<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 000-25375
VIGNETTE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 74-2769415
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
901 South Mopac Expressway
Austin, Texas 78746
(Address of principal executive offices)
________________
(512) 306-4300 (Registrant's telephone number, including area code)
________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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
(1) Yes X No
------- -------
(2) Yes X No
------- -------
As of July 31, 1999 there were 27,792,981 shares of the Registrant's common
stock outstanding.
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1
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VIGNETTE CORPORATION
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets at June 30, 1999
and December 31, 1998 3
Condensed Consolidated Statements of Operations for the
three months and six months ended June 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows for the
six months ended June 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk 17
PART II. OTHER INFORMATION 28
Item 6. Exhibits and Reports on Form 8-K 28
SIGNATURES 29
2
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
VIGNETTE CORPORATION
Condensed Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- ------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 73,753 $ 12,242
Accounts receivable, net 14,251 7,488
Prepaid expenses and other 2,393 390
-------- --------
Total current assets 90,397 20,120
Property and equipment, net 4,737 1,754
Intangibles 15,650 -
Acquired technology 6,300 -
Other assets 2,871 907
-------- --------
Total assets $119,955 $ 22,781
======== ========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable and accrued expenses $ 12,711 $ 8,090
Deferred revenues 18,027 6,092
Current portion of long-term debt and capital lease 274 1,902
Other current liabilities 837 279
-------- --------
Total current liabilities 31,849 16,363
Long-term debt and capital lease, less current portion 82 758
-------- --------
Total liabilities 31,931 17,121
Redeemable convertible preferred stock - 36,258
Warrant - 169
Stockholders' equity (deficit) 88,024 (30,767)
-------- --------
Total liabilities and stockholders' equity (deficit) $119,955 $ 22,781
======== ========
</TABLE>
See accompanying notes.
3
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VIGNETTE CORPORATION
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
----------------------------- ---------------------------
1999 1998 1999 1998
-------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Revenue:
Product license $ 7,575 $ 1,629 $ 12,198 $ 2,922
Services 7,298 1,293 11,807 2,251
-------- ------- -------- --------
Total revenue 14,873 2,922 24,005 5,173
Cost of revenue:
Product license 734 219 1,153 244
Services 5,765 1,867 10,234 2,717
-------- ------- -------- --------
Total cost of revenue 6,499 2,086 11,387 2,961
Gross profit 8,374 836 12,618 2,212
Operating expenses:
Research and development 2,992 1,867 5,717 2,979
Sales and marketing 10,027 3,324 16,580 5,001
General and administrative 1,738 1,134 3,349 1,832
Charge for purchased in-process
research and development,
acquisition-related, and other
charges 14,690 2,089 14,690 2,089
Amortization of deferred
stock compensation 1,288 499 2,957 515
-------- ------- -------- --------
Total operating expenses 30,735 8,913 43,293 12,416
-------- ------- -------- --------
Loss from operations (22,361) (8,077) (30,675) (10,204)
Other income, net 834 25 1,210 63
-------- ------- -------- --------
Net loss $(21,527) $(8,052) $(29,465) $(10,141)
======== ======= ======== ========
Basic net loss per share $(0.86) $(3.67) $(1.54) $(4.96)
======== ======= ======== ========
Shares used in computing
basic net loss per share 25,122 2,196 19,088 2,043
======== ======= ======== ========
</TABLE>
See accompanying notes.
4
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VIGNETTE CORPORATION
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
---------------------------
1999 1998
------------- ------------
<S> <C> <C>
Operating activities:
Net loss $(29,465) $(10,141)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation 1,019 514
Non cash compensation expense 2,957 515
Charge for purchased in-process research and
development, acquisition-related, and other charges 14,512 2,000
Loss on disposal of fixed assets - 101
Changes in operating assets and liabilities net of
effects from purchase of business:
Accounts receivable, net (6,648) (2,744)
Prepaid expenses and other assets (1,628) (112)
Accounts payable and accrued expenses 2,881 1,614
Deferred revenue 11,218 1,663
Other liabilities 415 120
-------- --------
Net cash used in operating activities (4,739) (6,470)
Investing activities:
Purchase of property and equipment (3,824) (625)
Purchase of business, net of cash acquired 56 -
Purchase of equity securities (2,000) -
-------- --------
Net cash used in investing activities (5,768) (625)
Financing activities:
Proceeds from issuance of common stock, net 74,008 -
Proceeds from issuance of series F convertible preferred
stock, net - 14,292
Payments for series G convertible preferred stock
issuance costs - (12)
Proceeds from long-term debt and capital lease obligation - 1,837
Payments on long-term debt and capital lease obligation (2,660) (11)
Proceeds from exercise of stock options 632 165
Payments for repurchase of unvested common stock (3) (1)
-------- --------
Net cash provided by financing activities 71,977 16,270
Effect of exchange rate on cash and cash equivalents 41 1
-------- --------
Net increase in cash and cash equivalents 61,511 9,176
Cash and cash equivalents at beginning of period 12,242 6,865
-------- --------
Cash and cash equivalents at end of period $ 73,753 $ 16,041
======== ========
</TABLE>
Supplemental schedule for noncash investing and financing activities:
Effective June 30, 1999, the Company purchased all of the outstanding capital
stock of Diffusion, Inc. in exchange for 393,271 shares of the Company's common
stock. In conjunction with the acquisition, the fair value of assets acquired
and liabilities assumed were as follows:
Fair value of assets acquired $34,190
Liabilities assumed (2,956)
--------
Fair value of common stock issued and transaction costs $31,234
========
See accompanying notes.
5
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VIGNETTE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
1. General and Basis of Financial Statements
The unaudited interim condensed consolidated financial statements include the
accounts of Vignette Corporation and its wholly-owned subsidiaries
(collectively, the "Company" or "Vignette"). All material intercompany accounts
and transactions have been eliminated in consolidation.
In February 1999, the Company completed an initial public offering in which the
Company sold 4,280,000 shares of its common stock for net proceeds to the
Company of $73.8 million. Upon closing of the initial public offering, each
outstanding share of the Company's Redeemable Convertible Preferred Stock and
Convertible Preferred Stock was automatically converted into one share of common
stock of the Company resulting in the issuance of 16,958,319 shares of common
stock.
The financial statements included herein reflect all adjustments, consisting
only of normal recurring adjustments, which in the opinion of management are
necessary to fairly state the Company's financial position, results of
operations and cash flows for the periods presented. These financial statements
should be read in conjunction with the Company's consolidated financial
statements and notes thereto for the year ended December 31, 1998, which are
contained in the Company's Registration Statement filed on Form S-1, as amended,
on February 18, 1999 (File No. 333-68345) as well as with other documents filed
with the Securities and Exchange Commission. The results of operations for the
three-month and six-month periods ended June 30, 1999 and 1998 are not
necessarily indicative of results that may be expected for any other interim
period or for the full fiscal year.
2. Net Loss Per Share
Basic loss per share is based on the weighted effect of all common shares issued
and outstanding and is calculated by dividing net loss available to common
stockholders by the weighted average shares outstanding during the period.
Diluted loss per share is calculated by dividing net loss available to common
stockholders by the weighted average number of common shares used in the basic
loss per share calculation plus the number of common shares that would be issued
assuming conversion of all potentially dilutive common shares outstanding.
Diluted net loss per share has not been presented as the effect of the assumed
exercise of stock options, warrants and contingently issued shares is
antidilutive due to the Company's net loss for the indicated period.
The Company's historical capital structure is not indicative of its prospective
structure due to the automatic conversion of all shares of convertible preferred
stock and redeemable convertible preferred stock into common stock concurrent
with the closing of the Company's recent initial public offering. Accordingly, a
pro forma calculation assuming the conversion of all outstanding shares as of
June 30, 1999 and 1998 of convertible preferred stock and redeemable convertible
preferred stock into common stock upon the Company's initial public offering
using the if-converted method from their respective dates of issuance is
presented.
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The following table presents the calculation of basic and pro forma basic net
loss per share (in thousands, except per share data):
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
----------------------------- ---------------------------
1999 1998 1999 1998
-------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Net loss $(21,527) $(8,052) $(29,465) $(10,141)
======== ======= ======== ========
Basic:
Shares used in computing
basic net loss 25,122 2,196 19,088 2,043
======== ======= ======== ========
Basic net loss per share $ (0.86) $ (3.67) $ (1.54) $ (4.96)
======== ======= ======== ========
Pro forma:
Shares used above 25,122 2,196 19,088 2,043
Pro forma adjustment to
reflect weighted effect of
assumed conversion of
convertible preferred stock - 15,330 4,591 14,022
-------- ------- -------- --------
Shares used in computing pro
forma basic
net loss per share 25,122 17,526 23,679 16,065
======== ======= ======== ========
Pro forma basic net loss per
share $ (0.86) $ (0.46) $ (1.24) $ (0.63)
======== ======= ======== ========
</TABLE>
3. Comprehensive Loss
Effective July 1, 1998, the Company adopted Financial Accounting Standards Board
("FASB") Statement No. 130, Reporting Comprehensive Income ("Statement 130").
