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EX-32.01 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - VERSANT CORPvsnt-20110430xq2ex3201.htm
EX-31.02 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - VERSANT CORPvsnt-20110430xq2ex3102.htm
EX-10.01 - JOINT TRANSITION AND SEPARATION AGREEMENT BETWEEN VERSANT CORPORATION AND JOCHEN WITTE - VERSANT CORPvsnt-20110430xq2ex1001.htm
EX-31.01 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - VERSANT CORPvsnt-20110430xq2ex3101.htm
EX-32.02 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - VERSANT CORPvsnt-20110430xq2ex3202.htm

 
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 April 30, 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 o   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 June 13, 2011, there were outstanding 3,002,420 shares of the Registrant’s common stock, no par value.
 

VERSANT CORPORATION
QUARTERLY REPORT ON FORM 10-Q
For the Quarterly Period Ended April 30, 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)
 
 
April 30,
2011
 
October 31,
2010
 
 
 
 
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
25,071

 
$
24,911

Trade accounts receivable, net
2,329

 
3,186

Deferred income taxes
941

 
884

Other current assets
617

 
388

Total current assets
28,958

 
29,369

 
 
 
 
Property and equipment, net
1,030

 
634

Goodwill
8,589

 
8,589

Intangible assets, net
360

 
499

Other assets
38

 
38

Total assets
$
38,975

 
$
39,129

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
317

 
$
164

Accrued liabilities
1,733

 
1,294

Deferred revenues
3,363

 
3,022

Total current liabilities
5,413

 
4,480

 
 
 
 
Deferred revenues
21

 
66

Other long-term liabilities
137

 
139

Total liabilities
5,571

 
4,685

Commitments and contingencies
 

 
 

 
 
 
 
Stockholders’ equity:
 

 
 

Common stock, no par value, 7,500,000 shares authorized, 3,092,940 shares issued and outstanding at April 30, 2011, and 3,213,122 shares issued and outstanding at October 31, 2010
91,532

 
92,654

Accumulated other comprehensive income
201

 
43

Accumulated deficit
(58,329
)
 
(58,253
)
Total stockholders’ equity
33,404

 
34,444

Total liabilities and stockholders’ equity
$
38,975

 
$
39,129

 
See accompanying notes to condensed consolidated financial statements


3


VERSANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
 
 
Three Months Ended
 
Six Months Ended
 
April 30,
 
April 30,
 
April 30,
 
April 30,
 
2011
 
2010
 
2011
 
2010
 
 
 
 
 
 
 
 
Revenues:
 

 
 

 
 
 
 
License
$
1,818

 
$
1,694

 
$
4,413

 
$
4,154

Maintenance
1,656

 
1,793

 
3,575

 
3,777

Professional services
38

 
28

 
100

 
40

Total revenues
3,512

 
3,515

 
8,088

 
7,971

 
 
 
 
 
 
 
 
Cost of revenues:
 

 
 

 
 
 
 
License
64

 
75

 
132

 
156

Amortization of intangible assets
65

 
77

 
138

 
154

Maintenance
354

 
366

 
727

 
756

Professional services
22

 
21

 
42

 
31

Total cost of revenues
505

 
539

 
1,039

 
1,097

 
 
 
 
 
 
 
 
Gross profit
3,007

 
2,976

 
7,049

 
6,874

 
 
 
 
 
 
 
 
Operating expenses:
 

 
 

 
 
 
 
Sales and marketing
1,320

 
1,135

 
2,820

 
2,321

Research and development
980

 
944

 
1,912

 
1,988

General and administrative
1,262

 
751

 
2,307

 
1,675

Restructuring

 
(4
)
 

 
39

Total operating expenses
3,562

 
2,826

 
7,039

 
6,023

 
 
 
 
 
 
 
 
Income (loss) from operations
(555
)
 
150

 
10

 
851

Interest and other income (expense), net
(57
)
 
82

 
(47
)
 
92

Income (loss) before income taxes
(612
)
 
232

 
(37
)
 
943

Income tax benefit (expense)
75

 
(134
)
 
(39
)
 
(340
)
 
 
 
 
 
 
 
 
Net income (loss)
$
(537
)
 
$
98

 
$
(76
)
 
$
603

 
 
 
 
 
 
 
 
Net income (loss) per share:
 

 
 

 
 
 
 
Basic
$
(0.17
)
 
$
0.03

 
$
(0.02
)
 
$
0.17

Diluted
$
(0.17
)
 
$
0.03

 
$
(0.02
)
 
$
0.17

 
 
 
 
 
 
 
 
Shares used in per share calculation:
 

 
 

 
 
 
 
Basic
3,144

 
3,493

 
3,174

 
3,515

Diluted
3,144

 
3,535

 
3,174

 
3,555

 
See accompanying notes to condensed consolidated financial statements


4


VERSANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
 
Six Months Ended
 
April 30,
 
April 30,
 
2011
 
2010
Cash flows from operating activities:
 

 
 

Net income (loss)
$
(76
)
 
$
603

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization
169

 
174

Amortization of intangible assets
138

 
154

Share based compensation
524

 
574

Provision for (recovery of) allowance for doubtful accounts receivable
4

 
(30
)
Reduction of restructuring charges

 
(19
)
Changes in assets and liabilities:
 
 
 
Trade accounts receivable
948

 
137

Other assets
(200
)
 
107

Accounts payable
146

 
80

Accrued liabilities and other long-term liabilities
360

 
(207
)
Deferred revenues
168

 
365

Net cash provided by operating activities
2,181

 
1,938

Cash flows from investing activities:
 

 
 

Acquisition of business

 
(90
)
Purchases of property and equipment
(521
)
 
(276
)
Proceeds from the sale of property and equipment

 
15

Net cash used in investing activities
(521
)
 
(351
)
Cash flows from financing activities:
 

 
 

Proceeds from issuance of common stock
94

 
112

Repurchases of common stock
(1,739
)
 
(1,131
)
Net cash used in financing activities
(1,645
)
 
(1,019
)
Effect of foreign exchange rate changes on cash and cash equivalents
145

 
(478
)
Net increase in cash and cash equivalents from operating, investing and financing activities
160

 
90

Cash and cash equivalents at beginning of period
24,911

 
27,812

Cash and cash equivalents at end of period
$
25,071

 
$
27,902

 
 
 
 
Supplemental disclosures of cash flows information:
 

 
 

Cash paid for:
 

 
 

Interest
$

 
$
1

Income taxes
$
215

 
$
317

 
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 six months ended April 30, 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 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.

