UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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for the fiscal year ended October 31, 2003. |
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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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for the transition period from to . |
Commission file number: 0-28540
VERSANT CORPORATION
(Exact name of registrant as specified in its charter)
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California |
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94-3079392 |
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(State or
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(I.R.S.
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6539 Dumbarton Circle, Fremont, California 94555 |
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(Address of principal executive offices) (Zip code) |
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(510) 789-1500 |
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(Registrant’s telephone number, including area code) |
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Securities registered pursuant to Section 12(b) of the Act: None |
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Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par value |
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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 is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes o No ý
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or an amendment to Form 10-K. o
The aggregate market value of the outstanding common stock held by non-affiliates of the Registrant as of April 30, 2003 (the last business day of the registrant’s most recently completed second fiscal quarter), (based on the closing price of $0.76 per share on the Nasdaq Smallcap Market on April 30, 2003) was approximately $8,556,514. This amount excludes 2,383,755 shares of common stock held by directors, officers and certain shareholders of the Registrant as of April 30, 2003. Exclusion of shares held by any person should not be construed to indicate that that person possesses power, direct or indirect, to direct or cause the direction of the management or policies of the Registrant, or that such person is controlled by or is under common control with the Registrant.
As of January 1, 2004, there were outstanding 14,790,325 shares of the Registrant’s common stock, no par value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive proxy statement for its 2004 Annual Meeting of Stockholders are incorporated by reference in Part III of this report on Form 10-K.
VERSANT CORPORATION
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended October 31, 2003
TABLE OF CONTENTS
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Certifications |
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Versantâ and enJinâ are registered trademarks of Versant in the United States and/or other countries, and VDSTM Versant JDOTM and VRTFTM are trademarks of Versant. Other parties’ marks (such as, IBM’s WebSphere and BEA’s WebLogic) are the property of their respective owners and should be treated as such. |
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CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-K 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 are based on our current expectations about our business and industry and reflect our beliefs and assumptions based upon information that is reasonably available to us at the date of this report. In many cases you may identify these forward-looking statements by words such as “will,” “should,” “may,” “might, “believes,” “anticipates,” “expects,” “intends,” “estimates” and similar expressions. These forward-looking statements include, among other things, projections of our future financial performance and trends anticipated for our business.
We caution investors that forward-looking statements are only predictions or estimates based upon our current expectations about future events. The forward-looking statements are not guarantees of future performance and are subject to significant risks and uncertainties that are difficult to predict. Our actual results and performance may differ materially from the results and performance anticipated by any forward-looking statements due to these risks and uncertainties. Some of the important risks and factors that could cause our results and performance to differ from results or performance anticipated by this report are discussed in Item 7 of this report, “Management’s Discussion and Analysis of Financial Condition and Results of Operation - Risk Factors,” which you should read carefully. We undertake no obligation to revise or update any forward-looking statements in order to reflect events or circumstances that may arise or occur after the date of this report or for any other reason. Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect our business.
Overview
We are a leading provider of object-oriented data management and data integration software that forms a critical component of an enterprise’s real-time computing infrastructure. Companies use our solutions to solve complex data management and integration problems. To address these problems, we design, develop, market and support database management systems, data access and integration products and data replication products. We also provide related product support, training and consulting services to assist users in developing and deploying applications based on our products. We were incorporated in California in August 1988 as Object Sciences Corporation and completed the initial public offering of our common stock in July 1996. In 1999 we issued Series A Preferred Stock to private investors in private offerings. Our principal executive offices are located at 6539 Dumbarton Circle, Fremont, California 94555 and our telephone number is (510) 789-1500. Our website can be found at www.versant.com.
Proposed Merger with Poet Holdings, Inc.
On September 27, 2003, we entered into an Agreement and Plan of Merger, or merger agreement, with Poet Holdings, Inc., a publicly held developer of object database management and e-commerce software whose stock is traded on the Frankfurt Stock Exchange. The signing of the merger agreement was publicly announced on September 29, 2003 in a press release and in a report on Form 8-K that we filed with the Securities and Exchange Commission on September 29, 2003. The merger agreement provides that, subject to the satisfaction of certain conditions, a wholly owned subsidiary of Versant will merge with and into Poet, which will result in Poet becoming a wholly-owned subsidiary of Versant and in Poet’s stockholders and stock option holders becoming stockholders and option holders of Versant, respectively.
