not provide an adequate level of intellectual property protection. In addition, litigation like the lawsuit we filed against Art Technology Group, which was settled in February 2000, may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity. We cannot guarantee that infringement or other claims will not be asserted or prosecuted against us in the future, whether resulting from our intellectual property or licenses from third parties. Claims or litigation, whether successful or unsuccessful, could result in substantial costs and diversions of resources, either of which could harm our business. We also rely on copyright, trademark, service mark, trade secret laws and contractual restrictions to protect our proprietary rights in products and services. We have registered "BroadVision" and "BroadVision One-To-One" as trademarks in the United States and in other countries. It is possible that our competitors or other companies will adopt product names similar to these trademarks, impeding our ability to build brand identity and possibly confusing customers. As a matter of company policy, we enter into confidentiality and assignment agreements with our employees, consultants and vendors. We also control access to and distribution of our software, documents and other proprietary information. Notwithstanding these precautions, it may be possible for an unauthorized third party to copy or otherwise obtain and use our software or other proprietary information or to develop similar software independently. Policing unauthorized use of our products will be difficult, particularly because the global nature of the Internet makes it difficult to control the ultimate destination or security of software and other transmitted data. The laws of other countries may afford us little or no effective protection of our intellectual property. We rely upon certain software that we license from third parties, including relational database management systems from Oracle and Sybase, object request broker software from IONA Technologies, database access technology from RogueWave Software and other software that is integrated with internally developed software and used in our software to perform key functions. In this regard, all of our services incorporate data encryption and authentication technology licensed from RSA. Our third-party technology licenses may not continue to be available to us on commercially reasonable terms, if at all. The loss of or inability to maintain any of these technology licenses could result in delays in introduction of our products and services until equivalent technology, if available, is identified, licensed and integrated, which could harm our business. 12Recent Acquisitions On April 14, 2000, we acquired Interleaf, Inc. and its subsidiaries ("Interleaf") pursuant to a statutory merger involving a stock-for-stock exchange. We acquired Interleaf primarily to enable us to add significant wireless technology capabilities and substantially increase our ability to provide enhanced personalized e-business applications across multi-touch points. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview" and Note 2 of "Notes to Consolidated Financial Statements" for more detailed information. Employees As of December 31, 2000, we employed a total of 2,412 full-time employees, of whom 1,828 are based in North America and South America, 372 in Europe and 212 in Asia. Of these full-time employees, 740 are in sales and marketing, 348 are in product development, 1,135 are in global services and client support, and 189 are in finance, administration and operations. As of December 31, 1999 and 1998, we employed 652 and 271 full-time employees, respectively. We believe that our future success depends on attracting and retaining highly skilled personnel. Competition for personnel is intense, and we may be unable to attract and retain high-caliber employees. Our employees are not represented by any collective bargaining unit. We have never experienced a work stoppage and consider our employee relations to be good. Executive Officers The following table sets forth certain information regarding our current executive officers. Name Age Position ---- --- -------- Pehong Chen............43Chairman of the Board, Chief Executive Officer and PresidentRandall C. Bolten......48 Chief Financial Officer and Executive Vice President, Operations James W. Thanos........52 Executive Vice President and General Manager, Worldwide Field Operations Nancy Mills-Turner.....48 Executive Vice President and General Manager, Worldwide Products Organization Chris M. Grejtak.......52 Executive Vice President, Worldwide Marketing and Business Development, and Chief Marketing Officer Pehong Chen has served as our Chairmanof theBoard, Chief Executive Officer and PresidentCompany sinceourits incorporation in May 1993. From 1992 to 1993, Dr. Chen served as the Vice President of Multimedia Technology at Sybase, Inc., a supplier of client-server software products. Dr. Chen founded and, from 1989 to 1992, served as President of, Gain Technology, Inc., a provider of multimedia applications development systems, which was acquired bySybase.Sybase, Inc. Dr. Chen currently serves on the Board of Directors of SINA.com and Tumbleweed Communications Corp. He received a B.S. in Computer Science from National Taiwan University, an M.S. in Computer Science from Indiana University and a Ph.D. in Computer Science from the University of California at Berkeley.Randall C. Bolten has served as our Chief Financial Officer since September 1995 and as Chief Financial Officer and Executive Vice President, Operations from January 2000. From 1994 to 1995, Mr. Bolten served as a financial consultant to various entrepreneurial enterprises. From 1992 to 1994, Mr. Bolten served as Chief Financial Officer of BioCad Corporation, a supplier of drug discovery software products. From 1990 to 1992, Mr. Bolten served as Chief Financial Officer, Business Development Unit and then Vice President, Finance of Teknekron, a company engaged in the management of various high technology companies. He received an A.B. in Economics from Princeton University and an M.B.A. from Stanford University. 13James W. Thanos has served as our Vice President and General Manager, Americas since January 1998 and as our Executive Vice President and General Manager, Worldwide Field Operations, since January 2000. From January 1995 to January 1998, Mr. Thanos served as Vice President of North American Operations of Aurum Software, a sales force automation company. From May 1994 to January 1995, Mr. Thanos served as Vice President of Sales of Digital Equipment Corporation. From January 1993 to December 1994, Mr. Thanos served as Vice President of Sales of Harvest Software, an optical character recognition software company. From December 1988 to January 1993, Mr. Thanos served as Vice President of Sales Operations of Metaphor, a decision support software company. Mr. Thanos holds a B.A. in International Relations from Johns Hopkins University. Nancy Mills-Turner joined BroadVision in September 1999 as Vice President of Worldwide Professional Services, in January 2000, was promoted to Executive Vice President and General Manager, Worldwide Professional Services and in January 2001 was named Executive Vice President and General Manager, Worldwide Products Organization. Prior to BroadVision, she worked for Oracle managing the professional services groups including Consulting and Education. Before joining Oracle in 1995, she served as director of Federal, State and Local practice consultants at PricewaterhouseCoopers LLP. Prior to PricewaterhouseCoopers LLP, she was Vice President, Software at BIS Computer Solutions directing the activities of product development divisions specializing in commercial and criminal justice applications and implementations services. Ms. Mills-Turner received a B.A./B.S. in Business Administration and Biochemistry from Arizona State University and a Master's degree in Business Administration and Information Management Sciences from University of Southern California. Chris M. Grejtak joined us in January 2001 as Executive Vice President, Worldwide Marketing and Business Development, and Chief Marketing Officer. From January 2000 to January 2001, he served as Chief Executive Officer of Viquity, Inc., a provider of hosted universal connectivity services for internet-based integration of mission critical business systems. From December 1996 to January 2000, Mr. Grejtak was the Executive Vice President, Worldwide Marketing for Brio Technology, a provider of analytics software for enterprise infrastructure management. From December 1995 to December 1996, Mr. Grejtak was the Vice President of Marketing for Red Brick Systems, Inc., which developed database management system technology to support data warehouse and business intelligence applications. Mr. Grejtak received a B.A. in Sociology from Middlebury College. ITEM 2. PROPERTIES Our principal administration, research and development, sales, consulting, training and support facilities are located in Redwood City, California, where we occupy approximately 162,000 square feet pursuant to leases expiring through 2008. We recently entered into a lease for a new facility currently under construction that will provide us with an additional approximately 519,000 square feet in Redwood City, California. The facility is expected to be available for occupancy during June 2001. Our European headquarters are located in Green Park, Reading, in the United Kingdom where we lease approximately 19,000 square feet. Our Asia Pacific headquarters are located in Taipei, Taiwan where we lease approximately 19,000 square feet. In addition, we have offices throughout the world to support the development, sales, marketing and support of our products and services. See "Sales and Marketing" above. ITEM 3. LEGAL PROCEEDINGS On February 22, 2000, we reached a settlement agreement and entered into a license agreement with Art Technology Group, or ATG, in connection with the lawsuit we filed on December 11, 1998 against ATG alleging infringement of our U.S. Patent No. 5,710,887. In accordance with the terms of the settlement agreement, we granted ATG a nonexclusive, nontransferable, worldwide, perpetual license and we were paid by ATG $8 million at the effective date of the settlement. In addition, we will receive an additional $7 million payable in quarterly installments, which payments commenced February 24, 2000, in the form of four consecutive quarterly payments of $750,000 during 2000 and eight consecutive quarterly payments of $500,000 during 2001 and 2002. There are no material pending legal proceedings to which we or any of our subsidiaries is a party. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 14PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our common stock is quoted on the Nasdaq National Market under the symbol "BVSN." The following table shows high and low sale prices per share of the common stock as reported on the Nasdaq National Market: High Low ---- --- Fiscal Year 2000 First Quarter......................... $ 90.67 $ 42.44 Second Quarter........................ 61.56 26.88 Third Quarter......................... 54.56 25.69 Fourth Quarter........................ 36.19 11.81 Fiscal Year 1999 First Quarter......................... $ 8.04 $ 3.01 Second Quarter........................ 8.19 4.35 Third Quarter......................... 15.54 6.82 Fourth Quarter........................ 59.67 14.10 As of March 28, 2001, there were 1,831 holders of record of our common stock. On March 28, 2001, the last sale price reported on the Nasdaq National Market System for our common stock was $5.2188 per share. In May 2000, we exchanged equity securities worth $3.0 million with netalone.com. We issued to netalone.com 76,665 shares of our Common Stock in exchange for the receipt from netalone.com of 23,366,700 shares of its Common Stock. In September 2000, in connection with Compaq Computer Corporation entering into a master marketing and license agreement with us, we issued a warrant to Compaq for 43,478 shares of our Common Stock with an exercise price of $34.50 per share. The exercise period for the warrant began on September 1, 2000 and expires on September 1, 2005. We have never declared or paid cash dividends on our common stock, and it is our present intention to retain earnings to finance the expansion of our business. In addition, our credit facility with our commercial lender contains certain covenants that may limit our ability to pay cash dividends. 15ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," the Consolidated Financial Statements of the Company and Notes thereto, and other financial information included elsewhere herein of this Form 10-K. Historical results are not necessarily indicative of results that may be expected for future periods.
Years Ended December 31, ----------------------------------------------------------------------- 2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- (in thousands, except per share data)Consolidated Statement of Operations Data: Revenues: Software licenses ....................... $ 250,838 $ 75,383 $ 36,067 $ 18,973 $ 7,464 Services ................................ 163,078 40,131 14,844 8,132 3,418 ----------- ----------- ----------- ----------- ----------- Total revenues .................... 413,916 115,514 50,911 27,105 10,882 Cost of revenues: Cost of software licenses ............... 7,827 3,703 1,001 1,664 330 Cost of services ........................ 117,808 25,108 8,704 4,284 2,164 ----------- ----------- ----------- ----------- ----------- Total cost of revenues ............ 125,635 28,811 9,705 5,948 2,494 ----------- ----------- ----------- ----------- ----------- Gross profit .............................. 288,281 86,703 41,206 21,157 8,388 Operating expenses: Research and development ................ 51,621 14,568 9,227 7,392 4,985 Sales and marketing ..................... 167,415 48,903 26,269 18,413 12,066 General and administrative .............. 28,195 7,970 3,786 2,990 2,034 Goodwill and intangible amortization .......................... 187,748 -- -- -- -- Charge for acquired in-process technology 10,100 -- -- -- -- ----------- ----------- ----------- ----------- ----------- Total operating expenses .......... 445,079 71,441 39,282 28,795 19,085 ----------- ----------- ----------- ----------- ----------- Operating (loss) income ................. (156,798) 15,262 1,924 (7,638) (10,697) Other, net .............................. (4,831) 3,547 2,115 265 552 ----------- ----------- ----------- ----------- ----------- Net (loss) income ....................... $ (161,629) $ 18,809 $ 4,039 $ (7,373) $ (10,145) =========== =========== =========== =========== =========== Net (loss) income per share: Basic (loss) earnings per share ........... $ (0.62) $ 0.08 $ 0.02 $ (0.04) $ (0.06) =========== =========== =========== =========== =========== Shares used in computation -- basic (loss) earnings per share ........................ 259,780 229,128 210,114 181,872 169,335 =========== =========== =========== =========== =========== Diluted (loss) earnings per share ......... $ (0.62) $ 0.07 $ 0.02 $ (0.04) $ (0.06) =========== =========== =========== =========== =========== Shares used in computation -- diluted (loss) earnings per share ........................ 259,780 260,712 230,877 181,872 169,335 =========== =========== =========== =========== ===========As of December 31, ----------------------------------------------------------------------- 2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- (in thousands)Consolidated Balance Sheet Data: Cash and cash equivalents ................. $ 153,137 $ 279,823 $ 61,878 $ 8,277 $ 17,608 Working capital ........................... 215,831 324,156 63,620 11,485 18,258 Total assets .............................. 1,143,024 406,128 101,562 26,539 26,714 Debt and capital leases, less current portion ................................... 3,897 4,890 3,194 3,005 495 Accumulated deficit ....................... (162,423) (794) (19,603) (23,642) (16,269) Total stockholders' equity ................ 1,009,298 345,188 81,809 15,121 21,01616ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview We develop and sell an integrated suite of packaged applications for conducting e-business interactions, transactions and services. Global enterprises and government entities use these applications to sell, buy, and exchange goods, services and information over the Web and on wireless devices. Our e-business application suite enables a corporation to establish and sustain high-yield relationships with customers, suppliers, partners, distributors, employees and other constituents of the extended enterprise. The BroadVision e-business application suite allows businesses to tailor Web and wireless content to the needs and interests of individual users by personalizing content and transactions on a real-time basis. These personalized self-service applications have demonstrated that they can enhance customer satisfaction and loyalty, increase business volume and brand awareness, reduce costs to service customers and execute transactions, and enhance employee productivity and retention. Our products enable companies to organize dynamic profiles of Web and wireless users from volunteered data and observed behavior, deliver highly specialized content in response to these profiles and securely execute transactions. Business managers are able to modify business rules and content in real time, offering a personalized experience to each visitor. Because of the open architecture of our applications, they are easily integrated with our customers' existing systems and easily expanded as our customers' needs and businesses grow. Supporting this application infrastructure are more than 190 partner firms around the world who are working to ensure our joint customers' success through complementary technology, applications, tools, and services offerings that extend and enhance customers' BroadVision implementations. We believe our products enhance our customers' revenue opportunities by enabling them to establish more effective and efficient "one-to-one" relationships with their customers and business partners. Web and wireless users are engaged by highly personalized real-time interactions, are able to transact business securely and are encouraged to remain online and make return visits. Our applications also improve the cost-effectiveness of one-to-one relationship management by enabling non-technical managers to modify business rules and content in real time and by helping to reduce costs of customer acquisition and retention, business development and technical support as well as employee workplace initiatives. In addition, the packaged solution nature of our products decreases our customers' time to deployment and allows them to easily manage and expand their Web and wireless application usage in a cost-effective manner. We sell our products and services worldwide through a direct sales force and a channel of independent distributors, value-added resellers, or VARs, and application service providers, or ASPs. In addition, our sales are promoted through independent professional consulting organizations, known as systems integrators, or consulting partners and through members of a global network of strategic business relationships with key industry platform and Web developer partners. We also engage in strategic business alliances to assist with the marketing, selling and development of our customers' applications. We place a strategic emphasis on technology alliances to ensure that our products are based on industry standards and to position us to take advantage of current and emerging technologies. All of these independent entities are often referred to in this document as "partners." The benefits of this approach include enabling us to focus on our core competencies while reducing time to market and simplifying the task of designing and developing applications for us and our customers. On April 14, 2000, we acquired Interleaf pursuant to a statutory merger involving a stock-for-stock exchange. The acquisition occurred primarily to enable us to add significant wireless technology capabilities and substantially increase our ability to provide enhanced personalized e-business applications across multi-touch points. We accounted for this acquisition as a purchase business combination. Accordingly, the results of operations of Interleaf are included in our combined results from the date of the acquisition. Please see Note 2 of Notes to Consolidated Financial Statements for more detailed information. 17STATEMENT OF OPERATIONS AS A PERCENT OF TOTAL REVENUES The following table sets forth certain items reflected in our consolidated statements of operations expressed as a percent of total revenues for the periods indicated.
