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Versant 10-Q 2011
VSNT Q311 10Q
 
United States
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 July 31, 2011
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from                  to              
 
Commission File Number 000-28540
VERSANT CORPORATION
(Exact name of Registrant as specified in its charter)
California
 
94-3079392
(State or other jurisdiction
of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
255 Shoreline Drive, Suite 450, Redwood City, California 94065
(Address of principal executive offices) (Zip code)
(650) 232-2400
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ý   No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý   No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer o
 
Accelerated Filer o
 
 
 
Non-Accelerated Filer o
 
Smaller reporting company x
(Do not check if a smaller reporting company)
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) o Yes No x
 
As of September 12, 2011, there were outstanding 2,950,195 shares of the Registrant’s common stock, no par value.
 

VERSANT CORPORATION
QUARTERLY REPORT ON FORM 10-Q
For the Quarterly Period Ended July 31, 2011

 Table of Contents
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Certifications
 


2


PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

VERSANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except for share amounts)
(unaudited)
 
 
July 31,
2011
 
October 31,
2010
 
 
 
 
ASSETS


 


Current assets:


 


Cash and cash equivalents
$
23,142

 
$
24,911

Trade accounts receivable, net
2,173

 
3,186

Deferred income taxes
913

 
884

Other current assets
718

 
388

Total current assets
26,946

 
29,369

 
 
 
 
Property and equipment, net
1,012

 
634

Goodwill
8,589

 
8,589

Intangible assets, net
334

 
499

Other assets
38

 
38

Total assets
$
36,919

 
$
39,129

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
239

 
$
164

Accrued liabilities
1,032

 
1,294

Deferred revenues
3,215

 
3,022

Total current liabilities
4,486

 
4,480

 
 
 
 
Deferred revenues
13

 
66

Other long-term liabilities
127

 
139

Total liabilities
4,626

 
4,685

Commitments and contingencies


 


 
 
 
 
Stockholders’ equity:
 

 
 

Common stock, no par value, 7,500,000 shares authorized, 2,953,427 shares issued and outstanding at July 31, 2011, and 3,213,122 shares issued and outstanding at October 31, 2010
90,040

 
92,654

Accumulated other comprehensive income
108

 
43

Accumulated deficit
(57,855
)
 
(58,253
)
Total stockholders’ equity
32,293

 
34,444

Total liabilities and stockholders’ equity
$
36,919

 
$
39,129

 
See accompanying notes to condensed consolidated financial statements


3


VERSANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except for per share amounts)
(unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
July 31,
 
July 31,
 
July 31,
 
July 31,
 
2011
 
2010
 
2011
 
2010
 
 
 
 
 
 
 
 
Revenues:
 

 
 

 
 
 
 
License
$
2,344

 
$
1,634

 
$
6,758

 
$
5,787

Maintenance
1,821

 
1,757

 
5,396

 
5,534

Professional services
39

 
33

 
139

 
73

Total revenues
4,204

 
3,424

 
12,293

 
11,394

 
 
 
 
 
 
 
 
Cost of revenues:
 

 
 

 
 
 
 
License
66

 
60

 
199

 
216

Amortization of intangible assets
26

 
76

 
164

 
230

Maintenance
384

 
342

 
1,111

 
1,098

Professional services
26

 
17

 
68

 
48

Total cost of revenues
502

 
495

 
1,542

 
1,592

 
 
 
 
 
 
 
 
Gross profit
3,702

 
2,929

 
10,751

 
9,802

 
 
 
 
 
 
 
 
Operating expenses:
 

 
 

 
 
 
 
Sales and marketing
1,341

 
1,150

 
4,161

 
3,471

Research and development
1,055

 
824

 
2,967

 
2,812

General and administrative
786

 
759

 
3,093

 
2,434

Restructuring
25

 

 
25

 
39

Total operating expenses
3,207

 
2,733

 
10,246

 
8,756

 
 
 
 
 
 
 
 
Income from operations
495

 
196

 
505

 
1,046

Interest and other income (expense), net
34

 
48

 
(14
)
 
141

Income before provision for income taxes
529

 
244

 
491

 
1,187

Provision for income taxes
(55
)
 
(114
)
 
(93
)
 
(454
)
 
 
 
 
 
 
 
 
Net income
$
474

 
$
130

 
$
398

 
$
733

 
 
 
 
 
 
 
 
Net income per share:
 

 
 

 
 
 
 
Basic
$
0.16

 
$
0.04

 
$
0.13

 
$
0.21

Diluted
$
0.16

 
$
0.04

 
$
0.13

 
$
0.21

 
 
 
 
 
 
 
 
Shares used in per share calculation:
 

 
 

 
 
 
 
Basic
3,021

 
3,375

 
3,122

 
3,468

Diluted
3,021

 
3,403

 
3,123

 
3,504

 
See accompanying notes to condensed consolidated financial statements


4


VERSANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
 
Nine Months Ended
 
July 31,
 
July 31,
 
2011
 
2010
Cash flows from operating activities:
 

 
 

Net income
$
398

 
$
733

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
282

 
242

Amortization of intangible assets
164

 
230

Share based compensation
768

 
828

Provision for (recovery of) allowance for doubtful accounts receivable
8

 
(19
)
Restructuring (reduction of) charges
25

 
(19
)
Changes in assets and liabilities:
 
 
 
Trade accounts receivable
1,054

 
477

Other assets
(318
)
 
251

Accounts payable
71

 
(45
)
Accrued liabilities and other long-term liabilities
(289
)
 
(258
)
Deferred revenues
93

 
(176
)
Net cash provided by operating activities
2,256

 
2,244

Cash flows from investing activities:
 

 
 

Acquisition of business

 
(180
)
Purchases of property and equipment
(670
)
 
(459
)
Proceeds from the sale of property and equipment

 
15

Net cash used in investing activities
(670
)
 
(624
)
Cash flows from financing activities:
 

 
 

Proceeds from issuance of common stock
202

 
167

Repurchases of common stock
(3,584
)
 
(3,630
)
Net cash used in financing activities
(3,382
)
 
(3,463
)
Effect of foreign exchange rate changes on cash and cash equivalents
27

 
(505
)
Net decrease in cash and cash equivalents from operating, investing and financing activities
(1,769
)
 
(2,348
)
Cash and cash equivalents at beginning of period
24,911

 
27,812

Cash and cash equivalents at end of period
$
23,142

 
$
25,464

 
 
 
 
Supplemental disclosures of cash flows information:
 

 
 

Cash paid for:
 

 
 

Interest
$

 
$
1

Income taxes
$
336

 
$
477

 
See accompanying notes to condensed consolidated financial statements


5


VERSANT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
Note 1.
Basis of Presentation and Recent Accounting Pronouncements
 
Basis of Presentation
 
The unaudited condensed consolidated financial statements contained in this report on Form 10-Q include all of the assets, liabilities, revenues, expenses and cash flows of Versant and all entities in which Versant has a controlling interest (subsidiaries) required to be consolidated in accordance with U.S. generally accepted accounting principles. Inter-company accounts and transactions between consolidated companies have been eliminated in consolidation.
 
The financial statements included herein reflect all adjustments which, in the opinion of the Company, are necessary for a fair presentation of the results for the interim periods presented. All such adjustments are normal recurring adjustments. These financial statements have been prepared in accordance with generally accepted accounting principles related to interim financial statements and the applicable rules of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for annual financial statements.
 
