10-K 1 a2201670z10-k.htm 10-K

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-K

ý   Annual report under Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended October 31, 2010.

Or

o

 

Transition report under 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
(State or other jurisdiction
of incorporation or organization)
  94-3079392
(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)

Securities registered pursuant to Section 12(b) of the Act: Common Stock, no par value

Securities registered pursuant to Section 12(g) of the Act: None

         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No ý

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes o No ý

         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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 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 any amendment to this Form 10-K. ý

         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
(Do not check if a Smaller Reporting Company)
  Smaller Reporting Company ý

         Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No ý

         The aggregate market value of the voting and non-voting common equity held by non-affiliates (assuming, for purposes of this calculation only, that the registrant's directors, executive officers and greater than 10% shareholders are affiliates of the registrant) computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of April 30, 2010 (the last business day of the registrant's most recently completed second fiscal quarter): $44,710,656.

         The number of shares outstanding of each of the issuer's classes of common stock, as of January 26, 2011, was 3,186,909 shares of Common Stock, no par value.

DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the Registrant's definitive proxy statement relating to its Annual Meeting of Shareholders to be held in 2011 are incorporated by reference in Part III of this Annual Report on Form 10-K where indicated.


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VERSANT CORPORATION
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended October 31, 2010

TABLE OF CONTENTS

Item No.
  Name of Item   Page

PART I

       

Item 1.

 

Business

 
1

Item 1A.

 

Risk Factors

 
11

Item 1B.

 

Unresolved Staff Comments

 
21

Item 2.

 

Properties

 
21

Item 3.

 

Legal Proceedings

 
21

Item 4.

 

Reserved

 
21

PART II

       

Item 5.

 

Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 
22

Item 6.

 

Selected Financial Data

 
25

Item 7.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 
26

Item 7A.

 

Quantitative and Qualitative Disclosures About Market Risk

 
53

Item 8.

 

Financial Statements and Supplementary Data

 
54

Item 9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 
93

Item 9A.

 

Controls and Procedures

 
93

Item 9B.

 

Other Information

 
94

PART III

       

Item 10.

 

Directors, Executive Officers and Corporate Governance

 
94

Item 11.

 

Executive Compensation

 
94

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 
94

Item 13.

 

Certain Relationships and Related Transactions, and Director Independence

 
94

Item 14.

 

Principal Accountant Fees and Services

 
94

PART IV

       

Item 15.

 

Exhibits and Financial Statement Schedules

 
94

SIGNATURES

 
95

CERTIFICATIONS

   

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        Without limitation, Versant Object Database, Versant®, FastObjects, db4o, db4objects and other Versant product names referred to herein are trademarks of Versant in the United States and/or other countries. All other corporate or trade names or service marks referred to in this report are the names or marks of their respective owners in the United States and/or other countries.


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 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, the Company's industry and the market for the Company's goods and services, which are based on information that is reasonably available to the Company as of the date of this report. Forward-looking statements may include words such as "believes," "anticipates," "expects," "intends," "plans," "will," "may," "should," "estimates," "predicts," "forecasts," "guidance," "potential," "continue" or the negative of such terms, other variants of such terms or other similar expressions.

        We caution investors that forward-looking statements are only predictions, forecasts or estimates based upon our current expectations about future events. The forward-looking statements are not guarantees or assurances of our future performance and are subject to significant risks and uncertainties that are inherently difficult to assess and predict, particularly in light of the continuing recessionary environment in the United States and the global economy. Consequently, our actual future 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 1A of this report, —"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 Versant in this report and in our other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of risks and factors that may affect our business.

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PART I

        

Item 1.    Business

Overview of the Company

        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 object-oriented database management system products that companies use to solve complex data management and data integration problems. We also provide related product support, training, and consulting services to assist users of our products in developing and deploying software applications based on our products. We operate our business within a single operating segment that we refer to as "Data Management".

        Our mission is to be a preferred vendor of core data management solutions to world-class enterprises whose businesses require the successful management of large and complex bodies of data. To achieve this goal our general strategy has been to develop and offer powerful, scalable and highly reliable data management solutions capable of handling a wide array of challenging applications for sophisticated customers in many industries. For example, we market our products to companies in the telecommunications and defense industries, as well as to customers in several vertical markets including technology, financial services, transportation and health care. Our software has been used in strategic distributed applications such as network modeling and management, fault diagnosis, fraud prevention, service activation and assurance, and customer billing, scheduling and other applications. We strive to continually improve our core data management products and related tools to make our solutions even more useful, reliable and performance oriented. In our research and development efforts we also strive to make our products usable and accessible by customers using different computing or software platforms, in order to expand the markets and industries we serve.

        We were incorporated in California in August 1988 under the name Object Sciences Corporation and completed our initial public offering of our common stock under the name of Versant Object Technology Company in July 1996. The name of the company was changed to Versant Corporation on July 15, 1998. In March 2004, we acquired Poet Holdings, Inc. (Poet) through a merger. Prior to that merger, Poet was a provider of object-oriented data management software headquartered in the United States, whose stock was publicly traded on the Frankfurt Stock Exchange. In June 2004, we acquired the JDO Genie product line and its customers from JDO Genie (PTY) Ltd., a privately held South African company and in July 2004, we acquired FastObjects, Inc., a private company that held North American distribution rights with respect to Poet's FastObjects database management product. In August of 2005, we effected a 1-for-10 reverse split of our outstanding common stock. In February 2006, we sold our WebSphere consulting business. On December 1, 2008 we acquired the assets of the database software business of privately-held Servo Software, Inc. (formerly named db4objects, Inc.), which included an open source object database software solution targeting the embedded device market. Our principal executive offices are located at 255 Shoreline Drive, Suite 450, Redwood City, California 94065 and our telephone number is (650) 232-2400.

        Our website URL is www.versant.com. Except as otherwise expressly set forth in this report on Form 10-K, the information contained in, or referred to on, our website is not a part of this report.

        We conduct most of our administrative operations from our U.S headquarters in Redwood City, California and the offices of our German subsidiary, Versant GmbH, which is headquartered in Hamburg, Germany. Our research and development activities are primarily conducted by our German subsidiary, Versant GmbH. In September 2009, a restructuring plan was undertaken to consolidate the Company's research and development efforts into one location in Germany and to close a facility in India. This restructuring plan was substantially completed as of April 30, 2010.