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.
 
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 will be required to submit filings with financial statement information using XBRL commencing with its quarterly report on Form 10-Q for the quarter ending July 31, 2011. The Company is currently evaluating the impact of XBRL reporting on its financial reporting process.

Note 2.
Fair Value Measurements
 
Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures, defines fair value as the price that

7


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 April 30, 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
$
15,528

 
$

 
$

Time deposits
7,679

 

 

Total
$
23,207

 
$

 
$

 
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.
 
The following table summarizes the activities in the Company’s allowance for doubtful accounts:
 
 
Six Months Ended
 
Fiscal Year Ended
 
April 30, 2011
 
October 31, 2010
 
(in thousands)
Allowance for doubtful accounts:
 

 
 

Beginning balance
$
8

 
$
36

Adjustments to provision
5

 
(28
)
Ending balance
$
13

 
$
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

8


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.
 
Goodwill
 
The following table presents the Company’s goodwill balance as of April 30, 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.

9


 
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 April 30, 2011 and October 31, 2010 are as follows (in thousands):
 
 
As of April 30, 2011
 
As of 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

 
145

 
155

 
300

 
115

 
185

db4o-Customer Relationships
(Amortized over 9 years)
210

 
57

 
153

 
210

 
44

 
166

db4o-Trade Name
(Amortized over 5 years)
100

 
48

 
52

 
100

 
39

 
61

Total
$
2,529

 
$
2,169

 
$
360

 
$
2,529

 
$
2,030

 
$
499

 
Aggregate amortization expense for intangible assets was $65,000 and $138,000, respectively, for the three and six months ended April 30, 2011, and $77,000 and $154,000, respectively, for the three and six months ended April 30, 2010.
 
The projected amortization of the Company’s existing intangible assets as of April 30, 2011 is as follows (in thousands):
 
 
Amortization
Six months ending October 31, 2011
$
51

Fiscal year ending October 31,


2012
104

2013
103

2014
30

2015
23

Thereafter
49

Total
$
360


Note 5.  Lease Commitments
 
Versant’s principal commitments as of April 30, 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.
 
On July 17, 2009, the Company entered into an Office Building Lease, pursuant to which the Company has leased approximately 10,200 square feet in an office facility located in Hamburg, Germany. The lease term is sixty months and commenced in December 2009. The total rent payable as of April 30, 2011 over the remaining lease term is approximately $631,000.
 
On September 3, 2009, the Company entered into the First Amendment (the “Amendment”) of an Office Building Lease executed on March 23, 2007. The Amendment extended the term of the Company’s lease of approximately 6,800 square feet in an office facility located in Redwood City, California for an additional term of three years to May 31, 2013. The total rent payable as of April 30, 2011 over the remaining extended lease term is approximately $423,000.
 
On January 20, 2011, the Company entered into an agreement to lease approximately 300 square feet of space in an office

10


facility in Munich, Germany. The lease has a term of thirty-six months, which commenced in February 2011. The total rent payable as of April 30, 2011 over the remaining term of the lease is approximately $78,000.

Our minimum commitments under non-cancelable operating leases as of April 30, 2011 are as follows (in thousands):
 
 
Facilities
Leases
 
Equipment
Leases
 
Total
Six months ending October 31, 2011
$
200

 
$
2

 
$
202

Fiscal year ending October 31,
 

 
 

 
 

2012
406

 
5

 
411

2013
325

 
2

 
327

2014
186

 


 
186

2015
15

 


 
15

Total
$
1,132

 
$
9

 
$
1,141

 
Note 6.
Per Share Data
 
Basic and diluted net income (loss) 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 (loss) per share (in thousands, except per share amounts):
 
 
Three Months Ended
 
Six Months Ended
 
April 30,
 
April 30,
 
April 30,
 
April 30,
 
2011
 
2010
 
2011
 
2010
 
 
 
 
 
 
 
 
Net income (loss)
$
(537
)
 
$
98

 
$
(76
)
 
$
603

 
 
 
 
 
 
 
 
Calculation of basic net income (loss) per share:
 

 
 

 
 
 
 
Weighted average - common shares outstanding
3,144

 
3,493

 
3,174

 
3,515

Net income (loss) per share, basic
$
(0.17
)
 
$
0.03

 
$
(0.02
)
 
$
0.17

 
 
 
 
 
 
 
 
Calculation of diluted net income (loss) per share:
 

 
 

 
 
 
 
Weighted average - common shares outstanding
3,144

 
3,493

 
3,174

 
3,515

Dilutive effect of employee and director stock options

 
42

 

 
40

Weighted average - common shares outstanding and potentially dilutive common shares
3,144

 
3,535

 
3,174

 
3,555

Net income (loss) per share, diluted
$
(0.17
)
 
$
0.03

 
$
(0.02
)
 
$
0.17

 
For the three months ended April 30, 2011 and 2010, 638,000 and 339,000 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 six months ended April 30, 2011 and 2010, 518,000 and 311,000 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.

11


 
From the date of announcement of this stock repurchase program through April 30, 2011, Versant acquired under this program a total of 71,151 common shares on the open market for approximately $892,000 at an average purchase price of $12.54 per share, leaving approximately $4.1 million in authorized funds available for future repurchases of stock under this program. Thereafter, during the period beginning May 1, 2011 and ending June 13, 2011, Versant has acquired an additional 100,884 common shares on the open market and in block trades for approximately $1.2 million at an average purchase price of $12.14 per share, leaving approximately $2.9 million in authorized funds available for future repurchases of stock under this program at June 13, 2011.
 