Years Ended December 31, --------------------------- 2000 1999 1998 ------ ------ ------Revenues: Software licenses ............................. 61% 65% 71% Services ...................................... 39 35 29 ---- ---- ---- Total revenues ........................ 100 100 100 ---- ---- ---- Cost of revenues: Cost of software licenses ..................... 2 3 2 Cost of services .............................. 28 22 17 ---- ---- ---- Total cost of revenues ..................... 30 25 19 ---- ---- ---- Gross profit .......................... 70 75 81 ---- ---- ---- Operating expenses: Research and development ...................... 13 13 18 Sales and marketing ........................... 41 42 52 General and administrative .................... 7 7 7 Goodwill and intangible amortization .......... 45 -- -- Charge for acquired in-process technology ..... 2 -- -- ---- ---- ---- Total operating expenses ................... 108 62 77 ---- ---- ---- Operating (loss) income ............... (38) 13 4 Other, net ................................. 4 4 4 ---- ---- ---- (Loss) Income before income taxes ..... (34) 17 8 Income tax provision ....................... 5 1 -- ---- ---- ---- Net (loss) income ..................... (39)% 16% 8% ==== ==== ====RESULTS OF OPERATIONS Revenues Our revenues are derived from software licensing arrangements and fees charged for services. Software is generally licensed for development use and for its use in deployment of the customer's website. Deployment licenses are generally based on the number of persons who register on a customer's website using our software. Our revenue recognition policies are in accordance with Statement of Position ("SOP") 97-2, Software Revenue Recognition, as amended and SOP 98-9, Software Revenue Recognition, With Respect to Certain Transactions. In general, software license revenues are recognized when a non-cancelable license agreement has been signed and the customer acknowledges an unconditional obligation to pay, the software product has been delivered, there are no uncertainties surrounding product acceptance, the fees are fixed and determinable and collection is considered probable; professional services revenues are recognized as such services are performed; and maintenance revenues, or post-contract customer support, or PCS, including revenues bundled with software agreements which entitle the customers to technical support and future unspecified enhancements to our products, are deferred and recognized ratably over the related contract period, generally twelve months. Revenues recognized from multiple-element software arrangements are allocated to each element of the arrangement based on the fair values of the elements, such as software products, post contract customer support, installation or training. The determination of fair value is based on objective evidence which is specific to us. If evidence of fair value does not exist for all elements of a license agreement and PCS is the only undelivered element, then all revenue for the license arrangement is recognized ratably over the term of the agreement as license revenue. If evidence of fair value of all undelivered elements exists but evidence does not exist for one or more delivered elements, then revenue is recognized using the residual method. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue. Services that the Company provides are not essential to the functionality of the software. We record unearned revenue for software arrangements when cash has been received from the customer and the arrangement does not qualify for revenue recognition under our revenue recognition policy. We record accounts receivable for software arrangements when the arrangement qualifies for revenue recognition but cash or other consideration has not been received from the customer. Our professional services are delivered through our BroadVision Global Services Organization, or BVGS, presently comprised of the Strategic Services Group, the Technical Services Group, the Content and Creative Services Group, the Client Services, Project and Program Management Group, the Partner Services Group, the Education Services Group and the Technical Support Services Group. The first three groups provide consulting services, the fourth group manages projects and client relationships, the fifth group manages the needs of our partner community, the sixth group provides training-related services to employees, customers and partners, and the last group provides software maintenance services, including technical 18support, to our customers and partners. Revenue from consulting services is typically recognized as services are performed. Maintenance fees relating to technical support and upgrades are recognized ratably over the maintenance period. A summary of our software and services revenues by geographic region for the periods indicated is as follows:
Software % Services % Total % -------- -------- -------- -------- -------- -------- (dollars in thousands)Year Ended December 31, 2000: Americas .................. $155,337 62% $125,994 77% $281,331 68% Europe .................... 75,046 30 28,565 18 103,611 25 Asia/Pacific .............. 20,455 8 8,519 5 28,974 7 -------- -------- -------- -------- -------- -------- Total ....................... $250,838 100% $163,078 100% $413,916 100% ======== ======== ======== ======== ======== ======== Year Ended December 31, 1999: Americas .................. $ 48,822 65% $ 30,501 76% $ 79,323 69% Europe .................... 18,918 25 7,293 18 26,211 22 Asia/Pacific .............. 7,643 10 2,337 6 9,980 9 -------- -------- -------- -------- -------- -------- Total ....................... $ 75,383 100% $ 40,131 100% $115,514 100% ======== ======== ======== ======== ======== ======== Year Ended December 31, 1998: Americas .................. $ 19,301 54% $ 10,029 67% $ 29,330 58% Europe .................... 13,879 38 3,065 21 16,944 33 Asia/Pacific .............. 2,887 8 1,750 12 4,637 9 -------- -------- -------- -------- -------- -------- Total ....................... $ 36,067 100% $ 14,844 100% $ 50,911 100% ======== ======== ======== ======== ======== ========2000 versus 1999 Total revenues for the year ended December 31, 2000 increased $298.4 million or 258% on a year-over-year basis, and consisted of an increase in software license revenue of $175.5 million or 233% and an increase in professional services revenue of $122.9 million or 306%. The 233% increase in software license revenues is a result of continued strong demand by existing and new customers for our expanding product line and core competencies and the growing market for business-to-business and business-to-consumer e-commerce software application solutions. Our aggressive growth and enhanced presence in global markets were contributing factors in our overall increase in revenues. Also contributing to increased revenues are sales of software licenses of products acquired in the Interleaf transaction. Revenues attributed to the sales of software licenses for products acquired as a result of the Interleaf acquisition were approximately $11 million from the date of acquisition through December 31, 2000. During the year, we continued to expand the functionality and personalization attributes of our application products that contributed to a broadened customer base and an increased level of repeat business. In addition, our deployment license revenues, which are based upon related user profiles, continued to accelerate as a result of an increasingly large number of live sites. Software product license revenues for our Enterprise applications increased to $18.6 million in 2000 as compared to $14.6 million in 1999. Software license revenues for our web applications and tools, or packaged solutions, increased to $232.2 million in 2000 as compared to $60.8 million in 1999. Deployment license revenues increased to $81.8 million in 2000 as compared to $31.2 million in 1999. During the year ended December 31, 2000, we licensed 557 new end-user customers, including customers acquired as part of the Interleaf acquisition, and 74 new partners which compares with approximately 217 new end-user customers and 47 new partners for the year ended December 31, 1999. As of December 31, 2000, we had a total installed license base of 1,169 consisting of 972 end-user customers, including customers acquired as part of the Interleaf acquisition, and 197 partners, which compares with 415 end-user customers and 123 partners as of December 31, 1999. The 306% increase in professional services revenue is a result of higher levels of consulting related services associated with increased business volumes and higher customer support revenues derived from a larger installed customer base. Maintenance related fees for technical support and product upgrades were $46.2 million in 2000 which compares to $13.4 million in 1999. We also experienced increases in services and maintenance revenues as a result of the Interleaf acquisition. Total services revenues related to customers acquired as a result of the Interleaf acquisition were approximately $17 million. During fiscal 2000, we expanded our corporate training facilities by building new training centers in Chicago, Illinois, the United Kingdom and Taipei, Taiwan. To date we have achieved good market acceptance for our products and have experienced continued revenue growth. We anticipate that international revenues will continue to account for a significant amount of total revenues, and expect to continue to commit significant time and financial resources to the maintenance and ongoing development of direct and indirect international sales and support channels. However, we may be unable to maintain or continue to increase international or domestic market acceptance for our family of products. 191999 versus 1998 Total revenues for the year ended December 31, 1999 increased $64.6 million or 127% on a year-over-year basis, and consisted of an increase in software license revenue of $39.3 million or 109% and an increase in professional services revenue of $25.3 million or 170%. The 109% increase in software license revenues was a result of continued strong demand for our expanding product line and core competencies; our strategic positioning within a high momentum market for business-to-business and business-to-consumer personalization focused software application solutions; and the ability to achieve greater penetration into our existing customer base while continuing to add significant numbers of new quality customers. During the year, we continued to expand the functionality and personalization attributes of our application products that contributed to a broadened customer base and an increased level of repeat business. In addition, our deployment related user profile based licensing revenues continued to accelerate as a result of an increasingly larger number of live sites. Software product license revenues for our Enterprise applications decreased to $14.6 million in 1999 as compared to $19.3 million in 1998. Deployment related user profile license revenues increased to $31.2 million in 1999 as compared to $14.8 million in 1998. During the year ended December 31, 1999, we licensed approximately 217 new end-user customers and 47 new partners which compares with approximately 94 new end-user customers and 27 new partners for the year ended December 31, 1998. As of December 31, 1999, we had a total installed license base of over 410 end-user customers and 120 partners, which compares with over 195 end-user customers and 75 partners as of December 31, 1998. The 170% increase in professional services revenue was a result of higher levels of consulting related services associated with increased business volumes and higher customer support revenues derived from a larger installed customer base. Maintenance related fees for technical support and product upgrades were $13.4 million in 1999 which compares to $5.1 million in 1998. During the year ended December 31, 1999, we continued to expand and enhance our professional services group and, during August 1999, we completed our greatly expanded corporate training facility located in Redwood City, California. We also added additional training and professional consulting related facilities in Europe and Asia as of December 31, 1999. Cost of Revenues Cost of license revenues includes the costs of product media, duplication, packaging and other manufacturing costs as well as royalties payable to third parties for software that is either embedded in, or bundled and sold with, our products. Cost of services consists primarily of employee-related costs, third-party consultant fees incurred on consulting projects, post-contract customer support and instructional training services.
Years Ended December 31, ----------------------------------------------------------------- 2000 % 1999 % 1998 % -------- -------- -------- -------- -------- -------- (dollars in thousands)Cost of software licenses [1] $ 7,827 3% $ 3,703 5% $ 1,001 3% Cost of services [2] 117,808 72 25,108 63 8,704 59 -------- -------- -------- Total cost of revenues [3] .. $125,635 30% $ 28,811 25% $ 9,705 19% ======== ======== ========[1] -- Percentage is calculated based on total software license revenues for the period indicated [2] -- Percentage is calculated based on total services revenues for the period indicated [3] -- Percentage is calculated based on total revenues for the period indicated 2000 versus 1999 For the year ended December 31, 2000, cost of license revenues increased $4.1 million or 111% on a year-over-year basis. Cost of software licenses as a percent of license revenues was 3% in 2000 as compared to 5% in 1999. Cost of services revenues during 2000 increased $92.7 million or 369% on a year-over-year basis. Cost of services as a percent of services revenues was 72% in 2000 as compared to 63% in 1999. In absolute dollar terms, the increase in cost of software licenses was principally a result of increased sales of our products and of royalty-bearing third party products. In relative percentage terms, cost of software licenses decreased principally as a result of renegotiating the royalty provisions of agreements with software suppliers from per copy royalties to fixed fee prepaid license fees. 20The increase in cost of services revenues in absolute dollar terms during 2000 as compared to 1999 is a result of higher business volumes as evidenced by increased services revenues. The increase in cost of services as a percentage of revenues can primarily be attributed to an increase in personnel who do not generate revenue during their initial training period. Total employees in global services and client support were 1,135 as of December 31, 2000 as compared to 246 as of December 31, 1999. This includes employees added as a result of the Interleaf acquisition. In addition, we increased our use of outside consultants from the prior year in order to meet our short-term demands. 1999 versus 1998 For the year ended December 31, 1999, cost of license revenues increased $2.7 million or 270% on a year-over-year basis. Cost of software licenses as a percent of license revenues was 5% in 1999 as compared to 3% in 1998. Cost of services revenues during 1999 increased $16.4 million or 188% on a year-over-year basis. Cost of services as a percent of services revenues was 63% in 1999 as compared to 59% in 1998. The increase in cost of license revenues, in both absolute dollar and relative percentage terms, was principally a result of the higher mix of third party software bundled and sold with our products and the related third party royalty fees payable on those sales. Third party royalty costs relative to license revenues have been offset to some extent as a result of our renegotiating previously existing percentage-based royalty arrangements into prepaid fixed fee royalties for periods extending through 2004. The increase in cost of services revenues in absolute dollar terms during 1999 as compared to 1998 was a result of higher business volumes as evidenced by increased services revenues. Overall costs increased as a result of additions to our professional services staff and the employment of outside consultants to meet short-term consulting demands. The increase in cost of services as a percentage of services revenues was a result of the assimilation of new professional consultants added to the group during the year and higher use of outside consultants in relation to the extent previously used during the prior year period. Operating Expenses and Other Income, net Research and development expenses consist primarily of salaries, employee-related benefit costs and consulting fees incurred in association with the development of our products. Costs incurred for the research and development of new software products are expensed as incurred until the time that technological feasibility, in the form of a working model, is established, at which point these costs are capitalized subject to recoverability. The costs we have incurred subsequent to the establishment of a working model but prior to general release have not been significant. To date, we have not capitalized any software development costs. Sales and marketing expenses consist primarily of salaries, employee-related benefit costs, commissions and other incentive compensation, travel and entertainment and marketing-related expenditures such as collateral materials, trade shows, public relations and creative services. General and administrative expenses consist primarily of salaries, employee-related benefit costs and professional service fees. A summary of operating expenses is set forth in the following table. The percentage of expenses is calculated based on total revenues.
Years Ended December 31, ------------------------------------------------------------------- 2000 % 1999 % 1998 % -------- -------- -------- -------- -------- -------- (dollars in thousands)Research and development ................. $ 51,621 13% $ 14,568 13% $ 9,227 18% Sales and marketing ...................... 167,415 41 48,903 42 26,269 52 General and administrative ............... 28,195 7 7,970 7 3,786 7 Goodwill and intangible amortization ..... 187,748 45 -- -- -- -- Charge for acquired in-process technology 10,100 2 -- -- -- -- -------- -------- -------- Total operating expenses ................. $445,079 108% $ 71,441 62% $ 39,282 77% ======== ======== ======== ======== ======== ======== Interest income .......................... $ 16,706 4% $ 5,142 4% $ 2,484 5% ======== ======== ======== ======== ======== ======== Other income (expense), net .............. $ 1,511 0% $ (599) 1% $ (448) 1% ======== ======== ======== ======== ======== ========212000 versus 1999 Research and development expenses for the year were $51.6 million in 2000 as compared to $14.6 million in 1999 which represents an increase of 253% year-over-year. Sales and marketing expenses for the year were $167.4 million in 2000 as compared to $48.9 million in 1999 which represents an increase of 242% year-over-year. General and administrative expenses for the year were $28.2 million in 2000 as compared to $8.0 million in 1999 which represents an increase of 253% year-over-year. Interest income for the year was $16.7 million in 2000 as compared to $5.1 million in 1999 that represents an increase of 227% year-over-year. Net other income (expense) for the year was $1.5 million in 2000 as compared to $(599,000) in 1999 that represents an increase of 350% year-over-year. The increase in research and development expenses is primarily attributable to personnel costs for added headcount within those operations involved in the enhancement of existing applications and the development of our next generation of products. We added personnel and a development facility in Waltham, Massachusetts in conjunction with the Interleaf acquisition. The increases in sales and marketing expenses reflects the cost of hiring additional sales and marketing personnel including sales commissions, the continued development of sales distribution channels and the expansion of promotional activities and marketing-related programs. The increase in general and administrative expenses is attributable to additional administrative and management personnel, higher professional fees, increase in bad debt reserve as a result of an increase in accounts receivable due to our rapid growth, and additional infrastructure to support the expansion of our operations. The increase in interest income is attributable to a higher level of investment income during the year as a result of an increase in investments and cash in interest bearing accounts. The increase in other income, net is primarily a result of realized gains on the sale of investments partially offset by realized losses on investments due to impairment as well as interest expense. Amortization of Goodwill and Other Intangible Assets Our acquisition of Interleaf was accounted for under the purchase method of accounting. Accordingly, we recorded goodwill and other intangible assets representing the excess of the purchase price paid over the fair value of net assets acquired of approximately $1.9 million. Gross goodwill recorded as a result of the acquisition was $765.8 million. The aggregate amortization of goodwill and other intangible assets related to the Interleaf acquisition was $187.6 million in fiscal 2000. The goodwill and other intangible assets are being amortized on a straight-line basis over the expected useful life of three years and will amount to $264.9 million in 2001, $264.9 million in 2002 and $77.3 million in 2003. It is possible that we may continue to expand our business through acquisitions and internal development. Any additional acquisitions or impairment of goodwill and other purchased intangibles could result in additional merger and acquisition related costs. On November 24, 1999, the Company acquired all of the registered shares of Fidutec Information Technology SA for a cash payment of 6,000,000 Swiss Francs (equivalent U.S. dollar value of $3,765,000, net of cash acquired); of which 1,200,000 Swiss Francs are held in escrow, subject to employee retention conditions lasting 12 to 24 months depending on named employees. The acquisition was accounted for as a purchase. The acquired assets and assumed liabilities, and the related results of operations, are included in the consolidated financial statements of the Company from the date of acquisition. The name of the acquired business has been subsequently changed to BroadVision Professional Services. Amortization of goodwill was approximately $200,000 in fiscal 2000. Charge for Acquired In-Process Technology In connection with the Interleaf acquisition, we recorded a charge of $10.1 million in the quarter ended June 30, 2000 for acquired in-process technology that had not reached technological feasibility. Based upon our estimates prepared in conjunction with a third-party valuation consultant, $10.1 million was allocated to Acquired In-Process Technology and $796.0 million was allocated to goodwill and intangible assets. The amounts allocated to intangible assets include completed technologies of $20.4 million and assembled workforces of $8.5 million. We used the cost approach to estimate the value of the assembled workforce and the income approach to estimate the value of the business and technology projects acquired. The income approach takes into consideration the expected future cash flows attributable to the technology projects and discounts these cash flows to present value at a rate that appropriately reflects their risk. The value assigned to in-process technology was the amount attributable to the efforts of Interleaf up to the time of acquisition. This amount was estimated through application of the "stage of completion" calculation by multiplying the estimated present value of future cash flows, excluding costs of completion, by the percentage of completion of the purchased technology projects at the time of acquisition. Based upon these estimates, material net cash flows from the acquired business are expected to occur during the calendar year 2000. The cash flows for the completed and in-process technologies were discounted using discount rates of 15% to 35%. The fair market value of the technologies acquired have been grouped in three classifications. Completed Technology represents technology that has successfully completed final Beta test. In-Process Technology represents technology that, as of the valuation date, has not yet entered Beta test or has commenced but not yet successfully completed final Beta test and has no alternative future use. Core Technology is technology that is being used in not only the current products and in-process technology projects, but also in future, not yet defined projects. Completed technologies are defined as those that have reached technological feasibility. The Company defines technological feasibility as the point at which the technologies have successfully completed Beta test. 22The Completed Technologies include projects that enable companies to create, manage and deliver e-content for web enabled applications, using XML as its technology backbone and Microsoft Word for content creation. These projects also enable companies to manage XML and non-XML documents throughout their lifecycle in one integrated system. The In-Process Technologies include a project to develop a version of current software which will run on a Unix-based operating system. As of the valuation date, the development of this project was approximately 34% complete and there was significant technological risk remaining. The value attributed to this project was $1.3 million. The application from this project has been integrated into our products. The efforts required to complete the acquired in-process technology included the completion of all planning, designing and testing activities that were necessary to establish that the product can be produced to meet its design requirements, including functions, features and technical performance requirements. The costs to complete this project were included in the year ending December 31, 2000 and there are no expected remaining costs. Another In-Process Technology project is an upgrade to an existing product that will take into account new W3C standards being developed for XML and will provide the capability for a user to author and create documents for a specific output device. As of the valuation date, this project was approximately 6% complete. The value attributed to this project was $300,000. This project was subsequently canceled and the project has no future alternative use. Costs incurred to complete this project were not material. A third In-Process Technology project is being developed to provide a new, cost-effective means for a website to deliver content both to full-function personal computers and to reduced-function devices such as wireless telephones and wireless personal digital assistants. As of the valuation date, this project was approximately 57% complete. The value attributed to this project was $8.5 million. The application from this project has been integrated into our products. The efforts required to complete the acquired in-process technology included the completion of all planning, designing and testing activities that were necessary to establish that the product can be produced to meet its design requirements, including functions, features and technical performance requirements. The costs to complete this project were included in the year ending December 31, 2000 and there are no expected remaining costs. Core Technology encompasses both leveraged code and general technological know-how, experience and expertise regarding the design, manufacture and development of content management technology in existing products. It is therefore not appropriate to consider the value of the Core Technology to be part of the estimated value of In-Process Technology. Thus, the value of the In-Process Technology has been isolated by allocating a portion of the cash flow to this Core Technology that gives full recognition to its contribution. As noted above, the income forecast method was used to value the business and technology projects acquired. The value of the acquired In-Process Technology and the Completed Technologies was estimated by discounting to present value the free cash flows generated by the products with which the technologies are associated over the remaining economic lives of the technologies. Discount rates used ranged from 15% to 35% and were based upon the relative risk associated with the completed technologies and the incomplete development projects and upon considerations such as stage of completion, remaining development milestones, technological uncertainties and projected cost to complete. We believe that these discount rates are consistent with the overall costs of capital and the relative risks of the completed technologies and the research and development project. We have valued the In-Process Technology using the "Percentage Completion Approach" as suggested by the U.S. Securities and Exchange Commission. This approach varies from the traditional discounted cash flow approach that is used to value In-Process Technology. The Percentage Completion Approach does not include completion costs in the discounted cash flow analysis and the present value of future cash flows is multiplied by the estimated percentage complete as of the valuation date to determine the value of the acquired In-Process Technology. The cost approach was utilized to value the assembled workforce. This approach considers the concept of avoided costs as an indicator of value and is an appropriate method for estimating the fair market value of an asset where reliable data for sales of comparable property are not available and where the property does not directly produce an income stream. The basis of the valuation is the estimated cost to recruit and train the new work force. As part of the Purchase and Sale Agreement and the closing compilation documents, Non-Compete Agreements (the "Agreements") were executed with certain Interleaf employees. No value of the aggregate purchase price was allocated to the Agreements based upon numerous facts and circumstances such as the likelihood of employees leaving BroadVision and the effect on our performance these employees would have should they leave the Company and were not barred from competing. 1999 versus 1998 Research and development expenses for the year were $14.6 million in 1999 as compared to $9.2 million in 1998 which represents an increase of 58% year-over-year. Sales and marketing expenses for the year were $48.9 million in 1999 as compared to $26.3 million in 1998 which represents an increase of 86% year-over-year. General and administrative expenses for the year were $8.0 million in 1999 as compared to $3.8 million in 1998 which represents an increase of 111% year-over-year. Net other income for the year was $4.5 million in 1999 as compared to $2.0 million in 1998 which represents an increase of 123% year-over-year. The increase in research and development expenses was primarily attributable to personnel costs for added headcount within those operations involved in the enhancement of existing applications and the development of our 23next generation of products. The increases in sales and marketing expenses reflects the cost of hiring additional sales and marketing personnel, the continued development of sales distribution channels and the expansion of promotional activities and marketing-related programs. In addition, commission rates were higher during 1999 as result of sales people exceeding their sales quotas. The increase in general and administrative expenses is attributable to additional administrative and management personnel, higher professional fees and additional infrastructure to support the expansion of our operations. The increase in net other income is attributable to a higher level of investment income during the year as a result of earnings on proceeds received from a follow-on public stock offering in November 1999. Income Taxes For the year ended December 31, 2000, we recorded an income tax provision of $23.0 million consisting of current expense of $28.6 million and deferred tax benefit of $5.6 million relating to federal, state and foreign income taxes. For the year ended December 31, 1999, we recorded an income tax provision of $996,000 consisting solely of current expense relating to federal and foreign income taxes. For the year ended December 31, 1998, we recorded a net income tax benefit of $79,000, comprised of a deferred tax benefit of $700,000 and current tax expense of $621,000. The effective tax rate includes the write-off of acquired in-process technology and amortization of Goodwill and other intangibles of approximately $197.8 million for 2000. The effective tax rate after this adjustment is 39%. The effective tax rates were 5% for 1999 and 0 for 1998. Liquidity and Capital Resources
December 31, ------------------------------- 2000 1999 1998 -------- -------- ------- (dollars in thousands)Cash, cash equivalents and short-term Investments.................... $222,534 $348,581 $61,878 Working capital.................. $215,831 $324,156 $63,620 Working capital ratio............ 2.7 6.8 4.9As of December 31, 2000, cash, cash equivalents and liquid short-term investments totaled $222.5 million, which represents a decrease of $126.1 million as compared to December 31, 1999. We currently have $4.9 million of outstanding term debt under our existing credit facility with our commercial bank. We have funded our operations by cash generated from operations and public offerings of our common stock. Public stock offerings during June 1996, March 1998 and November 1999 netted for us proceeds of $20.7 million, $53.7 million and $210.4 million, respectively. Cash provided by operating activities was $55.3 million for the year 24ended December 31, 2000, $33.3 million for the year ended December 31, 1999 and $1.2 million for the year ended December 31, 1998. Operating activities consisted primarily of the net operating income for the year after adding back various non-cash items such as amortization of goodwill and other intangibles and charge for acquired in-process technology and depreciation, increase in accounts payable and other accrued expenses, increase in unearned revenue and deferred maintenance, all partially offset by increases in accounts receivable, prepaid expenses and other current assets. Cash used for investing activities was $220.9 million for the year ended December 31, 2000, $38.6 million for the year ended December 31, 1999 and $6.4 million for the year ended December 31, 1998. Investing activities consisted primarily of capital expenditures and the acquisition of strategic investments. We expect that our capital expenditures will continue to increase in the future. We currently estimate that planned capital expenditures for fiscal 2001 will be approximately $32.0 million. We plan to fund these capital expenditures from cash provided by operations. Cash provided by financing activities was $38.9 million for the year ended December 31, 2000, $223.2 million for the year ended December 31, 1999 and $58.8 million for the year ended December 31, 1998. Financing activities consisted primarily of proceeds from the issuance of stock. We believe that our existing cash and cash equivalents and our anticipated cash flows from operations will be sufficient to meet our working capital and operating resource expenditure requirements for at least the next year. Thereafter, we may find it necessary to obtain additional equity or debt financing. In the event additional financing is required, we may not be able to raise it on acceptable terms or at all. We have various credit facilities with a commercial lender which include term debt in the form of notes payable and a revolving line of credit that provides for up to $10.0 million of additional borrowings, based on eligible accounts receivable. As of December 31, 2000 and 1999, outstanding term debt borrowings were $4.9 million and $5.9 million, respectively. As of December 31, 2000 and 1999, we had no outstanding borrowings under our revolving line of credit. However, commitments totaling $2.4 million and $2.8 million, in the form of standby letters of credit were issued under its revolving line of credit facility as of December 31, 2000 and 1999, respectively (see Note 7). Commitments totaling $23.0 million in the form of standby letters of credit were also issued from separate financial institutions as of December 31, 2000. 25Quarterly Results of Operations The following tables set forth certain unaudited consolidated statement of operations data for the eight quarters ended December 31, 2000, as well as that data expressed as a percentage of our total revenues for the periods indicated. This data has been derived from unaudited consolidated financial statements that, in the opinion of management, include all adjustments consisting only of normal recurring adjustments, necessary for a fair presentation of such information when read in conjunction with the Consolidated Financial Statements and Notes thereto. The unaudited quarterly information should be read in conjunction with the Consolidated Financial Statements and Notes thereto included elsewhere herein on this Form 10-K. We believe that period-to-period comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of future performance.