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Industry Background

        Computerized data management has evolved significantly over the past few decades. As business computing became more sophisticated, network and hierarchical databases emerged in the 1970s to serve growing business data requirements. In the 1980s, these types of databases were largely superseded by relational database technology, which continues to be a widely prevalent database technology today. The mid to late 1980s saw the emergence of object-oriented software programming. In object-oriented programming, smaller software building blocks called "objects", which can perform specific functions, are aggregated with other objects in order to create larger software systems. With the advent of object-oriented software programming, it became possible to incorporate the unique features and advantages of object-based software into database management solutions. Our principal products are object-based database management software solutions, which we believe have advantages over relational database technology. In particular, we believe that object-based database management solutions are especially well suited for successfully addressing the complex and challenging data management and analytical requirements of companies who need to rapidly source, update, analyze and use very large changing bodies of complex data for a wide variety of business applications.

Certain Industry Terms

        For reference purposes we have listed below certain well-known technical terms often used in our data management industry to assist readers in better understanding the information provided in this report:

    API—means application program interface, a software source code interface that an operating system provides to enable other software programs to use and access the functionality of that operating system.

    Application Server—deployment software used to build and deploy Internet applications, including commercial websites, internal company websites and applications requiring a higher degree of scalability than is typically deployed in support of solutions for smaller user populations.

    Cache—performance enhancing software that works with servers to improve their response times and throughput.

    Cores—a multicore chip, i.e., a computer chip that contains more than one central processing unit, allowing for greater increases in computing power in contrast to a chip containing a single central processing unit.

    Data Integration—a broad term for a variety of techniques that enable the data from one software system to be used in other software systems.

    Disk mirroring—a technique using specialized software, and often specialized hardware, to get the same data on two storage disks for the purpose of increasing the reliability or making a quick snapshot (duplicate backup) of a database.

    Fault tolerant server—a server that offers higher reliability through the use of duplicated hardware and specialized software, so that, in the event of a failure of one database, the surviving database can continue offering normal service.

    Java—a software programming language originally developed by Sun Microsystems.

    J2EE-based—an application or software component that is deployed in a Java 2 Enterprise Edition (J2EE) software environment.

    JDO—Java Data Object, a standard-based Java API for Versant.

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    JDBC—Java Database Connectivity, a standard in the relational database world for processing SQL to Java.

    JVI—Java Versant Interface, a proprietary-based Java API for Versant.

    Object-Oriented—object-oriented software uses smaller building blocks called objects to create larger software systems.

    ODBC—Open Database Connectivity, a standard in the relational database world for processing SQL to a computer language other than Java.

    Relational Database—data management software that stores data as tables and columns and can be accessed using SQL.

    Replication—a range of technical approaches that enable multiple databases to be approximately synchronized, or to contain the same data.

    SNMP—Simple Network Management Protocol is a network protocol used in network management systems to monitor network attached devices for conditions that warrant administration attention.

    SQL—an industry standard computer software language used to retrieve and manage data, typically used in relational database management systems.

    XML—a standard format used to exchange data (information) between multiple software systems.

Overview of Our Products and Services

        We provide sophisticated data management solutions designed to address complex data management needs. Our Versant Object Database product is used primarily by larger enterprises which have significant large-scale data management requirements, such as technology providers, telecommunications carriers, government defense agencies, defense contractors, healthcare companies and companies in the financial services and transportation industries. Since the incorporation of Poet's FastObjects solution into our product line in March 2004, we expanded the scope of our solutions to also address the data management needs of smaller systems. With our acquisition of db4o in December 2008, we added a database solution for the embedded space which we plan to continue to develop and support.

        The data management needs of our customers usually involve many business functions, ranging from usage and management of the customer's internal 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, yield management, and a host of other problems that require an application specific data management solution.

        In addition to our product offerings, to assist users in their development and deployment of applications based on the Versant Object Database, FastObjects and db4o, we offer a variety of related services, including consulting, training, and technical support services. We also provide customers with maintenance and support services with respect to our products.

Benefits of Versant Solutions

        Our products provide customers the following benefits for specialized data management:

    High Performance.  Our object-based architecture provides direct access or navigation to stored objects. The balanced client-server architecture of Versant products enhances performance by

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      efficiently distributing processing burdens between clients and servers to leverage the processing power of networked computers.

    Highly Scalable Support for Distributed Computing.  Our products can work in various environments ranging from small workgroup operations to operations involving thousands of users over wide area networks or the Internet. This scalability can be achieved through object-level operations and other design features.

    Reliability, Availability and Serviceability.  Our Versant Object Database product offers 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, when coupled together with replication and disk mirroring provided by a Fault Tolerant Server, support continuous operation of our products.

    Language-Independent Support for Object-Oriented Programming.  Our products provide native support for the leading object-oriented software development languages of C++, Microsoft .NET and Java. This facilitates rapid and flexible application development by our customers and the maintenance and evolution of complex and dynamic applications that closely model real-world systems and processes.

    Support for Component Architectures.  The Versant Object Database client integrates with leading J2EE application servers, including IBM WebSphere, BEA Weblogic and Red Hat JBoss application servers. These application servers enable users to build and deploy J2EE-based applications that will work compatibly and directly with the Versant Object Database in order to gain our productivity and performance advantages.

    Support of Major Operating Systems.  Versant products operate on a wide range of server platforms, including UNIX platforms from Sun Microsystems, Hewlett-Packard and IBM, Linux platforms from Red Hat, and Microsoft Windows platforms.

    Support of Major Embedded Operating Systems.  Versant products operate on a wide range of handheld platforms, including J2ME, Microsoft Compact Framework, and Google's Android.

Products

Versant Object Database (VOD)

        VOD, an eighth generation object database management system, is Versant's flagship product and is designed to support multi-user, commercial applications in distributed computing environments. VOD enables users to store, manage, and distribute information that often cannot be administered effectively through traditional database technologies, including the following types of information:

    real-time data, 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 together

    enable the construction of applications that integrate diverse systems and add new functionality, often making this functionality available over the Internet.