Under the terms of the merger agreement, upon consummation of the Merger, each outstanding share of Poet common stock will be converted into and exchanged for 1.4 shares of Versant common stock, and the outstanding options and warrants to purchase Poet common stock will be exchanged for options to purchase shares of Versant common stock at the same exchange ratio. If the proposed merger with Poet had occurred on September 27, 2003 (the date the merger agreement was signed) then, based on the number of Versant and Poet shares that were outstanding on that date, and assuming each outstanding share of Versant’s Series A preferred stock is converted in connection with the merger into three shares of Versant common stock as contemplated by the merger agreement, in the merger Poet’s stockholders would be issued Versant common stock representing approximately 45% of the shares of Versant common stock that would be outstanding immediately after the merger, and the shares of Versant common stock issued to Poet stockholders and issuable under Versant stock options issued to Poet option holders in the merger would together represent approximately 42.7% of Versant’s post-merger
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shares computed on a fully-diluted basis (taking into account Versant’s outstanding options and warrants, including the Versant options into which Poet’s options are converted in the merger).
The merger agreement calls for certain changes in Versant’s existing corporate structure. First, it calls for Versant to reduce the size of its Board of Directors from eight to five directors upon effectiveness of the merger with Poet, with Versant’s board of directors immediately after consummation of the merger to be composed of two directors from Poet, Jochen Witte and Herbert May, and three directors from Versant, who will be Nick Ordon, Versant’s Chief Executive Officer, and two other incumbent Versant directors, Uday Bellary and William Henry Delevati. In addition, it is currently a condition to consummation of the merger that Versant’s articles of incorporation be amended to: (i) increase the authorized number of Versant’s common shares from 45,000,000 to 75,000,000 shares; (ii) increase the number of shares of Versant common stock issuable upon the conversion of each share of Versant’s Series A preferred stock from two to three common shares; (iii) cause each outstanding share of Versant’s Series A preferred stock to be automatically converted into shares of Versant common stock immediately after effectiveness of the merger at the increased conversion rate described in (ii) above; (iv) provide that the merger will not trigger the liquidation preference rights of Versant’s Series A preferred stock; (v) require that at least 80% of Versant’s directors then in office approve certain corporate transactions or any change in the authorized number of Versant’s directors; and (vi) provide that the amendment described in clause (v) cannot be changed for 12 months after consummation of the merger without the approval of at least 80% of Versant’s directors then in office.
Versant’s board of directors believes that the proposed merger with Poet will enable the combined post-merger company to use Versant and Poet’s complementary strengths in a manner that will afford Versant greater opportunities for revenue growth and profitability. Poet shares Versant’s background and experience in the development and marketing of object database management software. However Poet markets its object database management products to different market segments than does Versant. In addition to its FastObjects database management products, Poet offers its X-Solutions and eSupplier Solutions electronic catalog product lines, which enable e-commerce vendors to build and manage on-line catalogs. Although Poet is a U.S. corporation, its management team is based in Germany and most of its operations and sales are based in Europe, and the proposed merger offers Versant the opportunity to obtain a stronger and more experienced European sales and distribution infrastructure. Poet also has significantly greater cash reserves than Versant, which will be critical in providing opportunities for future growth. Based on its analysis of Poet’s business and market position, Versant believes that the proposed merger with Poet will offer the combined company several potential benefits, including:
• the opportunity to increase Versant’s leadership position in the object database management market;
• the ability to diversify Versant’s customer base and product line;
• improved international sales and marketing capabilities;
• increased working capital;
• potential synergies and efficiencies that may reduce operating expenses;
• a strengthened management team; and
• overall stronger competitive advantages.