Three Months Ended --------------------------------------------------------------------------------------------------- Dec. 31, Sep. 30, June 30, Mar. 31, Dec. 31, Sep. 30, June 30, Mar. 31, 2000 2000 2000 2000 1999 1999 1999 1999 --------- --------- --------- --------- --------- --------- --------- --------- (dollars in thousands)Statement of Operations Data: Revenues: Software licenses ......... $ 80,926 $ 72,351 $ 56,848 $ 40,713 $ 28,161 $ 18,954 $ 15,484 $ 12,783 Services .................. 55,951 47,843 38,496 20,788 15,582 10,877 7,992 5,681 --------- --------- --------- --------- --------- --------- --------- --------- Total revenues ...... 136,877 120,194 95,344 61,501 43,743 29,831 23,476 18,464 Cost of revenues: Cost of software licenses . 2,805 1,395 1,563 2,064 1,243 676 1,037 747 Cost of services .......... 37,838 34,015 30,282 15,673 9,994 7,241 4,624 3,321 --------- --------- --------- --------- --------- --------- --------- --------- Total cost of revenues ........... 40,643 35,410 31,845 17,737 11,237 7,917 5,661 4,068 Gross profit ................ 96,234 84,784 63,499 43,764 32,506 21,914 17,815 14,396 Operating expenses: Research and development .. 21,168 14,988 9,706 5,759 4,582 3,816 3,268 2,901 Sales and marketing ....... 64,846 43,799 33,570 25,200 19,012 12,136 10,019 7,665 General and administrative .......... 9,600 8,198 6,786 3,611 2,969 2,119 1,611 1,271 Goodwill and intangible amortization ............ 66,089 66,308 55,351 -- -- -- -- -- Charge for acquired in-process technology ... -- -- 10,100 -- -- -- -- -- --------- --------- --------- --------- --------- --------- --------- --------- Total operating expenses ........... 161,703 133,293 115,513 34,570 26,563 18,071 14,898 11,837 --------- --------- --------- --------- --------- --------- --------- --------- Operating (loss) income ..... (65,469) (48,509) (52,014) 9,194 5,943 3,843 2,917 2,559 Other, net .................. 1,431 (4,247) (2,857) 842 2,120 651 398 378 --------- --------- --------- --------- --------- --------- --------- --------- Net (loss) income ........... $ (64,038) $ (52,756) $ (54,871) $ 10,036 $ 8,063 $ 4,494 $ 3,315 $ 2,937 ========= ========= ========= ========= ========= ========= ========= ========= As a Percentage of Revenues: Revenues: Software licenses ......... 59% 60% 60% 66% 64% 63% 66% 69% Services .................. 41 40 40 34 36 37 34 31 --------- --------- --------- --------- --------- --------- --------- --------- Total revenues ...... 100 100 100 100 100 100 100 100 Cost of revenues: Cost of software licenses . 2 1 1 3 3 2 4 4 Cost of services .......... 28 28 32 26 23 24 20 18 --------- --------- --------- --------- --------- --------- --------- --------- Total cost of revenues ........... 30 29 33 29 26 26 24 22 Gross profit ................ 70 71 67 71 74 74 76 78 Operating expenses: Research and development .. 16 13 10 9 10 13 14 16 Sales and marketing ....... 47 36 35 41 44 41 43 41 General & administrative .. 7 7 7 6 7 7 7 7 Goodwill and intangible amortization ............ 48 55 58 -- -- -- -- -- Charge for acquired in-process technology ... -- -- 11 -- -- -- -- -- --------- --------- --------- --------- --------- --------- --------- --------- Total operating expenses ........... 118 111 121 56 61 61 64 64 --------- --------- --------- --------- --------- --------- --------- --------- Operating (loss) income ..... (48) (40) (54) 15 14 13 12 14 Other, net .................. 1 (4) (3) 1 5 2 2 2 --------- --------- --------- --------- --------- --------- --------- --------- Net (loss) income ........... (47)% (44)% (57)% 16% 19% 15% 14% 16% ========= ========= ========= ========= ========= ========= ========= =========Our quarterly operating results have fluctuated in the past and may fluctuate significantly in the future as a result of a variety of factors, many of which are outside of our control. It is likely that our operating results in one or more future quarters may be below the expectations of securities analysts and investors. In that event, the trading price of our common stock almost certainly would decline. 26RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standard, or SFAS, No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 137, effective for all fiscal quarters of fiscal years beginning after June 15, 2000. Accordingly, we adopted SFAS No. 133, as amended, beginning on January 1, 2001. SFAS No. 133 establishes standards for the accounting and reporting of derivative instruments and hedging activities, including certain derivative instruments embedded in other contracts. Under SFAS No. 133, entities are required to carry all derivative instruments at fair value on their balance sheets. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging activity and the underlying purpose for it. We do not believe that the adoption of SFAS No. 133 will have a significant impact on our consolidated financial statements or related disclosures. In June 2000, the FASB issued Statement No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities. FASB Statement No. 138 addresses certain issues related to the implementation of SFAS No. 133, but does not change the basic model of SFAS No. 133 or further delay the implementation of SFAS No. 133. In December 1999, the Securities and Exchange Commission, or SEC, issued Staff Accounting Bulletin No. 101, or SAB 101, Revenue Recognition in Financial Statements, which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. We adopted SAB 101 during the fourth quarter of 2000, as required. There was no material effect on our financial position or results of operations as a result of the adoption of SAB 101. In March 2000, the FASB issued Interpretation No. 44, or FIN 44, Accounting for Certain Transactions Involving Stock Compensation-an Interpretation of APB 25. This Interpretation clarifies (a) the definition of employee for purposes of applying Opinion 25, (b) the criteria for determining whether a plan qualifies as a non-compensatory plan, (c) the accounting consequence of various modifications to the terms of a previously fixed stock option or award and (d) the accounting for an exchange of stock compensation awards in a business combination. This Interpretation became effective July 1, 2000, but certain conclusions in this Interpretation cover specific events that occur after either December 15, 1998 or January 12, 2000. However, before the effective date of July 1, 2000, the effects of applying this Interpretation are recognized on a prospective basis from July 1, 2000. We adopted FIN 44 27in July,2000. There was no material effect on our financial position or results of operations as a result of the adoption of FIN 44. RISK FACTORS The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks actually occur, our business could be harmed. In that event, the trading price of our common stock could decline. Risks related to our business Fluctuations in our quarterly operating results may cause our stock price to decline and make it difficult for us to forecast quarterly revenue and operating results. Our quarterly operating results have fluctuated in the past and may fluctuate significantly in the future as a result of a variety of factors, many of which are outside of our control. It is likely that our operating results in one or more future quarters may be below the expectations of securities analysts and investors. In that event, the trading price of our common stock almost certainly would decline. Factors that may affect our quarterly operating results include the following: o the timing of introductions or enhancements of our products and services or our competitors; o timing of receipt and fulfillment of significant orders; o market acceptance of new products; o the mix of products sold by us; o changes in our pricing policies or our competitors; o changes in our sales incentive plans; o the budgeting cycles of our customers; o customer order deferrals in anticipation of new products or enhancements by us or our competitors or because of macro-economic conditions o nonrenewal of our service agreements, which generally automatically renew for one-year terms unless earlier terminated by either party upon 90-days notice; o product life cycles; o changes in strategy; o seasonal trends; o the mix of distribution channels through which our products are sold; o the mix of international and domestic sales; o the rate at which new sales people become productive; and o changes in the level of operating expenses to support projected growth. Due to these and other factors, it is difficult to accurately forecast our quarterly revenues and operating results. We believe that period-to-period comparisons of our operating results may not be meaningful and you should not rely upon them as any indication of our future performance. Our future financial performance is largely dependent on the successful upgrading of our current products and introduction of new products. Our future financial performance will depend, in significant part, on the successful development and sale of new and enhanced versions of our BroadVision One-To-One application products and other new products. We may be unable to upgrade and continue to market the BroadVision One-To-One application products. We may be unable to successfully develop new products and new products may not achieve market acceptance. 28Our sales may be subject to macro-economic conditions that could have an effect on the willingness of our customers and prospects to make large capital spending decisions. The average size of transactions involving the licensing of our products is over $400,000 and has increased over the last few years. The current macro-economic forecast for the United States and some other countries indicate an economic slowdown. Many customers and prospective customers have issued public announcements regarding workforce reductions and spending controls in response to this slowdown. Because of these corporate pronouncements and economic conditions, our customers and prospects may defer large capital spending decisions that, in turn, could result in shortfalls in our revenue and operating result expectations. Our lengthy sales and product implementation cycles could cause delays in revenue recognition and make it difficult to predict ours quarterly results. Our sales and product implementation cycles are subject to delays over which we have little or no control. These delays can affect the timing of revenue recognition and make it difficult to predict our quarterly results. Licensing the BroadVision One-to-One application products is often an enterprise-wide decision by prospective customers. The importance of this decision requires that we engage in a lengthy sales cycle with prospective customers. During the sales process, we provide a significant level of education regarding the uses and benefits of our products. Once the decision has been made to implement our products, our customers or our BroadVision Global Services consultants then must commit significant resources over an extended period of time. Slowdowns in general economic conditions may result in decisions by customers to defer decisions to purchase our products. Delays in license transactions due to unusually lengthy sales cycles could cause our operating results to vary significantly from quarter to quarter. The market for our products and services is in its early stages of development and may fail to mature into a sustainable market. Our products and services facilitate online commerce and communication over public and private networks. The market for these products and services is in its early stages of development and is rapidly evolving. A viable market may fail to emerge or be sustainable. We cannot predict the level of demand for and market acceptance of our products and services, especially because acquisition of our products and services requires a large capital or other significant resource commitment. If the market for our products and services does not continue to mature, we will be unable to execute successfully our business plan. Adoption of electronic commerce and knowledge management, particularly by those individuals and companies that have historically relied upon traditional means of commerce and communication, will require a broad acceptance of new and different methods of conducting business and exchanging information. Our future revenues and profits will substantially depend on the Internet being accepted and widely used for commerce and communication. If Internet commerce does not continue to grow or grows more slowly than expected, our future revenues and profits may not meet our expectations or those of analysts. In the emerging marketplace of Internet commerce, our products and services involve a new approach to the conduct of online business. As a result, intensive marketing and sales efforts may be necessary to educate prospective customers regarding the uses and benefits of our products and services, thereby generating demand. Companies that have already invested substantial resources in other methods of conducting business may be reluctant to adopt a new approach that may replace, limit or compete with their existing systems. Similarly, purchasers with established patterns of commerce may be reluctant to alter those patterns or may otherwise resist providing the personal data necessary to support our consumer profiling capability. In addition, the security and privacy concerns of existing and potential online purchasers may inhibit the growth of online business generally and the market's acceptance of our products and services in particular. Accordingly, a viable market for our products and services may not emerge or be sustainable. Our success is substantially dependent on revenues from our BroadVision One-to-One Enterprise product suite and related services. To date, substantially all of our revenues have been attributable to license sales of the BroadVision One-To-One Enterprise product and related packaged application products and associated services. We currently expect these products and services to account for most of our future revenues. The inability of our customers to successfully develop and deploy an online marketplace using BroadVision One-To-One application products could damage our reputation and cause a loss of customers. In addition, factors negatively affecting the pricing of or demand for the BroadVision One-To-One application products, such as increased competition or rapid technological change, could cause our revenues to decline. 29We have substantially expanded our business and operations and will need to manage and support this expansion effectively in order for our business plan to succeed. We have substantially expanded our business and operations since our inception in 1993; in particular, we grew from 652 employees at the end of 1999 to 2,412 employees at the end of 2000. If we are unable to support this growth effectively, we may have to divert additional resources away from executing our business plan and toward internal administration. Our past expansion has placed significant demands on our administrative, operational, financial and other resources. If our revenues do not increase in proportion to our operating expenses, our management systems do not expand to meet increasing demands or our management otherwise fails to support our expansion effectively, our business plan may not succeed. We are dependent on direct sales personnel and third-party distribution channels to achieve revenue growth. To date, we have sold our products primarily through our direct sales force. Our ability to achieve significant revenue growth in the future largely will depend on our success in recruiting and training sufficient direct sales personnel and establishing and maintaining relationships with distributors, resellers and systems integrators. Our products and services require a sophisticated sales effort targeted at the senior management of our prospective customers. New hires as well as employees of our distributors, resellers and systems integrators require training and take time to achieve full productivity. Our recent hires may not become as productive as necessary, and we may be unable to hire sufficient numbers of qualified individuals in the future. We have entered into strategic alliance agreements with partners, including Hewlett-Packard Company, under which partners have agreed to resell and support our current BroadVision One-to-One product suite. These contracts are generally terminable by either party upon 30 days' notice of an uncured material breach. Termination of the Hewlett-Packard or other similar alliances could harm our expected revenues. We may be unable to expand our other distribution channels, and any expansion may not result in revenue increases. If we fail to expand our direct sales force or other distribution channels, our revenues may not grow or they may decline. Our customers may rely on third-party systems integrators for the success of online marketplaces. Our current and prospective customers may rely on third-party systems integrators to develop, deploy and manage online marketplaces. If we are unable to adequately train these systems integrators who, as a result, ineffectively assist customers with their online marketplaces, our reputation may be harmed and we may lose customers. In addition, if for any reason a large number of these integrators adopt a different product or technology instead of the BroadVision One-To-One application products, sales of these products may not grow or they may decline. We are susceptible to numerous risks associated with international operations. Our international activities expose us to numerous additional risks. In the year ended December 31, 2000, approximately 32% of our revenues were derived from sales outside of North America. We have twenty six offices in Europe and Asia and two offices in Australia. A key component of our business strategy is to expand our international activities. As we continue to expand internationally, we will be increasingly subject to risks of doing business internationally, including: o unexpected changes in regulatory requirements; o export controls relating to encryption technology and other export restrictions; o tariffs and other trade barriers; o difficulties in staffing and managing foreign operations; o political and economic instability; o fluctuations in currency exchange rates; o reduced protection for intellectual property rights in some countries; o cultural barriers; 30o seasonal reductions in business activity during the summer months in Europe and certain other parts of the world; and o potentially adverse tax consequences. Our international sales growth will be limited if we are unable to establish additional foreign operations, expand international sales channel management and support, hire additional personnel, customize products for local markets and develop relationships with international service providers, distributors and system integrators. Even if we are able to successfully expand our international operations, we may not succeed in maintaining or expanding international market demand for our products. Our products are especially susceptible to product defects because they are complex. Sophisticated software products, like those sold by us, may contain undetected errors that will not become apparent until after the products are introduced or when the volume of provided services increases. It is possible that, despite testing by us and our prospective customers, errors will be found in our products. Product defects could result in all or any of the following consequences to our business: o loss of revenues; o delay in market acceptance; o diversion of development resources; o damage to our reputation; or o increased service and warranty costs. Because a significant portion of our sales activity occurs at the end of each fiscal quarter, delays in a relatively small number of license transactions could adversely affect our operating results for the quarter. Like most software companies, a significant proportion of our sales are concentrated near the end of each fiscal quarter. Gross margins are high for our license transactions. Customers and prospective customers are aware of these facts and use these conditions in an attempt to obtain concessions. While we have consistently avoided making concessions that could result in lower margins, the tactic often results in delays in the closing of license transactions. Small delays in a relatively small number of license deals could have a significant impact on our reported operating results for that quarter. Current and potential competitors could make it difficult for us to acquire and retain customers now and in the future. If we fail to compete successfully with current or future competitors, we may lose market share. The market for e-business solutions is rapidly evolving and intensely competitive. Our customers' requirements and the technology available to satisfy those requirements will continually change. We expect competition in this market to persist and increase in the future. Our primary competition currently includes: o in-house development efforts by prospective customers or partners; o other vendors of application software or application development platforms and tools directed at interactive commerce and financial services, such as Allaire, Ariba, Art Technology Group Inc., Blue Martini, CommerceOne, InterWorld Corporation, Open Market, Inc., Oracle, Plumtree, Siebel and Vignette Corporation; o Web content developers that develop custom software or integrate other application software into custom solutions; o International Business Machines Corporation; and o Microsoft Corporation. The principal competitive factors affecting the market for our products are: o Depth and breadth of functionality offered; o Ease of application development; o Availability of knowledgeable developers; o Time required for application development; o Reliance on industry standards; 31o Product reliability; o Proven track record; o Scalability; o Maintainability; o Personalization and other features; o Product quality; o Price; and o Customer support. Compared to us, many of these and other current and future competitors have longer operating histories and significantly greater financial, technical, marketing and other resources. As a result, they may be able to respond more quickly to new or changing opportunities, technologies and customer requirements. Many of these companies also can use their greater name recognition and more extensive customer base to gain market share at our expense. Competitors may be able to undertake more extensive promotional activities, adopt more aggressive pricing policies and offer more attractive terms to purchasers. Current and potential competitors may bundle their products to discourage users from purchasing our products. In addition, competitors have established or may establish cooperative relationships among themselves or with third parties to enhance their products. Accordingly, it is possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share. Competitive pressures may make it difficult for us to acquire and retain customers and may require us to reduce the price of our products. We may be unable to compete successfully with current or new competitors. Our success and competitive position will depend on our ability to protect our proprietary technology. Our success and ability to compete are dependent to a significant degree on our proprietary technology. Although we hold a U.S patent, issued in January 1998, on elements of the BroadVision One-To-One Enterprise product, this patent may not provide an adequate level of intellectual property protection. In addition, litigation like the lawsuit we filed against Art Technology Group, which was settled in February 2000, may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity. We cannot guarantee that infringement or other claims will not be asserted or prosecuted against us in the future, whether resulting from our intellectual property or licenses from third parties. Claims or litigation, whether successful or unsuccessful, could result in substantial costs and diversions of resources, either of which could harm our business. We also rely on copyright, trademark, service mark, trade secret laws and contractual restrictions to protect our proprietary rights in products and services. We have registered "BroadVision" and "BroadVision One-To-One" as trademarks in the United States and in other countries. It is possible that our competitors or other companies will adopt product names similar to these trademarks, impeding our ability to build brand identity and possibly confusing customers. As a matter of company policy, we enter into confidentiality and assignment agreements with our employees, consultants and vendors. We also control access to and distribution of our software, documents and other proprietary information. Notwithstanding these precautions, it may be possible for an unauthorized third party to copy or otherwise obtain and use our software or other proprietary information or to develop similar software independently. Policing unauthorized use of our products will be difficult, particularly because the global nature of the Internet makes it difficult to control the ultimate destination or security of software and other transmitted data. The