Statement 130 establishes new rules for the reporting and display of
comprehensive income (loss) and its components. The components of comprehensive
loss are as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
----------------------------- ---------------------------
1999 1998 1999 1998
-------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Net loss $(21,527) $(8,052) $(29,465) $(10,141)
Foreign currency
translation adjustments 64 2 41 1
-------- ------- -------- --------
Comprehensive loss $(21,463) $(8,050) $(29,424) $(10,140)
======== ======= ======== ========
</TABLE>
7
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4. Business Combinations
Effective June 30, 1999, Vignette acquired 100 percent of the outstanding stock
and assumed all outstanding stock options of Diffusion, Inc. ("Diffusion"), a
leader in multi-channel information delivery solutions, in exchange for 393,271
shares of Vignette common stock. The total cost of the acquisition, including
transaction costs, was approximately $31.2 million.
The acquisition was accounted for as a purchase business combination.
Accordingly, the results of operations of Diffusion will be included with those
of the Company for periods subsequent to the date of acquisition, and the
acquired net assets were recorded at their estimated fair values at the
effective date of the acquisition. The following table presents the allocation
of the purchase price (in thousands):
<TABLE>
<S> <C>
In-process research and development $11,600
Acquired technology 6,300
Workforce 900
Excess of cost over fair value of net assets acquired 14,750
Net fair value of tangible assets acquired and
liabilities assumed (2,316)
---------
$31,234
=========
</TABLE>
In connection with the transaction, the Company incurred a charge of $14.7
million for the write-off of in-process research and development, acquisition-
related expenses and integration costs in the consolidated statement of
operations for the six months ended June 30, 1999. The amounts allocated to
acquired technology and workforce are being amortized over a five-year period.
The excess of cost over fair value of net assets acquired is being amortized
over a seven-year period.
The unaudited pro forma combined results of operations of Vignette and Diffusion
for the six months ended June 30, 1999 and 1998 after giving effect to certain
pro forma adjustments are as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Six months ended June 30,
1999 1998
-------- ---------
<S> <C> <C>
Revenue $ 24,438 $ 5,866
Operating loss (21,459) (14,752)
Net loss (20,233) (14,629)
Basic loss per share $ (1.04) $ (6.04)
</TABLE>
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The statements contained in this Report on Form 10-Q that are not purely
historical statements are forward looking statements within the meaning of
Section 21E of the Securities and Exchange Act of 1934, including statements
regarding our expectations, beliefs, hopes, intentions or strategies regarding
the future. These forward-looking statements involve risks and uncertainties.
Actual results may differ materially from those indicated in such forward-
looking statements. We are under no duty to update any of the forward-looking
statements after the date of this filing on Form 10-Q to conform these
statements to actual results. See "Risk Factors that May Affect Future Results,"
and the factors and risks discussed in our Registration Statement filed on Form
S-1 on February 18, 1999 (File No. 333-68345) with the Securities and Exchange
Commission.
Overview
Vignette is a leading global provider of E-Relationship (Internet Relationship
Management) software products and services, a new category of enterprise
solutions designed to enable businesses to build sustainable online customer
relationships, increase the returns on their Internet-related investments and
capitalize on Internet business opportunities. To date, we have developed and
released several versions of our StoryServer product and have sold our products
and services to over 296 clients. We market and sell our products worldwide
primarily through our direct sales force. Our principal office is in Austin,
Texas, and we also have offices in Alexandria, Virginia; Atlanta, Georgia;
Boston, Massachusetts; Chicago, Illinois; Dallas, Texas; Newport Beach,
California; New York, New York; San Mateo, California; Valencia, California;
Denver, Colorado; Fairfax, Virginia; Mountain View, California; San Francisco,
California; Seattle, Washington; Hamburg, Germany; London, England; Paris,
France; and Sydney, Australia.
We derive our revenue from the sale of software product licenses and from
professional consulting, maintenance and support services. Product license
revenue is recognized when persuasive evidence of an agreement exists, the
product has been delivered, we have no remaining significant obligations with
regard to implementation, the license fee is fixed or determinable and
collection of the fee is probable. Services revenue consists of fees from
professional services and from maintenance and telephone support. Professional
services include integration of software, application development, training and
software installation. We recognize professional services fees billed on a
time-and-materials basis as the services are performed. We recognize
professional services fees on fixed-price service arrangements on the completion
of specific contractual milestone events, or based on an estimated percentage of
completion as work progresses. Our clients typically purchase maintenance
agreements annually, and we price maintenance agreements based on a percentage
of our current product list price. We price telephone support based on differing
levels of support. Clients purchasing maintenance agreements receive unspecified
product upgrades and electronic, Web-based technical support, while purchasers
of support contracts receive additional telephone support. We recognize revenue
from maintenance and support agreements ratably over the term of the agreement,
typically one year. We record cash receipts from clients and billed amounts due
from clients in excess of revenue recognized as deferred revenue. The timing and
amount of cash receipts from clients can vary significantly depending on
specific contract terms and can therefore have a significant impact on the
amount of deferred revenue in any given period.
Despite our revenue growth, we have incurred significant losses since inception
and, as of June 30, 1999, we had an accumulated deficit of approximately $66.7
million. We believe our success depends on further increasing our client base
and on growth in the emerging of the E-Relationship (Internet Relationship
Management) market. Accordingly, we intend to continue to invest heavily in
sales, marketing, professional services, research and development and in our
operational and financial systems. Furthermore, we expect to continue to incur
substantial operating losses at least through 1999, and our expected increase in
operating expenses will require significant increases in revenues before we
become profitable.
We had 422 full-time employees at June 30, 1999, up from 156 at June 30, 1998.
This rapid growth places a significant demand on our management and operational
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resources. In order to manage growth effectively, we must implement and improve
our operational systems, procedures and controls on a timely basis. In addition,
we expect that future expansion will continue to challenge our ability to hire,
train, motivate, and manage our employees. Competition is intense for highly
qualified technical, sales and marketing and management personnel. If our total
revenue does not increase relative to our operating expenses, our management
systems do not expand to meet increasing demands, we fail to attract, assimilate
and retain qualified personnel, or our management otherwise fails to manage our
expansion effectively, there would be a material adverse effect on our business,
financial condition and operating results.
The operating results of Diffusion, Inc., which was acquired by the Company
effective June 30, 1999, had no material impact on the Company's consolidated
statements of operations for the three and six months ended June 30, 1999,
except for the $14.7 million one-time charge for purchased in-process research
and development, acquisition-related, and other charges recorded upon
consummation of the transaction.
Results of Operations
The following table sets forth for the periods indicated the percentage of
revenues represented by certain lines in our consolidated statements of
operations.
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
----------------------------- ----------------------------
1999 1998 1999 1998
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Product license 51% 56% 51% 56%
Services 49 44 49 44
----- ----- ----- -----
Total revenue 100 100 100 100
Cost of revenue:
Product license 5 7 5 5
Services 39 64 43 53
----- ----- ----- -----
Total cost of revenue 44 71 48 58
Gross profit 56 29 52 42
Operating expenses:
Research and development 20 64 24 58
Sales and marketing 67 114 69 97
General and administrative 12 39 14 35
Charge for purchased in-process
research and development,
acquisition-related, and other
charges 99 71 61 40
Amortization of deferred
stock compensation 9 17 12 10
----- ----- ----- -----
Total operating expenses 207 305 180 240
----- ----- ----- -----
Loss from operations (151) (276) (128) (198)
Other income, net 6 1 5 1
----- ----- ----- -----
Net loss (145)% (275)% (123)% (197)%
===== ===== ===== =====
</TABLE>
Revenue
Total revenue increased 409% to $14.9 million in the three months ended June 30,
1999 from $2.9 million in the three months ended June 30, 1998. Total revenue
increased 364% to $24.0 million in the six months ended June 30, 1999 from $5.2
million in the six months ended June 30, 1998. This increase was attributable
to an
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increase in our client base, which grew from 108 in the second quarter of 1998
to 296 in the second quarter of 1999, combined with an increase in the average
deal size of new customer orders. Although our revenues have increased in recent
periods, we cannot be certain that revenues will grow in future periods or that
they will grow at similar rates as in the past.
Product License. Product license revenue increased 365% to $7.6 million in the
three months ended June 30, 1999 from $1.6 million in the three months ended
June 30, 1998, representing 51% and 56% of total revenue, respectively. Product
license revenue increased 317% to $12.2 million in the six months ended June 30,
1999 from $2.9 million in the six months ended June 30, 1998, representing 51%
and 56% of total revenue, respectively. The increase in absolute dollars was
due primarily to an increase in the number of clients and average deal size
resulting from growing market acceptance of our StoryServer product line over
prior year periods. Product license revenue decreased as a percentage of total
revenue due to the higher growth in services revenue during the same period.