In order for Versant and Poet to complete the proposed merger, several conditions must first be met, including the condition that Versant’s and Poet’s stockholders each approve and adopt the merger agreement and the merger. In addition, as an integral part of the proposal to approve the merger, Versant’s stockholders must also approve the issuance of shares of Versant common stock and options to purchase Versant common stock in the merger and the proposed amendments of Versant’s articles of incorporation summarized above, which will take effect only if the merger is consummated. Versant and Poet currently anticipate that they will hold special meetings of their stockholders to consider proposals to approve the merger and related matters in March 2004. If the merger agreement with Poet is terminated without consummation of the merger in certain circumstances, then Poet or Versant may become obligated to pay the other party certain termination fees, ranging from $500,000 to $1,000,000.
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Overview of Products and Services
We provide sophisticated data management, data access and data integration software solutions designed to address the complex data management needs of enterprises. Our products are typically deployed to manage real-time transactional data and to manage meta-data for business systems and are used primarily by larger enterprises, such as telecommunications carriers and financial services companies, which have significant large-scale data management requirements. 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. Our data access products are meant to deliver enterprise class data access to a variety of data management systems, including our own. Finally, our data integration product is used to tie a company’s enterprise planning systems with its physical execution systems.
Our initial flagship product, VDS (formerly ODBMS), is a sixth generation object database management system that combines native support for object-oriented languages with high performance database functionality and client-server architecture. VDS enables users to store, manage and distribute information that we believe often cannot be supported effectively by traditional database technologies, including information of the following types:
• real-time data, such as graphics, images, video, audio and unstructured text;
• dynamic, graph-oriented data, such as network management data and advanced financial instruments; and
• meta-data, data aiding integration of diverse systems, and workflow information, which taken together enable the construction of systems that integrate diverse systems and add new functionality, often making it available over the Internet.
VDS is also the foundation for our e-business product suite, Versant enJin. Versant enJin is a Java development and runtime platform designed to enhance performance and scalability of Java 2 Enterprise Edition, or J2EE, compliant application servers such as IBM WebSphere and BEA WebLogic. Versant enJin extends the functionality and power of VDS to Internet-based transactions by enabling our object management technology to drive J2EE-based applications. We have recently announced our Java Data Objects (JDO) product, a data access tool that enables enterprise applications to efficiently access data from both object and relational databases which complies with J2EE standards.
Our Versant Real-time Framework, or VRTF, data integration product, released in fiscal 2003, is a comprehensive framework for delivering real-time solutions that bridge the gap between the planning and execution functions of an enterprise. VRTF enables a company’s conventional enterprise planning systems to access and integrate data from its execution functions, such as plant-floor manufacturing and shipping, and physical security systems, which historically have not been adequately integrated into ERP computing systems.
In addition to our product offerings, to assist users in developing and deploying applications based on VDS, Versant enJin, VRTF and JDO, we offer a variety of services, including consulting, training and technical support services. We also offer a dedicated consulting practice for IBM WebSphere customers. Under an agreement signed in late 2000 and renewed recently in August 2003, we allocate certain of our consultants to IBM and both IBM and Versant sales representatives sell these consultants’ services.
Benefits of our Solutions
Our VDS, Versant enJin and Versant JDO products provide customers the following benefits for specialized data management:
• High Performance. Our object-based architecture provides direct access or navigation to stored objects. Our balanced client-server architecture enhances performance by efficiently distributing processing burdens between clients and servers to leverage the processing power of networked computers.
• Highly Scalable Support for Distributed Computing. Through object-level operations, compatibility with Web browsers and other design features, our products can be scaled from small workgroup operations to thousands of users over wide area networks or the Internet.
• Reliability, Availability and Serviceability. VDS and Versant enJin offer a number of features designed to permit continuous operation, including features providing online backup and recovery and online modification of the database system, as well as system utilities that can operate while the system is running. These features, together with
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replication and disk mirroring provided by our Fault Tolerant Server, support operations 24 hours per day, 365 days per year.
• Language-Independent Support for Object-Oriented Programming. Our products provide native support for the leading object-oriented software development languages - C++ and Java. This support facilitates rapid and flexible application development and maintenance and the evolution of complex, dynamic applications that closely model real-world systems and processes.