        The object-oriented, balanced client-server architecture of VOD provides the basis for high-performance, scalable distributed applications. We believe that VOD's performance is superior compared to relational database management systems, particularly for complex data applications, for which VOD has the capability of processing a wide variety of abstract data types in a highly concurrent,

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high performance manner. We also believe that use of VOD allows our customers to reduce the time they need to develop applications for their data management systems and improves their system performance.

        VOD 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. VOD implements a variety of database features, including 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.

        Version 8.0 of VOD includes our core object database management system, C++, Java and .NET language interfaces (proprietary JVI and standards-based JDO), and XML for import and export of data into the database. By bundling these components with VOD, we believe we are enhancing the solution that we are offering, thereby making it easier for customers to deploy applications requiring these components.

        As part of the VOD family of solutions, we also offer a range of add-on options that a customer can use in situations requiring advanced capabilities, including the following:

    Versant FTS (Fault Tolerant Server) provides highly reliable operations in mission-critical environments. 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 any other form of interruption, the other database continues operation without application interruption. When the failed database is restored, the two databases automatically resynchronize and resume operations without any interruption in application processing.

    Versant Management Center is an add-on tool for the monitoring of Versant Object Databases, following the standard managing console/remote agent paradigm. The remote agent resides on the Versant server system, while the managing console is a graphical interface running on a Versant client system to display the ongoing activity of the monitored database. The tool also supports industry standard formats for monitoring known as SNMP and can be integrated with other third party SNMP enabled monitoring tools.

    Versant Asynch Replication supports both master-slave and peer-to-peer asynchronous replication between multiple object servers. This can be used to replicate data to a distributed recovery site or to replicate data between multiple local object servers for increased performance and reliability.

    Versant Compact allows the online compaction of production database data volumes for special categories of applications that are performing heavy data deletions. This option allows customers to ensure continuous operations at required performance levels by eliminating performance degradation due to fragmentation, a common problem for databases in this application category.

    Versant SQL provides JDBC/ODBC driver connectivity, allowing the use of standard SQL enabled tooling to access VOD. This is especially useful for customers who use industry standard reporting tools such as Crystal Reports and Microsoft Access.

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    Versant HA Backup (High Availability Backup) enables VOD 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.

FastObjects

        FastObjects is an object database management system designed to provide minimal administration and to work natively with the customer's product. The primary target application for our FastObjects product line is for use as an embedded data management system to be integrated in a customer's products. FastObjects is used in a vast range of applications, including medical devices, vending machines, telecom equipment, and defense systems. The majority of FastObjects installations are now running under the Microsoft Windows Operating System.

db4o

        db4o is an open source object database that enables Java and .NET developers to store and retrieve any application object with only one line of code, eliminating the need to predefine or maintain a separate, rigid data model. The db4o product targets embedded applications and embedded operating system deployments.

Services

        We derived approximately 47% of our revenues from services in fiscal 2010, predominantly from maintenance services. Our services include maintenance and support programs for our data management products, consulting services and the development of customer-specific extensions to our products.

        Maintenance Services.    We provide maintenance and technical support services for our products that are generally available at an annual fee that varies depending on the type and level 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 a customer to telephone support, product upgrades, and documentation updates. For additional fees, customers may purchase a special support package that provides dedicated support engineers and telephone support available for 24 hours per day and seven days a week. Maintenance contracts are typically renewable annually and typically are paid for in advance for all products, but in some instances maintenance and support fees are paid in arrears. For the support of older versions of our products, we offer specific obsolescence support options.

        Professional Services.    We also provide a variety of training and consulting services to assist customers in the design, development, training and management of applications that are built based on our core products. Training services are offered for a variety of Versant-specific and other object-related technologies and range from beginning to advanced levels. Consulting services are available for analysis and design assistance, mentoring and technical information transfer, application coding, design reviews and performance analysis. In addition, we provide custom development services to customers that request unique or proprietary product extensions.

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Our Customers

        We categorize our customers into two broad groups, End-Users and Value Added Resellers ("VARs"). End-Users are companies who use our products internally and do not redistribute our products outside their corporate organizations. VAR customers, on the other hand, include traditional Value Added Resellers, Systems Integrators, OEMs and other vendors who redistribute Versant products to third party customers, either individually or as part of an integrated product.

        We license our data management products through two types of perpetual licenses—development licenses and deployment licenses. Development licenses, typically sold on a per seat basis, authorize a customer to develop an application program that uses our software product. Under a deployment license, a customer is permitted to deploy an application that it has developed under a development license from us. End-Users generally purchase deployment licenses based on the number of central processing units (CPUs) accessing the server that will run the application using our database management system. For certain applications, we offer deployment licenses priced on a per user basis. Pricing of Versant Object Database and FastObjects varies according to several factors, including the number of CPUs/Cores per server on which the applications run, and the number of users that are able to access the server at any particular time. Customers may elect to simultaneously purchase development and deployment licenses for their projects, or instead may initially purchase only a development license and purchase a deployment license later when their applications developed on our software are completed. Pricing of db4o also varies according to several factors, including the number of CPUs/Cores per server on which the applications run, and the number of users that are able to access the server at any particular time. However, due to the open source nature of the db4o product, for db4o at this time we only offer use/deployment licenses (and not development licenses).

        VARs and distributors purchase development licenses from us on a per seat basis and on terms similar to those of development licenses that we sell directly to End-Users. VARs are authorized to sublicense directly to the End-User deployment copies of our data management products, which are either bundled or embedded in the VARs' applications. VARs are required to report the distribution of our software to us and are charged a royalty that is based either on the number of copies of the application software that are distributed or computed as a percentage of the selling price charged by the VAR to its end-user customers. These royalties may be prepaid in full or paid upon deployment.

        Frequently a significant portion of our total revenues have been derived from a limited number of large organizations who tend to change from year to year. In fiscal year 2010, one customer accounted for 13% of our total revenues for the first quarter; two customers accounted for 12% and 17%, respectively, of our total revenues for the second quarter; one customer accounted for 15% of our total revenues for the third quarter; and two customers accounted for 12% and 13%, respectively, of our total revenues in the fourth quarter. One customer accounted for 12% of our total revenues for the fiscal year ended October 31, 2010. In fiscal year 2009, no one customer accounted for 10% or more of our total revenues for the fiscal year or in any fiscal quarter as we experienced smaller average license transactions in fiscal 2009. In fiscal 2008, one customer accounted for 23% of our total revenues for the first quarter; two customers accounted for 15% and 14%, respectively, of our total revenues for the second quarter of fiscal 2008; and two customers accounted for 22% and 11%, respectively, of our total revenues for the third quarter of fiscal 2008; although no one customer accounted for 10% or more of our total revenues for the fourth quarter of fiscal 2008 or for fiscal 2008.