laws of other countries may afford us little or no effective protection of our intellectual property. A breach of the encryption technology that we use could expose the company to liability and harm our reputation, causing a loss of customers. If any breach of the security technology embedded in our products were to occur, we would be exposed to liability and our reputation could be harmed, which could cause us to lose customers. A significant barrier to online commerce and communication is the secure exchange of valuable and confidential information over public networks. We rely on encryption and authentication technology, including public key cryptography technology licensed from RSA Security Inc., to provide the security and authentication necessary to effect the secure exchange of confidential information. Advances in computer capabilities, new discoveries in the field of cryptography or other events or developments could cause a breach of the RSA or other algorithms that we use to protect customer transaction data. We could be subject to claims of intellectual property infringement, which could divert management resources, cause product delays or require that we enter into licensing or royalty agreements. Third parties may claim that we have infringed their patent, trademark, copyright or other proprietary rights. It is also possible that claims will be made for indemnification resulting from allegations of infringement. In addition, intellectual property infringement claims may be asserted against us as a result of the use by us, our customers or other third parties of our products for the transmission, dissemination or display of information on the Internet. Any claims, with or without 32merit, could be time consuming, costly, cause product shipment delays or require that we enter into royalty or licensing agreements. These licenses might not be available on reasonable terms, or at all. The loss or malfunction of technology licensed from third parties could delay the introduction of our products and services. We rely in part on technology that we license from third parties, including relational database management systems from Oracle, Sybase, and Informix object request broker software from IONA Technologies PLC, database access technology from Rogue Wave Software Inc. and other software. We integrate or sublicense this technology with internally developed software to perform key functions. For example, our products and services incorporate data encryption and authentication technology licensed from RSA. Third-party technology licenses might not continue to be available to us on commercially reasonable terms, or at all. Moreover, the licensed technology may contain defects that we cannot control. The loss of any of these technology licenses could cause delays in introducing our products or services until equivalent technology, if available, is identified, licensed and integrated. Delays in introducing our products and services could harm our business. Our executive officers, key employees and highly skilled technical and managerial personnel are critical to our business, and they may not remain with us in the future. Our performance substantially depends on the performance of our executive officers and key employees. We also rely on our ability to retain and motivate qualified personnel, especially our management and highly skilled development teams. The loss of the services of any of our executive officers or key employees, particularly our founder and Chief Executive Officer, Dr. Pehong Chen, could cause us to incur increased operating expenses and divert senior management resources in searching for replacements. The loss of their services also could harm our reputation if our customers were to become concerned about our future operations. We do not carry "key person" life insurance policies on any of our employees. Our future success also depends on our continuing ability to identify, hire, train and retain other highly qualified technical and managerial personnel. Competition for these personnel is intense, especially in the Internet industry. We have in the past experienced, and may continue to experience, difficulty in hiring and retaining sufficient numbers of highly skilled employees. If we are unable to meet the rapid technological changes in online commerce and communication, our products and services may fail to be competitive. Our products and services may fail to be competitive if we do not maintain or exceed the pace of technological developments in Internet commerce and communication. The information services, software and communications industries are characterized by rapid technological change, changes in customer requirements, frequent new product and service introductions and enhancements and evolving industry standards and practices. The introduction of products and services embodying new technologies and the emergence of new industry standards and practices can render existing products and services obsolete. Our future success will depend, in part, on our ability to: o develop leading technologies; o enhance our existing products and services; o develop new products and services that address the increasingly sophisticated and varied needs of our prospective customers; and o respond to technological advances and emerging industry standards and practices on a timely and cost-effective basis. Internet commerce technology is complex and new products and enhancements can require long development periods. If we are unable to develop and introduce new products and services or enhancements in a timely manner in response to changing market conditions or customer requirements, or if new products and services do not achieve market acceptance, our business may fail to be competitive. Limitations on the online collection of profile information could impair the effectiveness of our products. Online users' resistance to providing personal data and laws and regulations prohibiting use of personal data gathered online without express consent or requiring businesses to notify their Web site visitors of the possible dissemination of their personal data could limit the effectiveness of our products. 33One of the principal features of the BroadVision One-To-One application products is the ability to develop and maintain profiles of online users to assist business managers in determining the nature of the content to be provided to these online users. Typically, profile information is captured when consumers, business customers and employees visit a Web site and volunteer information in response to survey questions concerning their backgrounds, interests and preferences. Profiles can be augmented over time through the subsequent collection of usage data. Although BroadVision One-To-One products are designed to enable the development of applications that permit Web site visitors to prevent the distribution of any of their personal data beyond that specific Web site, privacy concerns may nevertheless cause visitors to resist providing the personal data necessary to support this profiling capability. The mere perception by prospective customers that substantial security and privacy concerns exist among online users, whether or not valid, may indirectly inhibit market acceptance of our products. In addition, new laws and regulations could heighten privacy concerns by requiring businesses to notify Web site users that the data captured from them while online may be used by marketing entities to direct product messages to them. We are subject to increasing regulation at the federal and state levels relating to online privacy and the use of personal user information. Several states have proposed legislation that would limit the uses of personal user information gathered online or require online services to establish privacy policies. In addition, bills pending in Congress would extend online privacy protections to adults. Laws and regulations of this kind may include requirements that we establish procedures to disclose and notify users of privacy and security policies, obtain consent from users for collection and use of information, or provide users with the ability to access, correct and delete personal information stored by us. Even in the absence of those regulations, the Federal Trade Commission has settled several proceedings resulting in consent decrees in which Internet companies have been required to establish programs regarding the manner in which personal information is collected from users and provided to third parties. We could become a party to a similar enforcement proceeding. These regulatory and enforcement efforts could also harm our customers' ability to collect demographic and personal information from users, which could impair the effectiveness of our BroadVision One-to-One application products. New and existing laws could either directly restrict our business or indirectly affect our business by limiting the growth of Internet commerce. The adoption of any laws or regulations that restrict our methods of doing business or limit the growth of the Internet could decrease demand for our products and services and increase our cost of doing business. Today, there are relatively few laws specifically directed towards online services. However, due to the increasing popularity of the Internet generally and Internet commerce specifically, we expect that federal, state or foreign agencies will enact laws and regulations with respect to the Internet. These new laws and regulations would be likely to address issues like online user privacy, pricing, content and quality of products and services. If enacted, these laws and regulations could limit the market for our products and services. For example, because our products involve the solicitation of personal data regarding individual consumers, our business could be limited by laws regulating the solicitation, collection or processing of this data. The Telecommunications Act of 1996 prohibits the transmission of some types of information and content over the Internet. The prohibition's scope and the liability associated with a Telecommunications Act violation are currently unsettled. Legislation imposing potential liability upon us for information carried on or disseminated through our products would likely cause us to implement costly measures to reduce our exposure to this liability or to discontinue some of our services. Our business could be harmed by the expense involved in reacting to actual or potential liability associated with the Telecommunications Act or other Internet-related laws and regulations. In addition, the increased attention focused upon liability issues as a result of the Telecommunications Act could limit the growth of Internet commerce, which could decrease demand for our products. The United States government regulates the export of technology, including encryption technology, which our products incorporate. Export regulations, either in their current form or as may be subsequently enacted, may limit our ability to distribute our software outside the United States. Any revocation or modification of our export authority or adoption of new laws or regulations relating to the export of software and encryption technology could limit our international operations. The unlawful export of our software could also harm our reputation. Although we take precautions against unlawful export of their software, the global nature of the Internet makes it difficult to effectively control the distribution of software. 34The imposition of sales and other taxes on products sold by our customers over the Internet could have a negative effect on online commerce and, as a result, on demand for our products. The imposition of new sales or other taxes could limit the growth of Internet commerce generally and, as a result, the demand for our products. Recent federal legislation limits the imposition of state and local taxes on Internet-related sales. In 1998, Congress passed the Internet Tax Freedom Act, which places a three-year moratorium on state and local taxes on: o Internet access, unless the tax was already imposed prior to October 1, 1998; and o discriminatory taxes on electronic commerce. There is a possibility that Congress may not renew this legislation in 2001. If Congress chooses not to renew this legislation, state and local governments would be free to impose taxes on electronically purchased goods. We believe that, in accordance with current industry practice, most companies that sell products over the Internet do not currently collect sales or other taxes on shipments of their products into states or foreign countries where they are not physically present. However, one or more states or foreign countries may seek to impose sales or other tax collection obligation on out-of-jurisdiction companies that engage in electronic commerce. A successful assertion by one or more states or foreign countries that companies engaged in electronic commerce should collect sales or other taxes on the sale of their products over the Internet, even though not physically present in the state or foreign country, could indirectly reduce demand for our products. Our stock price has been and is likely to continue to be highly volatile. The trading price of our common stock has been and is likely to continue to be highly volatile. Our stock price is subject to wide fluctuations in response to a variety of factors, including: o quarterly variations in operating results; o announcements of technological innovations; o announcements of new software or services by us or our competitors; o changes in financial estimates by securities analysts; or o other events or factors that are beyond our control. In addition, the stock market has experienced significant price and volume fluctuations that have particularly affected the trading prices of equity securities of many high technology companies. These fluctuations have often been unrelated or disproportionate to the operating performance of these companies. Any negative change in the public's perception of the prospects of Internet or electronic commerce companies could depress our stock price regardless of our results. Other broad market fluctuations may decrease the trading price of our common stock. In the past, following declines in the market price of a company's securities, securities class action litigation has often been instituted against that company. Litigation could result in substantial costs and a diversion of management's attention and resources. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio. We had no derivative financial instruments as of December 31, 2000 and 1999. We place our investments in instruments that meet high credit quality standards and the amount of credit exposure to any one issue, issuer and type of instrument is limited. We do not expect any material loss with respect to our investment portfolio. Our financial instrument holdings as of December 31, 2000 were analyzed to determine their sensitivity to interest rate changes. In our sensitivity analysis, we assumed an adverse change in interest rates of 500 basis points and the expected effect on net income was insignificant. 35Cash and Cash Equivalents We consider all debt securities with remaining maturities of three months or less at the date of purchase to be cash equivalents. Our cash and cash equivalents consisted of the following (in thousands): December 31, --------------------- 2000 1999 -------- -------- Cash $ 43,253 $ 16,945 Money market funds.............. 94,011 125,807 Corporate notes/bonds........... 2,937 - Government notes/bonds.......... 10,412 - Commercial paper................ 2,524 137,071 -------- -------- $153,137 $279,823 ======== ======== Short-term Investments Our short-term investments consist of marketable equity and debt securities that are classified as available-for-sale. Our investment in marketable equity securities is carried at fair value with related unrealized gains or losses reported as other comprehensive income, net of tax. As of December 31, 2000, our investment in marketable equity securities had a fair value of $3.1 million and a cost basis of $5.0 million. Our debt securities are carried at fair value. As of December 31, 2000, commercial paper investments consisted of $11.0 million, corporate notes/bonds of $16.9 million and government bonds/notes of $38.4 million. Short-term investments, excluding marketable equity securities, had a weighted average remaining maturity as of December 31, 2000 of approximately three months. Total short-term investment unrealized losses, net, were $26.0 million, net of tax, for the year ended December 31, 2000. Total realized gains during fiscal 2000 were $3.6 million and are included in other income in the accompanying statement of operations. Concentrations of Credit Risk Financial assets that potentially subject us to significant concentrations of credit risk consist principally of cash, cash equivalents, short-term investments, and trade accounts receivable. We maintain our cash and cash equivalents and short-term investments with over ten separate financial institutions. We market and sell our products throughout the world and perform ongoing credit evaluations of our customers. We generally do not require collateral on accounts receivable as the majority of our customers are large, well-established companies. We maintain reserves for potential credit losses but historically have not experienced any significant losses related to individual customers or groups of customers in any particular industry or geographic area. For the year ended December 31, 2000 no one customer accounted for more than 10% of fiscal year 2000 total revenue. As of December 31, 2000, two customers individually accounted for more than 10% of our accounts receivable. These customers accounted for 10% and 11% of accounts receivable, respectively. Fair Value of Financial Instruments Our financial instruments consist of cash equivalents, short-term investments, accounts receivable, accounts payable and debt. We do not have any derivative financial instruments. We believe the reported carrying amounts of our financial instruments approximates fair value, based upon the short maturity of cash equivalents, short-term investments, accounts receivable and payable, and based on the current rates available to us on similar debt issues. Long-term Investments Included in the our long-term investments are investments in debt securities that are classified as available-for-sale. These securities have remaining maturities greater than one year from December 31, 2000. These investments are carried at fair value with related unrealized gains or losses reported as other comprehensive income, net of tax. As of December 31, 2000, our long-term investments in debt securities had a fair value of $34.3 million in corporate bonds/notes and $44.6 million in government bonds/notes. The remaining weighted average days to maturity as of December 31, 2000 was approximately twenty three months. Also included in our long-term investments are equity investments in public and non-public companies that are accounted for under either the cost method of accounting or the equity method of accounting. Equity investments are accounted for under the cost method of accounting when we have a minority interest and do not have the ability to exercise significant influence. These investments are classified as available for sale and are carried at fair 36value when readily determinable market values exist or at cost when such market values do not exist. Adjustments to fair value are recorded as a component of other comprehensive income unless the investments are considered permanently impaired in which case the adjustment is recorded as a component of other income (expense), net in the consolidated statement of operations. Equity investments are accounted for under the equity method of accounting when we have a minority interest and have the ability to exercise significant influence. These investments are classified as available for sale and are carried at cost with periodic adjustments to carrying value for our equity in net income (loss) of the equity investee. Such adjustments are recorded as a component of other income, net. Any decline in value of our investments, which is other than a temporary decline, is charged to earnings during the period in which the impairment occurs. The total fair value of our cost method long-term equity investments in public and non-public companies was $19.4 million with a cost basis of $27.3 million. This includes a $750,000 write down of an investment due to an other than temporary decline in fair value. There was also an additional $250,000 write down of an investment due to an other than temporary decline in fair value. The total unrealized loss, net, during the year ended December 31, 2000 in our cost method long-term investments was $4.3 million, net of tax. The total fair value of our equity method long-term investment was $4.4 million as of December 31, 2000. This includes $600,000 of equity in net losses realized during the twelve months ended December 31, 2000. The equity in net losses realized is recorded as a component of other income, net in the accompanying statement of operations. 37ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors and Stockholders of BroadVision, Inc.: We have audited the accompanying consolidated balance sheets of BroadVision, Inc. (a Delaware corporation) and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of BroadVision, Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. Arthur Andersen LLP San Jose, California March 30, 2001 38REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors and Stockholders of BroadVision, Inc.: We have audited the accompanying consolidated statements of operations, stockholders' equity, and cash flows of BroadVision, Inc. and subsidiaries for the year ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of BroadVision, Inc. and subsidiaries for the year ended December 31, 1998, in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP Mountain View, California January 26, 1999, except as to the section of Note 1 entitled "Stock Splits," which is as of March 13, 2000 39BROADVISION, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except per share amounts)
December 31, ------------------------------- 2000 1999 -------------- --------------ASSETS Current assets: Cash and cash equivalents $ 153,137 $ 279,823 Short-term investments 69,397 68,758 Accounts receivable, less allowance for doubtful accounts of $4,015 and $1,446 as of December 31, 2000 and 1999, respectively 104,811 26,540 Prepaids and other 17,417 5,085 -------------- -------------- Total current assets 344,762 380,206 Property and equipment, net 76,685 16,751 Deferred tax asset 5,579 -- Long-term investments 102,555 4,414 Goodwill and other intangibles, net 607,501 -- Other assets 5,942 4,757 -------------- -------------- Total assets $ 1,143,024 $ 406,128 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt and capital lease obligations $ 977 $ 1,247 Accounts payable 15,711 5,754 Accrued expenses 53,676 13,156 Unearned revenue 16,330 3,896 Deferred maintenance 42,237 15,228 Deferred income taxes -- 16,769 -------------- -------------- Total current liabilities 128,931 56,050 Long-term debt, net of current portion 3,897 4,890 Other noncurrent liabilities 898 -- -------------- -------------- Total liabilities 133,726 60,940 -------------- -------------- Commitments (Note 7) Stockholders' equity: Convertible preferred stock, $0.0001 par value; 10,000 shares authorized; none issued and outstanding -- -- Common stock, $0.0001 par value; 2,000,000 shares authorized; 270,066 and 244,812 shares issued and outstanding as of December 31, 2000 and 1999, respectively 27 24 Additional paid-in capital 1,176,042 320,259 Deferred compensation -- (226) Accumulated other comprehensive (loss) income (4,348) 25,925 Accumulated deficit (162,423) (794) -------------- -------------- Total stockholders' equity 1,009,298 345,188 -------------- -------------- Total liabilities and stockholders' equity $ 1,143,024 $ 406,128 ============== ==============The accompanying notes are an integral part of these consolidated financial statements 40BROADVISION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts)
Years Ended December 31, ----------------------------------- 2000 1999 1998 --------- --------- ---------Revenues: Software licenses $ 250,838 $ 75,383 $ 36,067 Services 163,078 40,131 14,844 --------- --------- --------- Total revenues 413,916 115,514 50,911 Cost of revenues: Cost of software licenses 7,827 3,703 1,001 Cost of services 117,808 25,108 8,704 --------- --------- --------- Total cost of revenues 125,635 28,811 9,705 --------- --------- --------- Gross profit 288,281 86,703 41,206 Operating expenses: Research and development 51,621 14,568 9,227 Sales and marketing 167,415 48,903 26,269 General and administrative 28,195 7,970 3,786 Goodwill and intangible amortization 187,748 -- -- Charge for acquired in-process technology 10,100 -- -- --------- --------- --------- Total operating expenses 445,079 71,441 39,282 --------- --------- --------- Operating (loss) income (156,798) 15,262 1,924 Interest income 16,706 5,142 2,484 Other income (expense), net 1,511 (599) (448) --------- --------- --------- (Loss) income before income taxes (138,581) 19,805 3,960 Income tax provision (benefit) 23,048 996 (79) --------- --------- --------- Net (loss) income $(161,629) $ 18,809 $ 4,039 ========= ========= ========= Basic (loss) earnings per share $ (0.62) $ 0.08 $ 0.02 ========= ========= ========= Diluted (loss) earnings per share $ (0.62) $ 0.07 $ 0.02 ========= ========= ========= Shares used in computing basic earnings (loss) per share 259,780 229,128 210,114 ========= ========= ========= Shares used in computing diluted earnings (loss) per share 259,780 260,712 230,877 ========= ========= =========The accompanying notes are an integral part of these consolidated financial statements 41BROADVISION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands)
Common Stock Additional -------------------------- Paid-in Shares Amount Capital ----------- ----------- -----------Balances as of December 31, 1997 183,087 $ 18 $ 40,350 Comprehensive income: Net income Unrealized gain on equity securities Total comprehensive income Issuance of common stock from public offering, net of costs 31,104 3 53,742 Issuance of common stock for long-term investments 1,107 -- 1,322 Issuance of common stock from exercise of warrants 261 -- -- Issuance of common stock under employee stock 2,052 -- 1,599 purchase plan Issuance of common stock from exercise of options 5,697 -- 2,190 Common stock repurchased (144) -- (2) Deferred compensation forfeited due to voluntary terminations -- -- (693) Deferred compensation on stock options -- -- 240 Amortization of deferred compensation -- -- -- ----------- ----------- ----------- Balances as of December 31, 1998 223,164 21 98,748 Comprehensive income: Net income Unrealized gain on equity securities, net of $17,318 tax Total comprehensive income Issuance of common stock under employee stock 1,833 -- 3,928 purchase plan Issuance of common stock from exercise of options 10,038 -- 7,201 Issuance of common stock from public offering, net of offering costs of $2,285 9,315 3 210,376 Issuance of common stock from exercise of warrants 462 -- 6 Amortization of deferred compensation -- -- -- ----------- ----------- ----------- Balances as of December 31, 1999 244,812 $ 24 $ 320,259 =========== =========== =========== Comprehensive loss: Net loss Unrealized loss on equity securities, net of $20,069 tax Total comprehensive loss Issuance of common stock under employee stock 1,088 -- 12,155 purchase plan Issuance of common stock from exercise of 9,692 1 49,561 options, including tax benefits of $22,841 Issuance of common stock in connection with Interleaf acquisition 14,392 2 789,603 Issuance of warrants for common stock -- -- 1,459 Long-term investment in exchange for common stock 77 -- 3,000 Issuance of common stock from exercise of warrants 5 -- 5 Amortization of deferred compensation -- -- -- ----------- ----------- ----------- Balances as of December 31, 2000 270,066 $ 27 $ 1,176,042 =========== =========== ===========Accumulated Other Total Deferred Comprehensive Accumulated Comprehensive Stockholders Compensation Income (loss) Deficit Income (loss) Equity ------------ ------------- ----------- ------------- ------------Balances as of December 31, 1997 $ (1,605) $ -- $ (23,642) $ 15,121 Comprehensive income: Net income 4,039 $ 4,039 4,039 Unrealized gain on equity securities 3,198 3,198 3,198 ----------- Total comprehensive income $ 7,237 =========== Issuance of common stock from public offering, net of costs -- -- -- 53,745 Issuance of common stock for long-term investments -- -- -- 1,322 Issuance of common stock from exercise of warrants -- -- -- -- Issuance of common stock under employee stock -- -- -- 1,599 purchase plan Issuance of common stock from exercise of options -- -- -- 2,190 Common stock repurchased -- -- -- (2) Deferred compensation forfeited due to voluntary terminations 693 -- -- -- Deferred compensation on stock options (240) -- -- -- Amortization of deferred compensation 597 -- -- 597 ----------- ------------ ----------- ----------- Balances as of December 31, 1998 (555) 3,198 (19,603) 81,809 Comprehensive income: Net income 18,809 $ 18,809 18,809 Unrealized gain on equity securities, net of 22,727 22,727 22,727 $17,318 tax ----------- Total comprehensive income $ 41,536 =========== Issuance of common stock under employee stock -- -- -- 3,928 purchase plan Issuance of common stock from exercise of options -- -- -- 7,201 Issuance of common stock from public offering, net of offering costs of $2,285 -- -- -- 210,379 Issuance of common stock from exercise of warrants -- -- -- 6 Amortization of deferred compensation 329 -- -- 329 ----------- ------------ ----------- ----------- Balances as of December 31, 1999 $ (226) $ 25,925 $ (794) $ 345,188 =========== ============ =========== =========== Comprehensive loss: Net loss (161,629) $ (161,629) (161,629) Unrealized loss on equity securities, net of (30,273) (30,273) (30,273) $20,069 tax ----------- Total comprehensive loss $ (191,902) =========== Issuance of common stock under employee stock -- -- -- 12,155 purchase plan Issuance of common stock from exercise of -- -- -- 49,562 options, including tax benefits of $22,841 Issuance of common stock in connection with Interface acquisition -- -- -- 789,605 Issuance of warrants for common stock 1,459 Long-term investment in exchange for common stock 3,000 Issuance of common stock from exercise of warrants -- -- -- 5 Amortization of deferred compensation 226 -- -- 226 ----------- ------------ ----------- ----------- Balances as of December 31, 2000 $ -- $ (4,348) $ (162,423) $ 1,009,298 =========== ============ =========== ===========The accompanying notes are an integral part of these consolidated financial statements 42BROADVISION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Years Ended December 31, ----------------------------------- 2000 1999 1998 --------- --------- ---------Cash flows from operating activities: Net income (loss) $(161,629) $ 18,809 $ 4,039 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 10,477 4,739 2,947 Amortization of deferred compensation 226 329 597 Provision for doubtful accounts 2,687 758 458 Revenue resulting from non-monetary transactions -- -- (2,917) Amortization of prepaid royalties 1,914 333 250 Amortization of prepaid compensation 1,961 182 -- Realized loss on cost method long-term investments 1,000 -- -- Equity in net loss from unconsolidated subsidiary 572 -- -- Amortization of goodwill and other intangibles 187,748 -- -- Charge for acquired in-process technology 10,100 -- -- Changes in operating assets and liabilities, net of effects from acquired business: Income tax benefit from stock option exercises 22,841 -- -- Accounts receivable (68,876) (11,368) (7,036) Prepaid expenses and other (12,693) (403) (2,716) Deferred tax asset (5,579) -- -- Accounts payable and accrued expenses 39,262 11,602 3,145 Unearned revenue and deferred maintenance 28,165 10,930 2,633 Increase in other noncurrent assets (2,842) (2,565) (237) --------- --------- --------- Net cash provided by operating Activities 55,334 33,346 1,163 --------- --------- --------- Cash flows from investing activities: Purchase of property and equipment (67,515) (13,291) (4,198) Purchase of long-term investments (106,864) (1,414) (3,000) Maturity of long-term investments 2,952 -- -- Direct costs of acquisition, net of cash acquired (6,039) (3,765) -- Purchase of short-term investments (261,046) (72,783) -- Maturity of short-term investments 217,642 52,667 796 --------- --------- --------- Net cash used for investing activities (220,870) (38,586) (6,402) --------- --------- --------- Cash flows from financing activities: Net change in restricted cash -- -- 1,400 Proceeds from borrowings -- 3,000 1,424 Repayments of borrowings (1,220) (620) (603) Payments on capital lease obligations (270) (709) (913) Proceeds from issuance of warrants for common stock 1,459 -- -- Proceeds from issuance of common stock, net 38,881 221,514 57,532 --------- --------- --------- Net cash provided by financing activities 38,850 223,185 58,840 --------- --------- --------- Net increase (decrease) in cash and cash equivalents (126,686) 217,945 53,601 Cash and cash equivalents, beginning of period 279,823 61,878 8,277 --------- --------- --------- Cash and cash equivalents, end of period $ 153,137 $ 279,823 $ 61,878 ========= ========= ========= Supplemental cash flow disclosures: Cash paid for interest $ 554 $ 404 $ 394 ========= ========= ========= Cash paid for income taxes $ 1,890 $ 538 $ 428 ========= ========= ========= Non-cash investing and financing activities: Prepaids and other assets acquired through non-monetary Transactions -- -- 1,250 Investments acquired through non-monetary Transactions -- -- 4,025 Unearned revenue and deferred maintenance from non-monetary transactions -- -- 2,358 Equipment acquired under capital leases -- -- 316 Long-term investment acquired in exchange for common Stock 3,000 -- 1,322 Deferred compensation on stock options -- -- 240 Deferred compensation forfeited due to voluntary Terminations -- -- 693 In connection with the acquisition of Interleaf, the following non-cash transaction occurred: Fair value of assets acquired, including cash (822,562) -- -- Liabilities assumed 26,918 -- -- Issuance of common stock 789,605 -- -- --------- Cash paid for acquisition and acquisition costs $ 6,039 -- -- In connection with the acquisition of Fidutec, the following non-cash transaction occurred: Fair value of assets acquired, including cash -- (4,164) -- Liabilities assumed -- 399 -- --------- --------- --------- Cash paid for acquisition and acquisition costs $ -- $ 3,765 $ --The accompanying notes are an integral part of these consolidated financial statements 43BROADVISION, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2000 Note 1 -- Organization and Summary of Significant Accounting Policies Nature of Business BroadVision, Inc. (collectively with its subsidiaries, the "Company") was incorporated in the state of Delaware on May 13, 1993. The Company develops and sells an integrated suite of packaged applications for conducting e-business interactions, transactions and services. Global enterprises and government entities use these applications to sell, buy, and exchange goods, services, and information over the Web and on wireless devices. The BroadVision e-business application suite enables an entity to establish and sustain high-yield relationships with customers, suppliers, partners, distributors, employees, and other constituents in the extended enterprise. BroadVision services, supported by over 190 partner organizations worldwide, transform these applications into business value for BroadVision's customers through consulting, education, and support services in more than 34 countries. Acquisition On April 14, 2000, the Company completed its acquisition of Interleaf, Inc. and its subsidiaries ("Interleaf") pursuant to a statutory merger involving a stock-for-stock exchange. The acquisition was accounted for as a purchase. The acquired assets and assumed liabilities, and the related results of operations, are included in the consolidated financial statements of the Company from the date of acquisition. Net assets were recorded at fair value at the acquisition date. The excess of the purchase price over the fair value of net assets acquired is included in goodwill and other intangible assets in the accompanying consolidated balance sheet. Amounts allocated to in-process technology were expensed in the period in which the acquisition was consummated; see Note 2. Basis of Presentation and Use of Estimates The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain assumptions and estimates that affect reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from estimates. Revenue Recognition The Company's revenue recognition policies are in accordance with Statement of Position ("SOP") 97-2, Software Revenue Recognition, as amended and SOP 98-9, Software Revenue Recognition, With Respect to Certain Transactions. In general, software license revenues are recognized when a non-cancelable license agreement has been signed and the customer acknowledges an unconditional obligation to pay, the software product has been delivered, there are no uncertainties surrounding product acceptance, the fees are fixed and determinable, and collection is considered probable; professional services revenues are recognized as such services are performed; and maintenance revenues or post-contract support ("PCS"), including revenues bundled with software agreements which entitle the customers to technical support and future unspecified enhancements to the Company's products, are deferred and recognized ratably over the related contract period, generally twelve months. Revenues recognized from multiple-element software arrangements are allocated to each element of the arrangement based on the fair values of the elements, such as software products, post contract customer support, installation, or training. The determination of fair value is based on objective evidence which is specific to the Company. If evidence of fair value does not exist for all elements of a license agreement and PCS is the only undelivered element, then all revenue for the license arrangement is recognized ratably over the term of the agreement as license revenue. If evidence of fair value of all undelivered elements exists but evidence does not exist for one or more delivered elements, then revenue is recognized using the residual method. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue. The Company records unearned revenue for software arrangements when cash has been received from the customer and the arrangement does not qualify for revenue recognition under the Company's revenue recognition policy. The Company records accounts receivable for software arrangements when the arrangement qualifies for revenue recognition and cash or other consideration has not been received from the customer. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), REVENUE RECOGNITION IN FINANCIAL STATEMENTS, which provides guidance on the recognition presentation and disclosure of revenue in financial statements filed with the SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. The Company adopted SAB 101 during the fourth quarter of 2000, as required. There was no material effect on the Company's financial position, results of operations, or cash flows. Cost of software licenses includes the costs of product media, duplication, packaging and other manufacturing costs as well as royalties payable to third parties for software that is either embedded in, or bundled and sold with, the Company's products. Cost of services consists primarily of employee-related costs, third-party consultant fees incurred on consulting projects, PCS and instructional training services. 44Research and Development and Software Development Costs Under the criteria set forth in Statement of Financial Accounting Standards ("SFAS") No. 86, Accounting for the Cost of Computer Software to be Sold, Leased or Otherwise Marketed, development costs incurred in the research and development of new software products are expensed as incurred until technological feasibility in the form of a working model has been established at which time such costs are capitalized, subject to recoverability. Products are made available for limited release, concurrent with the achievement of technological feasibility. Accordingly, software development costs incurred subsequent to the establishment of technological feasibility have not been significant, and the Company has not capitalized any software development costs to date. Advertising Costs Advertising costs are expensed as incurred. Advertising expense is included in sales and marketing expense and amounted to $2.9 million, $1.8 million and $47,000 in 2000, 1999 and 1998, respectively. Prepaid Royalties Prepaid royalties relating to purchased software to be incorporated and sold with the Company's software products are amortized as a cost of software licenses either on a straight-line basis over the remaining term of the royalty agreement or on the basis of projected product revenues, whichever results in greater amortization. Cash and Cash Equivalents The Company considers all debt securities with remaining maturities of three months or less at the date of purchase to be cash equivalents. The Company's cash equivalents consisted of the following (in thousands): December 31, --------------------- 2000 1999 -------- -------- Cash $ 43,253 $ 16,945 Money market funds.............. 94,011 125,807 Corporate notes/bonds........... 2,937 - Government notes/bonds.......... 10,412 - Commercial paper................ 2,524 137,071 -------- -------- $153,137 $279,823 ======== ======== Short-term Investments The Company's short-term investments consist of marketable equity and debt securities that are classified as available-for-sale. The Company's investment in marketable equity securities is carried at fair value with related unrealized gains or losses reported as other comprehensive income, net of tax. As of December 31, 2000, the Company's investment in marketable equity securities had a fair value of $3.1 million and a cost basis of $5.0 million. The Company's debt securities are carried at fair value. As of December 31, 2000, commercial paper investments consisted of $11.0 million, corporate notes/bonds of $16.9 million and government bonds/notes of $38.4 million. Short-term investments, excluding marketable equity securities, had a weighted average remaining maturity as of December 31, 2000 of approximately three months. Total short-term investment unrealized losses, net, were $26.0 million, net of tax, for the year ended December 31, 2000. Total realized gains during fiscal 2000 were $3.6 million, and are included in other income in the accompanying statement of operations. Concentrations of Credit Risk Financial assets that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents, short-term investments, and trade accounts receivable. The Company maintains its cash and cash equivalents and short-term investments with over ten separate financial institutions. The Company markets and sells its products throughout the world and performs ongoing credit evaluations of its customers. The Company generally does not require collateral on accounts receivable as the majority of its customers are large, well-established companies. The Company maintains reserves for potential credit losses but historically has not experienced any significant losses related to individual customers or groups of customers in any particular industry or geographic area. For the years ended December 31, 2000, 1999 and 1998, no one customer accounted for more than 10% of fiscal year total revenues. As of December 31, 2000, two customers individually accounted for more than 10% of the Company's accounts receivable. These customers accounted for 10% and 11% of accounts receivable, respectively. No one customer accounted for more than 10% of the Company's accounts receivable as of December 31, 1999. 45Fair Value of Financial Instruments The Company's financial instruments consist of cash equivalents, short-term investments, accounts receivable, accounts payable and debt. The Company does not have any derivative financial instruments. The Company believes the reported carrying amounts of its financial instruments approximates fair value, based upon the short maturity of cash equivalents, short-term investments, accounts receivable and payable, and based on the current rates available to the Company on similar debt issues. Long-term Investments Included in the Company's long-term investments are investments in debt securities that are classified as available-for-sale. These securities have remaining maturities greater than one year from December 31, 2000. These investments are carried at fair value with related unrealized gains or losses reported as other comprehensive income, net of tax. As of December 31, 2000, the Company's long-term investments in debt securities had a fair value of $34.3 million in corporate bonds/notes and $44.6 million in government bonds/notes. The remaining weighted average days to maturity as of December 31, 2000 was approximately twenty three months. Also included in the Company's long-term investments are equity investments in public and non-public companies that are accounted for under either the cost method of accounting or the equity method of accounting. Equity investments are accounted for under the cost method of accounting when the Company has a minority interest and does not have the ability to exercise significant influence. These investments are classified as available for sale and are carried at fair value when readily determinable market values exist or at cost when such market values do not exist. Adjustments to fair value are recorded as a component of other comprehensive income unless the investments are considered permanently impaired in which case the adjustment is recorded as a component of other income (expense), net in the consolidated statement of operations. Equity investments are accounted for under the equity method of accounting when the Company has a minority interest and has the ability to exercise significant influence. These investments are classified as available for sale and are carried at cost with periodic adjustments to carrying value for the Company's equity in net income (loss) of the equity investee. Such adjustments are recorded as a component of other income, net. Any decline in value of the Company's investments, which is other than a temporary decline, is charged to earnings during the period in which the impairment occurs. The total fair value of the Company's cost method long-term equity investments in public and non-public companies was $19.4 million with a cost basis of $27.3 million. This includes a $750,000 write down of an investment due to an other than temporary decline in fair value. There was also an additional $250,000 write down of an investment due to an other than temporary decline in fair value. The total unrealized loss, net, during the year ended December 31, 2000 in the Company's cost method long-term investments was $4.3 million, net of tax. The total fair value of the Company's equity method long-term investment was $4.4 million as of December 31, 2000. This includes approximately $600,000 of equity in net losses realized during the twelve months ended December 31, 2000. The equity in net losses realized is recorded as a component of other income, net in the accompanying statement of operations. Property and Equipment Property and equipment are stated at cost and depreciated on a straight-line basis over their estimated useful lives (two to eight years). Leasehold improvements are amortized over the corresponding lease term or their estimated useful lives, whichever is shorter. Valuation of Long-Lived Assets In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", the Company periodically evaluates the carrying value of long-lived assets and certain identifiable intangibles for impairment, when events and circumstances indicate that the book value of an asset may not be recoverable. Recoverability of assets is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property and equipment exceeds its fair market value. No SFAS No. 121 impairment losses have been identified to date. 46Employee Stock Option and Purchase Plans The Company accounts for employee stock-based awards in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. As such, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. Pursuant to SFAS No. 123, Accounting for Stock-Based Compensation, the Company discloses the pro forma effects of using the fair value method of accounting for stock-based compensation arrangements. Stock Splits On September 29, 1999, the Company's Board of Directors declared a three-for-one common stock split in the form of a stock dividend for Stockholders of record as of October 11, 1999. The stock dividend payment date was October 25, 1999 and the Company's common stock traded ex-dividend starting October 26, 1999, reflecting the three-for-one stock split. On February 8, 2000, the Company's Board of Directors declared an additional three-for-one common stock split in the form of a stock dividend for Stockholders of record as of February 21, 2000. The stock dividend payment date was March 13, 2000 and the Company's common stock traded ex-dividend starting March 14, 2000, reflecting the additional three-for-one stock split. The accompanying consolidated financial statements and related financial information contained herein have been retroactively restated to give effect for the September 1999 and February 2000 stock splits. Per Share Information Basic earnings (loss) per share is computed using the weighted-average number of shares of common stock outstanding less shares subject to repurchase. Diluted earnings (loss) per share is computed using the weighted-average number of shares of common stock outstanding and, when dilutive, common equivalent shares from outstanding stock options and warrants using the treasury stock method and shares subject to repurchase. The following table sets forth the basic and diluted earnings (loss) per share computational data for the periods presented. Excluded from the computation of diluted earnings per share for the year ended December 31, 2000, are options and warrants to acquire 34,816,000 shares of common stock because their effects would be anti-dilutive.
Years Ended December 31, ---------------------------------- 2000 1999 1998 ----------- -------- -------- (in thousands, except per share amounts)Net income (loss) for basic and Diluted earnings (loss) per share ............. $ (161,629) $ 18,809 $ 4,039 =========== ======== ======== Weighted-average common shares outstanding utilized for basic earnings (loss) per share ..................... 259,780 229,128 210,114 Weighted-average common equivalent shares outstanding: Employee common stock options .............. -- 31,365 20,592 Common stock warrant ....................... -- 219 171 ----------- -------- -------- Total weighted-average common and common equivalent shares outstanding utilized for diluted earnings (loss) per share .................................. 259,780 260,712 230,877 =========== ======== ======== Basic earnings (loss) per share ................. $ (0.62) $ 0.08 $ 0.02 =========== ======== ======== Diluted earnings (loss) per share ............... $ (0.62) $ 0.07 $ 0.02 =========== ======== ========47Foreign Currency Transactions The functional currency of the Company's foreign subsidiaries is the U.S. dollar. Resulting foreign exchange gains and losses are included in the Consolidated Statements of Operations and, to date, have not been significant. Comprehensive Income (Loss) The Company adopted SFAS No. 130, Reporting Comprehensive Income effective January 1, 1998. SFAS No. 130 establishes standards for the reporting and disclosure of comprehensive income (loss) and its components. Comprehensive income (loss) includes all changes in equity during a period except those resulting from investments by or distributions to owners. For the years ended December 31, 2000, 1999 and 1998, comprehensive income (loss) was ($191,902,000), $41,536,000 and $7,237,000, respectively. The components of other comprehensive income (loss) for these periods relate solely to unrealized gains and losses on available-for-sale investments. Reclassifications Certain prior period balances have been reclassified to conform to the current period presentation. Recent Accounting Pronouncements In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 137 and SFAS No. 138, effective for all fiscal quarters of fiscal years beginning after June 15, 2000. Accordingly, the Company will adopt SFAS No. 133 beginning on January 1, 2001. SFAS No. 133, as amended, establishes standards for the accounting and reporting of derivative instruments and hedging activities, including certain derivative instruments embedded in other contracts. Under SFAS No. 133, entities are required to carry all derivative instruments at fair value on their balance sheets. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging activity and the underlying purpose for it. The Company does not believe that the adoption of SFAS No. 133 will have a significant impact on the Company's consolidated financial statements or related disclosures. In March 2000, the FASB issued Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation", an interpretation of Accounting Principles Board, ("APB"), Opinion No. 25. This interpretation provides guidance regarding the application of APB Opinion No. 25 to stock compensation involving employees. This interpretation was effective July 1, 2000 and did not have a material effect on the Company's financial position, results of operations, or cash flows. Note 2 -- Acquired Business: On April 14, 2000, the Company completed its acquisition of Interleaf, Inc. and its subsidiaries ("Interleaf") pursuant to a statutory merger involving a stock-for-stock exchange. Interleaf's software products and related services enable automated electronic business, or e-business, and also enable the extension of e-business to wireless users. Interleaf provides customers with an integrated, easily implemented e-business solution based on extensible Markup Language, or XML, that enables the design, creation and management of XML-based content for transformation and delivery over the Web and related services. As a result of the acquisition, the Company will have the ability to combine technological resources to develop a robust Web-based business solution and reduce time to market for the combined Company's products. Through the acquisition of all of the equity securities of Interleaf, BroadVision acquired all of the assets and assumed liabilities of Interleaf and its existing operations which included in-process technology. Pursuant to the terms of the Agreement and Plan of Merger and Reorganization, dated as of January 26, 2000 (the "Merger Agreement"), each outstanding share of Interleaf common stock was exchanged for 481.0395 shares of Company common stock and all options to purchase shares of Interleaf common stock outstanding immediately prior to the consummation of the Merger were converted into options to purchase shares of Company common stock. The Company issued 14,391,991 shares of Company common stock with a fair market value of $686.9 million and exchanged options to purchase 2,338,342 shares of Company common stock with a fair market value of $102.7 million. The fair market value of the exchanged options to purchase 2,338,342 shares of Company common stock was valued using the Black-Scholes option-pricing model. In connection with the acquisition, the Company incurred transaction costs consisting primarily of financial advisor, legal and accounting professional fees of $14.8 million, severance costs of $1.0 million and office closure costs of $1.3 million, resulting in a total purchase price of $806.7 million. The results of operations of Interleaf have been included with the Company's results of operations since the April 14, 2000 acquisition date. The acquisition was accounted for as a purchase business combination. Under this accounting treatment, the purchase price is allocated to the assets acquired and liabilities assumed based on the estimated fair values on the date of acquisition. The total purchase price paid for the Interleaf acquisition was allocated as follows (in thousands): Property and equipment .................... $ 2,896 Net tangible liabilities assumed, excluding property and equipment .................... (1,041) Identifiable intangible assets ............ 28,910 In-process technology ..................... 10,100 Goodwill .................................. 765,805 --------- Total ................................... $ 806,670 ========= Based upon the Company's estimates prepared in conjunction with a third-party valuation consultant, $10.1 million was allocated to acquired in-process technology and $28.9 million was allocated to intangible assets. The amounts allocated to intangible assets include completed technologies of $20.4 million and assembled workforces of $8.5 million. At December 31, 2000, accumulated amortization related to the goodwill and other intangible assets acquired in the Interleaf acquisition totaled $187.6 million. Goodwill amortization was $180.8 million and other intangible asset amortization was $6.8 million. The goodwill and other intangible assets are being amortized over a three-year period. The Company estimated that $10.1 million of the purchase price for Interleaf represented acquired in-process technology that had not yet reached technological feasibility and had no alternative future use. Accordingly, this amount was immediately charged to expense in the consolidated statements of operations upon consummation of the acquisition. The value assigned to acquired in-process technology was the amounts attributable to the efforts of Interleaf up to the time of acquisition. The amount was estimated through the application of the "stages of completion" by multiplying the estimated present value of future cash flows, excluding, cost of completion, by the percentage of completion of the purchased technology at the time of the acquisition. The discount rate included a factor that took into account the uncertainty surrounding the successful development of the acquired in-process technology. The following summary, prepared on an unaudited pro forma basis, reflects the condensed consolidated results of operations for the twelve-month period ended December 31, 2000 and 1999 assuming Interleaf had been acquired at the beginning of the periods presented (in thousands, except per share data):
For the twelve months ended December 31, -------------------------------------- 2000 1999 -------------------- ----------------Revenue................................. $ 427,579 $ 167,159 Net loss................................ $ (236,519) $ (255,180) Basic and diluted net loss per share.... $ (0.89) $ (1.06)The pro forma results are not necessarily indicative of what would have occurred if the acquisition had been in effect for the periods presented. In addition, they are not intended to be a projection of future results and do not reflect any synergies that might be affected from combined operations. The charges for in-process technology have not been included in the unaudited pro forma results because they are nonrecurring. On November 24, 1999, the Company acquired all of the registered shares of Fidutec Information Technology SA for a cash payment of 6,000,000 Swiss Francs (equivalent U.S. dollar value of $3,765,000, net of cash acquired); of which 1,200,000 Swiss Francs are held in escrow, subject to employee retention conditions lasting 12 to 24 months depending on named employees. The acquisition was accounted for as a purchase. The acquired assets and assumed liabilities, and the related results of operations, are included in the consolidated financial statements of the Company from the date of acquisition. The name of the acquired business has been subsequently changed to BroadVision Professional Services. The purchase price was allocated based on fair values as follows (in thousands):
Purchase price, net of cash acquired $ 3,765 Add: fair value of liabilities assumed 399 ------- Total purchase consideration 4,164 Less: fair value allocated to acquired assets 798 ------- Excess of purchase consideration over acquired assets and assumed liabilities 3,366 Excess allocated to: Prepaid compensation 2,749 ------- Goodwill $ 617 =======49Note 3 -- Property and Equipment (in thousands):
December 31, -------------------- 2000 1999 -------- --------Furniture and fixtures $ 6,136 $ 2,323 Computer and software 79,020 17,618 Leasehold improvements 12,099 6,903 -------- -------- 97,255 26,844 Less accumulated depreciation and amortization (20,570) (10,093) -------- -------- $ 76,685 $ 16,751 ======== ========Note 4 -- Accrued Expenses (in thousands):
December 31, ----------------- 2000 1999 ------- -------Employee benefits $ 3,900 $ 1,340 Commissions and bonuses 22,790 6,747 Taxes payable 11,439 1,122 Other 15,547 3,947 ------- ------- $53,676 $13,156 ======= =======Note 5 -- Long-term Debt The Company has various credit facilities with a commercial lender which include term debt in the form of notes payable and a revolving line of credit that provides for up to $10.0 million of additional borrowings (based on eligible accounts receivable, as defined). As of December 31, 2000 and 1999, outstanding term debt borrowings were $4.9 million and $5.9 million, respectively. Borrowings bear interest at the bank's prime rate (9.50% as of December 31, 2000). Principal and interest is due in consecutive monthly payments through maturity based on the term of the facility. Principal payments of $977,000 are due annually from 2000 through 2004, $611,000 due in 2005, and a final payment of $357,000 due in 2006. As of December 31, 2000 and 1999, the Company had no outstanding borrowings under its revolving line of credit. However, commitments totaling $2.4 million and $2.8 million, in the form of standby letters of credit were issued under its revolving line of credit facility as of December 31, 2000 and 1999, respectively. Commitments totaling $23.0 million in the form of standby letters of credit were also issued from separate financial institutions as of December 31, 2000 for the Company's various facilities and leasehold improvements; see Note 7. The Company had no outstanding capital leases as of December 31, 2000. The commercial credit facilities include covenants which impose certain restrictions on the payment of dividends and other distributions and requires the Company to maintain monthly financial covenants, including a minimum quick ratio, tangible net worth ratio and debt service coverage ratio. Borrowings are collateralized by a security interest in substantially all of the Company's owned assets. The Company was in compliance with its financial covenants as of December 31, 2000 and December 31, 1999. 50NOTE 6 -- INCOME TAXES The components of income tax provision (benefit) are as follows (in thousands):
YEARS ENDED DECEMBER 31, ------------------------------ 2000 1999 1998 ---------- ---------- -------Current: Federal $ 20,491 $ 458 $ 192 State 5,149 2 13 Foreign 2,987 536 416 --------- ------ ------ Total current $ 28,627 $ 996 $ 621 Deferred: Federal (3,160) -- (600) State (2,419) -- (100) --------- ------ ------ Total deferred $ (5,579) $ -- $ (700) --------- ------ ------ $ 23,048 $ 996 $ (79) ========== ====== ======The differences between the income tax provision (benefit) computed at the federal statutory rate of 35% and the Company's actual income tax provision (benefit) for the periods presented are as follows (in thousands):
YEARS ENDED DECEMBER 31, ------------------------------ 2000 1999 1998 ---------- ---------- -------Expected income tax provision (benefit) $ (48,503) $ 6,930 $ 1,346 Expected state income taxes (benefit), net of federal tax benefit (7,621) 853 (58) Foreign taxes 2,987 (1,009) 416 Alternative minimum tax -- -- 97 Utilization of foreign net operating loss carryforwards (555) (4,124) (2,471) Change in valuation allowance -- -- (600) Foreign losses not benefited 177 -- 988 Non deductible Goodwill and Intangible amortization 76,038 -- -- Write off of acquired In process Technology 4,091 -- -- Research and development tax credits (2,877) (1,492) -- Foreign tax credits (1,412) -- -- Other 723 (162) 203 ---------- -------- ------- Income tax provision (benefit) $ 23,048 $ 996 $ (79) ========== ======== =======The individual components of the Company's deferred tax assets and liabilities are as follows (in thousands):
DECEMBER 31, -------------------- 2000 1999 --------- --------Deferred tax assets: Depreciation and amortization $ 1,490 $ 895 Accrued liabilities 3,751 1,058 Capitalized research and development 1,371 158 Net operating losses 50,470 18,935 Tax credits 14,212 4,190 Other 463 -- Unrealized loss on Marketable securities 4,349 -- --------- -------- Total deferred tax assets 76,106 25,236 Less valuation allowance (63,894) (24,536) --------- -------- 12,212 700 Deferred tax liabilities State tax liability (1,584) -- Unrealized gain on Marketable securities -- (17,318) --------- -------- Net deferred tax asset (liability) $ 10,628 $(16,618) ========= ========The Company has provided a valuation allowance for a significant portion of its deferred tax assets as of December 31, 2000. The total valuation allowance increased $39,358,000 from December 31, 1999 to December 31, 2000. Approximately $15,010,000 of the increase in the valuation allowance relating to income tax benefits arising from the exercise of stock options will be credited directly to stockholders' equity and will not be available to benefit the income tax provision in any future periods. The remaining increase in the valuation allowance relates to net operating losses and credit carryforwards from the Interleaf acquisition. The income tax benefits arising from the deferred tax assets acquired from Interleaf will be credited to Goodwill and will not be available to benefit the income tax provision in any future periods. As of December 31, 2000, the Company had federal and state net operating loss carryforwards of approximately $138,400,000 and $22,800,000, respectively, available to offset future regular and alternative minimum taxable income. In addition, the Company has federal and state research and development and foreign tax credit carryforwards of approximately $11,990,000 and $2,222,000 respectively, available to offset future tax liabilities. The Company's federal net operating loss and tax credit carryforwards expire in the years 2001 through 2019, if not utilized. The state net operating loss carryforwards expire in the years 2001 through 2019. The state research and development credits can be carried forward indefinitely. As of December 31, 2000 the Company's foreign subsidiaries had net operating loss carryforwards in foreign jurisdictions of approximately $2,500,000 that can be used to offset future foreign income. Federal and state tax laws limit the use of net operating loss carryforwards in certain situations where changes occur in the stock ownership of a company. An ownership change, as defined, has occurred and, accordingly, certain of the Company's federal and state net operating loss carryforwards acquired from Interleaf may be limited in their annual usage. 51Note 7 -- Commitments Leases The Company leases its headquarters facility and its other facilities under noncancelable operating lease agreements expiring through the year 2013. Under the terms of the agreements, the Company is required to pay property taxes, insurance and normal maintenance costs. A summary of future minimum lease payments is as follows (in thousands): Operating Year Ended December 31, leases ----------------------- -------- 2001 $ 37,126 2002 36,620 2003 34,842 2004 35,325 2005 35,024 2006 and thereafter 97,802 -------- Total minimum lease payments $276,739 ======== Rental expense relating to operating leases was approximately $14,045,000, $2,716,000, $1,101,000 for the years ended December 31, 2000, 1999 and 1998, respectively. Minimum sublease payments to be received in the future under noncancelable subleases total $82,000. Standby Letter of Credit Commitments As of December 31, 2000, the Company had various outstanding commitments in the form of standby letters of credit, $25,380,000 in favor of the Company's various landlords to secure obligations under the Company's facility leases. Note 8 -- Stockholders' Equity Convertible Preferred Stock As of December 31, 2000, there were no outstanding shares of convertible preferred stock. The Board of Directors and the stockholders have approved authorized shares of convertible preferred stock to 10,000,000 shares. Warrants As of December 31, 2000, there were warrants outstanding to acquire 86,667 shares of common stock at an average price of $20.84. These warrants were issued in connection with revenue transactions. The warrants were valued using the Black-Scholes option-pricing model and revenues recorded net of the fair value of the warrants. Common Stock During April, 2000, the Company completed an acquisition in which it acquired Interleaf in a stock-for-stock transaction. Please see Note 2, Acquired Business, to Consolidated Financial Statements. In September 1999, the stockholders approved an increase to the Company's authorized number of shares of Common Stock from 50,000,000 to 500,000,000, further, during May 2000, the stockholders approved an increase in the authorized shares of common stock to 2,000,000,000 shares. 52During May 2000, the Board of Directors and the stockholders approved an increase in the aggregate number of shares of common stock available to be issued under the Company's Equity Incentive Stock Option Plan by 13,125,000 shares. In addition, the Board of Directors approved 6,000,000 shares of common stock available to be issued under the Company's Non-Officer Stock Option Plan The Company applies APB Opinion No. 25 and related interpretations when accounting for its stock option and stock purchase plans. As of December 31, 2000, the Company had reserved 84,000,000 shares of common stock for issuance under its Equity Incentive Plan. Under this plan, the Board of Directors may grant incentive or nonqualified stock options at prices not less than 100% or 85%, respectively, of the fair market value of the Company's common stock, as determined by the Board of Directors, at the date of grant. The vesting of individual options may vary but in each case at least 20% of the total number of shares subject to options will become exercisable per year. These options generally expire ten years after the grant date. When an employee option is exercised prior to vesting, any unvested shares so purchased are subject to repurchase by the Company at the original purchase price of the stock upon termination of employment. The Company's right to repurchase lapses at a minimum rate of 20% per year over five years from the date the option was granted or, for new employees, the date of hire. Such right is exercisable only within 90 days following termination of employment. No unvested shares were repurchased by the Company during the year ended December 31, 2000. As of December 31, 2000, 612,845 shares were subject to repurchase at a weighted-average price of $0.81. 1,438,200 and 2,119,635 shares were subject to repurchase as of December 31, 1999 and 1998, respectively. The Company's President and Chief Executive Officer ("CEO") has options to purchase 9,000,000 shares of common stock at an average exercise price of $3.56 per share. On April 1, 1995, the Company's President and CEO was granted options to purchase 4,500,000 shares of common stock at an exercise price of $0.44 per share. These options vest ratably over a 60-month period commencing on grant whereas the first year is subject to cliff vesting. As of December 31, 2000, all of the 4,500,000 options were vested. On June 23, 1999, the CEO was granted additional options to purchase 4,500,000 shares of common stock at an exercise price of $6.67 per share. The options vest ratably, 20% after year 1 and the remainder ratably over the next 48 months, over a 60-month period commencing on grant. As of December 31, 2000, 1,350,000 of the 4,500,000 additional options were vested. Activity in the Company's stock option plan is as follows:
Years ended December 31, ------------------------------------------------------------------------- 2000 1999 1998 ---------------------- ---------------------- ---------------------- Weighted- Weighted- Weighted- Average Average Average Options Exercise Options Exercise Options Exercise Fixed Options (000's) Price (000's) Price (000's) Price - ------------- ------- --------- -------- --------- -------- ---------Outstanding at beginning of period 39,978 $ 6.36 31,482 $ 0.96 26,163 $0.50 Granted 10,899 30.93 20,565 11.42 14,292 1.52 Exercised (7,378) 1.83 (9,759) 0.71 (5,193) 0.40 Forfeited (3,105) 14.21 (2,310) 1.67 (3,780) 0.64 ------ ------- ------- Outstanding at end of period 40,394 $13.23 39,978 $ 6.36 31,482 $0.96 ====== ------ ======= ======= Options exercisable at end of period 10,115 $ 5.63 6,195 $ 0.82 7,227 $0.48 ====== ------ ======= ======= Weighted-average fair value of options Granted during the period $28.67 $ 9.36 $0.99 ------ ------ =====53The following table summarizes stock options outstanding under the plan as of December 31, 2000:
Outstanding --------------------------------------------- Exercisable Weighted-Avg. ---------------------------- Remaining Weighted-Avg. Weighted-Avg. Range of Options Contractual Life Exercise Options Exercise Exercise Prices (000's) In Years Price (000's) Price - --------------- ------------ ---------------- ------------ ------------ -------------$0.01 -- $ 1.22 8,052 6.33 0.69 4,565 $ 0.59 1.29 -- 4.40 7,857 7.69 2.51 1,891 2.49 4.42 -- 6.67 8,266 8.44 5.85 2,158 5.97 13.55 -- 28.00 8,395 9.25 19.93 992 19.35 29.33 -- 52.83 7,824 8.49 37.50 509 34.41 ------ ------ 40,394 8.05 13.23 10,115 $ 5.63 ====== ======The Company grants options outside of the Company's stock option plan. The terms of these options are generally identical to those granted under the Company's plan. A summary of options outside of the plan is presented below:
Years ended December 31, ---------------------------------------------------------------------------- 2000 1999 1998 -------------------- ---------------------- ---------------------- Weighted- Weighted- Weighted- Average Average Average Options Exercise Options Exercise Options Exercise Fixed Options (000's) Price (000's) Price (000's) Price - ------------- ------- ----- ------- ----- ------- -----Outstanding at beginning of period 15,657 $ 6.06 6,651 $ 0.47 7,155 $ 0.45 Granted 11,569 23.54 9,405 9.84 -- -- Exercised (2,384) 6.28 (333) 0.74 (504) 0.21 Forfeited (2,544) 13.36 (66) 7.49 -- -- ------ ------ ----- Outstanding at end of period 22,298 $14.27 15,657 $ 6.06 6,651 $ 0.47 ====== ===== Options exercisable at end of Period 8,210 $ 3.06 5,433 $ 0.45 4,473 $ 0.45 ====== ===== Weighted-average fair value of options granted during the period $31.04 $ 8.06 $ -- ====== ====== ======The following table summarizes stock options, granted outside the plan, outstanding as of December 31, 2000:
Outstanding ------------------------------------------------- Weighted-Avg. Exercisable Remaining ------------------------- Range of Options Contractual Life Weighted-Avg. Options Weighted-Avg. Exercise Prices (000's) In Years Exercise Price (000's) Exercise Price - --------------- ------------ ---------------- -------------- --------- --------------$0.09 -- $0.44 4,950 5.16 $ 0.41 4,950 $ 0.41 0.61 -- 7.16 4,352 5.57 4.19 2,115 2.76 7.22 -- 12.97 5,494 8.68 11.36 932 10.65 13.48 -- 26.88 5,087 9.28 26.68 78 23.24 28.74 -- 50.38 2,415 9.09 41.36 135 40.94 ------ ----- 22,298 7.47 $14.27 8,210 $ 3.06 ====== =====54Pro Forma Disclosure Employee Stock Purchase Plan As of December 31, 2000, the Company had reserved 9,900,000 shares for issuance under the Company's Employee Stock Purchase Plan (the "Purchase Plan"). The Purchase Plan permits eligible employees to purchase common stock equivalent to a percentage of the employee's earnings, not to exceed 15%, at a price equal to 85% of the fair market value of the common stock at dates specified by the Board of Directors as provided in the Plan. Under the Purchase Plan, the Company issued approximately 1,088,000, 1,833,000, and 2,052,000 shares to employees in the years ended December 31, 2000, 1999 and 1998, respectively. Under SFAS No. 123, compensation cost is recognized for the fair value of the employees' purchase rights, which was estimated using the Black-Scholes option pricing model with no expected dividends, an expected life of approximately 7 months, and the following weighted-average assumptions:
Years ended December 31, --------------------------- 2000 1999 1998 ---- ---- ----Risk-free interest rate 4.50% 6.00% 4.48% Volatility 136% 97% 112%The weighted-average fair value of the purchase rights granted in the years ended December 31, 2000, 1999, and 1998, was $12.87, $3.24, and $0.46, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with no expected dividends and the following weighted-average assumptions:
Years ended December 31, -------------------------------------- 2000 1999 1998 --------- --------- ---------Expected life 4.4 years 4.1 years 3.0 years Risk-free interest rate 4.75% 6.55% 4.70% Volatility 136% 97% 112%Had compensation cost for the Company's stock option plan and stock purchase plan been determined consistent with SFAS No. 123, the Company's reported net income (loss) and net income (loss) per share would have been changed to the amounts indicated below (in thousands except per share data):
Years ended December 31, ----------------------------------------- 2000 1999 1998 ----------- ----------- -----------Net income (loss): As reported $ (161,629) $ 18,809 $ 4,039 Pro forma $ (484,587) $ (25,015) $ (1,885) Basic net income (loss) per share: As reported $ (0.62) $ 0.08 $ 0.02 Pro forma $ (1.87) $ (0.11) $ (0.01) Diluted net income (loss) per share: As reported $ (0.62) $ 0.07 $ 0.02 Pro forma $ (1.87) $ (0.11) $ (0.01)Note 9 -- Employee Benefit Plan The Company provides for a defined contribution employee retirement plan in accordance with section 401(k) of the Internal Revenue Code. Eligible employees are entitled to contribute up to 20% of their annual compensation, subject to certain limitations ($10,500 for the year ended December 31, 2000). Effective January 1, 2000, the Company provided a 50% match for all employee contributions, up to 6% of the employees' annual compensation subject to certain limitations ($5,100 per employee for the year ended December 31, 2000). Employees vest in Company matching contributions based on years of service with the company, 50% upon the employees' first anniversary and 100% on the second anniversary and thereafter. The Company contributed $2.2 million for the year ended December 31, 2000, all of which has been funded or accrued as of December 31, 2000. 55Note 10 -- Geographic, Segment and Significant Customer Information The Company adopted the provisions of SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information, during 1998. SFAS No. 131 establishes standards for the reporting by public business enterprises of information about operating segments, products and services, geographic areas, and major customers. The method for determining what information to report is based on the way that management organizes the operating segments within the Company for making operational decisions and assessments of financial performance. The Company's chief operating decision maker is considered to be the Company's CEO. The CEO reviews financial information presented on a consolidated basis accompanied by disaggregated information about revenues by geographic region and by product for purposes of making operating decisions and assessing financial performance. The Company operates in one segment, electronic business commerce solutions. The disaggregated revenue information on a product basis reviewed by the CEO is as follows (in thousands):
Years Ended December 31, ------------------------------------ 2000 1999 1998 --------- --------- -------Software licenses: One-To-One Enterprise $ 18,599 $ 14,569 $ 19,303 One-To-One Packaged Solutions 232,239 60,814 16,764 Services 116,928 26,737 9,739 Maintenance 46,150 13,394 5,105 -------- -------- -------- Total Company $413,916 $115,514 $ 50,911 ======== ======== ========The Company sells its products and provides services worldwide through a direct sales force and through a channel of independent distributors, value-added resellers ("VARs") and application service providers ("ASPs"). In addition, the sales of the Company's products are promoted through independent professional consulting organizations known as systems integrators. The Company provides services worldwide through its BroadVision Global Services Organization and indirectly through distributors, VARs, ASPs, and systems integrators. The Company currently operates in three primary geographical territories, NASA, which includes North and South America, Europe which includes Europe, the Middle East, Africa and India and Asia/Pacific/Japan ("APJ") which includes the Pacific Rim and the Far East. Disaggregated financial information regarding the Company's products and services and geographic revenues is as follows (in thousands): Years Ended December 31, ------------------------------------------ 2000 1999 1998 -------- -------- -------- Revenues: Americas $281,331 $ 79,323 $ 29,330 Europe 103,611 26,211 16,944 Asia/Pacific 28,974 9,980 4,637 -------- -------- -------- Total Company $413,916 $115,514 $ 50,911 ======== ======== ======== December 31, ------------------------------ 2000 1999 ---------- ---------- Identifiable assets: Americas $1,102,343 $ 400,858 Europe 33,254 4,122 Asia/Pacific 7,427 1,148 ---------- ---------- Total Company $1,143,024 $ 406,128 ========== ========== During the years ended December 31, 2000, 1999 and 1998 no customer accounted for 10% or more of the Company's revenues. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None 56PART III Certain information required by Part III is incorporated by reference in this Report from the Company's definitive proxy statement for its 2001 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A (the "Proxy Statement"). ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS AND EXECUTIVE OFFICERS OUR DIRECTORS AND EXECUTIVE OFFICERS AND THEIR AGES AS OF APRIL 1, 2001 ARE AS FOLLOWS:
NAME Age Position - ---- --- --------------------------------------Pehong Chen.......................................... 43 Chief Executive Officer, President and Chairman of the BoardDavid
L. Anderson (3)................................ 57 Director Yogen K. Dalal (1)(2)................................ 50 Director Todd A. Garrett...................................... 59 Director Koh Boon Hwee (3).................................... 50 Director Klaus Luft........................................... 59 Director Carl Pascarella...................................... 58 Director Randall C. Bolten.................................... 48 Chief Financial Officer and Executive Vice President, Operations Chris Grejtak (4).................................... 52 Executive Vice President, Marketing and Business Development, and Chief Marketing Officer Nancy Mills-Turner (5)............................... 48 Executive Vice President and General Manager, Worldwide Products and Services Organization James Thanos (5)..................................... 52 Executive Vice President and General Manager, Worldwide Field Organization(1) Dr. Dalal is not standing for re-election of the Board of Directors in 2001. (2) Members of the Audit Committee - Upon the expiration of Dr. Dalal's term as a director, he will no longer serve on the Audit Committee. (3) Members of the Compensation Committee. (4) Became an executive officer in 2001. (5) Became an executive officer in 2000. Set forth below is biographical information for members of the Board of Directors whose biography information is not provided in Item 1. See Item 1 for the biographical information of the executive officers. DAVIDL.ANDERSONAndersonCytel Corporation,Dionex Corporation and Molecular Devices Corporation. He holds a B.S. in Electrical Engineering from the Massachusetts Institute of Technology and an M.B.A. from Harvard University.YOGEN K. DALALTodd A. Garrett has served as a
director of the Company since November 1993. He joined Mayfield Fund ("Mayfield"), a venture capital firm, in September 1991 and has been a general partner of several venture capital funds affiliated with Mayfield since November 1992. Dr. Dalal holds a B.S. in Electrical Engineering from the India Institute of Technology, Bombay, and an M.S. and a Ph.D. in Electrical Engineering and Computer Science from Stanford University. Dr. Dalal sits on the boards of directors of Nuance Communications, Inc. and TIBCO Software, Inc. TODD A. GARRETT has served asdirector of the Company since January 1999. Mr. Garrett is currently a privateconsultant.investor. In 1999, Mr. Garrett retired from Procter & Gamble Company, where he held various key executive positions within the company since joining it in 1985. These positions included: Vice President, Asia/Pacific; Vice President,USU.S. Beauty Care; Group President, President of Worldwide Strategic Planning, Beauty CareProducts andProducts; Senior VicePresident. In October 1996, he was appointed to the post ofPresident; and Chief Information Officer. Mr. Garrett holds a B.A. from the University of Rochester and an M.B.A. from Xavier University.57KOH BOON HWEEKoh Boon Hwee has served as a director of the Company since February 1996.
Since 1991,Mr. Kohhas beenis Executive Director of MediaRing.com Ltd, a Singapore Stock Exchange-listed company focusing on the development of products and services based on voice-over Internet protocol technologies. He is also currently Chairman of Singapore Airlines Ltd and serves on the Board of Directors of QAD Inc. He was previously Chairman of Singapore Telecommunications Limited from 1986 to 2001, Chairman of Omni Industries Limited, a contract manufacturer, from 1997 to 2001, Chairman of the Wuthelam Group of Companies, a diversified Singapore company with subsidiaries engaged in, among other things, real estate development, hotel management and hightechnology. Since 1992, he has also served as Chairmantechnology, from 1991 to 2000 and Managing Director ofthe Board ofHewlett Packard SingaporeTelecommunications, Ltd. Mr. Koh currently serves on the Board of Directors of Excel Machine Tools Ltd., Raffles Medical Group Ltd. and Qad Inc.from 1985 to 1990. Mr. Koh holds a B.S. in Mechanical Engineering from the University of London and an M.B.A. from Harvard University.KLAUS LUFTKlaus Luft has served as a director of the Company since February 2000. Mr. Luft is the founder, owner and President of MATCH
(Market- Market Access for Technology ServicesGmbH),GmbH, a private company in Munich, Germany that provides sales and marketing services to high technology companies. He is also1
the founder and Chairman of the supervisory board of Artedona AG, a privately held e-commerce company established in 1999 and headquartered in Munich. Since August 1990, Mr. Luft has served as Vice Chairman and International Advisor to Goldman Sachs Europe Limited. He also serves on the Board of Directors of Dell Computer
Corporation and Sagent Technology Inc.Corporation. Mr. Luft is a member of the International Advisory Board of theBusiness School ofInternational University of Germany. Mr. Luft received his German Arbitur in Bruchsal, Germany.CARL PASCARELLACarl Pascarella has served as a director of the Company since September 1997. Since August 1993, Mr. Pascarella has been President and Chief Executive Officer of Visa
USA.U.S.A. From January 1983 to August 1993, he was Assistant Chief General Manager of the Asia-Pacific region of VisaUSA.U.S.A. Before joining VisaUSA,U.S.A., Mr. Pascarella was Vice President of the International Division of Crocker National Bank. He also served as Vice President of Metropolitan Bank atBankersTrustBankers Trust Company. Mr. Pascarella holds a B.A. from the University of Buffalo and an M.B.A. from Harvard University.The names of and certain information about the current executive officers of the Company are set forth under Item 1 of Part I of the Form 10-K under the heading "Employees; Executive Officers."
Section 16(a) Beneficial Ownership Reporting ComplianceSection 16(a) of the Exchange Act requires the Company's directors and executive officers, and persons who own more than ten percent of a registered class of the Company's equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Directors, officers and greater than ten percent stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the fiscal year ended December 31, 2001, all Section 16(a) filing requirements applicable to its officers, directors and greater than ten percent beneficial owners were complied with, except that an initial report of ownership was filed late by Mr. Barton and Ms. Mills-Turner failed to file one report of one transaction.
ITEM 11. EXECUTIVE COMPENSATIONThe information required by this Item is incorporated by referenceDirectors currently do not receive any cash compensation from the
Proxy Statement.Company for their services as members of the Board of Directors, although they are reimbursed for certain expenses incurred in connection with attendance of Board and Committee meetings in accordance with Company policy.Each director of the Company is eligible to receive stock option grants under the Incentive Plan. As of December 31, 2001, non-employee directors held options to purchase an aggregate of 1,497,205 shares of the Company's Common Stock. Additionally, in May 2001, the Company announced a voluntary stock option exchange program for its employees, including its executive officers, and directors. Under the program, employees and directors of the Company had the opportunity, if they so chose, to elect to cancel outstanding stock options held by them in exchange for an equal number of new options to be granted at a future date at the fair market value on the date of grant. The offer remained outstanding until 5:00 p.m., Pacific Daylight Time, on May 25, 2001. These elections were required to include all options granted during the prior six-month period. Mr. Luft elected to participate in the offer and tendered options in return for the Company's promise to grant new options on November 27, 2001. On November 27, 2001, the Company granted an option to Mr. Luft to purchase 240,000 shares, at the fair market value of $3.89 per share, the opening price of the Company's Common Stock on such date.
2
Compensation of Executive OfficersThe following table shows for the fiscal years December 31, 1999, 2000 and 2001, compensation awarded or paid to, or earned by, the Company's Chief Executive Officer, its other three most highly compensated executive officers at December 31, 2001 and one former executive officer who resigned from his position during fiscal year 2001 (the "Named Executive Officers"):
Annual Compensation (1) Long Term
Compensation
AwardsName and Principal Position Year Salary ($) Annual
Bonus ($)Other
Compensa-
tionSecurities
Underlying
Options (#)(7)Pehong Chen (2)
Chairman of the Board, President
and Chief Executive Officer2001
2000
1999$204,167
341,667
250,000$150,000
25,000
106,250—
—
—4,540,000
—
4,500,000
Randall C. Bolten (3)
Former Chief Financial
Officer and Executive Vice
President, Operations
2001
2000
1999
220,000
215,783
166,320
48,800
45,000
37,500
—
—
—
50,000
50,000
180,000
Chris Grejtak (4)
Executive Vice President, Worldwide
Marketing and Business Development
2001
2000
1999
202,031
—
—
24,900
—
—
—
—
—
440,798
—
—
Nancy Mills-Turner (5)
Former Executive Vice
President and General
Manager, Worldwide
Professional Services
2001
2000
1999
248,584
220,000
68,475
118,300
152,250
2,500
—
—
—
355,868
200,000
960,000
James Thanos (6)
Executive Vice President and
General Manager, Worldwide
Field Organization
2001
2000
1999
283,750
220,000
218,000
108,529
460,894
85,000
82,336
116,275
299,677
658,309
300,000
600,000
- (1)
- Includes amounts earned but deferred at the election of the Named Executive Officers under the Company's 401(k) plan.
- (2)
- Does not include $145,833 in salary for August through December 2001 that Dr. Chen elected not to receive until the Company achieves certain financial goals.
- (3)
- Employment as an executive officer of the Company ended July 2001. Includes $91,667 in salary paid from last regular day worked through December 2001.
- (4)
- Became an executive officer of the Company in February 2001. Employment as an executive officer of the Company ended in April 2002.
- (5)
- Became an executive officer of the Company in September 1999. Employment as an executive officer of the Company ended in January 2002.
- (6)
- Became an executive officer of the Company in March 1998.
- (7)
- For fiscal year 2001, includes 50,000, 330,000 and 300,000 shares underlying options granted to Mr. Bolten, Mr. Grejtak and Mr. Thanos, respectively, in connection with the Company's option exchange program, as described more fully in "Stock Option Grants and Exercises."
3
STOCK OPTION GRANTS AND EXERCISESThe Company grants options to its executive officers under its Incentive Plan. As of March 31, 2002, options to purchase a total of 42,792,183 shares were outstanding under the Incentive Plan and options to purchase 12,043,958 shares remained available for grant thereunder.
In May 2001, the Company announced a voluntary stock option exchange program for its employees, including its executive officers and directors. Under the program, employees of the Company had the opportunity, if they so chose, to elect to cancel outstanding stock options held by them in exchange for an equal number of new options to be granted at a future date at the fair market value on the date of grant. The offer remained outstanding until 5:00 p.m., Pacific Daylight Time, on May 25, 2001. These elections were required to include all options granted during the prior six-month period. On November 27, 2001, the Company granted options under the Incentive Plan and Non-Officer Plan to those employees and directors who elected to participate in the program, at the fair market value of $3.89 per share, the opening price of the Company's Common Stock on such date. The options granted under the program vest over four years.
The following table shows for the fiscal year ended December 31, 2001, certain information regarding options granted to, exercised by, and held at year end by, the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants Potential Realizable Value
At Assumed Annual Rates
Of Stock Price
Appreciation For Option
Term(3)Percent Of
Total
Options
Granted to
Employees
In Fiscal
2001(%)(1)Number of
Securities
Underlying
Options
GrantedExercise
Price Per
Share
($/Sh)(2)Expiration
DateName 5% ($) 10% ($) Pehong Chen (4) 4,500,000
40,00013.32
0.12% $7.39
3.895/24/11
11/26/11$20,950,650
98,028$52,875,450
247,404Randall C. Bolten (4) 50,000 0.15 3.89 11/26/11 122,535 309,255 Chris Grejtak(5) 440,798 1.31 3.89 11/26/11 1,080,264 2,726,380 Nancy Mills-Turner 300,000
55,8690.89
0.177.39
3.895/24/11
11/26/111,396,710
136,9183,525,030
345,555James Thanos 658,309 1.95 3.89 11/26/11 1,613,318 4,071,707
- (1)
- Based on options to purchase 33,773,447 shares granted in 2001.
- (2)
- The exercise price per share of each option was equal to the closing sale price of the Common Stock as quoted on the Nasdaq Stock Market's National System on the day prior to the date of grant.
- (3)
- The potential realizable value is based on the term of the option at its time of grant, which is ten years. It is calculated by assuming that the stock price on the date of grant appreciates at the indicated annual rate, compounded annually for the entire term of the option and that the option is exercised and sold on the last day of its term for the appreciated stock. The five percent and ten percent columns represent assumed rates of appreciation only, in accordance with the rules of the SEC, and do not reflect the Company's estimate or projection of future stock price performance. Actual gains, if any, are dependent on the actual future performance of the Company's Common Stock and no gain to the optionee is possible unless the stock price increases over the option term, which will benefit all stockholders.
- (4)
- The options have a term of ten years, subject to earlier termination in certain events related to termination of employment, and vest at the rate of1/48th per month (25% per year) with one-year cliff vesting. The options will fully vest in the event of dissolution or liquidation or other corporate reorganization, unless the acquiring company assumes the options or substitutes similar options.
- (5)
- Excludes 330,000 shares granted to Mr. Grejtak on January 29, 2001 that were cancelled in connection with the Company's option exchange program, as described more fully in "Stock Option Grants and Exercises."
4
FISCAL YEAR-END OPTION VALUES OF UNEXERCISED OPTIONS
Number of Securities
Underlying Unexercised
Options at December 31, 2001
(#)(2)Value of Unexercised In-The-
Money Options at
December 31, 2001($)(3)Shares
Acquired on
Exercise (#)Value Realized
($)(1)Name Exercisable Unexercisable Exercisable Unexercisable Pehong Chen 4,500,000 $1,195,200 2,907,922 4,132,078 — — Randall C. Bolten — — 136,004 165,153 $180,649 $89,462 Chris Grejtak — — 12,909 427,889 — — Nancy Mills-Turner — — 332,373 943,495 — — James Thanos — — 1,118,324 1,661,039 1,090,821 834,914
- (1)
- Value received is based on the per share deemed values of the Company's Common Stock on the date of exercise, determined after the date of grant solely for financial accounting purposes, less the exercise price, without taking into account any taxes that may be payable in connection the transaction.
- (2)
- Reflects vested and unvested shares at December 31, 2001. Options granted are immediately exercisable, but are subject to the Company's right to repurchase unvested shares on termination of employment.
- (3)
- Fair market value of the Company's Common Stock at December 31, 2001, which was $2.74 per share, less the exercise price of the options.
EMPLOYMENT AND SEPARATION AGREEMENTS WITH EXECUTIVE OFFICERSSeparation Agreement between the Company and Chris M. Grejtak. Mr. Grejtak resigned from his position as Executive Vice President, Chief Marketing Officer and all other corporate offices and positions he held with the Company, effective April 12, 2002. The Company agreed to provide Mr. Grejtak with one year of severance and health benefits, payable over 12 months, and six months of additional stock option vesting. The Company and Mr. Grejtak executed a mutual release of claims. Nothing in the separation agreement affected the Company's indemnification or defense obligations to Mr. Grejtak that arose from his employment with the Company, and Mr. Grejtak agreed to cooperate with the Company with respect to any existing or future litigation or similar proceedings to the extent requested by the Company.
Separation Agreement between the Company and Nancy Mills-Turner. Ms. Mills-Turner resigned from her position as Executive Vice President, Worldwide Products & Services and General Manager and all other corporate offices she held with the Company, effective January 25, 2002, and became an employee advisor to the Company for one year. The Company agreed to pay Ms. Mills-Turner her regular salary during this one-year advisory period. Ms. Mills-Turner is also eligible to participate in the Company's benefit plans to the extent permitted by each plan during the one-year period. Ms. Mills-Turner's stock options will continue to vest for the first six months of the one-year period. In addition, Ms. Mills-Turner received her performance bonus for the third quarter of 2001. The Company and Ms. Mills-Turner each executed a mutual release of claims. The Company agreed to indemnify, hold harmless and defend Ms. Mills-Turner in various civil actions and future actions in which Ms. Mills-Turner is named as a defendant based on her employment with the Company.
Amended and Restated Separation Agreement between the Company and Randall Bolten. On June 29, 2001, the Company and Mr. Bolten entered into a separation agreement and, on September 28, 2001, the Company and Mr. Bolten amended and restated the agreement. Mr. Bolten resigned from his position as Executive Vice President and Chief Financial Officer and all other corporate offices he held with the Company, effective July 31, 2001, and became an employee advisor to the Company for one year. The Company agreed to pay Mr. Bolten his regular salary during this one-year advisory period. Mr. Bolten is also eligible to participate in the Company's benefit plans to the extent permitted by each plan during the one-year period. Mr. Bolten's stock options continued to
5
vest for the first six months of the one-year period. In addition, Mr. Bolten received his performance bonus for the second and third quarters of 2001. The Company and Mr. Bolten each executed a mutual release of claims. The Company agreed to indemnify, hold harmless and defend Mr. Bolten in various civil actions and future actions in which Mr. Bolten is named as a defendant based on his employment with the Company.
Offer Letter from the Company to Francis Barton. On October 22, 2001, the Company offered Mr. Barton employment with the Company in the position of Executive Vice President and Chief Financial Officer, which offer Mr. Barton accepted. Pursuant to the offer letter, the Company will pay Mr. Barton $320,000 per year and a target bonus of 37.5% of his base salary paid quarterly. Mr. Barton is also receiving a sign-on bonus of $100,000 payable in four quarterly installments. Mr. Barton must be employed by the Company on the last day of the quarter in order to receive the applicable installment of the sign-on bonus. Mr. Barton is eligible to participate in the Company's employee benefit plans. Mr. Barton also received a stock option to purchase 2,100,000 shares of the Company's Common Stock with an exercise price equal to the fair market value of the stock underlying the option on the date of grant, which was $1.35. 25% of the shares subject to the option will vest on the first anniversary of Mr. Barton's date of hire and the remaining shares will vest in equal monthly installments over the subsequent three years.
In the event Mr. Barton's employment with the company is involuntarily terminated without cause at any time, Mr. Barton agrees to provide consulting services to the Company for up to one year. If Mr. Barton executes a release of claims upon such termination of employment without cause, Mr. Barton will receive that portion of his target bonus that would have been paid in the quarter in which his employment is terminated as if his employment had not terminated. During such consulting period, Mr. Barton will receive $26,666.67 per month as a consulting fee, and his outstanding stock options will continue to vest.
In the event of change of control of the Company, in addition to the benefits described above and upon execution of a release of claims, if Mr. Barton's employment with the Company is involuntarily terminated without cause or voluntarily terminated for good reason within 13 months of the effective date of such change of control, 50% of the unvested shares subject to his outstanding stock options shall vest and become exercisable. If any payment made to Mr. Barton would constitute a parachute payment under the Code, Mr. Barton will receive the entire payment or a reduced amount, whichever results in his receipt, on an after-tax basis, of the greater amount of the payment.
6
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTThe following table sets forth certain information regarding the ownership of the Company's Common Stock as of March 31, 2002 by: (a) each nominee for director; (b) each of the executive officers named in the Summary Compensation Table; (c) all executive officers and directors of the Company as a group; and (d) all those known by the Company to be beneficial owners of more than five percent of its Common Stock.
Beneficial Ownership(1) Beneficial Owner Number of
Shares (#)Percent of
Total (%)Pehong Chen (2) 56,635,005 19.4 % Randall C. Bolten (3) 1,369,127 * Chris M. Grejtak (4) 197,590 * Nancy Mills-Turner (5) 491,521 * James Thanos (6) 1,645,292 * David L. Anderson (7) 1,618,513 * Koh Boon Hwee (8) 1,702,742 * Todd A. Garrett (4) 370,000 * Klaus Luft (4) 64,770 * Carl Pascarella (9) 450,883 * All Current Directors and Executive Officers as a group (11 persons)(10) 62,801,464 21.5 %
- *
- Less than one percent.
- (1)
- This table is based upon information supplied by officers, directors and principal stockholders and Schedules 13D and 13G filed with the SEC. Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, the Company believes that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned. Applicable percentages are based on 288,294,098 shares outstanding on March 31, 2002, adjusted as required by
this Itemrules promulgated by the SEC. The Company's directors and executive officers can be reached at BroadVision, Inc., 585 Broadway, Redwood City, California 94063.- (2)
- Includes 36,660,000 shares held in trust by Dr. Chen and his wife for their benefit and 3,760,005 shares of Common Stock issuable upon the exercise of stock options exercisable within 60 days of March 31, 2002, subject to repurchase of unvested shares. Excludes 2,700,000 shares of Common Stock held in trust by independent trustees for the benefit of Dr. Chen's children.
- (3)
- Includes 1,192,470 shares of Common Stock held in trust by Mr. Bolten and his wife for their benefit and 176,657 shares of Common Stock issuable upon the exercise of stock options exercisable within 60 days of March 31, 2002.
- (4)
- Represents shares of Common Stock issuable upon the exercise of stock options exercisable within 60 days of March 31, 2002, subject to repurchase of unvested shares.
- (5)
- Includes 470,236 shares of Common Stock issuable upon the exercise of a stock option exercisable within 60 days of March 31, 2002, subject to repurchase of unvested shares.
- (6)
- Includes 36,098 shares of Common Stock held in a family trust by Mr. Thanos and his wife and 1,466,786 shares of Common Stock issuable upon the exercise of stock options exercisable within 60 days of March 31, 2002, subject to repurchase of unvested shares.
- (7)
- Includes 277,505 shares held by the Anderson Living Trust, of which Mr. Anderson is
incorporatedtrustee, 988,014 shares of Common Stock held in a retirement trust over which Mr. Anderson exercises7
voting and investing power and 122,771 shares of Common Stock owned by
reference fromAnvest L.P., over which Mr. Anderson exercises voting and investing power. Mr. Anderson disclaims beneficial ownership of theProxy Statement.shares held by Anvest L.P., except to the extent of his pecuniary interest therein. Mr. Anderson disclaims beneficial ownership of the shares of Common Stock held by the other persons and entities associated with Sutter Hill Ventures, except to the extent of his pecuniary interest therein. Includes 180,223 shares of Common Stock issuable upon the exercise of a stock option exercisable within 60 days of March 31, 2002, subject to repurchase of unvested shares.
- (8)
- Includes 540,000 shares of Common Stock held by Seven Seas Group Ltd., in which Mr. Koh holds a controlling interest, and 457,020 shares of Common Stock issuable upon the exercise of a stock option exercisable within 60 days of March 31, 2002, subject to repurchase of unvested shares.
- (9)
- Includes 75,833 shares of Common Stock issuable upon the exercise of a stock option exercisable within 60 days of March 31, 2002, subject to repurchase of unvested shares.
- (10)
- Includes the information contained in the notes above, as applicable, for directors and executive officers of the Company as of March 31, 2002.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSThe
informationCompany has entered into indemnity agreements with certain officers and directors which provide, among other things, that the Company will indemnify such officer or director, under the circumstances and to the extent provided for in such agreement, for expenses, damages, judgments, fines and settlements he or she may be requiredby this Itemto pay in actions or proceedings which he or she isincorporated by reference from the Proxy Statement. 58PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filedor may be made a party be reason of his or her position as apart of this Report. 1. Consolidated Financial Statements. The following Consolidated Financial Statementsdirector, officer or other agent of the Company,are included at Part II, Item 8, of this Annual Report on Form 10-K. Independent Auditors' Report Consolidated Balance Sheets as of December 31, 2000and1999 Consolidated Statements of Operations for each ofotherwise to theyears infull extent permitted under Delaware law and thethree-year period ended December 31, 2000. Consolidated Statements of Stockholders' Equity for each of the years in the three-year period ended December 31, 2000. Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2000. Notes to Consolidated Financial Statements 2. Financial Statement Schedule. Attached to this Annual Report on Form 10-K. Report on Financial Statement Schedule and Consent of Independent Auditors Schedule II -- Valuation and Qualifying Accounts 3. Exhibits. The exhibits listed on the accompanying Index to Exhibits immediately following the consolidated financial statement schedule are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K. (b) Reports on Form 8-K. 1. On January 31, 2000 we filed a Current Report on Form 8-K (File No. 0-28252) as notice of our definitive agreement to acquire Interleaf, Inc. ("Interleaf") in a stock-for-stock transaction announced on January 26, 2000. 2. On March 1, 2000 we filed a Current Report on Form 8-K (File No. 0-28252) as notice that the Company effected a three-for-one stock split in the form of a two-for-one stock dividend on October 11, 1999. 3. On May 1, 2000 we filed a Current Report on Form 8-K (File No. 0-28252) as notice that the Company completed an acquisition of Interleaf, Inc. ("Interleaf") in a stock-for-stock transaction. 59Company's Bylaws. 8
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrantregistrant has duly caused this Amendment No. 1 to the Annual Report on Form 10-K for the year ended December 31, 2001 to be signed on its behalf by the undersigned, thereunto dulyauthorized, in Redwood City, State of California, on this 30th day of March 2001. BroadVision, Inc. By: /s/ Pehong Chen ------------------------------------- Chairman of the Board, President And Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Pehong Chen and Randall C. Bolten his attorney-in-fact, with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that the said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.authorized.
Date: April 30, 2002 BROADVISION, INC.
By:
/s/ PEHONG CHEN
Pehong Chen
Chairman of the Board, President
and Chief Executive OfficerPursuant to the requirements of the Securities Exchange Act of 1934, this Amendment No. 1 to the Annual Report on Form 10-K for the year ended December 31, 2001 has been signed below by the following persons on behalf of the
Registrantregistrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ----/s//s/ PEHONG CHEN
Pehong ChenChairman of the Board, President March 30, 2001 - -----------------------------------and Chief Executive OfficerPehong Chen(Principal Executive Officer)/s/ Randall C. BoltenApril 30, 2002
/s/ FRANCIS BARTON
Francis Barton
Executive Vice PresidentMarch 30, 2001 - ----------------------------------- Operations,and Chief FinancialRandall C. BoltenOfficer (Principal Financial and Accounting Officer)/s/
April 30, 2002
*
David L. Anderson
DirectorMarch
April 30,2001 - ----------------------------------- David L. Anderson /s/ Yogen K. Dalal Director March 30, 2001 - ----------------------------------- Yogen K. Dalal /s/2002
*
Todd A. Garrett
DirectorMarch
April 30,2001 - ----------------------------------- Todd A. Garrett /s/2002
*
Koh Boon Hwee
DirectorMarch
April 30,2001 - ----------------------------------- Koh Boon Hwee /s/2002
*
Klaus Luft
DirectorMarch
April 30,2001 - ----------------------------------- Klaus Luft /s/2002
*
Carl Pascarella
DirectorMarch
April 30,2001 - ----------------------------------- Carl Pascarella200260REPORT ON FINANCIAL STATEMENT SCHEDULE
*By:
/s/ PEHONG CHEN
Pehong Chen
Attorney-in-Fact
PART IIIITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF
INDEPENDENT PUBLIC ACCOUNTANTS The BoardTHE REGISTRANT
Directors
Executive Officers
Section 16(a) Beneficial Ownership Reporting Compliance
ITEM 11. EXECUTIVE COMPENSATION
Compensation of Directorsand Stockholders BroadVision, Inc.: We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial statementsCompensation of
SUMMARY OF COMPENSATIONBroadVision, Inc. and subsidiaries included in this annual report on Form 10-K for the years ended December 31, 2000 and 1999 and have issued our report thereon dated March 30, 2001. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule, Schedule II, is the responsibility of the Company's management, is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP San Jose, California March 30, 2001 61BROADVISION, INC.Executive Officers
SUMMARY COMPENSATION TABLE
STOCK OPTION GRANTS ANDSUBSIDIARIES SCHEDULE II -- VALUATIONEXERCISES
OPTION GRANTS IN LAST FISCAL YEAR
FISCAL YEAR-END OPTION VALUES OF UNEXERCISED OPTIONS
EMPLOYMENT ANDQUALIFYING ACCOUNTS (in thousands)
Balance at Charged to Beginning of Costs and Balance at Period Expenses Deductions (1) End of Period ------------ ---------- -------------- -------------Year Ended December 31, 2000 $1,446 $2,687 $ 118 $4,015 ====== ====== ====== ====== Year Ended December 31, 1999 $ 788 $ 758 $ 100 $1,446 ====== ====== ====== ====== Year Ended December 31, 1998 $ 671 $ 458 $ 341 $ 788 ====== ====== ====== ======(1) Represents net charge-offs of specific receivables. 62BROADVISION, INC. ANNUAL REPORT ON FORM 10-K DECEMBER 31, 2000 INDEX TO EXHIBITS Exhibit Description - ------- ----------- 3.1(1) Amended and Restated Certificate of Incorporation. 3.2(6) Certificate of Amendment of Certificate of Incorporation, dated June 28, 2000. 3.3(1) Amended and restated Bylaws. 4.1(1) References are hereby made to Exhibits 3.1 to 3.2. 4.3(1) Second Amended and Restated Investor's Rights Agreement dated April 15, 1997 among the Company and certain of its stockholders. 10.1(1)(a) Form of Indemnity Agreement between the Company and each of its directors. 10.2(6)(a) Equity Incentive Plan as amended February 8, 2000 (the "Equity Incentive Plan"). 10.3(1)(a) Form of Incentive Stock Option under the Equity Incentive Plan. 10.4(1)(a) Form of Nonstatutory Stock Option under the Equity Incentive Plan. 10.5(1)(a) Form of Nonstatutory Stock Option (Performance-Based). 10.6(1)(a) 1997 Employee Stock Purchase Plan (the "Employee Stock Purchase Plan"). 10.7(1)(a) Employee Stock Purchase Plan Offering (Initial Offering). 10.8(1)(a) Employee Stock Purchase Plan Offering (Subsequent Offering). 10.9(1)(b) Terms and Conditions dated January 1, 1997 between IONA Technologies LTD and the Company. 10.10(1) Series D Preferred Stock Option Agreement dated February 27, 1997 between the Company and Pehong Chen. 10.11(1)(a) Stock Option Plan. 10.12(1)(a) Form of Incentive Stock Option under the Stock Option Plan. 10.13(1)(a) Form of Nonstatutory Stock Option under the Stock Option Plan. 10.14(1) Lease dated February 5, 1997 between the Company and Martin/Campus Associates, L.P. 10.15(2) Loan and Security, dated July 2, 1997, between Silicon Valley Bank and the Company. 10.16(3) First Amendment to Loan and Security Agreement, dated as of February 5, 1998 between the Company and Silicon Valley Bank. 10.17(4) Agreement and Plan of Merger and Reorganization dated January 26, 2000 among the Company, Infiniti Acquisition Sub, Inc. and Interleaf, Inc. 10.18(5) Triple Net Building Lease dated April 12, 2000 between Pacific Shores Development LLC, as Lessor, and BroadVision, Inc., as Lessee, for Premises at Pacific Shores Center, Building 4, Redwood City, California. 10.19(5) Triple Net Building Lease dated February 16, 2000 between Pacific Shores Development LLC, as Lessor, and BroadVision, Inc., as Lessee, for Premises at Pacific Shores Center, Building 5, Redwood City, California. 10.20(5) Triple Net Building Lease dated April 12, 2000 between Pacific Shores Development LLC, as Lessor, and BroadVision, Inc., as Lessee, for Premises at Pacific Shores Center, Building 6, Redwood City, California. 10.21(5)(a) 2000 Non-Officer Incentive Plan 10.22(6) Building Lease dated March 21, 2000 between VEF III Funding LLC, as Landlord, and Interleaf, Inc., as Tenant, for premises located at 400 Fifth Avenue, Waltham, Massachusetts. 10.23(6) Amendment, dated April 26, 2000, of lease dated March 21, 2000 between VEF III Funding LLC, as Landlord, and Interleaf, Inc., as Tenant, for premises located at 400 Fifth Avenue, Waltham, Massachusetts 21.1 Subsidiaries of the Company. 23.1 Report on Financial Statement Schedule and Consent of KPMG LLP, Independent Auditors. 23.2 Consent of Arthur Andersen LLP. 24.1 Power of Attorney. (See page 60) (1) Incorporated by reference to the Company's Proxy Statement filed on September 13, 1999. (2) Incorporated by reference to the Company's 10-Q for the quarter ended September 30, 1997 filed on November 12, 1997. 63(3) Incorporated by reference to the Company's Registration Statement on Form S-3 filed on March 4, 1998. (4) Incorporated by reference to the Company's Registration Statement on Form S-4 filed on March 6, 2000. (5) Incorporated by reference to the Company's 10-Q for the quarter ended March 31, 2000 filed on May 15, 2000. (6) Incorporated by reference to the Company's 10-Q for the quarter ended June 30, 2000 filed on August 14, 2000. (a) Represents a management contract or compensatory plan or arrangement. (b) Confidential treatment requested. 64