• Support for Component Architectures. Versant enJin integrates with leading J2EE application servers, including the IBM WebSphere and BEA Weblogic application servers. These application servers enable users to build and deploy J2EE-based applications directly to Versant enJin to gain the inherent productivity and performance advantages of the underlying Versant object database.
• Integration with Users’ Existing Information Systems. Versant products operate on a wide range of server platforms: including UNIX platforms from Sun Microsystems, Hewlett-Packard, IBM, Compaq and Silicon Graphics; Linux platforms from Red Hat; and Microsoft Windows and NT platforms. In addition, Versant-based applications can interoperate with information stored in relational database management, enabling these applications to complement the strengths of relational database management systems structured applications.
Fiscal 2003 Developments and Strategy
During fiscal 2003, we continued to focus our efforts on seeking revenue from data management and data access products, VDS and Versant enJin and from our consulting services. In fiscal 2003 VDS and, to a lesser degree, Versant enJin, were the major drivers of our license revenues and a key focus of our marketing efforts.
In fiscal 2003, we derived a majority of our revenue from our services programs. Our IBM WebSphere consulting business grew substantially in each quarter of 2003 over the corresponding quarter of the previous year. Our services programs, including our WebSphere program, are intended to produce incremental revenue, particularly from sales of Versant enJin, as well as to serve as an additional channel for generating new product revenue. We believe that our services program will also ultimately help us generate additional service and product revenues.
In 2003, the telecommunications industry continued to be a very significant vertical market segment for us. Our products are used in the telecommunications industry in such strategic distributed applications as network modeling and management, fault diagnosis, fraud prevention, service activation and assurance, and customer billing. We have also attained customer acceptance in other vertical markets, including defense, financial services, transportation, technology and health care. In the future we intend to continue to build on our current customer base, as we believe that the telecommunications and financial services industries will continue be major users of application servers. We also expect the government and defense industry markets to contribute significantly as many of the applications in development in those sectors reach deployment stage.
During the first quarter of fiscal 2003 we launched Versant Real-time Framework, or VRTF, our first specialized data integration product. VRTF delivers integration between an enterprise’s execution systems and planning systems. Currently, VRTF is sold exclusively as a private-labeled product through third party distribution channel relationships with physical execution system vendors.
In order to accelerate the adoption of our specialized object-oriented data management system, VDS, and increase our portfolio of data access products, in the fourth quarter of fiscal 2003 we released an industry standards-based product, Versant JDO. Versant JDO, in conjunction with our alliances with third-party JDO providers (such as SolarMetric) will provide an open data access layer that can expand a customer’s choices for data management.
To accomplish our goals of increasing sales of VDS and extending our sales to the application server market through Versant enJin and Versant JDO, in fiscal 2003 we continued our research and development efforts with respect to these products. VDS and Versant enJin enhancements developed in fiscal 2003 include support of the Java Connector Architecture Standard, increased scalability and reliability, support of the Java Data Objects standard and an increase in the number of supported operating system platforms. In fiscal 2003 we also released our two new products, Versant JDO and Versant Real-time Framework. Both these new products deliver functionality that broadens our reach within an enterprise and enables us to keep pace with emerging standards.
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Products and Services
Versant Developer Suite (VDS)
VDS, a sixth generation object database management system, is designed to support multi-user, commercial applications in distributed environments. The object-oriented, balanced client-server architecture of VDS provides the basis for high-performance, scalable distributed applications. We believe that VDS offers performance superior to that of relational database management systems, particularly for complex data applications, for which VDS has the capability of processing a wide variety of abstract data types in a highly concurrent, high performance manner. VDS is designed to integrate up to 65,000 databases connected over a like number of locations on a variety of hardware and software platforms. Each database has a theoretical storage capacity of 4.6 million terabytes, an amount far beyond the actual capacity of most existing operating systems. VDS implements a variety of database features, including a two-phase commitment for distributed transaction integrity and database triggers to monitor changing events and data and to notify users and applications when specified events occur. In addition, on-line management utilities enable routine maintenance to be performed while the database is running. These include utilities to perform backup operations, manage log files, dynamically evolve database schema, add, delete and compress volumes on disk storage and related functions. These utilities provide multiple levels of administrative access and application security. We also believe that use of VDS allows our customers to reduce the time needed to develop applications for their data management systems and improve system performance. With version 6.0 of VDS, we bundle several components, including the core object database management system, C++ and Java language interfaces, XML for import and export of data into the database and asynchronous replication services to provide updates among distributed Versant databases. We believe that by bundling these components with VDS we enhance our solution and make it easier for our customers to deploy these components.