Our Vertical Markets

        Versant Object Database and FastObjects are licensed for development or deployment, or both, and db4o is licensed only for deployment, in a wide range of applications. A substantial amount of our sales is for applications in the telecommunications, transportation, technology, healthcare, financial services, media and defense sectors. Many of our customers have licensed multiple copies of our products for use in different applications.

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        Our future performance will depend in significant part on achieving increased usage and sales of the Versant Object Database and FastObjects in telecommunications, transportation, technology, healthcare, financial market applications, media, defense and online gaming, the continued acceptance of our products within these industries and achieving use and acceptance of our products in other industries.

Sales and Marketing

        Sales Channels.    We market and sell our products principally through our direct sales force and through value-added resellers, systems integrators, and distributors.

        Direct Sales.    Our direct sales organization is based in our corporate offices in Redwood City, California and Hamburg, Germany, and in some regional and other offices in the U.S. and Europe. The direct sales organization includes 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 in developing prototype applications.

        Indirect Sales.    Part of our sales strategy is to further develop indirect distribution channels, such as value-added resellers and systems integrators who address new markets or industries. Systems integrators may integrate our products with their own or those of other vendors, in order to provide a complete solution to their customers. Under their agreements with Versant, 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. Some of our value-added resellers and systems integrators offer products they produced by themselves or by other vendors, which may in some cases compete with our products. In addition we distribute our products in certain markets through distributors who resell our products without integrating them in other solutions.

        Marketing.    The primary objective of our marketing efforts is to build increased visibility for Versant and its products and to generate sales leads for our business. Our marketing programs have included our efforts at cultivating media and analyst relations, fostering valuable investor communications, speakers' programs, online marketing, partner-marketing programs, sponsoring database technology scholarship programs at the university level, participation in conferences and tradeshows and in some cases preparation of white papers or other marketing / advertising initiatives targeting a discrete industry or market.

        Sales Process.    The cycle for a complete sale of our products to new and large enterprise customers can often exceed six months and may extend to a year or beyond. For existing customers with successfully deployed applications, sales cycles for new applications of our core products are generally shorter. During the sales cycle, meetings involving both Versant 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 that chooses our solution may purchase one or more development licenses, which entitle the customer to develop applications that use a Versant software product. The number of development licenses a customer may acquire depends upon the number of programmers who will develop and build the customer's application. Additionally, a customer may purchase technical support, training courses and consulting services. Our customers may also purchase deployment licenses from us that enable them to sell and market product applications developed under a Versant development license. In some cases our customers purchase deployment licenses at the same time they purchase development licenses. In other cases customers may instead defer their purchase of deployment licenses and related maintenance until they complete the application development under their development license (a process that typically takes at least six months and can exceed one year).

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        Shipping and Backlog.    Our software may be either physically or electronically delivered to the customer. If physically delivered, our software product is shipped from either our Redwood City or Hamburg facilities 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 international sales are primarily recorded by our subsidiary in Germany, which sells our products through distributors and value-added resellers, as well as directly to end-users. In fiscal 2009, we partnered with a distributor in China to access potential long-term growth opportunities in that geographic region and continued that activity in fiscal 2010. For fiscal 2010, our international revenues derived from customers outside North America made up approximately 60% of our total revenues, compared to 62% for fiscal 2009 and 63% for fiscal 2008. Risks particularly associated with our international sales are discussed below in Item 1A under the risk factor captioned "International Operations pose unique risks".

Competition

        Our software products compete with products of companies offering object and relational database management systems. Our competitors, especially Oracle and Progress Software, have longer operating histories, significantly greater financial, technical, marketing, service and other resources, significantly greater name recognition, broader product offerings, larger and more established distribution channels and a larger installed base of customers than does Versant. In addition, many of our competitors have well-established relationships with our current and potential customers and may offer broader suites of products with a wide array of complementary applications which may incentivize customers to purchase these competitors' data management products. We may not be able to compete successfully against current or future competitors, and competitive pressures could have a material adverse effect on the business, pricing, operating results and financial condition of the company.

Research and Development

        Currently our research and development activities are conducted primarily in Hamburg, Germany and consist primarily of the development of enhancements of and improvements to our existing product line, (quality assurance engineering) and development of add-on option solutions used with our principal products. In fiscal 2010, fiscal 2009 and fiscal 2008, our research and development expenses were $3.8 million, $4.0 million and $4.1 million, respectively. Our 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 and, to a lesser degree, depreciation of capital equipment.

Intellectual Property and Other Proprietary Rights

        We consider our products as proprietary. We attempt to protect our technology by relying primarily on a combination of copyright and trademark laws, trade secrets, confidentiality procedures and contractual provisions to protect our proprietary technology. For example, we license our software pursuant to signed license agreements and, to a lesser extent, "shrink-wrap" licenses displayed in evaluation downloads and in software installation screens, which impose certain restrictions on the licensee's ability to utilize our software. In addition, we take steps to avoid disclosure of our trade secrets, such as requiring persons with access to our proprietary information to execute non-disclosure agreements, and we restrict access to our software source code. We seek to protect our software, documentation and other written materials under trade secret and copyright laws, which afford only limited protection. We were awarded a United States patent (No. 5,822,759) for our proprietary cache system used within our product suites, which expires in 2015. We also have certain trademarks and service marks for certain of our products and services.

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Employees

        As of October 31, 2010, we and our subsidiaries had a total of 61 full time employees, of whom 19 were based in the United States and 42 in Europe. As of October 31, 2010, 31 employees were engaged in engineering and technical services, 14 were engaged in sales and marketing and the remaining 16 were engaged in general administration and finance. To the best of our knowledge, none of our employees is represented by a labor union. We have not experienced any organized work stoppage to date and believe that our relationship with our employees is generally good.