The financial statements and related disclosures have been prepared with the presumption that users of the interim financial information have read or have access to the audited financial statements for the Company’s preceding fiscal year ended October 31, 2010. Accordingly, these financial statements should be read in conjunction with those audited financial statements and the related notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2010, filed on January 31, 2011 (File/Film No. 000-28540/11559912). The Company’s operating results for the three and nine months ended July 31, 2011 are not necessarily indicative of the results that may be expected for any other interim period or for the full fiscal year ending October 31, 2011, or for any future periods. Further, the preparation of condensed consolidated financial statements requires management to make estimates and assumptions that affect the recorded amounts reported therein. A change in facts or circumstances relating to the estimates could result in a change to the estimates and could impact future operating results.
 
Recently Adopted Accounting Pronouncements
 
Fair Value Measurement Disclosure
 
In January 2010, the Financial Accounting Standards Board ("FASB") amended the disclosure requirements for the fair value measurements for recurring and nonrecurring non-financial assets and liabilities. The guidance requires new disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements. It also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. The new disclosures and clarifications of existing disclosures are effective for the Company’s second quarter of fiscal year 2010, except for the disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements, which are effective for the Company’s first quarter of fiscal year 2012. The adoption of this guidance had no material impact on the Company’s consolidated financial statements.
 
Amendments to Variable Interest Entity Guidance
 
In June 2009, new guidance was issued which requires an enterprise to determine whether its variable interest or interests give it a controlling financial interest in a variable interest entity. The primary beneficiary of a variable interest entity is the enterprise that has both (1) the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance, and (2) the obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity. The guidance also requires ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. The guidance was effective for Versant beginning November 1, 2010. The adoption of this guidance had no material impact on the Company’s consolidated financial statements.
 
Multiple-Deliverable Revenue Arrangements
 
In October 2009, new guidance was issued by the FASB related to the revenue recognition of multiple element arrangements. The new guidance states that if vendor specific objective evidence, or third party evidence, of fair value for deliverables in an

6


arrangement cannot be determined, companies will be required to develop a best estimate of the selling price for separate deliverables and allocate arrangement consideration using the relative selling price method. The new guidance is effective for Versant for revenue arrangements entered into or materially modified beginning on November 1, 2010. The adoption of this guidance had no material impact on the Company’s consolidated financial statements.
 
Revenue Recognition for Certain Arrangements that Include Software Elements
 
In October 2009, new guidance was issued by FASB related to certain revenue arrangements that include software elements. Previously, companies that sold tangible products with “more than incidental” software were required to apply software revenue recognition guidance. This guidance often delayed revenue recognition for the delivery of the tangible product. Under the new guidance, tangible products that have software components that are “essential to the functionality” of the tangible product will be excluded from the software revenue recognition guidance. The new guidance includes factors to help companies determine what is “essential to the functionality.” Software-enabled products will now be subject to other revenue guidance and will likely follow the guidance for multiple deliverable arrangements issued by the FASB in October 2009. The new guidance was effective for Versant for revenue arrangements entered into or materially modified beginning on November 1, 2010. The adoption of this guidance had no material impact on the Company’s consolidated financial statements.
 
Revenue Recognition — Milestone Method
 
In April 2010, the FASB issued guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate for research and development arrangements. A vendor can recognize consideration that is contingent upon achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. The guidance was effective for Versant beginning November 1, 2010. The adoption of this guidance had no material impact on the Company’s consolidated financial statements.
 
Receivables Disclosure
 
In July 2010, the FASB issued guidance which amends ASC 310, Receivables. This Accounting Standards Update (“ASU”) requires disclosures related to financing receivables and the allowance for credit losses by portfolio segment. The ASU also requires disclosures of information regarding the credit quality, aging, nonaccrual status and impairments by class of receivable. Trade accounts receivable with maturities of one year or less are excluded from the disclosure requirements. The effective date for disclosures as of the end of the reporting period was the first quarter of our fiscal year 2011. The effective date for disclosures for activity during the reporting period is the second quarter of our fiscal year 2011. The adoption of this guidance had no material impact on the Company’s consolidated financial statements.

Interactive Data Reporting

In January 2009, the SEC issued Release No. 33-9002, Interactive Data to Improve Financial Reporting. The final rule requires companies to provide their financial statements and financial statement schedules to the SEC and on their corporate websites in interactive data format using the eXtensible Business Reporting Language (“XBRL”). The rule was adopted by the SEC to improve the ability of financial statement users to access and analyze financial data. The SEC adopted a phase-in schedule indicating when registrants must furnish interactive data. Under this schedule, the Company is required to submit filings with financial statement information using XBRL commencing with this quarterly report on Form 10-Q for the quarter ended July 31, 2011.

Recent Accounting Pronouncements Not Yet Adopted
 
Goodwill Impairment Testing
 
In December 2010, the FASB issued guidance which amends ASC 350, Intangibles - Goodwill and Other. This Accounting Standards Update amends the criteria for performing Step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts and requires performing Step 2 if qualitative factors indicate that it is more likely than not that a goodwill impairment exists. This guidance is effective for fiscal years beginning after December 15, 2011 (November 1, 2012 for the Company). The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.
 
Presentation of Comprehensive Income

In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income. The issuance of ASU 2011-5 is

7


intended to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. The guidance in ASU 2011-5 supersedes the presentation options in ASC Topic 220 and facilitates convergence of U.S. generally accepted accounting principles and International Financial Reporting Standards by eliminating the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity and requiring that all non-owner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance will be applied retrospectively and early adoption is permitted. This guidance is effective for fiscal years and interim periods within those years, beginning after December 15, 2011 (November 1, 2012 for the Company). The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

Note 2.
Fair Value Measurements
 
Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures, defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market for the transaction and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.
 
The FASB guidance also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of inputs that may be used to measure fair value are as follows:
 
Level 1: quoted prices in active markets for identical assets or liabilities;
Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not
active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or
Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Financial Assets Measured at Fair Value on a Recurring Basis
 
Our significant financial assets measured at fair value on a recurring basis consisted of the following types of instruments as of July 31, 2011 (Level 1, 2 and 3 inputs are defined above):
 
 
Fair Value Measurements Using Input Type
 
Level 1
 
Level 2
 
Level 3
 
(in thousands)
Assets:
 

 
 

 
 

Money market funds
$
14,315

 
$

 
$

Time deposits
7,621

 

 

Total
$
21,936

 
$

 
$

 
The fair value of money market funds and time deposits reflect quoted market prices in an active market.
 
Note 3.
Valuation and Qualifying Accounts and Reserves
 
Versant evaluates and revises its allowance for doubtful accounts receivable as part of its quarter end process at the subsidiary and corporate level. The Company’s management assigns a risk factor and percentage of risk to each account receivable, the collection of which is considered non-routine. Accounts are considered past due in accordance with contractual terms which usually provide for payment within 30 to 90 days. The Company also assigns a general reserve to all its overdue accounts, excluding the non-routine items.
 