Versant enJin
Versant enJin is designed to accelerate e-business applications within the application server environment, to simplify development of new Java or e-business applications and to provide reliability for the management of objects within the application server environment. Specifically, Versant enJin enables users to deploy Java-based applications using Java 2 Enterprise Edition, or J2EE, technologies, such as Enterprise Java Beans, in applications requiring storage and access of complex graphical, navigational, and hierarchical data models, which enables our customers to speed up the performance and enhance the scalability of these applications. The use of such complex object models is desirable but not directly supported in J2EE. Versant enJin addresses this problem by providing transparent persistence for Java objects within the application server and web server tiers, thereby enabling J2EE-based applications to enjoy the benefits of these object models. Versant enJin is comprised of VDS plus the J2EE integration specific to the application server platform. Versant enJin supports the IBM WebSphere and BEA WebLogic application servers
Versant SQL Suite
VDS and Versant enJin allow users a choice of access methods for querying and manipulating data in the Versant object database management system and obtaining data from relational databases. With the Versant SQL Suite, we offer open database connectivity capability and structured query language access to data stored in relational databases using industry-standard off-the-shelf query and reporting tools. These tools permit customers to retain their investments in legacy systems while addressing new applications with the productivity, flexibility and performance characteristics made available through object technology.
Versant Fault Tolerant Server
For highly reliable operations in mission-critical environments, we offer the Versant Fault Tolerant Server. This product provides transparent failure recovery by connecting database clients to synchronized copies of the database stored on physically separate computers. If one of the databases fails due to operating system failure, hardware breakdown or other interruption, the other database continues operation without application interruption. When the failed database is restored, the two databases automatically resynchronize and resume operations without application interruption.
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High Availability Backup Solution
The High Availability Backup Solution enables VDS and Versant enJin to use the mirroring and backup features of other enterprise storage systems to take an online backup of very large data volumes within seconds, without impacting transaction response times.
Versant JDO
Versant JDO is a data access tool that enables enterprise applications to efficiently access data from Versant Object Database. It complies with the Java Data Objects standard and integrates with third party JDO toolsets. It is designed to offer portable data access and open approach to developing applications. Versant JDO is a high-performance implementation that delivers high-speed data access for object data management.
Versant Real-time Framework (VRTF)
VRTF is a data integration product that provides a framework for utilization of real-time software solutions that connect an enterprise’s centralized planning systems to its execution systems, enabling enterprises to obtain and integrate important data that often has not been effectively incorporated in planning efforts. It represents the first product released as part of our real-time solutions initiative. VRTF consists of an integrated transaction manager and a suite of agents that connect the VRTF to the targeted systems; planning systems such as enterprise resource planning (ERP), and execution systems, such as physical security or plant floor systems. The integrated transaction manager is responsible for overall reliable operation of the framework. Each agent interacts with the targeted system as well as with the transaction manager. A configuration-time wizard enables integration of new systems and specification of detailed transactions via a web browser. For monitoring and debugging purposes, a browser is used to access a web user interface that shows the operational state of the VRTF. Version 3.0 also adds capabilities for web services and business process modeling to accommodate enterprise to physical system real-time requirements. VRTF is currently sold through third-party resellers as a private-labeled product.
Licensing and Pricing of Products
We license our products to end-users both directly, through our own sales force, and indirectly, through authorized, value-added resellers, systems integrators and distributors.