        Our future performance depends mostly upon the continued service of our key technical, sales, and senior management personnel. The loss of the services of one or more of our key employees could have a material adverse effect on our business, operating results and financial condition.

Restructuring

        In September 2009, a 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. The Company committed to closing its research and development facility in Pune, India and winding down the affairs of its subsidiary, Versant India Private Limited. The restructuring was substantially completed during the second fiscal quarter ended April 30, 2010. See Note 13 of our "Notes to Consolidated Financial Statements" in Item 8 of this report for more information regarding this transaction.

        As part of restructuring efforts to refocus the Company on its core object database management business, in February 2006, we sold our WebSphere consulting business in exchange for a one-time cash payment plus certain contingent payments payable over a 24-month period following the close of the transaction. As a result, the results of operations of our WebSphere consulting practice for fiscal 2008 were reflected as discontinued operations. Therefore, reported revenues for this period no longer include any revenues from the WebSphere consulting practice. The results from the discontinued WebSphere operations, however, are reported as net income from discontinued operations, net of income taxes. See Note 15 of our "Notes to Consolidated Financial Statements" in Item 8 of this report for more information regarding this transaction.

Investor Information

        We are subject to the informational requirements of the Securities Exchange Act of 1934, or the "Exchange Act" pursuant to which we file our periodic reports on Forms 10-Q, 10-K, 8-K, proxy statements and other information with the Securities and Exchange Commission, or "the SEC". These reports, proxy statements and other information may be obtained by visiting the Public Reference Room of the SEC at 100 F Street, NE, Room 1580, Washington, DC 20549. Information on the operation of the SEC's Public Reference Room may be obtained by calling the SEC at 1(800) SEC-0330. In addition, the SEC maintains an Internet site (at http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically.

        Information regarding our revenues, net income, total assets and other financial information for our fiscal years ended October 31, 2010, 2009 and 2008 can be found in Item 8 of this report on Form 10-K, which is incorporated here by reference.

        Financial and other information about Versant can also be accessed at our Investor Relations website. The address of Versant's website is: (www.versant.com). We make available, free of charge, copies of our annual reports, annual reports on Forms 10-K, quarterly reports on Forms 10-Q, current reports on Form 8-K and amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after filing such materials with the SEC.

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Item 1A.    Risk Factors.

This annual report on Form 10-K contains forward-looking statements regarding the Company that involve risks and uncertainties, including, but not limited to, those set forth below in this Item 1A, that could cause our actual results of operations and financial condition to differ materially from those contemplated in the forward-looking statements. The risks and uncertainties set forth below should be carefully considered when evaluating our business and prospects.

        Current economic conditions may harm our business and results of operations.    Global economic conditions and financial markets have continued to be challenging to the enterprise software market, as many economies and financial markets continue to experience a deep recession stemming from a multitude of factors, including adverse credit conditions, slower economic activity, concerns about the debt levels and financial viability of certain European countries and the instability of financial institutions and other businesses, inflation and deflation, continuing high rates of unemployment, reduced corporate capital spending, adverse business conditions and liquidity concerns and other factors. 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 are unknown. During challenging economic times and in tight credit markets, many prospective customers delay or reduce technology purchases. This has resulted, and could continue to result in, reductions in sales of our products and services, longer sales cycles, smaller sales levels, difficulties in collection of accounts receivable, slower adoption of new technologies and increased price competition. Continued softness in corporate information technology spending would have a direct adverse impact on our business and any of these events would likely materially harm our business, including by decreasing our revenues, decreasing cash provided by operating activities and negatively impacting our liquidity. We cannot predict the duration of these economic conditions or the impact they will have on our customers or business.

        We are dependent on a limited number of products, especially Versant Object Database or "VOD".    Most of our license revenues to date have been derived from our VOD product, its predecessors and related products that add to or extend the capabilities of VOD. Consequently, if our ability to generate revenues from VOD were negatively impacted, our business, cash flows and results of operations would be materially and adversely affected. Many factors could negatively impact our ability to generate revenues from Versant Object Database, including without limitation softness in demand in the North American or European markets for enterprise software, the current downturn in the global economy and any slowness in the U.S. or European economies or in key industries we serve, such as the telecommunications and defense industries, the success of competitive products of other vendors, reduction in the prices we can obtain for our products due to competitive or economic factors, the adoption of new technologies or standards that make our products technologically obsolete and customer reluctance to invest in object-oriented technologies. Although we have taken steps to diversify our product line through our 2004 acquisition of Poet and its FastObjects data management product and our December 2008 acquisition of db4o, we still expect that sales of VOD will continue to be very critical to our revenues for the foreseeable future. Accordingly, any significant reduction in revenue levels from our VOD product can be expected to have a material negative impact on our business and results of operation.

        Efforts to expand and diversify our product line may adversely affect our operating results and may not result in the development of successful new products.    In order to sustain our revenues, we may need to develop new products to expand and diversify our product offerings beyond our core products, VOD, FastObjects and db4o. However expanding our product line will likely require substantial marketing, research and development and sales expenditures, and in some cases product acquisition costs, with no assurance that we will receive incremental additional revenue from such new products. To develop successful new products typically requires us to incur significant marketing expenditures to determine the viability of new products and applications and target customers, as well as substantial research and development expenditures and additional sales expense associated with selling new products to new

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customers. A significant portion of such expenses would likely be incurred well in advance of our recognition of any revenues from such new products, and thus could adversely affect our results of operations and cash flows for certain fiscal periods before we derive any significant revenues from such new products. In addition, there can be no assurance that any new products will be accepted in the marketplace or generate meaningful amounts of revenue or net income. Failure to develop successful new products may adversely affect our ability to successfully market other products and our future revenues. Consequently, the Company must act carefully when making product or technology development decisions. In December 2008 we acquired the db4o database assets of Servo Software, with the objective of giving us a new product, as well as access to new customers and additional revenue opportunities. However the financial costs of this acquisition and associated operational costs have adversely affected our results of operations for fiscal years 2010 and 2009 and may continue to do so.