8


The following table summarizes the activities in the Company’s allowance for doubtful accounts:
 
 
Nine Months Ended
 
Fiscal Year Ended
 
July 31, 2011
 
October 31, 2010
 
(in thousands)
Allowance for doubtful accounts:
 

 
 

Beginning balance
$
8

 
$
36

Adjustments to provision
9

 
(28
)
Ending balance
$
17

 
$
8


Note 4.
Acquisitions, Goodwill and Intangible Assets
 
db4o
 
On December 1, 2008, the Company acquired the assets of the database software business of privately-held Servo Software, Inc. or “Servo” (formerly known as db4objects, Inc.) pursuant to an asset purchase agreement between Versant and Servo dated December 1, 2008 (the “db4o Purchase Agreement”). Versant uses the db4o assets to provide an open source object database software solution targeting the embedded device market.
 
The total purchase price for the db4o assets was $2.6 million and consisted of the following:
 
a)
 Initial cash payment of $2.1 million made in December 2008;
b)
Direct transaction costs of $183,000; and
c)
Contingent deferred payments of $280,000.

Under the terms of the db4o Purchase Agreement, in consideration of its acquisition of the assets of the db4o business, Versant paid Servo the above-mentioned closing payment of $2.1 million in cash, agreed to pay up to a maximum of an additional $300,000 payable in three contingent deferred payments of up to $100,000 each during the 18-month period immediately following the December 1, 2008 acquisition date and assumed certain liabilities of Servo under certain contracts included among the db4o assets. The three contingent deferred payments of up to $100,000 each were payable six months, twelve months and eighteen months, respectively, following the December 1, 2008 acquisition date. The Company made the first contingent deferred payment of $100,000 to Servo on May 29, 2009, the second payment of $90,000 on November 30, 2009 and the third payment of $90,000 on May 28, 2010.
 
The total purchase price for the db4o assets was allocated to db4o’s net tangible and identifiable intangible assets based on their estimated fair values as of the acquisition date, with the excess of the purchase price over these aggregate fair values recorded as goodwill. The fair value assigned to identifiable intangible assets acquired is determined using the income approach, which values each intangible asset based upon its estimated impact on the Company’s expected future after-tax cash flows and discounts the net changes in the Company’s expected future after-tax cash flows to present value. The discount was based on an analysis of the weighted-average cost of capital for the industry.
 
The Company’s allocation of the purchase price for the db4o assets and liabilities is summarized below (in thousands):
 
Tangible net assets acquired
$
84

Customer relationships
210

Developed technology
300

Trade name
100

Goodwill
1,869

 Total
$
2,563

 
Purchased identifiable intangible assets are amortized on a straight-line basis over their useful lives. The estimated useful economic lives of the acquired customer relationships, developed technology and trade name are nine, five and five years, respectively. The weighted average amortization period of the db4o intangible assets is 6.4 years.
 



9


Goodwill
 
The following table presents the Company’s goodwill balance as of July 31, 2011 and October 31, 2010 (in thousands):
 
 
Net Carrying
Amount
Goodwill:
 

Versant Europe
$
241

Poet Holdings, Inc.
5,752

FastObjects, Inc.
677

JDO Genie (PTY), Ltd
50

db4o
1,869

Total
$
8,589

 
Goodwill is subject to at least an annual assessment for impairment, applying a fair-value based test. Versant conducted its annual impairment test in October 2010 and determined there was no impairment.
 
The goodwill acquired in the db4o acquisition will be deductible for tax purposes based upon a 15 year tax life.

Intangible Assets
 
The Company’s intangible asset balances as of July 31, 2011 and October 31, 2010 are as follows (in thousands):
 
 
July 31, 2011
 
October 31, 2010
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Intangible assets:
 

 
 

 
 

 
 

 
 

 
 

Poet Holdings, Inc.- Developed
Technology & Customer Relationships
(Amortized over 7 years)
$
1,919

 
$
1,919

 
$

 
$
1,919

 
$
1,832

 
$
87

db4o-Developed Technology
(Amortized over 5 years)
300

 
160

 
140

 
300

 
115

 
185

db4o-Customer Relationships
(Amortized over 9 years)
210

 
62

 
148

 
210

 
44

 
166

db4o-Trade Name
(Amortized over 5 years)
100

 
54

 
46

 
100

 
39

 
61

Total
$
2,529

 
$
2,195

 
$
334

 
$
2,529

 
$
2,030

 
$
499

 
Aggregate amortization expense for intangible assets was $26,000 and $164,000, respectively, for the three and nine months ended July 31, 2011, and $76,000 and $230,000, respectively, for the three and nine months ended July 31, 2010.
 
The projected amortization of the Company’s existing intangible assets as of July 31, 2011 is as follows (in thousands):
 
 
Amortization
Three months ending October 31, 2011
$
26

Fiscal year ending October 31,


2012
104

2013
103

2014
30

2015
23

Thereafter
48

Total
$
334



10


Note 5.  Commitments and Contingencies
 
Lease commitments

Versant’s principal commitments as of July 31, 2011 consist of obligations under operating leases for facilities and equipment.
 
Versant leases office space for its U.S. headquarters in Redwood City, California and also leases field office space in Hamburg and Munich, Germany under multi-year operating lease agreements. The Company's operating lease arrangements as of July 31, 2011 are summarized below:
 
Leased Office Facility:
Lease Expiration Date
 
Total Rent Payable over the Remaining Lease Term
 
Options to Renew at Fair Value
Hamburg, Germany
11/30/2014
 
$
605,000

 
Two three year renewal options
Redwood City, California
5/31/2013
 
$
373,000

 
Single one year renewal option
Munich, Germany
2/28/2014
 
$
73,000

 
Single two year renewal option

Our minimum commitments under non-cancelable operating leases as of July 31, 2011 are as follows (in thousands): 
 
Facilities
Leases
 
Equipment
Leases
 
Total
Three months ending October 31, 2011
$
102

 
$
1

 
$
103

Fiscal year ending October 31,
 

 
 

 
 

2012
412

 
5

 
417

2013
331

 
3

 
334

2014
191

 


 
191

2015
15

 


 
15

Total
$
1,051

 
$
9

 
$
1,060


Contingencies
The Company is subject to various legal proceedings and disputes that arise in the ordinary course of business from time to time. There were no ongoing material legal proceedings as of July 31, 2011.
The Company enters into indemnification agreements in the ordinary course of business. The Company's license agreements with customers generally require it to indemnify the customer against claims that its software infringes third party patent, copyright, trademark or other proprietary rights. Such indemnification obligations are generally limited in a variety of industry-standard respects. If a liability associated with any of the Company's indemnifications becomes probable and the amount of the liability is reasonably estimable or the minimum amount of a range of loss is reasonably estimable, then an appropriate liability will be established. The estimated fair value of these indemnification clauses is minimal.
 