When we license our core products (VDS, enJin, and JDO) directly to end-users, we do so primarily through two types of perpetual licenses—development licenses and deployment licenses. Development licenses are typically sold on a per seat basis and authorize a customer to develop an application program that uses VDS or Versant enJin. Before a customer may deploy an application it has developed under our development license, we require it to purchase deployment licenses from us based on the number of computers connected to the server that will run the application using our database management system. If the customer wishes to install several copies of an application it has created under a development license, then separate deployment licenses are required for each server computer and each client computer that will run that application. For certain applications, we offer deployment licenses priced on a per user basis. Pricing of VDS and Versant enJin licenses varies according to several factors, including the number of computer servers on which the application will run and the number of users that will be able to access the server at any one time. Customers may elect to simultaneously purchase development and deployment licenses for an entire project.
End-user license fees for our development and deployment licenses can range from the low thousands of dollars to, occasionally, several million dollars depending on a number of variables. These variables include, but are not limited to, the number of users (specific number or unlimited), the number of deployments, the time frame of deployments, whether the deployments are to be prepaid or paid on an as needed basis, the type of operating system(s), the type of server(s) and whether the servers are single or multiprocessor machines. We provide alternative pricing for non-interactive environments where the product (such as a telephone switch) is deeply embedded in a component and is not used by end-users.
We also provide our products to end-users through authorized value-added resellers, systems integrators and distributors. Value-added resellers generally purchase development licenses from us on a per seat basis on terms similar to the terms of development licenses we sell directly to end-users, although the price may vary. Under such a license a typical value-added reseller develops an application incorporating Versant’s core product and then licenses that application to a customer. Value-added resellers are authorized by us to sub-license deployment copies of our core products to end-users, bundled together with the value-added resellers’ applications. Deployment license pricing for sales through value-added resellers is generally based either on a percentage of the total price charged by the value-added reseller to the end-user customers or on a
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percentage of our list prices. Systems integrators generally purchase licenses from us that entitle them to sublicense our software products to their customers for use in systems designed or built by the systems integrator. Deployment license pricing for sales to systems integrators are generally the same as value added resellers. We also sell our products to distributors who are authorized to sublicense and resell them to end-users. Sales to distributors generally include significant discounts off our typical end-user license fees.
Versant does not currently license our VRTF product directly to end-users. To date, it has been marketed only as a private-labeled product sold through physical execution systems vendors to whom Versant will provide integration, training and other consulting services.
Services
We offer customers training, consulting and maintenance and technical support services. We provide a variety of training and consulting services to assist customers in the design, development, education and management of our core products as well as IBM’s WebSphere application server. Training services are offered for a variety of Versant-specific and object-related technologies and range from beginning to advanced levels. Consulting services are available for analysis and design assistance, mentoring and technical transfer, application coding, design reviews and performance analysis. In addition, we provide custom development services to customers that request unique or proprietary product extensions. Depending on the nature and complexity of the custom development services requested, these services may be performed by our consulting employees or by third-party integrators that have joined our IGNITE! Partner Program and received training from us.
Our maintenance and technical support services are generally available at an annual fee that varies depending on the type of support the customer requires. Maintenance and support contracts, which typically have twelve-month terms, are offered concurrently with the initial license of our product and entitle the customer to telephone support and to product and documentation updates. For additional fees, customers may purchase a special support package that provides a designated support engineer, and may obtain telephone support available 24 hours per day. Maintenance contracts are typically renewable annually.
Customers and Applications
VDS and Versant enJin are licensed for development and/or deployment in a wide range of applications. A substantial amount of our sales are for applications in the telecommunications, financial services, healthcare, technology and defense sectors. Many of our customers have licensed multiple copies for use in different applications.
In recent years we have experienced concentration of our sales to certain customers. In fiscal 2003, IBM, through our WebSphere consulting practice, represented 19% of our total revenue and in 2002, it represented 14% of our total revenue. Two customers accounted for 28% and 11% of our total 2001 revenue in the ten months ended October 31, 2001.