        Reduced demand for our products and services may prevent us from achieving targeted revenues and profitability.    Our revenues and our ability to achieve and sustain profitability depend on continuing or increasing the level of overall demand for the software products and services we offer. Reduced demand for our product line may result from alternative technologies offered by competitors, negative customer perception of our object-oriented technology or other causes, including economic conditions that adversely affect the industries of our most significant customers, such as the defense and telecommunications industries. In addition, we have experienced continued hesitancy on the part of our existing and potential customers to commit to additional products or services from us, particularly in our North American markets. Any significant reduction in the demand for our products or services could have a material adverse effect on our business and results of operations.

        Our products face significant competition from larger competitors.    Our VOD, FastObjects and db4o products compete with products of other companies that offer database management systems. We face substantial competition from substantially larger and well-established relational database management companies including Oracle, Computer Associates, Sybase, IBM, and Microsoft. We also face competition from object database companies including Progress Software Corporation and Objectivity. Additionally, some of our prospective customers might attempt to build specialized data storage capability themselves using their own internal engineering resources, sometimes starting with low level operating system functionality, and other times utilizing lower level data storage routines that are commercially available, such as Oracle Berkeley DB, a simplified database without query processing capability. Many of our competitors have longer operating histories, significantly greater financial, technical, marketing, service and other resources, better and wider name recognition, broader suites of product offerings, stronger sales and distribution channels and a much larger installed base of customers than ours. In addition, many of our competitors have well-established relationships with our current and potential customers. Our competitors may be able to devote greater resources to the development, promotion, and sale of their products. They may also have more direct access to corporate decision-makers of key customers based on their previous relationships with these customers. Our competitors may also be able to respond more quickly to new or emerging technologies and changes in customer requirements, and may have the competitive advantage of being able to sell products competitive to ours through package sales of a suite of a variety of products for different applications that we do not offer. We may not be able to compete successfully against our current or future competitors, and competitive pressures could cause us to lose revenues or lower the prices for our products to increase or maintain our sales revenues, or to take other market-responsive actions, any of which could have a material adverse effect on our business, operating results and financial condition.

        Our customer concentration increases the potential volatility of our operating results.    Due to the nature of our products a significant portion of our total revenues has been, and we believe will continue to be, derived from a limited number of significant orders placed by large organizations. In

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fiscal year 2010, one customer accounted for 13%, 12%, 15% and 9% of our total revenues in the first, second, third and fourth fiscal quarter, respectively, and 12% of total revenues for the fiscal year. Another customer accounted for 17% of our total revenues in the second fiscal quarter of 2010. Two different customers accounted for 12% and 13% of our total revenues in our fourth fiscal quarter of 2010. In fiscal year 2009, no one customer accounted for 10% or more of our total revenues in any fiscal quarter. The timing of large orders and their fulfillment has caused, and in the future is likely to cause, material fluctuations in our operating results, particularly on a quarterly basis. In addition, our major customers tend to change from year to year. The loss of any one or more of our major customers, or our inability to replace a customer making declining purchases with a new customer of comparable significance, could each have a material adverse effect on our business.

        Our quarterly revenue levels are not predictable.    Our revenues have fluctuated (in some cases significantly) on a quarterly basis, and we expect this trend to continue. For example, in fiscal 2010, our quarterly revenues fluctuated from a high of $4.5 million in the first quarter of 2010 to a low of $3.4 million in the third quarter of 2010. These quarterly fluctuations result from a number of factors, including but not limited to the following:

    delays by our customers (including customers who are resellers) in signing revenue-bearing contracts that were expected to be entered into in a particular fiscal quarter and, in particular, the timing of any significant sales transactions;

    the status of the market for enterprise software and general macroeconomic factors that impact our potential customers' capital purchasing decisions for information technology (or "IT") solutions, such as our products and may result in fewer licenses or smaller license transactions;

    the lengthy sales cycle associated with our products, which complicates our ability to accurately forecast the timing of our revenues;

    changes in customer purchasing patterns, such as customer's selecting lower levels of maintenance and support services;

    fluctuations in domestic and foreign demand for our products and services, particularly in the telecommunications and defense markets;

    customer and market perceptions of the value and currency of object-oriented software technology;

    uncertainty regarding the timing and scope of our customers' deployment of VOD-based applications, where our revenues are contingent upon the customer's deployment of our product;

    any failure by us to timely develop and launch successful new products;

    the impact of new product introductions, both by us and by our competitors;

    our unwillingness to lower prices significantly to meet reduced prices set by our competitors or to successfully meet other competitive market conditions;

    the effect of the publication by industry writers or others regarding their opinions about us, our competitors, our products and our competitors' products;

    customer deferrals of orders for our products or services in anticipation of our product enhancements, or the pending release of new product versions or new product offerings by us or our competitors;

    the extent to which we do or do not complete tasks under contracts for consulting projects which must be completed in order for us to recognize certain revenues under such contracts;

    failure to transition db4o customers to other Versant products; and

    potential customers' unwillingness to invest in our products given our size and assets.

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        Our future revenues are substantially dependent upon our installed customers continuing to license Versant products and renew their maintenance agreements for our products. Our future professional services and maintenance revenues are dependent on future sales of our software products.    We depend heavily on our installed customer base for future revenues from licenses of additional products or upgrades of existing products and related fees from the renewal of maintenance and support agreements. If our existing customers do not purchase additional products, upgrade existing products or renew their maintenance and support agreements with us, this could materially and adversely affect our business and future quarterly and annual operating results. The terms of our standard license arrangements provide for a one-time license fee and a prepayment of one year of software maintenance and support fees. Our maintenance agreements are generally renewable annually at the option of the customer, and there are no minimum payment obligations or obligations to license additional software. Therefore, our current customers may not necessarily generate significant maintenance revenues in future periods if they choose not to renew our maintenance services or renew them at lower service levels. This risk may be increased in the case of long-term customers who have not upgraded our products which they license. In addition, our customers may choose not to purchase additional products, upgrades or professional services. Our professional services and maintenance revenues are also dependent upon the continued use of our products by our installed customer base. Consequently, any downturn in our software license revenues would likely have a corresponding negative impact on the growth of our professional service and maintenance revenues.