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 shares and 20,000 shares in the numbers of shares reserved under the Company's Equity Incentive Plan and 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
41

Stock options available for grant
359

Unexercised stock options
638

Balance as of April 30, 2011
1,038

 
 

12


  
The following table summarizes stock option activities under the Company’s equity-based compensation plans during the six months ended April 30, 2011 and 2010:


 
Six Months Ended April 30,
 
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
142

 
11.82

 
143

 
18.38

Exercised
(6
)
 
3.69

 
(2
)
 
11.33

Forfeited and expired
(13
)
 
41.24

 
(18
)
 
49.78

Outstanding at the end of the period
638

 
$
15.35

 
509

 
$
17.37

 
 
 
 
 
 
 
 
Options exercisable at the end of the period
399

 
$
16.19

 
296

 
$
17.42


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
 
Six Months Ended April 30,
 
Six Months Ended April 30,
 
2011
 
2010
 
2011
 
2010
Assumptions:
 
 
 
 
 
 
 
Volatility
47% - 57%
 
54% - 56%
 
30% - 31%
 
42% - 59%
Expected life
3.6 - 5.5 years
 
3.3 - 3.4 years
 
6 - 12 months
 
6 - 12 months
Weighted average risk-free interest rate
1.43% - 2.38%
 
1.52% - 1.87%
 
0.20% - 0.28%
 
0.15% - 0.29%
Dividend yield
 
 
 
 
Share based compensation expense recognized in the condensed consolidated statements of operations related to the Company’s stock option plans and the ESPP was as follows (in thousands):
 
Three Months Ended
 
Six Months Ended
 
April 30,
 
April 30,
 
April 30,
 
April 30,
 
2011
 
2010
 
2011
 
2010
Share based compensation expense:
 

 
 

 
 
 
 
Stock options
$
283

 
$
240

 
$
496

 
$
538

ESPP
17

 
18

 
28

 
36

Total
$
300

 
$
258

 
$
524

 
$
574




13


Share based compensation recognized in the condensed consolidated statements of operations, by operating statement caption, was as follows (in thousands):

 
Three Months Ended
 
Six Months Ended
 
April 30,
 
April 30,
 
April 30,
 
April 30,
 
2011
 
2010
 
2011
 
2010
Share based compensation expense:
 

 
 

 
 
 
 
Cost of revenues
$
17

 
$
23

 
$
33

 
$
45

Sales and marketing
62

 
46

 
126

 
121

Research and development
55

 
56

 
104

 
124

General and administrative
166

 
133

 
261

 
284

Total
$
300

 
$
258

 
$
524

 
$
574

 
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 $178,000 as of April 30, 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 six months ended April 30, 2011 and 2010 (in thousands):
 
 
Three Months Ended
 
Six Months Ended
 
April 30,
 
April 30,
 
April 30,
 
April 30,
 
2011
 
2010
 
2011
 
2010
Restructuring:
 

 
 

 
 
 
 
Severance, retention and related charges
$

 
$

 
$

 
$
38

Impairment of fixed assets

 
2

 

 
2

Impairment to other assets

 
(29
)
 

 
(29
)
Contract termination costs

 
8

 

 
8

Other direct costs of closure

 
15

 

 
20

 
$

 
$
(4
)
 
$

 
$
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 $941,000 and $884,000 as of April 30, 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

14


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 benefit (expense) was $75,000 and $(134,000) for the three months ended April 30, 2011 and 2010, respectively, and $(39,000) and $(340,000) for the six months ending April 30, 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 (Loss)

Accumulated other comprehensive income (loss) presented in the accompanying condensed consolidated balance sheets consist of cumulative foreign currency translation adjustments.

Comprehensive income (loss) for the three and six month periods ended April 30, 2011 and 2010 was as follows (in thousands):
 
Three Months Ended
 
Six Months Ended
 
April 30,
 
April 30,
 
April 30,
 
April 30,
 
2011
 
2010
 
2011
 
2010
 
 
 
 
 
 
 
 
Net income (loss), as reported
$
(537
)
 
$
98

 
$
(76
)
 
$
603

Foreign currency translation adjustment
233

 
(213
)
 
158

 
(498
)
Comprehensive income (loss)
$
(304
)
 
$
(115
)
 
$
82

 
$
105


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 telecommunications customer accounted for approximately 15% of our total revenues in the three months ended April 30, 2011 and the related accounts receivable balance for this customer was approximately $554,000 as of April 30, 2011. In

15


addition, the aggregate revenues generated by all projects in all locations of another telecommunications customer accounted for approximately 14% of our total revenues in the three months ended April 30, 2011 and 10% of our total revenues in the six months ended April 30, 2011. The related accounts receivable balance for this customer was approximately $313,000 as of April 30, 2011.  
In aggregate, the revenues generated by all projects in all locations of one significant telecommunications customer accounted for approximately 17% of total revenues in the three months ended April 30, 2010 and 8% of total revenues in the six months ended April 30, 2010. The related accounts receivable balance for this customer was approximately $415,000 as of April 30, 2010. Another telecommunications customer accounted for approximately 12% of total revenues in the three and six months ended April 30, 2010. The related accounts receivable balance for this customer was approximately $287,000 as of April 30, 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 six months ended April 30, 2011 and 2010 by each geographic region (in thousands):
 
 
Three Months Ended
 
Six Months Ended
 
April 30,
 
April 30,
 
April 30,
 
April 30,
 
2011
 
2010
 
2011
 
2010
Revenues by region:
 

 
 

 
 
 
 
North America
$
1,275

 
$
1,606

 
$
2,988

 
$
3,005

Europe
2,081

 
1,780

 
4,806

 
4,448

Asia
156

 
129

 
294

 
518

 
$
3,512

 
$
3,515

 
$
8,088

 
$
7,971


 The following table reflects long-lived assets as of April 30, 2011 and October 31, 2010 in each geographic region (in thousands):
 
 
As of
 
April 30
2011
 
October 31,
2010
Total long-lived assets by region:
 