Note 6.
Per Share Data
 
Basic and diluted net income per common share has been computed using the weighted average number of shares of common stock outstanding during the period, less shares subject to repurchase. The following table presents the calculation of basic and diluted net income per share (in thousands, except per share amounts):
 
Three Months Ended
 
Nine Months Ended
 
July 31,
 
July 31,
 
July 31,
 
July 31,
 
2011
 
2010
 
2011
 
2010
 
 
 
 
 
 
 
 
Net income
$
474

 
$
130

 
$
398

 
$
733

 
 
 
 
 
 
 
 
Calculation of basic net income per share:
 
 
 
 
 
 
 
Weighted average - common shares outstanding
3,021

 
3,375

 
3,122

 
3,468

Net income per share, basic
$
0.16

 
$
0.04

 
$
0.13

 
$
0.21


11


 
 
Three Months Ended
 
Nine Months Ended
 
July 31,
 
July 31,
 
July 31,
 
July 31,
 
2011
 
2010
 
2011
 
2010
 
 
 
 
 
 
 
 
Net income
$
474

 
$
130

 
$
398

 
$
733

 
 
 
 
 
 
 
 
Calculation of diluted net income per share:
 

 
 

 
 
 
 
Weighted average - common shares outstanding
3,021

 
3,375

 
3,122

 
3,468

Dilutive effect of employee and director stock options

 
28

 
1

 
36

Weighted average - common shares outstanding and potentially dilutive common shares
3,021

 
3,403

 
3,123

 
3,504

Net income per share, diluted
$
0.16

 
$
0.04

 
$
0.13

 
$
0.21


For the three months ended July 31, 2011 and 2010, 341,000 and 416,000 potentially dilutive shares, respectively, were excluded from the computation of diluted net income per share by the application of the treasury stock method. For the nine months ended July 31, 2011 and 2010, 355,000 and 347,000 potentially dilutive shares, respectively, were excluded from the computation of diluted net income per share by the application of the treasury stock method.

Note 7.
Common Stock Repurchases

Fiscal 2011 Stock Repurchase Program.
 
On November 29, 2010 Versant’s Board of Directors approved a new stock repurchase program pursuant to which Versant is authorized to repurchase up to $5.0 million of its common stock in fiscal year 2011. This stock repurchase program is currently scheduled to expire upon the earlier of October 31, 2011, or such time as Versant has expended $5.0 million to repurchase outstanding common shares under the program; however the program may be suspended, discontinued or extended at any earlier time by the Company.
 
From the date of announcement of this stock repurchase program through July 31, 2011, Versant acquired under this program a total of 221,487 common shares on the open market for approximately $2.7 million at an average purchase price of $12.33 per share, leaving approximately $2.3 million in authorized funds available for future repurchases of stock under this program.
 
Fiscal 2010 Stock Repurchase Program.
 
On November 30, 2009, Versant’s Board of Directors approved a stock repurchase program authorizing Versant to repurchase up to $5.0 million of its outstanding common shares on the open market, in block trades or otherwise. This stock repurchase program expired by its terms on October 31, 2010. Pursuant to this program, Versant acquired 356,104 common shares on the open market and in block trades for approximately $4.3 million at an average purchase price of $12.06 per share.
  
Other Stock Repurchase

On March 10, 2011, Versant and the Company’s then Chief Executive Officer ("Former CEO") entered into a separation agreement (the “Separation Agreement”). On March 28, 2011, pursuant to the Separation Agreement, Versant repurchased 62,545 shares of Versant common stock owned by the Former CEO at a price of $13.50 per share, which reflected recent market trading prices of Versant’s common stock as of the date of the Separation Agreement.
 
Note 8.
Employee and Director Benefit Plans

The Company grants common stock options under its 2005 Equity Incentive Plan and its 2005 Directors' Stock Option Plan and issues stock under its 2005 Employee Stock Purchase Plan, which plans have been approved by Versant's shareholders.

Shares Reserved for Future Issuance

At the Company's 2011 annual shareholder meeting, held on April 18, 2011, the shareholders approved an increase of 300,000

12


shares and 20,000 shares in the numbers of shares reserved under the Company's 2005 Equity Incentive Plan and 2005 Directors' Stock Option Plan, respectively.

The Company has reserved shares of common stock for the following purposes (in thousands):
Reserved for issuance:
 
Employee stock purchase plan
30

Stock options available for grant
350

Unexercised stock options
647

Balance as of July 31, 2011
1,027


The following table summarizes stock option activities under the Company’s equity-based compensation plans during the nine months ended July 31, 2011 and 2010:
 
Nine Months Ended July 31,
 
2011
 
2010
 
Shares in
thousands
 
Weighted
average
exercise
price
 
Shares in
thousands
 
Weighted
average
exercise
price
Stock option activity:
 

 
 

 
 

 
 

Outstanding at the beginning of the period
515

 
$
16.84

 
386

 
$
18.45

Granted
165

 
11.96

 
148

 
18.15

Exercised
(7
)
 
4.03

 
(3
)
 
10.85

Forfeited and expired
(26
)
 
26.98

 
(27
)
 
38.56

Outstanding at the end of the period
647

 
$
15.31

 
504

 
$
17.32

 
 
 
 
 
 
 
 
Options exercisable at the end of the period
442

 
$
16.06

 
310

 
$
17.40


Note 9.
Share Based Compensation
 
Under the fair value recognition guidance of ASC 718, Compensation — Stock Compensation, share based compensation cost is estimated at the grant date based on the fair value of the award and is recognized as expense over the requisite service period of the award. The fair value of each option granted is estimated on the date of grant and the fair value of each share issued under Versant’s Employee Stock Purchase Plan (or “ESPP”) is estimated at the beginning of the purchase period, using the Black-Scholes Option Pricing Model, based on the following weighted average assumptions:

 
 
Stock Options
 
ESPP
 
Nine Months Ended July 31,
 
Nine Months Ended July 31,
 
2011
 
2010
 
2011
 
2010
Assumptions:
 
 
 
 
 
 
 
Volatility
46% - 53%
 
53% - 56%
 
23% - 31%
 
33% - 42%
Expected life
3.6 - 5.5 years
 
3.3 - 3.6 years
 
6 - 12 months
 
6 - 12 months
Weighted average risk-free interest rate
1.36% - 1.95%
 
1.43% - 1.87%
 
0.10% - 0.28%
 
0.15% - 0.35%
Dividend yield
 
 
 
 

13


Share based compensation expense recognized in the condensed consolidated statements of income related to the Company’s stock option plans and the ESPP was as follows (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
July 31,
 
July 31,
 
July 31,
 
July 31,
 
2011
 
2010
 
2011
 
2010
Share based compensation expense:
 

 
 

 
 
 
 
Stock options
$
231

 
$
259

 
$
727

 
$
796

ESPP
13

 
(4
)
 
41

 
32

Total
$
244

 
$
255

 
$
768

 
$
828


Share based compensation recognized in the condensed consolidated statements of income, by income statement caption, was as follows (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
July 31,
 
July 31,
 
July 31,
 
July 31,
 
2011
 
2010
 
2011
 
2010
Share based compensation expense:
 

 
 

 
 
 
 
Cost of revenues
$
15

 
$
14

 
$
48

 
$
59

Sales and marketing
67

 
50

 
193

 
171

Research and development
50

 
52

 
154

 
175

General and administrative
112

 
139

 
373

 
423

Total
$
244

 
$
255

 
$
768

 
$
828

 
Note 10.
Restructuring
 
In the fourth quarter of fiscal year 2009, the Company committed to the implementation of a restructuring plan pursuant to which it closed its research and development facility in Pune, India and is winding down the affairs of its subsidiary, Versant India Private Limited (“Versant India”). The restructuring plan was undertaken to consolidate the Company’s research and development efforts into one location in Germany in order to streamline operations, create management efficiencies and increase productivity. Since the plan was undertaken, Versant has incurred restructuring costs of $203,000 as of July 31, 2011. The restructuring was substantially completed during the second quarter ended April 30, 2010.
 