Our future performance will depend in significant part on the continued growth of the use of VDS and Versant enJin in telecommunications, defense, and financial market applications and the continued acceptance of our products within the telecommunications and financial services industries. Although we anticipate that our new real-time business will eventually increase our ability to market our products to an increased number of industries, there can be no assurance that our real-time initiative will succeed in enlarging our customer base. Consequently, the failure of our products to perform favorably in and become an accepted component of telecommunications, defense, Internet-based or financial services applications, or in new real-time applications, or a slower than expected increase or a decrease in the volume of sales of our products and services to telecommunications, defense, Internet-based or financial services companies or to markets targeted by our new real-time business, could have a material adverse effect on our business.
Sales and Marketing
We market and sell our products in the United States principally through our direct sales force and through value-added resellers and systems integrators. Internationally, we market and sell through our direct sales force, value-added resellers and distributors.
Direct Sales. Our direct sales organization is based at our corporate headquarters in Fremont, California and at our other regional offices around the world. The direct sales organization includes our field sales personnel, who are responsible for account management, and systems engineers, who answer technical questions and assist customers in running benchmarks against competitive products and developing prototype applications.
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Indirect Sales. An important part of our future sales strategy will be the continued development of indirect distribution channels, such as value-added resellers, systems integrators and foreign distributors. We expect to continue our focus on indirect sales channels. Our existing real-time product, VRTF, is currently marketed globally by our commercial sales partners. Value-added resellers typically build application programs in which they embed a deployment copy of VDS or Versant enJin. Systems integrators may include our products with those of others, to provide a complete solution to their customers. Value-added resellers and systems integrators are typically not subject to any minimum purchase or resale requirements and can cease marketing our products at any time. Certain value-added resellers, distributors and systems integrators offer products they produce or that are produced by third parties which compete with our products.
Marketing. Our marketing programs and personnel are aimed at audiences with the goal of building visibility and generating leads for Versant’s business. One of our current key marketing initiatives is to build customer awareness and market leadership for Versant in the real-time business space. Our marketing programs include our efforts at cultivating media and analyst relations, fostering valuable investor communications, speakers’ programs, online marketing, partner marketing programs and participation in conferences and tradeshows.
Sales Process. The sales cycle for our products to new, large enterprise customers can exceed six months and may extend to a year or more. For existing customers with successfully deployed applications, sales cycles for new applications of our core products are generally much shorter. Our VRTF real-time product, which we have recently begun to distribute through our channel partners, has thus far exhibited a generally shorter sales cycle. During the sales cycle, meetings involving both technical and management staff are conducted frequently at the prospective customer’s site and at our headquarters. As part of their product selection process, our prospective customers typically perform a detailed technical evaluation or benchmark of our object-based technologies, often directly comparing them to competitive products. Upon completion of the evaluation, a customer who chooses our solution may purchase one or more development licenses depending upon the number of programmers that will develop and build the customer’s application. Additionally, a customer may purchase technical support, training courses and consulting services. Our customers may purchase deployment licenses at the same time as they purchase development licenses, or defer their purchase of deployment licenses and related maintenance until they complete the application development (a process that typically takes at least six months and can exceed one year).
Once an application is ready for deployment, a customer typically will purchase deployment licenses. Deployment licenses are priced based upon the number of users, in the case of a sale to an end-user customer, or as a percentage of the customer’s revenue generated from the sale of its application, in the case of a sale to a value-added reseller or distributor. Customers may purchase additional deployment licenses as needed, without further deliveries from us, providing additional higher-margin revenue over an extended period at a relatively low incremental cost to us. The amount and price of deployment licenses generally exceed the amount and price of earlier development licenses.
Shipping and Backlog. All software is shipped from our Fremont facility and is delivered to the customer upon receipt of an approved order and a signed license agreement. We typically do not have a material backlog of unfilled license orders at any given time, and we do not consider backlog to be a meaningful indicator of our future performance.
International Sales and Marketing. Our foreign sales are recorded by subsidiaries located in Germany and the United Kingdom who also sell our products through distributors, value added resellers, as well as directly to end-users. Our revenues from international sales were $5.4 million in the year ended October 31, 2003, $6.4 million in the year ended October 31, 2002, and $6.5 million in the ten months ended October 31, 2001.
Research and Development
We have committed, and expect to continue to commit, substantial resources to our research and development efforts. Our current development efforts are focused on: