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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-28252
BROADVISION, INC.
-----------------
(Exact name of registrant as specified in its charter)
Delaware 94-3184303
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
585 Broadway, Redwood City, California 94063
-------------------------------------- -----
(Address of principal executive offices) (Zip code)
(650) 261-5100
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
As of April 30, 1998 there were 24,116,327 shares of the Registrant's
Common Stock issued and outstanding.
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<PAGE>
BROADVISION, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1998
TABLE OF CONTENTS
Page No.
--------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations -
Three months ended March 31, 1998 and 1997 3
Consolidated Balance Sheets -
March 31, 1998 and December 31, 1997 4
Consolidated Statements of Cash Flows -
Three months ended March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative disclosure About Market Risk 13
PART II OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 14
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BROADVISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three Months Ended
March 31,
1998 1997
-------- --------
Revenues:
Software licenses $ 7,279 $ 3,148
Services 2,800 2,143
-------- --------
Total revenues 10,079 5,291
Cost of revenues:
Cost of software licenses 187 214
Cost of services 1,620 1,143
-------- --------
Total cost of revenues 1,807 1,357
-------- --------
Gross profit 8,272 3,934
Operating expenses:
Research and development 2,033 1,680
Sales and marketing 5,861 4,204
General and administrative 824 746
-------- --------
Total operating expenses 8,718 6,630
-------- --------
Operating loss (446) (2,696)
Interest and other income 118 221
Interest and other expense (171) (12)
-------- --------
Net loss $ (499) $ (2,487)
======== ========
Basic and diluted net loss per share $ (0.02) $ (0.12)
======== ========
Shares used in computing basic and
diluted net loss per share 20,456 20,002
======== ========
See Accompanying Notes to Consolidated Financial Statements
3
<PAGE>
<TABLE>
BROADVISION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
March 31, December 31,
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 57,129 $ 8,277
Restricted cash -- 1,400
Short-term investments, restricted -- 796
Accounts receivable, less allowance for doubtful
accounts and returns of $575 and $671, for 1998
and 1997, respectively 10,792 9,586
Prepaids and other current assets 984 566
-------- --------
Total current assets 68,905 20,625
Property and equipment, net 7,113 6,467
Other assets 327 250
-------- --------
Total assets $ 76,345 $ 27,342
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 4,341 $ 4,031
Unearned revenue 1,751 1,335
Deferred maintenance 3,008 2,552
Current portion of capital lease obligations 773 773
Current portion of long-term debt 548 449
-------- --------
Total current liabilities 10,421 9,140
Long-term liabilities 3,967 3,081
-------- --------
Total liabilities 14,388 12,221
Stockholders' equity
Common stock 87,611 40,368
Deferred compensation (1,513) (1,605)
Accumulated deficit (24,141) (23,642)
-------- --------
Total stockholders' equity 61,957 15,121
-------- --------
Total liabilities
and stockholders' equity $ 76,345 $ 27,342
======== ========
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
4
<PAGE>
<TABLE>
BROADVISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
Three Months Ended
March 31,
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (499) $ (2,487)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization 608 326
Amortization of deferred compensation 92 110
Allowance for doubtful accounts and returns 245 185
Changes in operating assets and liabilities:
Accounts receivable (1,451) (2,463)
Prepaids and other current assets (418) (188)
Accounts payable and accrued expenses 310 400
Unearned revenue and deferred maintenance 872 249
Other liabilities (5) (2)
-------- --------
Net cash used for operating activities (246) (3,870)
Cash flows from investing activities:
Acquisition of property and equipment (1,254) (474)
Increase in other assets (77) (81)
Purchase of short-term investments -- (1,532)
Maturity of short-term investments 796 2,112
-------- --------
Net cash provided by (used for) investing
activities (535) 25
Cash flows from financing activities:
Net change in restricted cash 1,400 --
Proceeds from issuance of common stock 47,243 247
Proceeds from borrowings 1,187 --
Capital lease payments (197) (110)
-------- --------
Net cash provided by financing activities 49,633 137
-------- --------
Net increase (decrease) in cash and cash equivalents 48,852 (3,708)
Cash and cash equivalents at beginning of period 8,277 17,608
-------- --------
Cash and cash equivalents at end of period $ 57,129 $ 13,900
======== ========
Non-cash investing and financing activities:
Acquisition of equipment under capital lease $ -- $ 178
======== ========
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
5
<PAGE>
BROADVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Summary of Significant Accounting Policies
Nature of Business - BroadVision, Inc. ("BroadVision" or the "Company")
develops, markets and supports integrated application software solutions
exclusively designed to manage one-to-one relationships for the extended
enterprise. These total end to end solutions allow a business to capitalize on
the Internet as a unique platform to conduct commerce, provide critical
self-service functions, and deliver targeted personalized information to their
customers, suppliers, distributors, employees, or any other constituent of their
extended enterprise on a real-time interactive basis.
Basis of Presentation - The accompanying consolidated financial statements
include the accounts of BroadVision, and its wholly owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Interim Financial Information - The accompanying financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions for Form 10-Q and Article 10 of
Regulation S-X. In the Company's opinion, the financial statements include all
adjustments, consisting of normal recurring adjustments, which the Company
considers necessary to fairly state the Company's financial position and the
results of operations and cash flows. The balance sheet at December 31, 1997 has
been derived from the audited financial statements at that date but does not
include all of the necessary informational disclosures and footnotes as required
by Generally Accepted Accounting Principles. The accompanying financial
statements should be read in conjunction with the financial statements and notes
thereto included with the Company's annual report on Form 10-K and other
documents filed with the Securities and Exchange Commission. The results of the
Company's operations for any interim period are not necessarily indicative of
the results of the Company's operations for any other interim period or for a
full fiscal year.
Net Loss Per Share - The Financial Accounting Standards Board ("FASB") recently
issued Statement of Financial Accounting Standard ("SFAS") No. 128, Earnings Per
Share, which requires the presentation of basic net income per share, and for
companies with complex capital structures, diluted net income per share. The
Company has net losses for all periods presented and there is no difference
between the previously reported primary loss per share amounts and the amounts
currently reported as basic and diluted loss per share. Because their effects
would be anti-dilutive, stock options to acquire 4,188,010 shares and a warrant
to acquire 60,000 shares of common stock at weighted average exercise prices of
$5.41 and $8.50, respectively, have been excluded from the computation of basic
and diluted earnings per share for the quarter ended March 31, 1998. In
conjunction with the Company's adoption of SFAS No. 128, the Company also
adopted the provisions of Staff Accounting Bulletin ("SAB") No. 98, issued in
February 1998. Accordingly, shares previously included pursuant to SAB No. 83
have been omitted from both basic and diluted net income per share amounts and
prior periods have been restated as applicable.
Recent Accounting Pronouncements - Effective January 1, 1998, the Company
adopted the provisions of SFAS No. 130, Reporting of Comprehensive Income. SFAS
No. 130 establishes standards for the display of comprehensive income and its
components in a full set of financial statements. Comprehensive income includes
all changes in equity during a period except those resulting from the issuance
of shares of stock and distributions to stockholders. There were no material
differences between net loss and comprehensive income (loss) during the quarters
ended March 31, 1998 and 1997.
6
<PAGE>
Note 2. Selective Balance Sheet Detail (in thousands)
<TABLE>
Property and Equipment consisted of the following:
<CAPTION>
March 31, December 31,
1998 1997
---- ----
<S> <C> <C>
Furniture and fixtures $ 741 $ 636
Computers and software 6,063 5,458
Leasehold improvements 3,324 2,780
----------- ---------
10,128 8,874
Less accumulated depreciation and amortization 3,015 2,407
----------- ---------
$ 7,113 $ 6,467
=========== =========
</TABLE>
<TABLE>
Accrued expenses consisted of the following:
<CAPTION>
March 31, December 31,
1998 1997
---- ----
<S> <C> <C>
Employee benefits $ 532 $ 420
Commissions and bonuses 1,147 833
Directors and officers insurance premiums - 57
Taxes payable 372 366
Contractors fees 99 162
Other 565 330
----------- ----------
$ 2,715 $ 2,168
=========== ==========
</TABLE>
Note 3. Commercial Credit Facilities
The Company has a revolving line of credit (based on eligible accounts
receivable) and a term debt credit facility with its commercial lender that
provide for up to $2.3 million and $4.8 million of total borrowings,
respectively. As of March 31, 1998, the Company had total borrowings of $3.8
million under its term debt credit facility and outstanding commitments in the
form of two standby letters of credit totaling $2.2 million under its revolving
line of credit. During the quarter ended March 31, 1998, the Company's
commercial lender increased total available borrowings under its existing term
debt credit facility from $4.3 million to $4.8 million.
The Company's credit facilities include covenants which impose certain
restrictions on the payment of dividends and other distributions and require the
Company to maintain monthly financial covenants, including a minimum quick
ratio, tangible net worth ratio and minimum cash reserves. The minimum cash
reserves covenant is replaced with a minimum debt service coverage ratio upon
six consecutive quarters of profitability. Borrowings are collateralized by a
security interest in substantially all of the Company's owned assets. The
Company was in compliance with all of its financial covenants as of March 31,
1998.
Note 4. Common Stock
During the quarter ended March 31, 1998, the Company completed a
successful secondary public stock offering and issued 3,000,000 shares of common
stock for net proceeds of approximately $47.2 million. During April 1998, the
Company's Underwriters exercised their over-allotment option and the Company
issued an additional 455,850 shares of common stock for net proceeds of
approximately $7.1 million.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER SIGNIFICANTLY FROM
THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED HEREIN WITH THIS
QUARTERLY REPORT ON FORM 10-Q, THE COMPANY'S ANNUAL REPORT ON FORM 10-K, AND
OTHER DOCUMENTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ANY SUCH
FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE SUCH STATEMENTS ARE MADE.
OVERVIEW
BroadVision develops, markets and supports integrated application
software solutions exclusively designed to manage one-to-one relationships for
the extended enterprise. These total end to end solutions allow a business to
capitalize on the Internet as a unique platform to conduct commerce, provide
critical self-service functions, and deliver targeted personalized information
to their customers, suppliers, distributors, employees, or any other constituent
of their extended enterprise on a real-time interactive basis.
BroadVision's product line provides a competitive advantage for
businesses by allowing them to specifically tailor Web site content to the
personalized needs and interests of individual visitors on a real-time
interactive basis. BroadVision One-To-One applications accomplish this by
capturing Web site visitor profiles, dynamically organizing enterprise
information, targeting specialized content to each visitor based on easily
constructed business rules, and providing the means to facilitate the execution
of secure transactions. The Company believes the competitive advantages and
benefits of these applications include, among other things, enhanced customer
satisfaction and loyalty, increased business volumes, reduced costs with regards
to servicing customers and executing transactions as well as significantly
enhancing employee productivity.
The Company's core product, the BroadVision One-To-One Application
System, was first made commercially available in December 1995. Version 3.0, the
Company's latest version, was released during the fourth quarter of 1997 and
supports five languages (English, German, Japanese, Chinese, and Korean) and
four major client/server databases (Oracle, Sybase, Informix, and Microsoft SQL
Server). In 1997, the Company released a complementary family of three packaged
application products: One-To-One Commerce, One-To-One Financial, and One-To-One
Knowledge. These products are built upon and tightly integrated with the
Company's core technology and provide specifically enhanced functionality for
the distinct customer requirements involved in managing one-to-one relationships
within product merchandising, financial services, and knowledge management.
The Company sells its products and services worldwide through a direct
sales force, independent distributors, value-added resellers, and system
integrators. It also has a global network of strategic business relationships
with key industry platform and Web developer partners.
The Company has achieved good market acceptance for its products.
However, the Company does have a limited operating history, and its prospects
must be evaluated in light of the risks and uncertainties frequently encountered
by a company within its early stages of development. Some of the risks and
uncertainties associated with the Company's stage of development relate to the
new and rapidly evolving markets in which it operates. These related market
risks include, among other things, the early stage of development for online
commerce, the dependence of online commerce on the continued development of the
Internet and its related infrastructure, the uncertainty of widespread adoption
of online commerce and the risk of government regulation of the Internet. Other
risks and uncertainties facing the Company relate to the Company's ability to
continue to, among other things, successfully implement its marketing
strategies, respond to competitive developments, develop and upgrade its
products and technologies more rapidly than its competitors, and commercialize
its products and services by incorporating these enhanced technologies. There
can be no assurance that the Company will succeed in addressing any or all of
these risks. A more complete description of these and other risks relating to
the Company's business is set forth herein under "Factors Affecting Quarterly
Operating Results" and in the Company's annual report on Form 10-K under the
caption "Risk Factors" and elsewhere therein and other documents filed with the
Securities and Exchange Commission.
8
<PAGE>
RESULTS OF OPERATIONS
Revenues
The Company's revenues are derived from software license fees and fees
charged for its services. The Company generally recognizes license fees when the
software has been delivered, the customer acknowledges an unconditional
obligation to pay, and collectibility is probable. Professional services
revenues generally are recognized as services are performed. Software
maintenance revenues are recognized ratably over the term of the support period,
which is typically one year.
<TABLE>
Total Company revenues increased 90% during the current quarter ended
March 31, 1998 to $10.1 million as compared to $5.3 million for the quarter
ended March 31, 1997. A summary of the Company's revenues by geographic region
is as follows:
<CAPTION>
(In millions) Software % Services % Total %
- ------------- -------- - -------- - ----- -
<S> <C> <C> <C> <C> <C> <C>
Quarter Ended March 31, 1998:
North America $ 4.1 56% $ 2.0 71% $ 6.1 60%
Europe 2.3 32 0.5 18 2.8 28
Asia/Pacific 0.9 12 0.3 11 1.2 12
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 7.3 100% $ 2.8 100% $ 10.1 100%
====================================================================================================================================
Quarter Ended March 31, 1997:
North America $ 1.4 44% $ 0.9 43% $ 2.3 44%
Europe 1.3 40 0.3 14 1.6 30
Asia/Pacific 0.5 16 0.9 43 1.4 26
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 3.2 100% $ 2.1 100% $ 5.3 100%
====================================================================================================================================
</TABLE>
Software product license revenues increased 131% to $7.3 million during
the current quarter ended March 31, 1998 as compared to $3.2 million for the
quarter ended March 31, 1997. The increase is primarily a result of continued
strong market acceptance for the Company's core technology, BroadVision
One-To-One, and three new complementary WebApp packaged solutions, BroadVision
One-To-One Commerce, BroadVision One-To-One Financial, and BroadVision
One-To-One Knowledge that were first introduced in 1997. During the first
quarter of 1998, the Company licensed approximately 30 new customers (including
partners) which compares to approximately 25 new licensed customers (including
partners) during the first quarter of 1997.
Services revenues increased 31% to $2.8 million during the current
quarter ended March 31, 1998 as compared to $2.1 million for the quarter ended
March 31, 1997. Services revenues consist primarily of professional services and
maintenance. The Company's professional services include design and
implementation of applications based on BroadVision One-To-One technology,
project management, custom development of objects and templates, and education
and training regarding the Company's products. Professional services are
generally offered on a time and materials basis. Maintenance revenue is
generally derived from annual service agreements and is recognized ratably over
the period of the agreement, typically one year. Maintenance fees are based on a
percentage of the list price for the related software.
Professional services revenues increased 15% to $2.0 million during the
current quarter ended March 31, 1998 as compared to $1.8 million for the quarter
ended March 31, 1997. Professional services revenues as a percentage of total
services revenues were 72% and 82% during the first quarters of 1998 and 1997,
respectively. The increase in professional services revenues in absolute dollar
terms is a result of higher business volumes. In relative terms, professional
services revenues as a percentage of total services revenues declined as the mix
between professional services and maintenance revenues shift, and as a result of
the Company's strategy to leverage off of partners in order to maximize
deployments, which allows the Company to achieve higher volumes without
significant increases in its services organization. As the Company's strategy of
developing business alliances with third parties continues to expand,
professional services revenues as a percentage of total services revenues may
continue to decline.
9
<PAGE>
Maintenance revenues increased 103% to $788,000 during the current
quarter ended March 31, 1998 as compared to $388,000 for the quarter ended March
31, 1997. Maintenance revenues as a percentage of total services revenues were
28% and 18% during the first quarters of 1998 and 1997, respectively. The
increase in maintenance revenues is a result of expanding software sales and the
corresponding maintenance fees relating to a larger installed base of software
licenses. As of March 31, 1998, the Company had licensed its products to over
180 customers. This compares with a total licensed base of over 150 customers as
of December 31, 1997, and over 70 customers as of March 31, 1997. As the
Company's installed license base grows, its maintenance revenues as a percentage
of total services revenues may continue to increase.
Operating Expenses
Cost of software licenses includes royalties payable to third parties
for software that is either embedded in, or bundled and sold with, the Company's
products; commissioned agent fees paid to distributors; and the costs of product
media, duplication, packaging and other associated manufacturing costs.
Cost of software licenses was $187,000 (or 3% of total license
revenues) for the current quarter ended March 31, 1998 as compared to $214,000
(or 7% of total license revenues) for the quarter ended March 31, 1997, which
represents a decrease of 13% for the first quarter of 1998 in relation to the
first quarter of 1997. Cost of software licenses decreased in both absolute
dollar and percentage terms during the first quarter of 1998 as compared to the
first quarter of 1997 due to the mix of commissioned agent sales versus Company
generated sales.
Cost of services consists primarily of employee-related costs and
third-party consultant fees incurred as a result of consulting projects,
post-contract customer support, and instructional training services.
Cost of services was $1.6 million (or 58% of total services revenues)
for the current quarter ended March 31, 1998 as compared to $1.1 million (or 53%
of total services revenues) for the quarter ended March 31, 1997, which
represents an absolute dollar increase of 42% for the first quarter of 1998 in
relation to the first quarter of 1997. Cost of services increased in absolute
dollar terms during 1998 as compared to 1997 due to expanded business volumes,
as represented by the 31% increase in total services revenues. The overall level
of costs increased as a result of additions to the Company's consulting staff,
the employment of outside consultants to meet short-term consulting
arrangements, an increasing number of licenses with support or maintenance
components, and a higher level of fixed costs resulting from the Company's
expansion of its services organization to meet higher business volumes. The
increase in cost of services as a percentage of total services revenues during
the current quarter as compared to the prior year comparable quarter is a result
of higher utilization of outside consultants in relation to the extent
previously utilized during the comparable prior year quarter. The Company
expects that services costs will continue to increase in absolute dollars as the
Company continues to expand its services organization to support anticipated
higher levels of business.
Research and development expenses consist primarily of salaries, other
employee-related costs, and consulting fees relating to the development of the
Company's products.
Research and development expenses were $2.0 million for the current
quarter ended March 31, 1998 as compared to $1.7 million for the quarter ended
March 31, 1997, which represents an increase of 21% for the first quarter of
1998 in relation to the first quarter of 1997. The increases in research and
development expenses are primarily attributable to costs associated with
additional personnel within those operations for the enhancement of existing
products and the development of new products. The Company anticipates that
research and development expenses will continue to increase in absolute dollars
terms. Development costs incurred for 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. As of March 31, 1998, no software
development costs had been capitalized.
10
<PAGE>
Sales and marketing expenses consist primarily of salaries and other
employee-related costs, commissions and other incentive compensation, travel and
entertainment, and marketing program expenditures such as collateral materials,
trade shows, public relations, and creative services.
Sales and marketing expenses were $5.9 million for the current quarter
ended March 31, 1998 as compared to $4.2 million for the quarter ended March 31,
1997, which represents an increase of 39% for the first quarter of 1998 in
relation to the first quarter of 1997. The overall increases in sales and
marketing expenditures reflect the cost of hiring additional sales and marketing
personnel, developing and expanding its sales distribution channels, deploying
new products, and expanding promotional activities. The Company expects to
continue to expand its direct sales and marketing efforts and expects sales and
marketing expenses to continue to increase in absolute dollars.
General and administrative expenses consist primarily of salaries,
other employee-related costs, and professional service fees.
General and administrative expenses were $824,000 for the current
quarter ended March 31, 1998 as compared to $746,000 for the quarter ended March
31, 1997, which represents an increase of 10% for the first quarter of 1998 in
relation to the first quarter of 1997. The increases in general and
administrative expenses are attributable to the hiring of additional
administrative and management personnel, increased professional fees, and
additional infrastructure to support the expansion of the Company's operations.
The Company expects to continue to add administrative staff to support broadened
operations. As a result, the Company expects that general and administrative
expenses will continue to increase in absolute dollars.
The Company recorded deferred compensation of $2.4 million relating to
the difference between the exercise price and the deemed fair value of the
Company's Common Stock with respect to 1,794,000 shares issueable upon exercise
of options granted prior to its initial public stock offering in June of 1996.
This deferred compensation is being amortized to cost of services, research and
development, selling and marketing, and general and administrative expenses over
the vesting periods of the respective options, generally 60 months. Deferred
compensation expense for the current quarter ended March 31, 1998 was $92,000 as
compared to $110,000 for the quarter ended March 31, 1997. Reported results will
reflect deferred amortization expense through the year 2003, but such effect
will be significantly reduced beginning in the third quarter of 2001.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, the Company had $57.1 million of cash and cash
equivalents as compared to $10.5 million of cash, cash equivalents, restricted
cash and short-term investments as of December 31, 1997, which represents an
increase of $46.6 million. The increase in cash and cash equivalents was
principally attributable to the Company's secondary public stock offering that
netted the Company total proceeds of approximately $47.2 million.
During the quarter ended March 31, 1998, the Company had approximately
$1.3 million of capital expenditures, approximately $1.2 million of additional
borrowings and $246,000 was used for operating activities. The Company currently
has no significant capital commitments other than obligations under equipment
and operating leases, $2.2 million of commitments relating to standby letters of
credit, and $3.8 million of outstanding term debt. During the first quarter of
1998, the Company's commercial bank increased its credit facility to provide for
total borrowings of up to $7.1 million.
During April 1998, the Underwriters for the Company's secondary stock
offering exercised their over-allotment option and the Company issued an
additional 455,850 shares of common stock for net proceeds of approximately $7.1
million.
The Company believes that its available cash resources, cash generated
from operations and amounts available under its commercial credit facilities
will be sufficient to meet its expected working capital and capital expenditure
requirements for at least the next 12 months.
11
<PAGE>
FACTORS AFFECTING QUARTERLY OPERATING RESULTS
The Company expects to experience significant fluctuations in quarterly
operating results that may be caused by many factors including, but not limited
to, those discussed below and herein with this quarterly report on Form 10-Q, as
contained in the Company's annual report on Form 10-K under the caption "Risk
Factors" and elsewhere therein, and as disclosed in other documents filed with
the Securities and Exchange Commission. Significant fluctuations in future
quarterly operating results that may be caused by many factors including, among
others, the timing of introductions or enhancements of products and services by
the Company or its competitors, the length of the Company's sales cycle, market
acceptance of new products, the pace of development of the market for online
commerce, the mix of the Company's products sold, the size and timing of
significant orders and the timing of customer production or deployment, demand
for the Company's products, changes in pricing policies by the Company or its
competitors, changes in the Company's sales incentive plans, budgeting cycles of
its customers, customer order deferrals in anticipation of new products or
enhancements by the Company or its competitors, nonrenewal of service
agreements, product life cycles, software defects and other product quality
problems, changes in strategy, changes in key personnel, the extent of
international expansion, seasonal trends, the mix of distribution channels
through which the Company's products are sold, the mix of international and
domestic sales, changes in the level of operating expenses to support projected
growth, and general economic conditions. The Company anticipates that a
significant portion of its revenues will be derived from a limited number of
orders, and the timing of receipt and fulfillment of any such orders is expected
to cause material fluctuations in the Company's operating results, particularly
on a quarterly basis. As with many software companies, the Company anticipates
that it will make the major portion of each quarter's deliveries near the end of
each quarter and, as a result, short delays in delivery of products at the end
of a quarter could adversely affect operating results for that quarter. In
addition, the Company intends, in the near term, to increase significantly its
personnel, including its domestic and international direct sales force. The
timing of such expansion and the rate at which new sales people become
productive could also cause material fluctuations in the Company's quarterly
operating results.
Due to the foregoing factors, quarterly revenues and operating results
are difficult to forecast, and the Company believes that period-to-period
comparisons of its operating results will not necessarily be meaningful and
should not be relied upon as any indication of future performance. It is likely
that the Company's future quarterly operating results from time to time will not
meet the expectations of market analysts or investors, which may have an adverse
effect on the price of the Company's Common Stock. The Company anticipates that
its operating expenses will continue to be substantial in relation to total
revenues as it continues the development of its technology, increases its sales
and marketing activities, and creates and expands its distribution channels.
Accordingly, the Company may incur additional losses for the foreseeable future.
In addition, the Company's limited operating history makes the prediction of
future results of operations difficult and, accordingly, there can be no
assurance that the Company will be able to sustain its revenue growth or achieve
profitability. The Company's limited operating history also requires that its
prospects be evaluated in light of the risks and uncertainties frequently
encountered by a company in its early stages of development. Some of these risks
and uncertainties relate to the new and rapidly evolving nature of the markets
in which the Company operates. These related market risks include, among other
things, the early stage of the developing online commerce market, the dependence
of online commerce on the development of the Internet and its related
infrastructure, the uncertainty pertaining to widespread adoption of online
commerce, and the risk of government regulation of the Internet. Other risks and
uncertainties facing the Company relate to the Company's ability to, among other
things, successfully implement its marketing strategies, respond to competitive
developments, continue to develop and upgrade its products and technologies more
rapidly than its competitors, and commercialize its products and services by
incorporating these enhanced technologies. There can be no assurance that the
Company will succeed in addressing any or all of these risks. A more complete
description of these and other risks relating to the Company's business is set
forth in the Company's annual report on Form 10-K under the caption "Risk
Factors" and elsewhere therein and other documents filed with the Securities and
Exchange Commission. It is also likely that the Company's future quarterly
operating results from time to time will not meet the expectations of market
analysts or investors, which may have an adverse effect on the price of the
Company's Common Stock.
Year 2000 Compliance - Many currently installed computer systems and software
products are coded to accept two digit entries in the date code field. These
date code fields will need to accept four digit entries to distinguish 21st
century dates from 20th century dates. As a result, in less than two years,
12
<PAGE>
computer systems and software used by many companies may need to be upgraded to
comply with such "Year 2000" requirements. Although the Company's products are
Year 2000 compliant, the Company believes that the purchasing patterns of
customers and potential customers may be affected by Year 2000 issues as
companies expend significant resources to correct or patch their current
software systems for Year 2000 compliance. These expenditures may result in
reduced funds available to purchase software products such as those offered by
the Company, which could have a material adverse effect on the Company's
business, financial condition, and operating results. In addition, even if the
Company's products are Year 2000 compliant, other systems or software used by
the Company's customers may not be Year 2000 compliant. The failure of such
noncompliant third-party software or systems could affect the perceived
performance of the Company's products, which could have a material adverse
effect on the Company's business, financial condition, and operating results.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Use of Proceeds
(1) The effective date of the Company's registration statement filed on Form
S-1 (No. 333-3844) (the "Registration Statement") for which the following
information is being disclosed is June 21, 1996.
(2) The Company's initial public offering pursuant to the Registration
Statement commenced on June 21, 1996 (the "Offering").
(3) The Offering did not terminate before any securities were sold.
(4) (i) The Offering has terminated.
(ii) The managing underwriters were Robertson, Stephens & Company,
Hambrecht & Quist and Wessels, Arnold & Henderson.
(iii) The Offering was for Common Stock of the Company.
(iv) Pursuant to the Offering, the Company registered and sold 3,360,000
shares of Common Stock with an aggregate offering price of the
amount registered and sold of $23,520,000.
(v) Following are the amount of expenses incurred (a) from the effective
date of the Registration Statement to the ending period of the
reporting period and (b) for the Company's account in connection
with the issuance and distribution of the Common Stock pursuant to
the Offering:
Underwriting discounts and commissions $1,646,000
Finders' Fees None
Expenses paid to or for underwriters None
Other expenses 1,119,000
----------
Total expenses $2,765,000
The above expenses constituted direct or indirect payments to
others.
(vi) The net offering proceeds to the Company, after deducting the total
expenses above, were $20,755,000.
(vii) Following are the uses, including amounts, of the net offering
proceeds from the effective date of the Registration Statement to
the ending period of the reporting period:
Construction of plant, building
and facilities or leasehold improvements $3,179,000
Purchases and installation of machinery,
and equipment 5,343,000
Purchase of real estate None
Acquisition of other business(es) None
Repayment of indebtedness None
Working capital 12,233,000
Other purposes None
All of the foregoing uses were direct or indirect payment to others.
(viii) The use of proceeds described in (vii) above does not represent a
material change in the use of proceeds described in the prospectus.
13
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Item Description
---- -----------
10.1* Equity Incentive Plan as amended March 11, 1998
10.2* Employee Stock Purchase Plan as amended March 11, 1998
27.1 Financial Data Schedule
* Filed as an exhibit to the Company's Proxy Statement filed on April 16,
1998 and incorporated herein by reference .
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BROADVISION, INC
Date: May 15, 1998 /s/ Pehong Chen
- ------------------ ---------------------------------------------
Pehong Chen
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 15, 1998 /s/ Randall C. Bolten
- ------------------ ---------------------------------------------
Randall C. Bolten
Vice President, Operations and Chief Financial Officer
(Principal Financial and Accounting Officer)
14
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Description
- ------- ------------------------------------------------------
10.1* Equity Incentive Plan, as amended March 11, 1998
10.2* Employee Stock Purchase Plan, as amended March 11, 1998
27.1 Financial Data Schedule
* Filed as an exhibit to the Company's Proxy Statement filed on April 16,
1998 and incorporated herein by reference.
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTER ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-Q FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. EPS PRIMARY REPRESENTS BASIC NET LOSS PER SHARE. THE
COMPANY HAS NOT FILED A RESTATED FINANCIAL DATA SCHEDULE FOR THE
PREVIOUSLY REPORTED PERIOD BECAUSE IT HAD NET LOSSES FOR THE
THREE-MONTH PERIOD ENDED MARCH 31, 1997, AND AMOUNTS PREVIOUSLY
REPORTED FOR EPS-PRIMARY AND EPS- DILUTED DO NOT DIFFER FROM CURRENTLY
REPORTED BASIC AND DILUTED EARNINGS PER SHARE, RESPECTIVELY.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 25,455
<SECURITIES> 31,674
<RECEIVABLES> 11,367
<ALLOWANCES> (575)
<INVENTORY> 0
<CURRENT-ASSETS> 68,905
<PP&E> 10,128
<DEPRECIATION> (3,015)
<TOTAL-ASSETS> 76,345
<CURRENT-LIABILITIES> 10,421
<BONDS> 0
0
0
<COMMON> 87,611
<OTHER-SE> (25,654)
<TOTAL-LIABILITY-AND-EQUITY> 76,345
<SALES> 7,279
<TOTAL-REVENUES> 10,079
<CGS> 187
<TOTAL-COSTS> 1,807
<OTHER-EXPENSES> 8,718
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (171)
<INCOME-PRETAX> (499)
<INCOME-TAX> 0
<INCOME-CONTINUING> (499)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (499)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