The following table reflects the type and amount of these restructuring charges (accrual reversal) included in operating expenses for the three and nine months ended July 31, 2011 and 2010 (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
July 31,
 
July 31,
 
July 31,
 
July 31,
 
2011
 
2010
 
2011
 
2010
Restructuring:
 

 
 

 
 
 
 
Severance, retention and related charges
$

 
$

 
$

 
$
38

Impairment of fixed assets
20

 

 
20

 
2

Impairment to other assets
5

 

 
5

 
(29
)
Contract termination costs

 

 

 
8

Other direct costs of closure

 

 

 
20

 
$
25

 
$

 
$
25

 
$
39


Note 11.
Income Taxes
 
The Company accounts for income taxes pursuant to the provisions of ASC 740, Income Taxes, which requires an asset and liability approach to accounting for income taxes. Deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and the tax basis of assets and liabilities and are measured using the enacted statutory tax rates in effect at the balance sheet date. The Company records a valuation allowance to reduce its deferred tax assets when uncertainty exists regarding the realizability of the deferred tax assets. The Company had net deferred tax assets of

14


$913,000 and $884,000 as of July 31, 2011 and October 31, 2010, respectively.
 
The Company has significant deferred tax assets arising primarily from net operating loss ("NOL") carry forwards in the U.S., California and in Germany. Ultimately, the realization of the deferred tax assets is dependent upon the Company’s generation of sufficient future taxable income to enable it to use net operating loss and tax credit carry forwards during those periods in which such carry forwards can be utilized by the Company. In evaluating Versant’s ability to utilize its deferred tax assets, management of the Company considers all available positive and negative evidence, including past operating results in the most recent fiscal years and an assessment of expected future results of operations on a jurisdiction by jurisdiction basis.
 
The Company has experienced substantial past tax losses in its U.S. operations. Due to the lack of forecast future taxable income and the relative size of the Company’s Federal and California net operating loss carry forwards, considerable uncertainty exists that the Company will realize these deferred tax assets. Based on this objective evidence, a full valuation allowance has been recorded against the Company’s deferred tax assets related to its U.S. operations.
 
The Company has also experienced substantial past tax losses in its European operations. In its most recent fiscal years, the Company has generated taxable income and begun to utilize its deferred tax assets related to its German net operating loss carry forwards. Management of the Company has forecast taxable income for its European operations in fiscal 2011. The global economic downturn has negatively impacted the Company’s operating results in all regions.  The Company has experienced declining revenues as economic conditions have remained difficult. Given the uncertainty of the macroeconomic environment, future revenues and operating results are difficult to forecast. Therefore, management has concluded it is more likely than not that the Company will realize the benefit of its deferred tax assets related to its German net operating loss carry forwards only to the extent of its expected taxable income in fiscal 2011.
 
Significant management judgment is required to determine when, in the future, it will become more likely than not that additional net deferred tax assets will be realized. Management will continue to assess the realizability of the tax benefit available based on actual and forecast operating results. Management does not anticipate significant changes to its uncertain tax positions through October 31, 2011.
 
The provision for income tax expense was $55,000 and $114,000 for the three months ended July 31, 2011 and 2010, respectively, and $93,000 and $454,000 for the nine months ended July 31, 2011 and 2010, respectively. The provision for income tax expense differs from the amount estimated by applying the statutory federal income tax rate to income before taxes, primarily due to foreign income taxed at other than U.S. rates, foreign withholding taxes and state taxes.
 
The Company is subject to U.S. federal income taxes and to income taxes in various states in the U.S. as well as in foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or foreign tax examinations by tax authorities for tax years before 2005. However, with respect to tax years no longer subject to examination due to expiration of the statute of limitations, income may nevertheless be recomputed for the purpose of determining the amount of NOL that may be carried over to “open” years.
 
The Company recognizes interest and penalties accrued related to unrecognized tax benefits in the provision for income taxes for all periods presented, which were not significant.
 
Note 12.
Other Comprehensive Income

Accumulated other comprehensive income presented in the accompanying condensed consolidated balance sheets consists of cumulative foreign currency translation adjustments.
Comprehensive income for the three and nine month periods ended July 31, 2011 and 2010 was as follows (in thousands):

 
Three Months Ended
 
Nine Months Ended
 
July 31,
 
July 31,
 
July 31,
 
July 31,
 
2011
 
2010
 
2011
 
2010
 
 
 
 
 
 
 
 
Net income, as reported
$
474

 
$
130

 
$
398

 
$
733

Foreign currency translation adjustment
(93
)
 
(51
)
 
65

 
(549
)
Comprehensive income
$
381

 
$
79

 
$
463

 
$
184


15



Note 13.
Segment and Geographic Information
 
ASC 280, Segment Reporting establishes standards for the manner in which public companies report information about operating segments in annual and interim financial statements which require the reporting of segment information using the “management approach.” Under this approach, operating segments are identified in substantially the same manner as they are reported internally and used by the Company’s chief operating decision maker (“CODM”) for purposes of evaluating performance and allocating resources. Based on this approach, the Company has determined that it operates in a single operating segment, Data Management.
 
One health care customer accounted for approximately 11% of our total revenues in the three months ended July 31, 2011 and had no accounts receivable balance as of July 31, 2011. In addition, the aggregate revenues of one telecommunications customer accounted for approximately 11% of our total revenues in the three months ended July 31, 2011 and 10% of our total revenues in the nine months ended July 31, 2011. The related accounts receivable balance for this customer was approximately $255,000 as of July 31, 2011.  
In aggregate, the revenues generated by all projects in all locations of a telecommunications customer accounted for approximately 15% of total revenues in the three months ended July 31, 2010 and 13% of total revenues in the nine months ended July 31, 2010. The related accounts receivable balance for this customer was approximately $402,000 as of July 31, 2010.

The Company operates in North America, Europe and Asia. In general, revenues are attributed to the country in which the revenue-bearing contract originates.
 
The following table reflects revenues for the three and nine months ended July 31, 2011 and 2010 by each geographic region (in thousands):
 
 
Three Months Ended
 
Nine Months Ended
 
July 31,
 
July 31,
 
July 31,
 
July 31,
 
2011
 
2010
 
2011
 
2010
Revenues by region:
 

 
 

 
 
 
 
North America
$
1,953

 
$
1,396

 
$
4,941

 
$
4,401

Europe
1,950

 
1,918

 
6,756

 
6,365

Asia
301

 
110

 
596

 
628

 
$
4,204

 
$
3,424

 
$
12,293

 
$
11,394


 The following table reflects long-lived assets as of July 31, 2011 and October 31, 2010 in each geographic region (in thousands):
 
 
July 31,
2011
 
October 31,
2010
Total long-lived assets by region:
 

 
 

North America
$
401

 
$
127

Germany
643

 
506

Asia
6

 
39

 
$
1,050

 
$
672

 

16



Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
This Item 2 and the discussion and analysis included in this item should be read in conjunction with the Company’s financial statements and accompanying notes included in this report and the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2010 filed with the SEC on January 31, 2011. Our historic operating results are not necessarily indicative of results that may occur in future periods.
 