        We plan to increase our sales and marketing efforts and related expense in fiscal 2011, which may adversely affect our operating results if these efforts are unsuccessful.    As we did in fiscal 2010, in fiscal 2011 we again anticipate increasing our sales and marketing efforts and associated sales and marketing expense in order to attract new customers and to find new applications for our products with existing customers. If our enhanced sales and marketing activities do not result in additional revenues and new customers, the related increased sales and marketing expenses associated with these efforts would likely adversely affect our results of operations. Further, even if our increased sales and marketing efforts are successful, due to the relatively long sales cycles of our products, the benefits of these efforts likely will not be realized until future fiscal periods, so that such increased sales and marketing expenses will still be likely to adversely affect our results of operations in the fiscal periods in which they are incurred.

        We depend on successful technology development.    We believe that it will be necessary for us to continue to incur significant research and development expenditures in order for us to remain competitive. While we believe our research and development expenditures will improve our product lines, because of the uncertainty of software development projects and risks posed by the current economic downturn, these expenditures will not necessarily result in successful product introductions or sustained revenue levels. Uncertainties affecting the success of software development project introductions include technical difficulties, delays in the introductions of new products, market conditions, competitive products, and customer acceptance of and demand for new products and the operating systems they run on. We also face certain challenges in integrating third-party technology embedded in our products. These challenges include the technological challenges of integration, which may result in development delays, and uncertainty regarding the economic terms of our relationship with our third-party technology providers, which may result in delays of the commercial release of new products. In addition, if we are required to adopt cost-conservation measures, we may be compelled to reduce the amounts of our investment in research and development activities, which could adversely affect our ability to maintain the competitiveness of our existing products, our ability to develop new products, and our future research and development capabilities. Failure to continue to timely develop technologies and products necessary for us to remain competitive is likely to have a material and adverse effect on our business.

        Our products have a lengthy sales cycle.    The sales cycle for our VOD, FastObjects and db4o products varies substantially from customer to customer. This sale cycle often exceeds six months and

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can sometimes extend to a year or more, especially for sales to defense sector customers. Due in part to the critical and strategic nature of our products and the level of expenditures associated with their purchase, our potential customers are typically very cautious in making decisions to acquire our products. In order for us to influence our customers' decision to license our products we often must provide a significant level of education to prospective customers regarding the uses and benefits of our products, and we frequently commit to provide that education without any charge or reimbursement. Generally, pre-sales support efforts, such as assistance in performing benchmarking and application prototype development, are also conducted with no charge to customers. Because of the lengthy sales cycle for our products and the relatively large average dollar size of our individual licenses, a lost or delayed sales transaction could potentially have a significant negative impact on our operating results for a particular fiscal period.

        We may not be able to manage our costs effectively given the unpredictability of our revenues.    We expect to continue to maintain a relatively high percentage of fixed expenses. Inasmuch as we completed a restructuring in fiscal 2005 and 2006 to significantly reduce our operating expenses, reduced the rent expense for our U.S. headquarters in fiscal 2007 and restructured our former Indian operations in fiscal 2009 and 2010, we might be unable to further reduce certain fixed expenses in order to accommodate any revenue reductions. Additionally, we expect our sales and marketing expenses to continue to increase as we invest in efforts to expand our customer base. Consequently, if our forecasted revenue does not materialize, our business, financial condition and results of operations will be materially harmed.

        We rely on revenues from the telecommunications and to a lesser degree, certain other industries; and these industries are characterized by complexity, intense competition and changes in purchasing cycles.    Historically, we have been highly dependent upon the telecommunications industry and, more recently, we are also becoming increasingly dependent upon the transportation, information technology, medical and finance industries for sales of VOD. Our success in these markets depends, to a large extent, on the general economic conditions affecting these industries, our ability to compete with other technology providers of solutions that directly compete with, or provide alternatives to, our products, our ability to develop products that can successfully interoperate in different computing environments and whether our existing and potential customers believe we have the expertise and financial stability necessary to provide effective solutions and support in these markets on an ongoing basis. If these conditions, among others, are not satisfied, we may not be successful in generating additional opportunities in these markets. As previously noted, the current global economy is in a recession and, in the past, general economic downturns have also adversely affected our ability to generate revenues from customers in the telecommunications and other industries. In addition, the types of applications and commercial products for the telecommunications and other markets are continuing to develop and are rapidly changing, and these markets are characterized by an increasing number of new entrants whose products may compete with ours. As a result, we cannot predict the future growth of (or whether there will be future growth in) these markets, and demand for object-oriented databases applications in these markets may not develop or be sustainable. We also may not be successful in attaining a significant share of these markets due to competition and other factors, such as our limited size and working capital. Moreover, potential customers in these markets generally develop sophisticated and complex applications that require substantial consulting expertise to implement and optimize. There can be no assurance that we can hire and retain adequate skilled personnel to provide such ongoing consulting services.

        We rely on a substantial portion of our revenues being generated through our international operations and will continue to do so in the future.    A large portion of our revenues is derived from customers located outside North America, and it is critical for us to maintain these international revenues. Following our 2004 acquisition of Poet, which had a strong European presence, international revenues have represented a larger percentage of our total revenues than they had prior to that time.

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Consequently, we maintain a significant portion of our workforce in Germany and must conduct our operations internationally and maintain a significant presence in international markets. For fiscal 2010, international revenues derived from customers outside North America made up approximately 60% of our total revenues for the fiscal year, compared to 62% for fiscal 2009 and 63% for fiscal 2008. Our North American revenues were 40% of total revenues for fiscal 2010, compared to 38% for fiscal 2009 and 37% for fiscal 2008. Most of our non-North American revenues are derived from Europe, but we recently have taken initial steps to develop a new distribution channel in China in an effort to expand our customer base and future revenues. We have substantially less experience in the sale and marketing of our products and services in China and there can be no assurance that our efforts to develop new customers there will be successful or will not result in increased sales and marketing costs that may not generate corresponding revenue, which would adversely affect our operating results. We expect international revenues to continue to be critical to our operations and cash flows.

        International Operations pose unique risks.    Our international operations are subject to a number of unique risks in addition to the risks faced by our domestic operations. These risks include, but are not limited to the following areas:

    longer receivable collection periods;

    adverse changes in regulatory requirements;

    dependence on independent resellers;

    fluctuations in foreign exchange rates;

    compliance with multiple and conflicting laws, regulations and technology standards in different jurisdictions, some of which are more burdensome and restrictive than U.S. laws;

    import and export restrictions, tariffs, local taxes and other regulatory restrictions;

    difficulties in, and increased costs of, staffing and managing foreign operations;

    potentially adverse tax consequences arising from international operations and inter-company transactions;

    the burdens of complying with a variety of foreign laws, including more protective employment laws affecting our sizable workforce in Germany;

    limited ability to enforce agreements, intellectual property rights and other rights in some foreign countries; and

    the impact of business cycles, economic and political instability and potential hostilities outside the United States.