Services. Services revenue increased 464% to $7.3 million in the three months
ended June 30, 1999 from $1.3 million in the three months ended June 30, 1998,
representing 49% and 44% of total revenue, respectively. Services revenue
increased 425% to $11.8 million in the six months ended June 30, 1999 from $2.3
million in the six months ended June 30, 1998, representing 49% and 44% of total
revenue, respectively. Services revenue from professional services fees
continue to be the primary component of total services revenue, representing 40%
of total revenues in both the three months and six months ended June 30, 1999 as
compared to 35% in both the three months and six months ended June 30, 1998.
During the three months and six months ended June 30, 1999, services revenue
from professional services fees increased 487% and 429%, respectively, compared
to the three months and six months ended June 30, 1998. Services revenue from
maintenance and support agreements increased 383% and 405% in the three months
and six months ended June 30, 1999, compared to the three months and six months
ended June 30, 1998. The increase in all types of services revenue was due
primarily to the increase in the number of clients and the sale of product
licenses, which generally include or lead to contracts to perform professional
services and purchases of software maintenance and technical support service
agreements.
Services revenue increased as a percentage of total revenue due to the expansion
of our services capabilities through the hiring of additional services
personnel. We believe that growth in our product license sales depends on our
ability to provide our clients with support, training, consulting and
implementation services and educating third-party resellers on how to use our
products. As a result, we continued to expand our professional services
organization throughout the first six months of fiscal 1999 and intend to
continue expanding our professional services organization for the foreseeable
future. We do not believe that services revenue will continue to increase as a
percentage of total revenue.
Cost of Revenue
Product License. Product license costs consist of expenses we incur to
manufacture, package and distribute our products and related documentation and
costs of licensing third-party software incorporated into our products. Product
license costs increased to $734,000 in the three months ended June 30, 1999 from
$219,000 in the three months ended June 30, 1998, representing 10% and 13% of
product license revenue, respectively. Product license costs increased to $1.2
million in the six months ended June 30, 1999 from $244,000 in the six months
ended June 30, 1998, representing 9% and 8% of product license revenue,
respectively. The increase in absolute dollars for the three and six-month
periods was principally a result of both product license sales growth and
royalties paid to third party vendors for technology embedded in our product
offerings. The fluctuation in product license costs as a percentage of product
license revenue for the three and six-month periods was primarily due to the
timing of an OEM royalty agreement which took effect in the second quarter of
1998 as well as a higher average sales price in 1999 relative to 1998.
Services. Services costs include salary expense and other related costs for our
professional service, maintenance and telephone support staffs, as well as
third-party contractor expenses. Services costs increased to $5.8 million in the
three
11
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months ended June 30, 1999 from $1.9 million in the three months ended June 30,
1998, representing 79% and 144% of services revenue, respectively. Service costs
increased to $10.2 million in the six months ended June 30, 1999 from $2.7
million in the six months ended June 30, 1998, representing 87% and 121% of
services revenue, respectively. The increase in absolute dollars was primarily
due to startup costs incurred from rapidly expanding our services organization.
The overall improvement and turnaround in services gross profit margin reflects
the increasing leverage from the productivity of support, training, consulting
and implementation activities.
Professional services-related costs increased to $5.3 million in the three
months ended June 30, 1999 from $1.8 million in the three months ended June 30,
1998, representing 90% and 175% of professional services-related revenue,
respectively. Professional services-related costs increased to $9.4 in the six
months ended June 30, 1999 from $2.6 million in the six months ended June 30,
1998, representing 99% and 142% of professional services-related revenue,
respectively. Maintenance and support-related costs increased to $429,000 in the
three months ended June 30, 1999 from $89,000 in the three months ended June 30,
1998, representing 32% of maintenance and support-related revenue in both
periods. Maintenance and support-related costs increased to $802,000 in the six
months ended June 30, 1999 from $153,000 in the six months ended June 30, 1998,
representing 36% and 34% of maintenance and support-related revenue,
respectively.
To date, services costs related to professional services have been a significant
portion of or have exceeded professional service-related revenue, and we expect
this to continue for the foreseeable future as we continue to expand our
professional services organization. Over time, however, we believe we will be
able to reverse this trend. We expect services costs to increase in the future
in absolute dollars to the extent that services revenues increase. We expect
services costs as a percentage of services revenue to decrease over time.
Operating Expenses
Research and Development. Research and development expenses consist primarily of
personnel costs to support product development. Research and development
expenses increased to $3.0 million in the three months ended June 30, 1999 from
$1.9 million in the three months ended June 30, 1998, representing 20% and 64%
of total revenue, respectively. Research and development expenses increased to
$5.7 million in the six months ended June 30, 1999 from $3.0 million in the six
months ended June 30, 1998, representing 24% and 58% of total revenue,
respectively. The increase in absolute dollars was due to the increase in
engineering personnel and to the expansion of our product mix. The decrease in
research and development as a percentage of revenue resulted primarily because
significant revenue growth outpaced increases in research and development
expenditures. We believe that continued investment in research and development
is critical to attaining our strategic objectives, and, as a result, we expect
research and development expenses to increase in absolute dollars in future
periods. Software development costs that were eligible for capitalization in
accordance with Statement of Financial Accounting Standards No. 86, Accounting
for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed,
were insignificant during the periods presented. Accordingly, all software
development costs have been expensed in the period incurred.
Sales and Marketing. Sales and marketing expenses consist primarily of salaries
and other related costs for sales and marketing personnel, sales commissions,
travel, public relations and marketing materials and tradeshows. Sales and
marketing expenses increased to $10.0 million in the three months ended June 30,
1999 from $3.3 million in the three months ended June 30, 1998, representing 67%
and 114% of total revenue, respectively. Sales and marketing expenses increased
to $16.6 million in the six months ended June 30, 1999 from $5.0 million in the
six months ended June 30, 1998, representing 69% and 97% of total revenue,
respectively. Sales and marketing expenses increased in absolute dollars due to
a significant increase in sales and marketing personnel and our increased
marketing program expenditures. The decrease in sales and marketing expenses as
a percentage of revenue resulted primarily because significant revenue growth
outpaced increases in sales and marketing expenditures. We believe these
expenses will continue to increase in absolute dollars in future periods as we
expect to continue to expand our sales and marketing efforts to promote further
growth. We also anticipate that sales and
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marketing expenses may fluctuate as a percentage of total revenue from period to
period as new sales personnel are hired and begin to achieve productivity and
the timing of new product releases.
General and Administrative. General and administrative expenses consist
primarily of salaries and other related costs for operations and finance
employees, legal and accounting services and certain facilities-related
expenses. General and administrative expenses increased to $1.7 million in the
three months ended June 30, 1999 from $1.1 million in the three months ended
June 30, 1998, representing 12% and 39% of total revenue, respectively. General
and administrative expenses increased to $3.3 million in the six months ended
June 30, 1999 from $1.8 million in the six months ended June 30, 1998,
representing 14% and 35% of total revenue, respectively. The increase in
absolute dollars for these periods was due to increased personnel and facility
expenses necessary to support our expanding operations. General and
administrative expenses decreased as a percentage of revenue primarily because
significant revenue growth outpaced increases in general and administrative
expenditures. We believe general and administrative expenses will increase in
absolute dollars as we expect to increase staffing and infrastructure expenses
to support the Company's continued growth.
Charge for Purchased In-Process Research and Development, Acquisition-Related,
and Other Charges. Effective June 30, 1999, Vignette acquired 100 percent of
the outstanding stock and assumed all outstanding stock options of Diffusion,
Inc. ("Diffusion"), a leader in multi-channel information delivery solutions, in
exchange for 393,271 shares of Vignette common stock. The total value of the
acquisition, including transaction costs, was approximately $31.2 million. The
acquisition was accounted for as a purchase business combination. Accordingly,
the acquired net assets were recorded at their estimated fair values at the
effective date of the acquisition and the results of operations of Diffusion
will be included with those of the Company for periods subsequent to the date of
acquisition. In connection with the transaction, the Company incurred one-time
acquisition costs and integration-related charges, which include costs
associated with product integration, cross training, and other merger-related
costs. Additionally, a portion of the purchase price was allocated to in-
process research and development and expensed upon the consummation of the
transaction. These related charges totaled $14.7 million for the six months
ended June 30, 1999.
During May 1998, Vignette acquired from RandomNoise, Inc. certain in-process
research and development effort, a developed product and an insignificant amount
of equipment in exchange for $2.1 million, consisting of $100,000 in cash and
375,830 shares of our Series G Preferred Stock valued at $2.0 million.
Substantially all of the purchase price was allocated to in-process research and
development and expensed upon the consummation of the transaction. These
related charges totaled $2.1 million for the six months ended June 30, 1998.