 
 

North America
$
343

 
$
127

Germany
687

 
506

Asia
38

 
39

 
$
1,068

 
$
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, 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, technology providers, government defense agencies and defense contractors, healthcare companies and companies in the financial services and transportation 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 conditions and financial markets have continued to be challenging to 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 six 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. Although there have been some recent signs of modest improvement in general economic conditions, 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 such 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 six 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 operations to total revenues:

 
Three Months Ended
 
Six Months Ended
 
April 30,
 
April 30,
 
April 30,
 
April 30,
 
2011
 
2010
 
2011
 
2010
Revenues:
 

 
 

 
 
 
 
License
52
 %
 
48
 %
 
55
 %
 
52
 %
Maintenance
47

 
51

 
44

 
47

Professional services
1

 
1

 
1

 
1

Total revenues
100

 
100

 
100

 
100

 
 
 
 
 
 
 
 
Cost of revenues:
 

 
 

 
 
 
 
License
2

 
2

 
1

 
2

Amortization of intangible assets
2

 
2

 
2

 
1

Maintenance
10

 
10

 
9

 
9

Professional services

 
1

 

 

Total cost of revenues
14

 
15

 
12

 
12

 
 
 
 
 
 
 
 
Gross profit
86

 
85

 
88

 
88

 
 
 
 
 
 
 
 
Operating expenses:
 

 
 

 
 
 
 
Sales and marketing
37

 
32

 
35

 
29

Research and development
28

 
27

 
24

 
25

General and administrative
36

 
21

 
29

 
21

Restructuring

 

 

 

Total operating expenses
101

 
80

 
88

 
75

 
 
 
 
 
 
 
 
Income (loss) from operations
(15
)
 
5

 

 
13

Interest and other income (expense), net
(2
)
 
2

 
(1
)
 
1

Income (loss) before provision for income taxes
(17
)
 
7

 
(1
)
 
14

Income tax benefit (expense)
2

 
(4
)
 

 
(4
)
 
 
 
 
 
 
 
 
Net income (loss)
(15
)%
 
3
 %
 
(1
)%
 
10
 %

19



Revenues
 
The following table summarizes license, maintenance and professional services revenues for the three and six months ended April 30, 2011 and 2010 (in thousands, except percentages):

 
Three Months Ended
 
April 30,
 
April 30,
 
Change
 
2011
 
2010
 
Amount
 
Percentage
 
(unaudited)
 
 
 
 
Revenues:
 

 
 

 
 

 
 

License revenues
$
1,818

 
$
1,694

 
$
124

 
7
 %
Maintenance revenues
1,656

 
1,793

 
(137
)
 
(8
)
Professional services revenues
38

 
28

 
10

 
36

Total
$
3,512

 
$
3,515

 
$
(3
)
 
 %
 
 
 
 
 
 
 
 
 
Six Months Ended
 
April 30,
 
April 30,
 
Change
 
2011
 
2010
 
Amount
 
Percentage
 
(unaudited)
 
 
 
 
Revenues:
 
 
 
 
 
 
 
License revenues
$
4,413

 
$
4,154

 
$
259

 
6
 %
Maintenance revenues
3,575

 
3,777

 
(202
)
 
(5
)
Professional services revenues
100

 
40

 
60

 
150

Total
$
8,088

 
$
7,971

 
$
117

 
1
 %
 
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 forecasted 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 remained stable for the three months ended April 30, 2011, decreasing approximately $3,000 (or 0%) when compared to the corresponding period in fiscal 2010. This resulted from an approximate $124,000 (or 7%) increase in license revenues and an approximate $10,000 (or 36%) increase in professional services revenues, which were offset by an approximate $137,000 (or 8%) decrease in maintenance revenues for the three months ended April 30, 2011 compared to the corresponding period in fiscal 2010. Total revenues also reflected approximately $133,000 of favorable foreign currency exchange rate fluctuations.
 
Our total revenues increased by $117,000 (or 1%) for the six months ended April 30, 2011 compared to the corresponding period in fiscal 2010. This increase resulted primarily from an approximate $259,000 (or 6%) increase in license revenues and an approximate $60,000 (or 150%) increase in professional services revenues, partially offset by an approximate $202,000 (or 5%) decrease in maintenance revenues for the six months ended April 30, 2011 compared to the corresponding period in fiscal 2010. Total revenues for the six months ended April 30, 2011 also included approximately $70,000 of unfavorable foreign currency exchange rate fluctuations.

One telecommunications customer accounted for approximately 15% of our total revenues in the three months ended April 30, 2011 and approximately 9% of our total revenues in the six months ended April 30, 2011. In addition, the aggregate revenues generated by another significant telecommunications customer accounted for approximately 14% of our total revenues in the three months ended April 30, 2011 and approximately 10% of our total revenues in the six months ended April 30, 2011.

In aggregate, the revenues generated by one significant telecommunications customer accounted for approximately 17% of total revenues in the three months ended April 30, 2010 and approximately 8% of total revenues in the six months ended

20


April 30, 2010. Another telecommunications customer accounted for approximately 12% of total revenues in the three and six months ended April 30, 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, 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.
 
License. License revenues represent perpetual license fees received and recognized from our End-Users and Value Added Resellers.
 
License revenues were $1.8 million for the three months ended April 30, 2011, an increase of $124,000 (or 7%) from $1.7 million reported for the comparable period in fiscal 2010. The increase in license revenues for the three months ended April 30, 2011 compared to the same three month period in 2010 resulted primarily from a small increase in the value of the average license transaction in both our North American and European operations, and included an approximate $81,000 increase in revenues resulting from favorable foreign currency exchange rate fluctuations.

License revenues were $4.4 million for the six months ended April 30, 2011, an increase of $259,000 (or 6%) from $4.2 million reported for the comparable period in fiscal 2010. The increase in license revenues for the six months ended April 30, 2011 compared to the same six month period in 2010 resulted primarily from a small increase in average license volume per customer, offset by an approximate $48,000 decrease in license revenues resulting from unfavorable foreign currency exchange rate fluctuations.
 