The following discussion and analysis contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. These forward-looking statements include, among other things, statements regarding the Company’s expected future financial performance, assets, liquidity and trends anticipated for the Company’s business. These statements are based on the Company’s current expectations, assumptions, estimates and projections about the Company’s business and the Company’s industry, which in turn are based on information that is reasonably available to the Company as of the date of this report. Forward-looking statements may include, without limitation, words such as “believes,” “anticipates,” “expects,” “intends,” “plans,” “will,” “may,” “should,” “estimates,” “predicts,” “forecasts,” “guidance,” “potential,” “continue” or the negative of such terms or other similar expressions. We caution readers that these forward-looking statements are not intended to be assurances of our future performance or financial condition and are subject to, and involve, significant known and unknown risks, uncertainties and other factors that may cause the Company’s actual operating results, financial condition, levels of activity, performance or achievement to be materially different from any future operating results, financial condition, levels of activity, performance or achievements that are expressed, forecast, projected, implied in, anticipated or contemplated by the forward-looking statements.  These known and unknown risks, uncertainties and other factors include, but are not limited to, those risks, uncertainties and factors discussed elsewhere in this report, in the Company’s other SEC filings and in Part I, Item 1A (“Risk Factors”) and in Part II, Item 7 (“Management’s Discussion and Analysis of Financial Condition and Results of Operations”) of the Company’s report on Form 10-K for the fiscal year ended October 31, 2010. Versant undertakes no obligation to revise or update any forward-looking statement in order to reflect events or circumstances that may arise or occur after the date of this report.
 
Background and Overview
 
We are a leading provider of object-oriented data management software that forms a critical component of the infrastructure of enterprise computing. We design, develop, market and support high performance, object-oriented database management solutions and provide related maintenance and professional services. Our products and services address the complex data management needs of enterprises and providers of products requiring data management functions. Our products and services collectively comprise our single operating segment, which we call “Data Management.”
 
Our end-user customers typically use our products to manage data for business systems and to enable these systems to access and integrate data necessary for the customers’ data management applications. Our data management products and services offer customers the ability to manage real-time, XML and other types of hierarchical and navigational data. We believe that by using our data management solutions, customers cut their hardware costs, accelerate and simplify their development efforts, significantly reduce administration costs and deliver products and services with a significant competitive edge.
 
Our Data Management business is currently comprised of the following key products:
 
Versant Object Database or “VOD”, previously known as VDS, an eighth generation object-oriented database management system that is used in high-performance, large-scale, real-time commercial applications in distributed computing environments. We also offer several optional ancillary products for use with Versant Object Database to extend its capabilities, and to provide compatibility and additional protection of stored data.

FastObjects, an object-oriented database management system that can be embedded as a high performance component into customers’ applications and systems.

db4o, an open source object-oriented database software solution targeting the embedded device market.
 
 Our Versant Object Database product and ancillary offerings are used primarily by larger organizations, such as telecommunications carriers, health care companies, technology providers, government defense agencies and defense contractors and companies in the transportation and financial services industries, each of which have significant large-scale data management requirements. Our FastObjects solution extends the scope of our solutions to also address the data management needs of smaller business systems. By our acquisition of db4o, we further expanded the scope of our solutions to include the embedded market.

17



Our customers’ data management needs can involve many business functions, ranging from management of the use and sharing of a company’s internal enterprise data to the processing of externally originated information such as customer enrollment, billing and payment transaction data. Our solutions have also been used to solve complex data management issues such as fraud detection, risk analysis and yield management and can be adapted for use with many different applications. In addition to our product offerings, we provide maintenance and technical support services to assist users in using our products. We also offer a variety of consulting and training services to assist users in developing and deploying applications based on Versant Object Database, FastObjects and db4o solutions. We license our products and sell associated maintenance, training and consulting services to end-users through our direct sales force and through value-added resellers, systems integrators and distributors.
 
In addition to these products and services, we resell related software developed by third parties. To date, substantially all of our revenues have been derived from the following data management products and related services:
 
Sales of licenses for Versant Object Database and FastObjects;
Maintenance and technical support services for our products, including db4o;
Consulting and training services;
Nonrecurring engineering fees received in connection with providing services associated with Versant Object Database;
The resale of licenses, and maintenance, training and consulting services for third-party products that complement Versant Object Database;
Reimbursements received for out-of-pocket expenses, which we incurred and are recorded as revenues in our statements of income.

     
 Negative and Uncertain Global Economic Conditions Are Continuing to Impact Our Business
 
Global economic developments like the recent recessions and debt crises in the U.S. and Europe have continued to adversely effect the enterprise software market. Economic growth in the U.S. and many other countries has remained very slow and the length of time these adverse economic conditions may persist is unknown. Our business has been negatively affected by these ongoing worldwide economic conditions. It is unclear when or to what extent the macroeconomic environment may improve. During the first nine months of fiscal 2011, our selling environment remained very challenging. We are seeing continuing pressures on our customers’ budgets, and as they are facing uncertainty and cost pressures in their own businesses, some of our customers are deferring purchases of our products or electing less expensive levels of our maintenance services. The current difficult and uncertain economic conditions are causing some of our customers to face financial challenges and they may continue to face such challenges for the foreseeable future. The current economic uncertainty could continue to harm our business, operating results and financial condition in the foreseeable future.

Critical Accounting Policies and Estimates
 
The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amount of our assets and liabilities at the date of our financial statements and of our revenues and expenses during the reporting period covered by our financial statements. We base these estimates and judgments on information reasonably available to us, such as our historical experience and industry trends, economic and seasonal fluctuations and on our own internal projections that we derive from that information. Although we believe our estimates to be reasonable under the circumstances, there can be no assurances that our estimates will be accurate given that the application of these accounting policies necessarily involves the exercise of subjective judgment and the making of assumptions regarding many future variables and uncertainties. We consider “critical” those accounting policies that require our most difficult, subjective or complex judgments, and that are the most important to the portrayal of our financial condition and results of operations. These critical accounting policies relate to revenue recognition, goodwill and acquired intangible assets, and income taxes.

During the first nine months of fiscal 2011, there were no significant changes in our critical accounting policies and estimates. Please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for our fiscal year ended October 31, 2010, filed with the SEC on January 31, 2011 (File/Film No. 000-28540/11559912) for a more complete discussion of our critical accounting policies and estimates.
 

18


Results of Operations
 
The following table sets forth, for the periods indicated, the percentage relationship of certain items from our condensed consolidated statements of income to total revenues:

 
Three Months Ended
 
Nine Months Ended
 
July 31,
 
July 31,
 
July 31,
 
July 31,
 
2011
 
2010
 
2011
 
2010
Revenues:
 

 
 

 
 
 
 
License
56
 %
 
48
%
 
55
 %
 
51
%
Maintenance
43

 
51

 
44

 
48

Professional services
1

 
1

 
1

 
1

Total revenues
100

 
100

 
100

 
100

 
 
 
 
 
 
 
 
Cost of revenues:
 

 
 

 
 
 
 
License
2

 
2

 
1

 
2

Amortization of intangible assets
1

 
2

 
1

 
2

Maintenance
9

 
10

 
9

 
10

Professional services

 

 

 

Total cost of revenues
12

 
14

 
11

 
14

 
 
 
 
 
 
 
 
Gross profit
88

 
86

 
89

 
86

 
 
 
 
 
 
 
 
Operating expenses:
 

 
 

 
 
 
 
Sales and marketing
31

 
34

 
34

 
31

Research and development
25

 
24

 
24

 
25

General and administrative
19

 
22

 
25

 
21

Restructuring
1

 

 

 

Total operating expenses
76

 
80

 
83

 
77

 
 
 
 
 
 
 
 
Income from operations
12

 
6

 
6

 
9

Interest and other income (expense), net
1

 
1

 