Amortization of Deferred Stock Compensation. We have recorded deferred
compensation for the difference between the exercise price of certain stock
option grants and the deemed fair value of our common stock at the time of such
grants. We are amortizing this amount over the vesting periods of the applicable
options, resulting in amortization expense of $1.3 million and $499,000 in the
three months ended June 30, 1999 and 1998, respectively, and $3.0 million and
$515,000 for the six months ended June 30, 1999 and 1998, respectively.
Other Income, Net
Other income, net consists of interest income and expense and gain or loss on
disposals of equipment. Other income, net increased to $834,000 in the three
months ended June 30, 1999 from $25,000 in the three months ended June 30, 1998
and to $1.2 million in the six months ended June 30, 1999 from $63,000 in the
six months ended June 30, 1998. The increase was due to interest income earned
from cash balances on hand as a result of our recent public offering.
Net Operating Losses and Tax Credit Carryforwards
We have provided a full valuation allowance on our deferred tax assets, which
include net operating loss and research and development carryforwards, because
of the uncertainty regarding their realization. Our accounting for deferred
taxes under
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Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes, involves the evaluation of a number of factors concerning the
realizability of our deferred tax assets. In concluding that a full valuation
allowance was required, management primarily considered such factors as our
history of operating losses and expected future losses and the nature of our
deferred tax assets.
Liquidity and Capital Resources
Cash used in operating activities was $4.7 million and $6.5 million for the six
months ended June 30, 1999 and 1998, respectively. The decrease in cash used in
operating activities was due primarily to the increase in our deferred revenue
balance resulting from increases in our client base. Our investing activities
have consisted primarily of capital expenditures totaling $5.8 million and
$625,000 for the six months ended June 30, 1999 and 1998, respectively, to
acquire property and equipment, mainly computer hardware and software, for our
growing employee base. We expect that our capital expenditures will continue to
increase as our employee base grows. Net cash provided by financing activities
for the six months ended June 30, 1999 and 1998 was $72.0 million and $16.3
million, respectively. The increase was due primarily to the receipt of
proceeds from our initial public offering, partially offset by $2.7 million in
payments made in April 1999 to retire all outstanding debt.
At June 30, 1999, we had $73.8 million in cash and cash equivalents and $58.5
million in working capital. We have agreements with Comdisco, Inc. providing for
available credit of up to $5.0 million over a period of 36 months at an interest
rate of 12% per year and an equipment lease line of $1.25 million over a period
of 36 months at an interest rate of 7.5% per year. The line of credit with
Comdisco, Inc. is secured by our receivables, equipment, fixtures, inventory and
all other tangible property. We are currently in compliance with all related
financial covenants and restrictions.
In June 1999, we invested $2.0 million in iSyndicate, a leader in web content
syndication, to enhance the Company's role in the development of the syndication
marketplace.
Effective June 30, 1999, we acquired 100 percent of the outstanding stock and
assumed all outstanding stock options of Diffusion, Inc. The total cost of the
acquisition, including transaction costs, was approximately $31.2 million. The
transaction was financed through the issuance of 393,271 shares of Vignette
common stock.
Management believes that the Company will have sufficient resources available to
meet its cash requirements for the foreseeable future, including working capital
requirements and planned capital expenditures. Management also believes that
outside sources for debt and additional equity capital, if needed, will be
available to finance cash outflow requirements. However, there can be no
assurance that additional financing will be available at all or that, if
available, such financing will be on terms favorable to the Company.
Recent Accounting Pronouncements
In December 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position ("SOP")
98-9, Software Revenue Recognition, which amends SOP 97-2 and SOP 98-4. We are
required to adopt SOP 98-9 in the year ended December 31, 2000. We do not expect
such adoption will have a significant effect on our results of operations.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued SOP 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use. We are
required to adopt SOP 98-1 in the year ended December 31, 1999. We do not expect
such adoption will have a significant effect on our results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities, which is required
to be adopted in years beginning after June 15, 1999. Because of the Company's
minimal use of derivatives, management does not anticipate that the adoption of
the new
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Statement will have a significant effect on results of operations or the
financial position of the Company.
Year 2000 Compliance
The "Year 2000 Issue" refers generally to the problems that some software may
have in determining the correct century for the year. For example, software with
date-sensitive functions that is not Year 2000 compliant may not be able to
distinguish whether "00" means 1900 or 2000, which may result in failures or the
creation of erroneous results.
We have conducted the first phases of a Year 2000 readiness review for the
current versions of our products. The review includes assessment and
implementation, which includes remediation, upgrading and replacement of certain
product versions, as well as validation testing, and contingency planning. We
continue to respond to customer questions about prior versions of our products
on a case-by-case basis.
We have largely completed all phases of our plan, except for contingency
planning, with respect to the current versions of all of our products. As a
result, the current versions of each of our products are "Year 2000 Compliant,"
as defined below, when configured and used in accordance with the related
documentation, and provided that the underlying operating system of the host
machine and any other software used with or in the host machine or our products
are also Year 2000 Compliant. The initial release of StoryServer 4 required a
patch to fix a minor error in a third-party product included in StoryServer 4.
We have provided the patch on our Web site in order to be Year 2000 Compliant.
We have defined "Year 2000 Compliant" as the ability to:
(a) correctly handle date information needed for the December 31, 1999
to January 1, 2000 date change;
(b) function according to the product documentation provided for this
date change, without changes in operation resulting from the advent of a
new century, assuming correct configuration;
(c) where appropriate, respond to two-digit date input in a way that
resolves the ambiguity as to century in a disclosed, defined, and
predetermined manner;
(d) if the date elements in interfaces and data storage specify the
century, store and provide output of date information in ways that are
unambiguous as to century; and
(e) recognize year 2000 as a leap year.
We have not tested our products on all platforms or all versions of operating
systems that we currently support. We have tested software obtained from third
parties (licensed software, shareware, and freeware) that is incorporated into
our products, and are seeking assurances from our vendors that licensed software
is Year 2000 Compliant. Despite testing by us and by current and potential
clients, and assurances from developers of products incorporated into our
products, our products may contain undetected errors or defects associated with
Year 2000 date functions. Known or unknown errors or defects in our products
could result in delay or loss of revenue, diversion of development resources,
damage to our reputation, or increased service and warranty costs, any of which
could materially adversely affect our business, operating results, or financial
condition. Some commentators have predicted significant litigation regarding
Year 2000 compliance issues, and we are aware of such lawsuits against other
software vendors. Because of the unprecedented nature of such litigation, it is
uncertain whether or to what extent we may be affected by it.
Vignette's internal systems include both our information technology, or IT, and
non-IT systems. We have initiated an assessment of our material internal IT
systems, including both our own software products and third-party software and
hardware technology, but we have not initiated an assessment of our non-IT
systems. We expect to complete testing of our IT systems in 1999. To the extent
that we are not able to
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test the technology provided by third-party vendors, we are seeking assurances
from such vendors that their systems are Year 2000 Compliant. Although we are
not currently aware of any material operational issues or costs associated with
preparing our internal IT and non-IT systems for the Year 2000, we may
experience material unanticipated problems and costs caused by undetected errors
or defects in the technology used in our internal IT and non-IT systems.
We do not currently have any information concerning the Year 2000 compliance
status of our customers. Our current and potential clients may incur significant
expenses to achieve Year 2000 compliance. If our clients are not Year 2000
compliant, they may experience material costs to remedy problems, or they may
face litigation costs. In either case, Year 2000 issues could reduce or
eliminate budgets that current or potential customers could have for purchases
of our products and services. As a result, our business, results of operations
or financial condition could be materially adversely affected.
We have funded our Year 2000 plan from available cash and have not separately
accounted for these costs in the past. To date, these costs have not been
material. We will incur additional costs related to the Year 2000 plan for
administrative personnel to manage the project, outside contractor assistance,
technical support for our products, product engineering and customer
satisfaction. We may experience material problems and costs with Year 2000
compliance that could adversely affect our business, results of operations and
financial condition.
We have not yet fully developed a contingency plan to address situations that
may result if we are unable to achieve Year 2000 readiness of our critical
operations. The cost of developing and implementing such a plan may itself be
material. Finally, we are also subject to external forces that might generally
affect industry and commerce, such as utility or transportation company Year
2000 compliance failures and related service interruptions.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The majority of the Company's operations are based in the U.S. and, accordingly,
the majority of its transactions are denominated in U.S. Dollars. However, the
Company does have foreign-based operations where transactions are denominated in
foreign currencies and are subject to market risk with respect to fluctuations
in the relative value of currencies. Currently, the Company has operations in
Australia, England, France, and Germany and conducts transactions in the local
currency of each location. The impact of fluctuations in the relative value of
other currencies was not material for the six months ended June 30, 1999.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
RISK FACTORS
You should carefully consider the following risks before making an investment
decision. The risks described below are not the only ones that we face. Our
business, operating results or financial condition could be materially adversely
affected by any of the following risks. The trading price of our common stock
could decline due to any of these risks, and you as an investor may lose all or
part of your investment. You should also refer to the other information set
forth in this report, including our financial statements and the related notes.