Maintenance. Maintenance and technical support revenues include revenues derived from maintenance agreements, under which we provide customers with internet and telephone access to support personnel and software upgrades, dedicated technical assistance and emergency response support options.

Maintenance revenues were $1.7 million for the three months ended April 30, 2011, a decrease of $137,000 (or 8%) from $1.8 million reported for the comparable period in fiscal 2010. The decrease in maintenance revenues for the quarter ended April 30, 2011 when compared to the corresponding period in fiscal 2010 resulted primarily from a decrease of approximately $113,000 attributable to the non-renewal or delayed renewal of certain maintenance contracts and a decrease of approximately $66,000 resulting from certain customers electing less expensive support and maintenance options. Maintenance revenues for the quarter ended April 30, 2011 also included an approximate $52,000 increase resulting from favorable foreign currency exchange rate fluctuations during the quarter compared to the corresponding period in fiscal 2010. Given the uncertain economic environment, the Company may experience lower rates of renewal of its maintenance contracts in the future, which could adversely affect the levels of our maintenance revenues.

Maintenance revenues were $3.6 million for the six months ended April 30, 2011, a decrease of $202,000 (or 5%) from $3.8 million reported for the comparable period in fiscal 2010. The decrease in maintenance revenues for the six months ended April 30, 2011 resulted primarily from an approximate $142,000 decrease resulting from certain customers electing less expensive support and maintenance options, an approximate $198,000 decrease attributable to non-renewal or delayed renewal of maintenance contracts by certain customers and an approximate $18,000 decrease resulting from unfavorable foreign currency exchange rate fluctuations during the six months ended April 30, 2011 when compared to the corresponding period in fiscal 2010. These decreases were partially offset by an increase of approximately $165,000 related to back maintenance revenues recognized for one North American customer during the six months ended April 30, 2011, for which there was no comparable transaction during the six months ended April 30, 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 $38,000 for the three months ended April 30, 2011, an increase of $10,000 (or 36%) from $28,000 reported for the comparable period in fiscal 2010. Professional services revenues were $100,000 for the six months ended April 30, 2011, an increase of $60,000 (or 150%) from $40,000 reported for the comparable period in fiscal 2010. The increase in professional services revenues for the six months ended April 30, 2011 resulted primarily from a consulting

21


engagement with one European customer for approximately $53,000 for which there was no corresponding transaction in the same period of fiscal 2010.
 
International Revenues. The following table summarizes our revenues by geographic area for the three and six months ended April 30, 2011 and 2010 (in thousands, except percentages):
 
 
Three Months Ended April 30,
 
 
 
Percentage
 
 
 
Percentage
 
Change
 
2011
 
of revenues
 
2010
 
of revenues
 
Amount
 
Percentage
 
(unaudited)
 
 
 
 
 
 
Revenues by region:
 

 
 

 
 

 
 

 
 

 
 

North America
$
1,275

 
36
%
 
$
1,606

 
46
%
 
$
(331
)
 
(21
)%
Europe
2,081

 
59

 
1,780

 
50

 
301

 
17
 %
Asia
156

 
5

 
129

 
4

 
27

 
21
 %
 
$
3,512

 
100
%
 
$
3,515

 
100
%
 
$
(3
)
 
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended April 30,
 
 
 
Percentage
 
 
 
Percentage
 
Change
 
2011
 
of revenues
 
2010
 
of revenues
 
Amount
 
Percentage
 
(unaudited)
 
 
 
 
 
 
Revenues by region:
 
 
 
 
 
 
 
 
 
 
 
North America
$
2,988

 
37
%
 
$
3,005

 
38
%
 
$
(17
)
 
(1
)%
Europe
4,806

 
59

 
4,448

 
56

 
358

 
8

Asia
294

 
4

 
518

 
6

 
(224
)
 
(43
)
 
$
8,088

 
100
%
 
$
7,971

 
100
%
 
$
117

 
1
 %
 
Total revenues remained stable in the three months ended April 30, 2011 compared to the corresponding period of fiscal 2010. An approximate $301,000 (or 17%) increase in revenues generated in Europe and an approximate $27,000 (or 21%) increase in revenues from Asia were offset by an approximate $331,000 (or 21%) decrease in revenues from North America. The decrease in North American revenues in this period resulted primarily from the fact that, in the three months ended April 30, 2010, we recognized revenue from previously unreported prior period royalties from one telecommunications customer, whereas there was no such corresponding revenue transaction in the three months ended April 30, 2011. Total revenues for the three months ended April 30, 2011 also included approximately $133,000 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 quarter and does not necessarily reflect a trend.

Our total revenues increased by $117,000 (or 1%) for the six months ended April 30, 2011 compared to the corresponding period in fiscal 2010. An approximate $358,000 (or 8%) increase in revenues from Europe, which primarily resulted from a modest increase in average license volume per customer that was partially offset by an approximate $224,000 (or 43%) decrease in revenues generated in Asia, which was primarily due to a reduction in royalties from one telecommunications customer. North American revenues remained relatively stable during the six months ended April 30, 2011, decreasing $17,000 (or 1%) from the corresponding period of fiscal 2010. Total revenues for the six months ended April 30, 2011 also included approximately $70,000 in unfavorable foreign currency exchange rate fluctuations, which are primarily connected with our European operations.

International revenues (revenues from the European and Asian regions) represented approximately 64% of our total revenues for the three months ended April 30, 2011, as compared to 54% for the comparable period in fiscal 2010.

International revenues (revenues from the European and Asian regions) represented approximately 63% of our total revenues for the six months ended April 30, 2011, as compared to 62% for the comparable period in fiscal 2010.
 
Revenues from North America. The $331,000 (or 21%) revenue decrease from North America in the three months ended April 30, 2011 compared to the corresponding period of 2010 was primarily due to an approximate $222,000 decrease in license revenues and an approximate $109,000 decrease in services revenues. An approximate $220,000 decrease in license revenues generated in North America reflects the fact that we recognized revenue from previously unreported prior period

22


royalties from one telecommunications customer in the three months ended April 30, 2010, whereas there was no such corresponding revenue transaction in the three months ended April 30, 2011. Maintenance revenues generated in North America in the three months ended April 30, 2011 included an approximate $64,000 decrease due to non-renewal of maintenance contracts and an approximate $44,000 decrease due to certain customers electing less expensive support and maintenance options.

Revenues from North America during the six months ended April 30, 2011 remained relatively stable, decreasing approximately $17,000 (or 1% ) when compared to the six months ended April 30, 2010. Total revenues originating in North America during the six months ended April 30, 2011 included an approximate $90,000 increase in license revenues offset by an approximate $107,000 decrease in services revenues. A modest increase in average license volume per customer in North America contributed to this increase in license revenues for the six months ended April 30, 2011 that was partially offset by an approximate $220,000 decrease in North American license revenues reflecting the fact that in the six months ended April 30, 2010 we recognized revenue from previously unreported prior period royalties from one telecommunications customer, whereas there was no such corresponding revenue transaction in the six months ended April 30, 2011. Services revenues from North America during the six months ended April 30, 2011 decreased due to an approximate $101,000 decrease related to certain customers electing less expensive support and maintenance options and an approximate $119,000 decrease due to non-renewal of maintenance contracts, with these decreases partially offset by an approximate $165,000 increase resulting from back maintenance from one North American customer recognized in the first six months of fiscal 2011.
 
Revenues from Europe. The $301,000 (or 17%) increase in absolute dollars in European revenues for the three months ended April 30, 2011, over the comparable period in fiscal 2010 was primarily due to an approximate $341,000 increase in license revenues resulting from larger average licensing transactions and was partially offset by an approximate $40,000 decrease in maintenance revenues. Maintenance revenues generated in Europe in the three months ended April 30, 2011 included an approximate $22,000 decrease due to certain customers electing less expensive support and maintenance options compared to the three months ended April 30, 2010. Total revenues from Europe for the three months ended April 30, 2011 included an approximate $133,000 increase resulting from favorable foreign currency exchange rate fluctuations.
 
The $358,000 (or 8%) increase in absolute dollars in European revenues for the six months ended April 30, 2011, over the comparable period in fiscal 2010 was primarily due to an approximate $459,000 increase in license revenues resulting from larger average licensing transactions and was partially offset by an approximate $101,000 decrease in service revenues. Maintenance revenues generated in Europe in the six months ended April 30, 2011 included an approximate $40,000 decrease due to certain customers electing less expensive support and maintenance options and an approximate $56,000 decrease due to the non-renewal of maintenance contracts compared to the six months ended April 30, 2010. Total revenues from Europe for the six months ended April 30, 2011 included an approximate $70,000 decrease resulting from unfavorable 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 international revenues due to stronger demand for our products in Europe. 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 were relatively stable in absolute dollars during the three months ended April 30, 2011 when compared to the three months ended April 30, 2010 with an increase of $27,000 (or 21%).

Total revenues from the Asia Pacific region during the six months ended April 30, 2011 decreased approximately $224,000 (or 43%) when compared to the corresponding period of fiscal 2010. This decrease was a result of an approximate $294,000 decrease in license revenues primarily attributable to two telecommunications customers in Asia and was partially offset by an approximate $70,000 increase in services revenues.
 
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.
 

23



Cost of Revenues
 
The following table summarizes total cost of revenues for the three and six months ended April 30, 2011 and 2010 (in thousands, except percentages):
 
 
Three Months Ended
 
April 30,
 
April 30,
 
Change
 
2011
 
2010
 
Amount
 
Percentage
 
(unaudited)
 
 
 
 
Cost of revenues:
 

 
 

 
 

 
 

License
$
64

 
$
75

 
$
(11
)
 
(15
)%
Amortization of intangible assets
65

 
77

 
(12
)
 
(16
)
Maintenance
354

 
366

 
(12
)
 
(3
)
Professional services
22

 
21

 
1

 
5

Total
$
505

 
$
539

 
$
(34
)
 
(6
)%

 
Six Months Ended
 
April 30,
 
April 30,
 
Change
 
2011
 
2010
 
Amount
 
Percentage
 
(unaudited)
 
 
 
 
Cost of revenues:
 
 
 
 
 
 
 
License
$
132

 
$
156

 
$
(24
)
 
(15
)%
Amortization of intangible assets
138

 
154

 
(16
)
 
(10
)%
Maintenance
727

 
756

 
(29
)
 
(4
)%
Professional services
42

 
31

 
11

 
35
 %
Total
$
1,039

 
$
1,097

 
$
(58
)
 
(5
)%
 
Total Cost of Revenues. Total cost of revenues was $505,000 (or 14% of revenues) and $1.0 million (or 12% of revenues) for the three and six months ended April 30, 2011, respectively, declining slightly in absolute dollars and remaining at a consistent level as a percentage of revenues compared to $539,000 (or 15% of revenues) and $1.1 million (or 12% of revenues) for the comparable periods 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 costs.
 
Cost of license revenues was $64,000 (or 4% of license revenues) for the three months ended April 30, 2011, a decrease of $11,000 (or 15%) from $75,000 (or 4% of license revenues) reported for the comparable period in fiscal 2010. Cost of license revenues was $132,000 (or 3% of license revenues) for the six months ended April 30, 2011, a decrease of $24,000 (or 15%) from $156,000 (or 4% of license revenues) reported for the comparable period in fiscal 2010. This comparative decrease in the cost of license revenues in the three and six months ended April 30, 2011 was primarily due to the increased costs associated with the major release of Version 8 of the Versant Object Database in February 2010, which generated additional printing and other production costs in the six months ended April 30, 2010 which were not repeated in fiscal 2011.
 
Amortization of Intangible Assets. Amortization of intangible assets results from our fiscal 2009 acquisition of db4o and fiscal 2004 acquisitions of Poet Holdings, Inc. and FastObjects, Inc.
 
Amortization of intangible assets was $65,000 for the three months ended April 30, 2011, a decrease of $12,000 (or 16%) from $77,000 reported for the comparable period in fiscal 2010. Amortization of intangible assets was $138,000 for the six months ended April 30, 2011, a decrease of $16,000 (or 10%) from $154,000 reported for the comparable period in fiscal 2010. The $12,000 and $16,000 decreases in amortization of intangible assets when comparing the three and six months ended April 30, 2011 to the corresponding periods of fiscal 2010 were due to intangible assets related to Poet Holdings, Inc. and FastObjects, Inc. being fully amortized in the second quarter of fiscal 2011 and the third quarter of fiscal 2010, respectively.

24


We expect to incur amortization charges of approximately $26,000 for the third quarter of fiscal 2011.

Maintenance. Cost of maintenance revenues consists primarily of salaries, bonuses and consulting fees for customer support personnel and related expenses, including payroll, employee benefits and allocated overhead.
 
Cost of maintenance revenues was $354,000 (or 21% of maintenance revenues) for the three months ended April 30, 2011, a slight decrease in absolute dollars and a slight increase as a percentage of maintenance revenues, compared to $366,000 (or 20% of maintenance revenues) reported for the comparable period in fiscal 2010. The decrease in the cost of maintenance revenues for the three months ended April 30, 2011 over the corresponding period in fiscal 2010 is primarily related to an approximate decrease of $13,000 due to reduced allocated facilities costs resulting from increased overall headcount.

Cost of maintenance revenues was $727,000 (or 20% of maintenance revenues) for the six months ended April 30, 2011, a slight decrease in absolute dollars, compared to $756,000 (or 20% of maintenance revenues) reported for the comparable period in fiscal 2010. The decrease in the cost of maintenance revenues for the six months ended April 30, 2011 over the corresponding period in fiscal 2010 is primarily related to an approximate decrease of $26,000 due to reduced allocated facilities costs resulting from increased overall headcount and an approximate decrease of $11,000 due to favorable foreign currency exchange rate fluctuations.

Professional Services. Cost of professional services consists of salaries, bonuses, third party consulting fees and other costs associated with supporting our professional services organization.
 
Cost of professional services revenues increased $1,000 to $22,000 (or 58% of professional services revenues) for the three months ended April 30, 2011 compared to $21,000 (or 75% of professional services revenues) reported for the comparable period in fiscal 2010. Cost of professional services revenues increased $11,000 to $42,000 (or 42% of professional services revenues) for the six months ended April 30, 2011 compared to $31,000 (or 78% of professional services revenues) reported for the comparable period in fiscal 2010. Cost of professional services to provide training and consulting vary according to product mix, number of participants and travel arrangements.
 
Operating Expenses
 
The following table summarizes our operating expenses for the three and six months ended April 30, 2011 and 2010 (in thousands, except percentages):
 
 
Three Months Ended
 
April 30,
 
April 30,
 
Change
 
2011
 
2010
 
Amount
 
Percentage
 
(unaudited)
 
 
 
 
Operating expenses:
 

 
 

 
 

 
 

Sales and marketing
1,320

 
$
1,135

 
$
185

 
16
 %
Research and development
980

 
944

 
36

 
4

General and administrative
1,262

 
751

 
511

 
68

Restructuring

 
(4
)
 
4

 
(100
)
Total
$
3,562

 
$
2,826

 
$
736

 
26
 %
 
Six Months Ended
 
April 30,
 
April 30,
 
Change
 
2011
 
2010
 
Amount
 
Percentage
 
(unaudited)
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Sales and marketing
$
2,820

 
$
2,321

 
$
499

 
21
 %
Research and development
1,912

 
1,988

 
(76
)
 
(4
)
General and administrative
2,307

 
1,675

 
632

 
38

Restructuring

 
39

 
(39
)
 
(100
)
Total
$
7,039

 
$
6,023

 
$
1,016

 
17
 %
 

25


Total Operating Expenses. Total operating expenses were $3.6 million (or 101% of revenues) for the three months ended April 30, 2011 and $2.8 million (or 80% of revenues) for the comparable period in fiscal 2010. The $736,000 (or 26%) absolute dollar increase in total operating expenses for the three months ended April 30, 2011 resulted primarily from an approximate $470,000 increase due to one-time separation costs as a result of the departure of the Company's former CEO, the planned $185,000 increase in sales and marketing programs aimed at expansion of our customer base and an approximate increase of $64,000 due to unfavorable foreign currency exchange rate fluctuations.

Total operating expenses were $7.0 million (or 88% of revenues) for the six months ended April 30, 2011 and $6.0 million (or 75% of revenues) for the comparable period in fiscal 2010. The $1.0 million (or 17%) increase in total operating expenses for the six months ended April 30, 2011 resulted primarily from an approximate $470,000 increase due to one-time separation costs as a result of the departure of the Company's Former CEO and the planned $499,000 increase in sales and marketing programs aimed at expansion of our customer base, and was partially offset by an approximate decrease of $83,000 due to favorable foreign currency exchange rate fluctuations.

 Sales and Marketing. Sales and marketing expenses consist primarily of personnel and personnel related expenses, commissions earned by sales personnel, and expenses associated with trade shows, travel and other marketing communication costs, such as advertising and other marketing programs.
 
Sales and marketing expenses were $1.3 million (or 37% of revenues) for the three months ended April 30, 2011 and $1.1 million (or 32% of revenues) for the comparable period in fiscal 2010. The $185,000 increase (or 16%) in sales and marketing expenses in the three months ended April 30, 2011 compared to the corresponding period in 2010, relates, in part, to a $34,000 increase due to a planned marketing escalation including the addition of our VP Marketing and Strategic Product Development and marketing manager, who were hired in the second and third quarters of fiscal 2010, respectively, as well as the hiring of an additional marketing professional late in the second quarter of 2011. The quarter over quarter increase in sales and marketing expense also includes an approximate $34,000 increase related to sales expansion in our European operations, an approximate $58,000 increase resulting from costs of localizing our products for the Asian markets, and an increase of approximately $18,000 resulting from unfavorable foreign currency exchange fluctuations. Sales and marketing expenses in the three months ended April 30, 2011 increased compared to the three months ended April 30, 2010 partially due to the fact that in the three months ended April 30, 2010 an approximate $47,000 expense related to executive bonuses reported in the first quarter of fiscal 2010 was reversed as a result of revised expectations, whereas no such corresponding bonus reduction occurred in the three months ended April 30, 2011.

Sales and marketing expenses were $2.8 million (or 35% of revenues) for the six months ended April 30, 2011 and $2.3 million (or 29% of revenues) for the comparable period in fiscal 2010. The $499,000 (or 21%) increase in sales and marketing expenses in the six months ended April 30, 2011 compared to the corresponding period in 2010, primarily relates to the planned $63,000 increase in marketing activities including lead qualification and website design costs, and an approximate $164,000 increase related to the addition of our VP Marketing and Strategic Product Development and marketing manager, who were hired in the second and third quarters of fiscal 2010, respectively, as well as the hiring of an additional marketing professional late in the second quarter of 2011. The increase in sales and marketing expense during the six months ended April 30, 2011 compared to the corresponding period in fiscal 2010, includes an approximate $105,000 increase resulting from costs of localizing our products for Asian markets, an approximate $101,000 increase related to sales expansion in our European operations, an approximate $39,000 increase in sales commissions and an approximate $47,000 increase in executive bonuses, with these increases being partially offset by a decrease of approximately $28,000 resulting from favorable foreign currency exchange fluctuations.

For the remainder of fiscal 2011, we expect our quarterly sales and marketing expenses to remain relatively stable and to continue to represent a considerable percentage of our total operating expenditures in the future as we invest in efforts to expand our customer base.
 
Research and Development. Research and development expenses consist primarily of personnel and related expenses, including payroll and employee benefits, expenses for facilities and payments made to outside software development contractors.
 
Research and development expenses were $980,000 (or 28% of revenues) for the three months ended April 30, 2011 and $944,000 (or 27% of revenues) for the comparable period in fiscal 2010. The $36,000 (or 4%) increase in absolute dollars for the three months ended April 30, 2011 was primarily due to an approximate $49,000 increase related to personnel additions in our European operations and an approximate $28,000 increase due to unfavorable foreign currency exchange fluctuations partially offset by an approximate $41,000 decrease related to the wind-down of our former operations in India.
 
Research and development expenses were $1.9 million (or 24% of revenues) for the six months ended April 30, 2011 and $2.0

26


million (or 25% of revenues) for the comparable period in fiscal 2010. The $76,000 (or 4%) decrease in absolute dollars for the six months ended April 30, 2011 was primarily due to an approximate $160,000 decrease related to the wind-down of our former operations in India and an approximate $50,000 decrease due to favorable foreign currency exchange fluctuations, partially offset by an approximate $139,000 increase related to personnel additions in our European operations.

We anticipate that we will continue to invest significant resources in research and development activities to develop new products, advance the technology of our existing products and develop new business opportunities. We expect research and development expenditures to generally remain at current levels for the remainder of fiscal 2011.
 
General and Administrative. General and administrative expenses consist primarily of personnel and related expenses and general operating expenses.
 
General and administrative expenses were $1.3 million (or 36% of revenues) for the three months ended April 30, 2011 and $751,000 (or 21% of revenues) for the comparable period in fiscal 2010. The $511,000 (or 68%) increase in general and administrative expense for the three months ended April 30, 2011 when compared to the three months ended April 30, 2010 was primarily due to an approximate $470,000 increase due to one-time separation costs related to the departure of the Company's former CEO, including additional share based compensation resulting from modifications to existing stock option grants. The increase in general and administrative expense in the second quarter of fiscal 2011 included an approximate $31,000 increase in travel expenses and an approximate $18,000 increase due to unfavorable foreign currency exchange fluctuations when compared to the second quarter of fiscal 2010.

General and administrative expenses were $2.3 million (or 29% of revenues) for the six months ended April 30, 2011 and $1.7 million (or 21% or revenues) for the comparable period in fiscal 2010. The $632,000 (or 38%) increase in general and administrative expenses for the six months ended April 30, 2011 was primarily due to an approximate $470,000 increase attributable to one-time separation costs related to the departure of the Company's former CEO, including additional share based compensation resulting from modifications to existing stock option grants. The increase in general and administrative expenses in the first six months of fiscal 2011 included an approximate $95,000 increase in professional and outside services costs, an approximate $45,000 increase in bad debt expense, an approximate $31,000 increase in travel expenses and an approximate $5,000 decrease due to favorable foreign currency exchange fluctuations, when compared to the first six months of fiscal 2010.
 
We expect our general and administrative expenses in fiscal 2011 to increase moderately from fiscal 2010 due to the separation costs associated with the departure of our former CEO.
 
Restructuring. On September 22, 2009, the Company committed to the implementation of a restructuring pursuant to which it closed its research and development facility in Pune, India. The restructuring plan, which was substantially completed in the second quarter of fiscal 2010, was undertaken to consolidate our research and development efforts into one location in Germany to streamline operations, create management efficiencies and increase productivity. Restructuring charges were $39,000 for the six months ended April 30, 2010 and were primarily related to severance and retention costs. There were no restructuring charges during the first six months of fiscal 2011.

27


 
Interest and Other Income (Expense), Net
 
The following table summarizes our interest and other income, net for the three and six months ended April 30, 2011 and, 2010 (in thousands, except percentages):
 
 
Three Months Ended
 
April 30,
 
April 30,
 
Change
 
2011
 
2010
 
Amount
 
Percentage
 
(unaudited)
 
 
 
 
Interest and other income (expense), net:
 

 
 

 
 

 
 

Interest income
$
14

 
$
13

 
$
1

 
8
 %
Foreign exchange loss
(71
)
 
69

 
(140
)
 
(203
)%
Other income

 

 

 
 %
Total
$
(57
)
 
$