 
1

Income before provision for income taxes
13

 
7

 
6

 
10

Provision for income taxes
1

 
3

 
1

 
4

 
 
 
 
 
 
 
 
Net income
12
 %
 
4
%
 
5
 %
 
6
%

19



Revenues
 
The following table summarizes license, maintenance and professional services revenues for the three and nine months ended July 31, 2011 and 2010 (in thousands, except percentages):

 
Three Months Ended
 
July 31,
 
July 31,
 
Change
 
2011
 
2010
 
Amount
 
Percentage
 
(unaudited)
 
 
 
 
Revenues:
 

 
 

 
 

 
 

License
$
2,344

 
$
1,634

 
$
710

 
43
 %
Maintenance
1,821

 
1,757

 
64

 
4

Professional services
39

 
33

 
6

 
18

Total
$
4,204

 
$
3,424

 
$
780

 
23
 %
 
 
 
 
 
 
 
 
 
Nine Months Ended
 
July 31,
 
July 31,
 
Change
 
2011
 
2010
 
Amount
 
Percentage
 
(unaudited)
 
 
 
 
Revenues:
 
 
 
 
 
 
 
License
$
6,758

 
$
5,787

 
$
971

 
17
 %
Maintenance
5,396

 
5,534

 
(138
)
 
(2
)
Professional services
139

 
73

 
66

 
90

Total
$
12,293

 
$
11,394

 
$
899

 
8
 %
 
Total Revenues. Total revenues are comprised of license fees and fees for maintenance, training, consulting, technical and other support services. Fluctuations in our total revenues can be attributed to changes in economic and industry conditions, product and customer mix, general trends in information technology spending, changes in geographic mix, and the corresponding impact of changes in foreign currency exchange rates. Further, product life cycles impact revenues periodically as old contracts expire and new products are released. In addition, delays in forecast revenue transactions with customers or royalty reporting to us of items such as back maintenance charges, can cause revenue fluctuations, particularly on a quarterly basis.
 
Our total revenues for the three months ended July 31, 2011 increased approximately $780,000 (or 23%) when compared to the corresponding period in fiscal 2010. This resulted primarily from an approximate $710,000 (or 43%) increase in license revenues. Total revenues also reflected approximately $296,000 of favorable foreign currency exchange rate fluctuations.
 
Our total revenues increased by $899,000 (or 8%) for the nine months ended July 31, 2011 compared to the corresponding period in fiscal 2010. This increase resulted primarily from an approximate $971,000 (or 17%) increase in license revenues and an approximate $66,000 (or 90%) increase in professional services revenues, partially offset by an approximate $138,000 (or 2%) decrease in maintenance revenues for the nine months ended July 31, 2011 compared to the corresponding period in fiscal 2010. Total revenues for the nine months ended July 31, 2011 also included approximately $226,000 of favorable foreign currency exchange rate fluctuations.

One health care customer accounted for approximately 11% of our total revenues in the three months ended July 31, 2011 . In addition, the aggregate revenues generated by a telecommunications customer accounted for approximately 11% of our total revenues in the three months ended July 31, 2011 and approximately 10% of our total revenues in the nine months ended July 31, 2011.

In aggregate, the revenues generated by a telecommunications customer accounted for approximately 15% of total revenues in the three months ended July 31, 2010 and approximately 13% of total revenues in the nine months ended July 31, 2010.

The inherently unpredictable business cycle of an enterprise software company makes discernment of continued and meaningful business trends difficult, particularly in the current uncertain economic environment. In terms of license revenues,

20


we are still experiencing lengthy sales cycles and customer preference for licensing our software on an “as needed” basis, versus the historical practice of prepaying license fees in advance of usage, a factor which can adversely affect the amount of our license revenues. In addition, the stagnation in general economic conditions has further lengthened our sales cycle and created increased pricing pressure as many customers strive to reduce their operating costs. License revenues are also a critical factor in driving the amount of our services revenues, as new license customers typically enter into support and maintenance agreements with us, from which our maintenance revenues are derived over future fiscal periods. As customers endeavor to control costs, the Company may experience lower rates of maintenance contract renewal as well as migration from premium support options to less expensive support levels, which would adversely affect the levels of our maintenance revenues.
 
License. License revenues represent perpetual and term license fees received and recognized from our End-Users and Value Added Resellers.
 
License revenues were $2.3 million for the three months ended July 31, 2011, an increase of $710,000 (or 43%) from $1.6 million reported for the comparable period in fiscal 2010. The increase in license revenues resulted primarily from a greater number of relatively larger license transactions in our North American operations in the quarter as well as a modest increase globally in the value of the average license transaction. License revenues for the three months ended July 31, 2011 included an approximate $159,000 increase resulting from favorable foreign currency exchange rate fluctuations.

License revenues were $6.8 million for the nine months ended July 31, 2011, an increase of $971,000 (or 17%) from $5.8 million reported for the comparable period in fiscal 2010. The increase in license revenues resulted primarily from a modest increase in average license volume per customer and an increase in relatively larger transactions primarily in our North American operations. License revenues for the nine months ended July 31, 2011 included an approximate $111,000 increase resulting from favorable foreign currency exchange rate fluctuations.
 
Maintenance. Maintenance and technical support revenues include revenues derived from maintenance agreements, under which we provide customers with software upgrades and internet and telephone access to support personnel, dedicated technical assistance and emergency response support options.

Maintenance revenues were $1.8 million for the three months ended July 31, 2011, an increase of $64,000 (or 4%) from $1.8 million reported for the comparable period in fiscal 2010. The increase in maintenance revenues resulted primarily from an approximate $134,000 increase in favorable foreign currency exchange rate fluctuations and an approximate $66,000 increase due to back maintenance recognized in the current quarter. These increases were partially offset by an approximate $105,000 decrease resulting from certain customers electing less expensive support and maintenance options.

Maintenance revenues were $5.4 million for the nine months ended July 31, 2011, a decrease of $138,000 (or 2%) from $5.5 million reported for the comparable period in fiscal 2010. The decrease in maintenance revenues resulted primarily from an approximate $303,000 decrease occasioned by certain customers electing less expensive support and maintenance options and an approximate $187,000 decrease attributable to non-renewal of maintenance contracts by certain customers. These decreases were partially offset by an approximate $165,000 increase related to back maintenance revenues derived from one North American customer, an approximate $77,000 increase created by new maintenance contracts and an approximate $116,000 increase resulting from favorable foreign currency exchange rate fluctuations during the nine months ended July 31, 2011 compared to the corresponding period in fiscal 2010.

Professional Services. Professional services revenues consist of revenues from consulting, training and technical support as well as billable travel expenses incurred by our professional services organization.

Professional services revenues were $39,000 for the three months ended July 31, 2011, an increase of $6,000 (or 18%) from $33,000 reported for the comparable period in fiscal 2010. Professional services revenues were $139,000 for the nine months ended July 31, 2011, an increase of $66,000 (or 90%) from $73,000 reported for the comparable period in fiscal 2010. The increase in professional services revenues for the nine months ended July 31, 2011 resulted primarily from a consulting engagement with one European customer for approximately $53,000.
 