Risks Related to Our Business
We Expect to Incur Future Losses
We incurred net losses of $3.6 million for the year ended December 31, 1996,
$7.5 million for the year ended December 31, 1997, $26.2 million for the year
ended December 31, 1998, and $29.5 million for the six months ended June 30,
1999. As of June 30, 1999, we had an accumulated deficit of $66.7 million. We
have not achieved profitability and we expect to incur net losses for the
foreseeable future. To date, we have funded our operations from the sale of
equity securities and have not generated cash from operations. We expect to
continue to incur significant product development, sales and marketing, and
administrative expenses and, as a result, we will need to generate significant
revenues to achieve and maintain profitability. Although our revenues have grown
significantly in recent quarters, we cannot be certain that we can sustain these
growth rates or that we will achieve sufficient revenues for profitability. If
we do achieve profitability, we cannot be certain that we can sustain or
increase profitability on a quarterly or annual basis in the future.
Our Limited Operating History Makes Financial Forecasting Difficult
Vignette was founded in December 1995 and has a limited operating history. As a
result of our limited operating history, we cannot forecast operating expenses
based on our historical results. Accordingly, we base our expenses in part on
future revenue projections. Most of our expenses are fixed in the short term and
we may not be able to quickly reduce spending if our revenues are lower than we
had projected. Our ability to forecast accurately our quarterly revenue is
limited because our software products have a long sales cycle that makes it
difficult to predict the quarter in which sales will occur. We would expect our
business, operating results and financial condition to be materially adversely
affected if our revenues do not meet our projections and that net losses in a
given quarter would be even greater than expected.
We Expect Our Quarterly Revenues and Operating Results to Fluctuate
Our revenues and operating results are likely to vary significantly from quarter
to quarter. A number of factors are likely to cause these variations, including:
. Demand for our products and services;
. The timing of sales of our products and services;
. The timing of customer orders and product implementations;
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. Unexpected delays in introducing new products and services;
. Increased expenses, whether related to sales and marketing, product
development or administration;
. Changes in the rapidly evolving market for Internet Relationship
Management solutions;
. The mix of product license and services revenue, as well as the mix of
products licensed;
. The mix of services provided and whether services are provided by our own
staff or third-party contractors;
. The mix of domestic and international sales; and
. Costs related to possible acquisitions of technology or businesses.
Accordingly, we believe that quarter-to-quarter comparisons of our operating
results are not necessarily meaningful. Investors should not rely on the results
of one quarter as an indication of our future performance.
We plan to increase our operating expenses to expand our sales and marketing
operations, develop new distribution channels, fund greater levels of research
and development, broaden professional services and support and improve
operational and financial systems. If our revenues do not increase along with
these expenses, our business, operating results or financial condition could be
materially adversely affected and net losses in a given quarter would be even
greater than expected.
Although we have limited historical financial data, we believe that our
quarterly operating results may experience seasonal fluctuations. For instance,
quarterly results may fluctuate based on our clients' calendar year budgeting
cycles, slow summer purchasing patterns in Europe and our compensation policies
that tend to compensate sales personnel, typically in the latter half of the
year, for achieving annual quotas.
Our Quarterly Results Often Depend on a Small Number of Large Orders
We derive a significant portion of our software license revenues in each quarter
from a small number of relatively large orders. Although we do not believe that
the loss of any particular customer would have an adverse effect on our
business, our operating results could be materially adversely affected if we
were unable to complete one or more substantial license sales in any future
period. For example, in five of the last ten quarters in the period ended June
30, 1999, we had at least one customer that accounted for at least 10% of total
revenue in such quarter.
Our Operating Results May Be Adversely Affected By Small Delays in Customer
Orders or Product Implementations
Small delays in customer orders or product implementations can cause significant
variability in our license revenues and operating results for any particular
period. We derive a substantial portion of our revenue from the sale of products
with related services. In these cases, our revenue recognition policy requires
us to substantially complete the implementation of our product before we can
recognize software license revenue, and any end of quarter delays in product
implementation could materially adversely affect operating results for that
quarter.
In Order to Increase Market Awareness of Our Products and Generate Increased
Revenue We Need to Expand Our Sales and Distribution Capabilities
We must expand our direct and indirect sales operations to increase market
awareness of our products and generate increased revenue. We cannot be certain
that we will be successful in these efforts. We have recently expanded our
direct sales force and plan to hire additional sales personnel. Our products and
services require a sophisticated sales effort targeted at the senior management
of our prospective clients. New hires will require training and take time to
achieve full productivity. We cannot be certain that our recent hires will
become as productive as necessary or
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that we will be able to hire enough qualified individuals in the future. We also
plan to expand our relationships with value-added resellers, systems integrators
and other third-party resellers to build an indirect sales channel. In addition,
we will need to manage potential conflicts between our direct sales force and
third-party reselling efforts.
Our Lengthy Sales Cycle and Product Implementation Makes It Difficult to
Predict Our Quarterly Results
We have a long sales cycle because we generally need to educate potential
clients regarding the use and benefits of E-Relationship (Internet Relationship
Management) applications. Our long sales cycle makes it difficult to predict the
quarter in which sales may fall. Delays in product implementation could cause
significant variability in our license revenues and operating results for any
particular period. In addition, the implementation of our products requires a
significant commitment of resources by our clients, third-party professional
services organizations or our professional services organization. In many cases,
we recognize a substantial portion of the revenue from product sales upon
implementation of our product.
We May Be Unable to Adequately Develop A Profitable Professional Services
Organization Which Could Affect Both Our Operating Results and Our Ability to
Assist Our Clients With the Implementation of Our Products
We cannot be certain that we can attract or retain a sufficient number of the
highly qualified services personnel that our business needs and we cannot be
certain that our services business will ever achieve profitability. Clients that
license our software typically engage our professional services organization to
assist with support, training, consulting and implementation of their Web
solutions. We believe that growth in our product sales depends on our ability to
provide our clients with these services and to educate third-party resellers on
how to use our products. As a result, we plan to increase the number of service
personnel to meet these needs. New services personnel will require training and
education and take time to reach full productivity. To meet our needs for
services personnel, we may also need to use more costly third-party consultants
to supplement our own professional services organization. We expect our services
revenue to increase in absolute dollars as we continue to provide consulting and
training services that complement our products and as our installed base of
clients grows. To date, our services costs have been significantly higher than
our services revenue, and we expect that trend to continue for the foreseeable
future. We generally bill our clients for our services on a "time and materials"
basis. However, from time to time we enter into fixed-price contracts for
services. On occasion, the costs of providing the services have exceeded our
fees from these contracts and, from time to time, we may misprice future
contracts to our detriment. In addition, competition for qualified services
personnel with the appropriate Internet specific knowledge is intense. We are in
a new market and there is a limited number of people who have acquired the
skills needed to provide the services that our clients demand.
If Our International Revenue Continues to Grow in Absolute Dollars and as a
Percentage of Revenue, Our Business Would Become Increasingly Susceptible to
Numerous Risks Associated With International Operations
International operations are generally subject to a number of risks, including:
. Expenses associated with customizing products for foreign countries;
. Protectionist laws and business practices that favor local competition;
. Dependence on local vendors;
. Multiple, conflicting and changing governmental laws and regulations;
. Longer sales cycles;
. Difficulties in collecting accounts receivable;
. Foreign currency exchange rate fluctuations; and
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. Political and economic instability.
We received 17% and 18% of our total revenue in the three months and six months
ended June 30, 1999, respectively, through licenses and services sold to clients
located outside of the United States. We expect international revenue to
account for a significant percentage of total revenue in the future and we
believe that we must continue to expand our international sales activities in
order to be successful. Our international sales growth will be limited if we are
unable to establish additional foreign operations, expand international sales
channel management and support organizations, hire additional personnel,
customize products for local markets, develop relationships with international
service providers and establish relationships with additional distributors and
third party integrators. In that case, our business, operating results and
financial condition could be materially adversely affected. Even if we are able
to successfully expand international operations, we cannot be certain that we
will be able to maintain or increase international market demand for our
products.
To date, a majority of our international revenues and costs have been
denominated in foreign currencies. We believe that an increasing portion of our
international revenues and costs will be denominated in foreign currencies in
the future. In addition, although we cannot predict the potential consequences
to our business as a result of the adoption of the Euro as a common currency in
Europe, the transition to the Euro presents a number of risks, including
increased competition from European firms as a result of pricing transparency.
To date, we have not engaged in any foreign exchange hedging transactions and we
are therefore subject to foreign currency risk.
In Order to Properly Manage Growth, We May Need to Implement and Improve Our
Operational Systems on a Timely Basis
We have expanded our operations rapidly since inception. We intend to continue
to expand in the foreseeable future to pursue existing and potential market
opportunities. This rapid growth places a significant demand on management and
operational resources. In order to manage growth effectively, we must implement
and improve our operational systems, procedures and controls on a timely basis.
If we fail to implement and improve these systems, our business, operating
results and financial condition will be materially adversely affected. In
addition, we moved to new headquarters facilities in December 1998, which was
and will continue to be a disruptive, time consuming and expensive process.
We May Be Adversely Affected If We Lose Key Personnel
Our success depends largely on the skills, experience and performance of some
key members of our management. If we lose one or more of these key employees,
our business, operating results and financial condition could be materially
adversely affected. In addition, our future success will depend largely on our
ability to continue attracting and retaining highly skilled personnel. Like
other software companies, we face intense competition for qualified personnel,
particularly in the Austin, Texas area. We cannot be certain that we will be
successful in attracting, assimilating or retaining qualified personnel in the
future.
We Have Relied and Expect to Continue to Rely on Sales of Our StoryServer
Product Line for Our Revenue
We currently derive all of our revenues from the license and related upgrades,
professional services and support of our StoryServer software products. We
expect that we will continue to depend on revenue related to new and enhanced
versions of our StoryServer product line for at least the next several quarters.
We cannot be certain that we will be successful in upgrading and marketing our
products or that we will successfully develop and market new products and
services. If we do not continue to increase revenue related to our existing
products or generate revenue from new products and services, our business,
operating results and financial condition would be materially adversely
affected.
Our Future Revenue is Dependent Upon Our Ability to Successfully Introduce
Our Vignette Syndication Server
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We expect that our future financial performance will depend significantly on
revenue from Vignette Syndication Server and the related tools that we plan to
develop, which is subject to significant risks. We announced Vignette
Syndication Server in October 1998 and we shipped Vignette Syndication Server to
clients in the first quarter of 1999. This is the first version of a new product
designed for a new market opportunity. There are significant risks inherent in a
product introduction such as Vignette Syndication Server. Market acceptance of
Vignette Syndication Server will depend on a market developing for Internet
syndication products and services and the commercial adoption of standards on
which Vignette Syndication Server is based. We cannot be certain that either
will occur. We cannot be certain that Vignette Syndication Server will meet
customer performance needs or expectations when shipped or that it will be free
of significant software defects or bugs. If Vignette Syndication Server does not
meet customer needs or expectations, for whatever reason, upgrading or enhancing
the product could be costly and time consuming.
If We are Unable to Meet the Rapid Changes in Internet Relationship
Management Technology Our Existing Products Could Become Obsolete
The market for our products is marked by rapid technological change, frequent
new product introductions and Internet-related technology enhancements,
uncertain product life cycles, changes in client demands and evolving industry
standards. We cannot be certain that we will successfully develop and market new
products, new product enhancements or new products compliant with present or
emerging Internet technology standards. New products based on new technologies
or new industry standards can render existing products obsolete and
unmarketable. To succeed, we will need to enhance our current products and
develop new products on a timely basis to keep pace with developments related to
Internet technology and to satisfy the increasingly sophisticated requirements
of our clients. Internet commerce technology, particularly E-Relationship
(Internet Relationship Management) technology, is complex and new products and
product enhancements can require long development and testing periods. Any
delays in developing and releasing enhanced or new products could have a
material adverse effect on our business, operating results and financial
condition.
We Face Intense Competition for E-Relationship (Internet Relationship
Management) Software
Which Could Make it Difficult to Acquire and Retain Clients Now and in the
Future
The Internet software market is intensely competitive. Our clients' requirements
and the technology available to satisfy those requirements continually change.
We expect competition to persist and intensify in the future.
Our principal competitors include: in-house development efforts by potential
clients or partners; other vendors of software that directly address elements of
E-Relationship (Internet Relationship Management), such as BroadVision; and
developers of software that address only certain technology components of E-
Relationship (Internet Relationship Management) (e.g., content management), such
as Inso Corporation.
Many of these companies, as well as some other competitors, have longer
operating histories and significantly greater financial, technical, marketing
and other resources than we do. Many of these companies can also leverage
extensive customer bases and adopt aggressive pricing policies to gain market
share. Potential competitors such as Netscape and Microsoft may bundle their
products in a manner that may discourage users from purchasing our products. In
addition, 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 clients
and may require us to reduce the price of our software. We cannot be certain
that we will be able to compete successfully with existing or new competitors.
If we fail to compete successfully against current or future competitors, our
business, operating results and financial condition would be materially
adversely affected.
The Internet is Generating Privacy Concerns in the Public and Within
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Governments, Which Could Result in Legislation Materially and Adversely
Affecting Our Business or Result in Reduced Sales of Our Products, or Both
Businesses use our StoryServer product to develop and maintain profiles to
tailor the content to be provided to Web site visitors. Typically, the software
captures profile information when consumers, business customers or employees
visit a Web site and volunteer information in response to survey questions.
Usage data collected over time augments the profiles. However, privacy concerns
may nevertheless cause visitors to resist providing the personal data necessary
to support this profiling capability. More importantly, even the perception of
security and privacy concerns, whether or not valid, may indirectly inhibit
market acceptance of our products. In addition, legislative or regulatory
requirements may heighten these concerns if businesses must notify Web site
users that the data captured after visiting certain Web sites may be used by
marketing entities to unilaterally direct product promotion and advertising to
that user. We are not aware of any such legislation or regulatory requirements
currently in effect in the United States. Other countries and political
entities, such as the European Economic Community, have adopted such legislation
or regulatory requirements. The United States may adopt similar legislation or
regulatory requirements. If consumer privacy concerns are not adequately
addressed, our business, financial condition and operating results could be
materially adversely affected.
Our StoryServer product uses "cookies" to track demographic information and user
preferences. A "cookie" is information keyed to a specific server, file pathway
or directory location that is stored on a user's hard drive, possibly without
the user's knowledge, but generally removable by the user. Germany has imposed
laws limiting the use of cookies, and a number of Internet commentators,
advocates and governmental bodies in the United States and other countries have
urged passage of laws limiting or abolishing the use of cookies. If such laws
are passed, our business, operating results and financial condition could be
materially adversely affected.
We May Be Adversely Impacted by the Year 2000 and Other Information
Technology Issues
The "Year 2000 Issue" refers generally to the problems that some software may
have in determining the correct century for the year. For example, software with
date-sensitive functions that is not Year 2000 compliant may not be able to
distinguish whether "00" means 1900 or 2000, which may result in failures or the
creation of erroneous results. We are subject to potential Year 2000 problems
affecting our products, our internal systems and the systems of our suppliers
and customers, any of which could have a material adverse effect on our
business, operating results and financial condition.
We have conducted the first phases of a Year 2000 readiness review for the
current versions of our products. The review includes assessment, implementation
(including remediation, upgrading and replacement of certain product versions),
validation testing, and contingency planning. We continue to respond to customer
questions about prior versions of our products on a case-by-case basis.
We have largely completed all phases of this plan, except for contingency
planning, for the current versions of our products. As a result, we believe all
current versions of our products are Year 2000 compliant, when configured and
used in accordance with the related documentation, and provided that the
underlying operating system of the host machine and any other software used with
or in the host machine or our products are also Year 2000 compliant. We have not
tested our products on all platforms or all versions of operating systems that
we currently support. The initial release of StoryServer 4 required a patch to
fix a minor error in a third-party product included in StoryServer 4. We have
provided the patch on our Web site in order to be Year 2000 compliant.
We have tested software obtained from third parties, including licensed
software, shareware, and freeware, that is incorporated into our products, and
we are seeking assurances from our vendors that licensed software is Year 2000
compliant. Despite testing by us and by current and potential clients, and
assurances from developers of products incorporated into our products, our
products may contain undetected errors or defects associated with Year 2000 date
functions. Known or unknown errors
22
<PAGE>
or defects in our products could result in delay or loss of revenue, diversion
of development resources, damage to our reputation, or increased service and
warranty costs, any of which could materially adversely affect our business,
operating results, or financial condition. Some commentators have predicted
significant litigation regarding Year 2000 compliance issues, and we are aware
of such lawsuits against other software vendors. Because of the unprecedented
nature of such litigation, it is uncertain whether or to what extent we may be
affected by it.
Our internal systems include both our information technology, or IT, and non-IT
systems. We have initiated an assessment of our material internal IT systems,
including both our own software products and third-party software and hardware
technology, but we have not initiated an assessment of our non-IT systems. We
expect to complete testing of our IT systems in 1999. To the extent that we are
not able to test the technology provided by third-party vendors, we are seeking
assurances from vendors that their systems are Year 2000 Compliant. We are not
currently aware of any material operational issues or costs associated with
preparing our internal IT and non-IT systems for the Year 2000. However, we may
experience material unanticipated problems and costs caused by undetected errors
or defects in the technology used in our internal IT and non-IT systems.
We do not currently have any information concerning the Year 2000 compliance
status of our customers. Our current or future customers may incur significant
expenses to achieve Year 2000 compliance. If our customers are not Year 2000
compliant, they may experience material costs to remedy problems, or they may
face litigation costs. In either case, Year 2000 issues could reduce or
eliminate the budgets that current or potential customers could have for
purchases of our products and services. As a result, our business, results of
operations or financial condition could be materially adversely affected.
We have funded our Year 2000 plan from available cash and have not separately
accounted for these costs in the past. To date, these costs have not been
material. We will incur additional costs related to the Year 2000 plan for
administrative personnel to manage the project, outside contractor assistance,
technical support for our products, product engineering and customer
satisfaction. In addition, we may experience material problems and costs with
Year 2000 compliance that could adversely affect our business, results of
operations, and financial condition.
We have not yet fully developed a contingency plan to address situations that
may result if we are unable to achieve Year 2000 readiness of our critical
operations. The cost of developing and implementing such a plan may itself be
material. Finally, we are also subject to external forces that might generally
affect industry and commerce, such as utility or transportation company Year
2000 compliance failures and related service interruptions.
We Develop Complex Software Products Susceptible to Software Errors or Defects
that Could Result in Lost Revenues, or Delayed or Limited Market Acceptance
Complex software products such as ours often contain errors or defects,
particularly when first introduced or when new versions or enhancements are
released. Despite internal testing and testing by current and potential
customers, our current and future products may contain serious defects,
including Year 2000 errors. Serious defects or errors could result in lost
revenues or a delay in market acceptance, which would have a material adverse
effect on our business, operating results and financial condition.
If We Experienced a Product Liability Claim We Could Incur Substantial
Litigation Costs
Since our clients use our products for mission critical applications such as
Internet commerce, errors, defects or other performance problems could result in
financial or other damages to our clients. They could seek damages for losses
from us, which, if successful, could have a material adverse effect on our
business, operating results or financial condition. Although our license
agreements typically contain provisions designed to limit our exposure to
product liability claims, existing or future laws or unfavorable judicial
decisions could negate such limitation of liability provisions. We have not
experienced any product liability claims to date. However, a product liability
claim brought against us, even if not
23
<PAGE>
successful, would likely be time consuming and costly.
Our product shipments could be delayed if third party software incorporated in
our products is no longer available.
We integrate third-party software as a component of our software. The third-
party software may not continue to be available to us on commercially reasonable
terms. For instance, we license GroupLens Express from Net Perceptions, Inc. for
certain personalization functionality in StoryServer 4. The agreement expires in
October 1999, but it is renewed automatically unless either party gives 60 days
notice prior to the renewal date. If we cannot maintain licenses to key third-
party software, such as GroupLens Express, shipments of our products could be
delayed until equivalent software could be developed or licensed and integrated
into our products, which could materially adversely affect our business,
operating results and financial condition.
Our business is based on our intellectual property and we could incur
substantial costs defending our intellectual property from infringement or a
claim of infringement.
In recent years, there has been significant litigation in the United States
involving patents and other intellectual property rights. We could incur
substantial costs to prosecute or defend any such litigation. Although we are
not currently involved in any intellectual property litigation, we may be a
party to litigation in the future to protect our intellectual property or as a
result of an alleged infringement of other's intellectual property, forcing us
to do one or more of the following:
. Cease selling, incorporating or using products or services that
incorporate the challenged intellectual property;
. Obtain from the holder of the infringed intellectual property right a
license to sell or use the relevant technology, which license may not be
available on reasonable terms; and
. Redesign those products or services that incorporate such technology.
We rely on a combination of patent, trademark, trade secret and copyright law
and contractual restrictions to protect our technology. These legal protections
provide only limited protection. If we litigated to enforce our rights, it would
be expensive, divert management resources and may not be adequate to protect our
business.
Our Existing Stockholders Exercise Significant Control Over Vignette
Executive officers and directors and their affiliates beneficially own, in the
aggregate, approximately 46% of our outstanding common stock. As a result, these
stockholders will be able to exercise significant control over all matters
requiring stockholder approval, including the election of directors and approval
of significant corporate transactions, which could delay or prevent someone from
acquiring or merging with us.
Anti-Takeover Provisions in Our Charter Documents and Delaware Law Could
Prevent or Delay a Change in Control of Our Company
Certain provisions of our certificate of incorporation and bylaws may
discourage, delay or prevent a merger or acquisition that a stockholder may
consider favorable. Such provisions include:
. Authorizing the issuance of "blank check" preferred stock;
. Providing for a classified board of directors with staggered, three-year
terms;
. Prohibiting cumulative voting in the election of directors;
. Requiring super-majority voting to effect certain amendments to our
24
<PAGE>
certificate of incorporation and bylaws;
. Limiting the persons who may call special meetings of stockholders;
. Prohibiting stockholder action by written consent; and
. Establishing advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings.
Certain provisions of Delaware law and our stock incentive plans may also
discourage, delay or prevent someone from acquiring or merging with us.
Changes in Accounting Standards Could Adversely Affect Our Financial Results
The American Institute of Certified Public Accountants issued Statement of
Position 97-2, Software Revenue Recognition, in October 1997 and amended it by
Statement of Position 98-4. We adopted these statements effective January 1,
1998. In December 1998, the AICPA issued SOP 98-9 which further amended SOP 97-2
and 98-4. We believe our current revenue recognition policies and practices are
materially consistent with these statements. However, full implementation
guidelines for this standard have not yet been issued. Once available, our
current revenue accounting practices may need to change and such changes could
materially adversely affect our future revenue and earnings.
Risks Related to the Internet Industry
Our performance will depend on the growth of the internet for commerce.
Our future success depends heavily on the Internet being accepted and widely
used for commerce. If Internet commerce does not continue to grow or grows more
slowly than expected, our business, operating results and financial condition
would be materially adversely affected. Consumers and businesses may reject the
Internet as a viable commercial medium for a number of reasons, including
potentially inadequate network infrastructure, slow development of enabling
technologies or insufficient commercial support. The Internet infrastructure may
not be able to support the demands placed on it by increased Internet usage and
bandwidth requirements. In addition, delays in the development or adoption of
new standards and protocols required to handle increased levels of Internet
activity, or increased government regulation could cause the Internet to lose
its viability as a commercial medium. Even if the required infrastructure,
standards, protocols or complementary products, services or facilities are
developed, we may incur substantial expenses adapting our solutions to changing
or emerging technologies.
Our Performance Will Depend on the New Market for Internet Relationship
Management Software
The market for E-Relationship (Internet Relationship Management) software is new
and rapidly evolving. We expect that we will continue to need intensive
marketing and sales efforts to educate prospective clients about the uses and
benefits of our products and services. Accordingly, we cannot be certain that a
viable market for our products will emerge or be sustainable. Enterprises that
have already invested substantial resources in other methods of conducting
business may be reluctant or slow to adopt a new approach that may replace,
limit or compete with their existing systems. Similarly, individuals have
established patterns of purchasing goods and services. They may be reluctant to
alter those patterns. They may also resist providing the personal data necessary
to support our existing and potential product uses. Any of these factors could
inhibit the growth of online business generally and the market's acceptance of
our products and services in particular.
There is Substantial Risk that Future Regulations Could Be Enacted that
Either Directly Restrict Our Business or Indirectly Impact Our Business By
Limiting the Growth of Internet Commerce
As Internet commerce evolves, we expect that federal, state or foreign agencies
will adopt regulations covering issues such as user privacy, pricing, content
and quality of products and services. If enacted, such laws, rules or
regulations could limit
25
<PAGE>
the market for our products and services, which could materially adversely
affect our business, financial condition and operating results. Although many of
these regulations may not apply to our business directly, we expect that laws
regulating the solicitation, collection or processing of personal/consumer
information could indirectly affect our business. The Telecommunications Act of
1996 prohibits certain types of information and content from being transmitted
over the Internet. The prohibition's scope and the liability associated with a
Telecommunications Act violation are currently unsettled. In addition, although
substantial portions of the Communications Decency Act were held to be
unconstitutional, we cannot be certain that similar legislation will not be
enacted and upheld in the future. It is possible that such legislation could
expose companies involved in Internet commerce to liability, which could limit
the growth of Internet commerce generally. Legislation like the
Telecommunications Act and the Communications Decency Act could dampen the
growth in Web usage and decrease its acceptance as a communications and
commercial medium.
The United States government also regulates the export of encryption technology,
which our products incorporate. If our export authority is revoked or modified,
if our software is unlawfully exported or if the United States government adopts
new legislation or regulation restricting export of software and encryption
technology, our business, operating results and financial condition could be
materially adversely affected. Current or future export regulations may limit
our ability to distribute our software outside the United States. Although we
take precautions against unlawful export of our software, we cannot effectively
control the unauthorized distribution of software across the Internet.
Risks Related to the Securities Markets
Our Stock Price May Be Volatile
An active public market for our common stock may not develop or be sustained.
The market price of the common stock may fluctuate significantly in response to
the following factors, some of which are beyond our control:
. Variations in quarterly operating results;
. Changes in financial estimates by securities analysts;
. Changes in market valuations of Internet software companies;
. Announcements by us of significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments;
. Loss of a major client or failure to complete significant license
transactions;
. Additions or departures of key personnel;
. Sales of common stock in the future; and
. Fluctuations in stock market price and volume, which are particularly
common among highly volatile securities of Internet and software
companies.
Our Business May Be Adversely Affected By Class Action Litigation Due to
Stock Price Volatility
In the past, securities class action litigation has often been brought against a
company following periods of volatility in the market price of its securities.
We may in the future be the target of similar litigation. Securities litigation
could result in substantial costs and divert management's attention and
resources, which could have a material adverse effect on our business, operating
results and financial condition.
We May Be Unable to Meet Our Future Capital Requirements
We expect the net proceeds from our recent public offering, cash on hand, cash
26
<PAGE>
equivalents and commercial credit facilities to meet our working capital and
capital expenditure needs for at least the next 12 months. After that time, we
may need to raise additional funds and we cannot be certain that we would be
able to obtain additional financing on favorable terms, if at all. Further, if
we issue equity securities, stockholders may experience additional dilution or
the new equity securities may have rights, preferences or privileges senior to
those of existing holders of common stock. If we cannot raise funds, if needed,
on acceptable terms, we may not be able to develop or enhance our products, take
advantage of future opportunities or respond to competitive pressures or
unanticipated requirements, which could have a material adverse effect on our
business, operating results and financial condition.
27
<PAGE>
PART II. OTHER INFORMATION ITEM
6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS UNDER ITEM 601 OF REGULATION S-K
2.1* Agreement between Registrant and Diffusion, Inc. dated May 10, 1999.
3.1+ Certificate of Incorporation of the Registrant, as amended to date.
3.2+ Form of Amended and Restated Certificate of Incorporation to be
filed on the closing of the offering made hereby.
3.3+ Bylaws of the Registrant.
3.4+ Form of Bylaws to be filed on the closing of the offering made
hereby.
4.1+ Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.
4.2+ Specimen common stock certificate.
4.3+ Sixth Amended and Restated Stockholders Agreement dated November
30, 1998.
4.4+ Fifth Amended and Restated Registration Rights Agreement dated
November 30, 1998.
10.1+ Form of Indemnification Agreements.
10.2+ 1995 Stock Option/Stock Issuance Plan and forms of agreements
thereunder.
10.3+ 1999 Equity Incentive Plan.
10.4+ Employee Stock Purchase Plan.
10.5+ 1999 Non-Employee Directors Option Plan.
10.6+ Security and Loan Agreement dated March 24, 1998 between the
Registrant and Imperial Bank.
10.7+ Lease Agreement dated June 20, 1996 between the Registrant and
David B. Barrow, Jr.
10.8+ First Supplement to Lease Agreement dated November 4, 1997 between
Registrant and 3410 Far West, Ltd.
10.9+ Second Supplement to Lease Agreement dated February 23, 1998
between Registrant and 3410 Far West, Ltd.
10.10+ Office Lease Agreement dated August 4, 1998 between Registrant and
B.O. III, Ltd.
10.11+ "Prism" Development and Marketing Agreement dated July 19, 1996
between the Registrant and CNET, Inc.
10.12+ Letter Amendment to "Prism" Development and Marketing Agreement
between the Registrant and CNET, Inc. dated August 15, 1998 and
attachments thereto.
10.13+ Software License Agreement dated April 6, 1998 between Registrant
and Net Perceptions, Inc.
10.14+ StoryServer Q2 Volume Purchase Agreement between Registrant and
Tribune Interactive Inc.
10.15+ Protege Software (Holdings) Confidential Professional Services
Agreement dated November 15, 1997.
10.16+ Subordinated Loan and Security Agreement dated December 3, 1998
between Registrant and Comdisco, Inc.
10.17+ Master Lease Agreement dated December 3, 1998 between Registrant
and Comdisco, Inc.
23.1+ Consent of Independent Auditors.
27.1 Financial Data Schedule.
+Incorporated by reference to the Company's Registration Statement on Form S-1,
as amended (File No. 333-68345).
*Incorporated by reference to the Company's Form 8-K filed on July 15, 1999
(File No. 000-25375).
(b) REPORTS ON FORM 8-K
(i) Report on Form 8-K filed on July 15, 1999 containing Agreement between
Registrant and Diffusion, Inc. dated May 10, 1999 and text of press
release dated July 6, 1999, announcing that the Company acquired all
of the outstanding stock and assumed all outstanding stock options of
Diffusion, Inc. in exchange for approximately 400,000 shares of
Registrant common stock.
28
<PAGE>
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.
Date: August 13, 1999 VIGNETTE CORPORATION
(Registrant)
By: /s/ Gregory A. Peters
-----------------------------
Gregory A. Peters
President and Chief Executive
Officer
29
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
2.1* Agreement between Registrant and Diffusion, Inc. dated May 10, 1999.
3.1+ Certificate of Incorporation of the Registrant, as amended to date.
3.2+ Form of Amended and Restated Certificate of Incorporation to be
filed on the closing of the offering made hereby.
3.3+ Bylaws of the Registrant.
3.4+ Form of Bylaws to be filed on the closing of the offering made
hereby.
4.1+ Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4.
4.2+ Specimen common stock certificate.
4.3+ Sixth Amended and Restated Stockholders Agreement dated November
30, 1998.
4.4+ Fifth Amended and Restated Registration Rights Agreement dated
November 30, 1998.
10.1+ Form of Indemnification Agreements.
10.2+ 1995 Stock Option/Stock Issuance Plan and forms of agreements
thereunder.
10.3+ 1999 Equity Incentive Plan.
10.4+ Employee Stock Purchase Plan.
10.5+ 1999 Non-Employee Directors Option Plan.
10.6+ Security and Loan Agreement dated March 24, 1998 between the
Registrant and Imperial Bank.
10.7+ Lease Agreement dated June 20, 1996 between the Registrant and
David B. Barrow, Jr.
10.8+ First Supplement to Lease Agreement dated November 4, 1997 between
Registrant and 3410 Far West, Ltd.
10.9+ Second Supplement to Lease Agreement dated February 23, 1998
between Registrant and 3410 Far West, Ltd.
10.10+ Office Lease Agreement dated August 4, 1998 between Registrant and
B.O. III, Ltd.
10.11+ "Prism" Development and Marketing Agreement dated July 19, 1996
between the Registrant and CNET, Inc.
10.12+ Letter Amendment to "Prism" Development and Marketing Agreement
between the Registrant and CNET, Inc. dated August 15, 1998 and
attachments thereto.
10.13+ Software License Agreement dated April 6, 1998 between Registrant
and Net Perceptions, Inc.
10.14+ StoryServer Q2 Volume Purchase Agreement between Registrant and
Tribune Interactive Inc.
10.15+ Protege Software (Holdings) Confidential Professional Services
Agreement dated November 15, 1997.
10.16+ Subordinated Loan and Security Agreement dated December 3, 1998
between Registrant and Comdisco, Inc.
10.17+ Master Lease Agreement dated December 3, 1998 between Registrant
and Comdisco, Inc.
23.1+ Consent of Independent Auditors.
27.1 Financial Data Schedule.
+Incorporated by reference to the Company's Registration Statement on Form S-1,
as amended (File No. 333-68345).
*Incorporated by reference to the Company's Form 8-K filed on July 15, 1999
(File No. 000-25375).
30
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 73,753
<SECURITIES> 0
<RECEIVABLES> 14,831
<ALLOWANCES> 580
<INVENTORY> 0
<CURRENT-ASSETS> 90,397
<PP&E> 7,036
<DEPRECIATION> 2,299
<TOTAL-ASSETS> 119,955
<CURRENT-LIABILITIES> 31,849
<BONDS> 0
0
0
<COMMON> 278
<OTHER-SE> 87,746
<TOTAL-LIABILITY-AND-EQUITY> 119,955
<SALES> 0
<TOTAL-REVENUES> 24,005
<CGS> 0
<TOTAL-COSTS> 11,387
<OTHER-EXPENSES> 43,293
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 125
<INCOME-PRETAX> (29,465)
<INCOME-TAX> 0
<INCOME-CONTINUING> (29,465)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (29,465)
<EPS-BASIC> (1.54)
<EPS-DILUTED> (1.54)
</TABLE>