21


International Revenues. The following table summarizes our revenues by geographic area for the three and nine months ended July 31, 2011 and 2010 (in thousands, except percentages):
 
 
Three Months Ended July 31,
 
 
 
Percentage
 
 
 
Percentage
 
Change
 
2011
 
of revenues
 
2010
 
of revenues
 
Amount
 
Percentage
 
(unaudited)
 
 
 
 
 
 
Revenues by region:
 

 
 

 
 

 
 

 
 

 
 

North America
$
1,953

 
46
%
 
$
1,396

 
41
%
 
$
557

 
40
 %
Europe
1,950

 
46

 
1,918

 
56

 
32

 
2

Asia
301

 
8

 
110

 
3

 
191

 
174

 
$
4,204

 
100
%
 
$
3,424

 
100
%
 
$
780

 
23
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended July 31,
 
 
 
Percentage
 
 
 
Percentage
 
Change
 
2011
 
of revenues
 
2010
 
of revenues
 
Amount
 
Percentage
 
(unaudited)
 
 
 
 
 
 
Revenues by region:
 
 
 
 
 
 
 
 
 
 
 
North America
$
4,941

 
40
%
 
$
4,401

 
39
%
 
$
540

 
12
 %
Europe
6,756

 
55

 
6,365

 
56

 
391

 
6

Asia
596

 
5

 
628

 
6

 
(32
)
 
(5
)
 
$
12,293

 
100
%
 
$
11,394

 
100
%
 
$
899

 
8
 %
 
Total revenues increased approximately $780,000 (or 23%) in the three months ended July 31, 2011 compared to the corresponding period of fiscal 2010. The increase in total revenues was primarily due to an approximate $557,000 (or 40%) increase in North American revenues and an approximate $191,000 (or 174%) increase in revenues from Asia. The increases in North American and Asia Pacific revenues in this period resulted primarily from increased license revenues. Total revenues for the three months ended July 31, 2011 also included approximately $296,000 in favorable foreign currency exchange rate fluctuations, which are primarily connected with our European operations. Each region’s revenue as a percentage of total revenue varies from quarter to quarter as a result of the transactions specific to that region in each quarter and does not necessarily reflect a trend.

Our total revenues increased by $899,000 (or 8%) for the nine months ended July 31, 2011 compared to the corresponding period in fiscal 2010. The increase in total revenues was principally due to an approximate $540,000 (or 12%) increase in North American revenues and an approximate $391,000 (or 6%) increase in revenues from Europe which were partially offset by approximate $32,000 (or 5%) decrease in revenues generated in the Asia Pacific region. The increases in revenues generated in North America and Europe during the nine months ended July 31, 2011 were primarily a result of increased license revenues. Total revenues for the nine months ended July 31, 2011 also included approximately $226,000 in favorable foreign currency exchange rate fluctuations, which are primarily connected with our European operations.

International revenues (revenues from the European and Asian regions) represented approximately 54% of our total revenues for the three months ended July 31, 2011, as compared to 59% for the comparable period in fiscal 2010.

International revenues (revenues from the European and Asian regions) represented approximately 60% of our total revenues for the nine months ended July 31, 2011, as compared to 61% for the comparable period in fiscal 2010.
 
Revenues from North America. The $557,000 (or 40%) revenue increase from North America in the three months ended July 31, 2011 was primarily the result of an increase in license revenues, while services revenues from this region decreased slightly. The increase in license revenues was primarily due to a larger transaction with one significant health care customer.

Revenues from North America during the nine months ended July 31, 2011 increased approximately $540,000 (or 12% ) compared to the nine months ended July 31, 2010. The increase in total revenues originating in North America was principally a result of an increase in license revenues, while services revenues remained relatively stable. The increase in license revenues was primarily due to two transactions with two significant health care customers during the nine months ended July 31, 2011. Services revenues included back maintenance from a North American customer recognized in the first nine months of fiscal

22


2011 which was offset by certain customers electing less expensive support and maintenance options and to non-renewal of maintenance contracts.

Revenues from Europe. Revenues from Europe increased $32,000 (or 2%) in the three months ended July 31, 2011, remaining relatively consistent with the comparable period in fiscal 2010. Services revenues generated in Europe decreased due to certain customers electing less expensive support and maintenance options, but this decrease was largely offset by back maintenance revenues recognized in the current quarter. Total revenues from Europe for the three months ended July 31, 2011 included an approximate $296,000 increase resulting from favorable foreign currency exchange rate fluctuations.
 
The $391,000 (or 6%) increase in European revenues for the nine months ended July 31, 2011, over the comparable period in fiscal 2010 was primarily due to an increase in license revenues resulting from larger average licensing volume per customer and was partially offset by a small decrease in service revenues. Total revenues from Europe for the nine months ended July 31, 2011, included an approximate $226,000 increase resulting from favorable foreign currency exchange rate fluctuations.

Since the Company’s acquisition of Poet Holdings, Inc. in early 2004, we have generally derived a higher percentage of our revenues from Europe due to stronger demand for our products there. We expect in the future to continue to experience a somewhat stronger demand for our products in Europe as compared to our other geographic markets.
 
Revenues from Asia. Revenues from the Asia Pacific region increased $191,000 (or 174%) during the three months ended July 31, 2011 when compared to the three months ended July 31, 2010. This increase is primarily due to an increase in license revenues from a customer in Singapore. Total revenues from the Asia Pacific region during the nine months ended July 31, 2011 decreased approximately $32,000 (or 5%) when compared to the corresponding period of fiscal 2010.
 
A variety of factors may impact Versant’s future revenues, including the potential strengthening of the U.S. dollar (which would have the effect of reducing portions of our revenue resulting from favorable currency exchange fluctuations), the generally more difficult economic environment currently being experienced in the global economy, which may negatively impact demand for our products and services, and competitive market conditions.
 
Cost of Revenues
 
The following table summarizes total cost of revenues for the three and nine months ended July 31, 2011 and 2010 (in thousands, except percentages): 
 
Three Months Ended
 
July 31,
 
July 31,
 
Change
 
2011
 
2010
 
Amount
 
Percentage
 
(unaudited)
 
 
 
 
Cost of revenues:
 

 
 

 
 

 
 

License
$
66

 
$
60

 
$
6

 
10
 %
Amortization of intangible assets
26

 
76

 
(50
)
 
(66
)
Maintenance
384

 
342

 
42

 
12

Professional services
26

 
17

 
9

 
53

Total
$
502

 
$
495

 
$
7

 
1
 %

 
Nine Months Ended
 
July 31,
 
July 31,
 
Change
 
2011
 
2010
 
Amount
 
Percentage
 
(unaudited)
 
 
 
 
Cost of revenues:
 
 
 
 
 
 
 
License
$
199

 
$
216

 
$
(17
)
 
(8
)%
Amortization of intangible assets
164

 
230

 
(66
)
 
(29
)
Maintenance
1,111

 
1,098

 
13

 
1

Professional services
68

 
48

 
20

 
42

Total
$
1,542

 
$
1,592

 
$
(50
)
 
(3
)%

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Total Cost of Revenues. Total cost of revenues was $502,000 (or 12% of revenues) for the three months ended July 31, 2011 increasing slightly in absolute dollars and declining slightly as a percentage of revenues compared to $495,000 (or 14% of revenues) for the comparable period in fiscal 2010. Total cost of revenues for the nine months ended July 31, 2011 was $1.5 million (or 11% of revenues) decreasing $50,000 (or 3%) from $1.6 million (or 14% of revenues) for the comparable period in fiscal 2010.

License. Cost of license revenues consists primarily of royalties, the cost of third party products which we resell to our customers, as well as product media, shipping and packaging cost