        In addition, in light of increasing concerns about global security and terrorism, and the recent global economic downturn, there may be additional risks of disruption to our international sales activities. Any prolonged disruption in the markets in which we derive significant revenues may potentially have a material adverse impact on our revenues and results of operations.

        In order to be successful, Versant must attract, retain and motivate key employees, for whom competition is intense; and failure to do so could seriously harm the Company, particularly given the smaller size of our executive management team.    In order to effectively execute our business strategy, we must attract, retain and motivate our executives and other key employees, including those in managerial, sales and technical positions. Our future performance depends in significant part upon the continued service of our key technical, sales and senior management personnel. The loss of the services of one or more of our key employees could have a material adverse effect on our business, particularly so given the relatively smaller size of our executive management team, which currently consists of Jochen Witte, our President and Chief Executive Officer, and Jerry Wong, our Vice President Finance, Chief Financial

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Officer and Secretary. For example, in December 2008, the employment of our Germany-based Executive VP of Field Operations terminated, and as a result, that officer's duties were partially assumed by Jochen Witte, Versant's President and Chief Executive Officer, increasing his responsibilities. Although in May 2009, we hired a manager to assume responsibility for our North American sales team and in April 2010, we hired a manager to take charge of our global marketing initiatives, Mr. Witte has continued to be the executive manager of our sales and marketing functions. Our future success also depends on our continuing ability to attract, train and motivate highly qualified technical, sales and managerial personnel. Constraints on our ability to offer compensation at levels that may be offered by larger competitors and other circumstances may adversely affect our ability to attract and retain key management in the future. We must continue to motivate our employees and keep them focused on the achievement of our strategies and goals. We now employ a sizable German workforce subject to German employment law, which generally provides greater financial protection to terminated employees than does United States law. Consequently, failure to retain our German employees may cause us to incur significant severance costs, which could adversely affect our operating results and financial condition.

        Our personnel, management team and operations are located in different countries and as a result, we may experience difficulty in coordinating our activities and successfully implementing Company goals.    Following our 2004 merger with Poet, we acquired significant operations and personnel in Europe and now have approximately 42 employees based in Europe, whose activities must be well coordinated with those of our U.S. workforce and our other employees. Our management team resides in both our U.S. headquarters in Redwood City, California, where our Chief Financial Officer is located, and in our offices in Hamburg, Germany, where our Chief Executive Officer resides. The significant geographic dispersion of our management team and our workforce may make it more difficult for us to successfully manage our long-term objectives, coordinate activity across the Company, and integrate our operations and business plans, and causes us to incur certain additional travel and other expenses to maintain communications between our various offices.

        We are subject to litigation and the risk of future litigation.    During fiscal 2006, we settled a litigation that commenced in the last quarter of fiscal 2004 when we were sued by Systems America, Inc., a privately held company, in an action which alleged that, prior to our acquisition of a smaller privately-held company in November 2002, persons associated with that company misappropriated trade secrets and confidential information of Systems America, unfairly competed with Systems America with respect to its customer relationships, and infringed Systems America's trademarks and trade names. Additionally, during fiscal 2008, we settled another related litigation in which a prior customer was seeking indemnification from us for costs the customer had incurred in defending a suit brought against it by Systems America Inc., which alleged that a Versant product that was discontinued in 2004 infringed Systems America's intellectual party. Litigation can be expensive to defend, can consume significant amounts of management time and can result in judgments or settlements that could have adverse effects on our results of operations, financial condition and cash reserves.

        Our ability to use our net operating loss carry forwards and certain other tax attributes may be limited.    Under Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an "ownership change" (generally defined as a greater than 50% change (by value) in its equity ownership over a three year period), the corporation's ability to use its pre-change net operating loss carry forwards and other pre-change tax attributes (such as research tax credits) to offset its post-change income may be limited. We may experience ownership changes in the future as a result of shifts in our stock ownership which are beyond our control. As a result, if we earn net taxable income, our ability to use our pre-change net operating loss carry forwards to offset United States federal taxable income may be subject to limitations, which could potentially result in increased tax liability to us in the future.

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        Although we believe our internal control over financial reporting is effective, there remain risks that our controls may become inadequate. Since we are required to assess our internal control over financial reporting on an annual basis, any future adverse results from such an assessment could result in a loss of investor confidence in our financial reports and have an adverse effect on our stock price.    Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 ("SOX 404"), and the rules and regulations promulgated by the SEC to implement SOX 404, we are required to furnish an annual report in our Form 10-K regarding the effectiveness of our internal control over financial reporting. The report's assessment of our internal control over financial reporting as of the end of our fiscal year must include disclosure of any material weaknesses in our internal control over financial reporting identified by management. Management's assessment of internal control over financial reporting requires management to make subjective judgments and therefore, we may have difficulties in accurately assessing the effectiveness of our internal controls. In addition, if we are unable to assert that our internal control over financial reporting is effective, we could lose investor confidence in the accuracy and completeness of our financial reports, which would have an adverse effect on our stock price.

        Adoption and application of accounting regulations and related interpretations and policies regarding revenue recognition could cause us to defer recognition of revenue or recognize lower revenues and profits.    Although we use standardized license agreements designed to meet current revenue recognition criteria under generally accepted accounting principles, we must often negotiate and revise terms and conditions of these standardized agreements, particularly with new customers and in multi-element or multi-year transactions. Negotiation of mutually acceptable terms and conditions with our customers can extend the sales cycle for our products and, in certain situations, may require us to defer recognition of revenue on such licenses. We believe that we are in compliance with ASC 985-605, Software, Revenue Recognition; however, these future, more complex, multi-element, multi-year license transactions, which may require additional accounting analysis to account for them accurately, could lead to unanticipated changes in our current revenue accounting practices and may contain terms affecting the timing of our revenue recognition.

        Failure to adequately protect our intellectual property could impair our ability to successfully compete.    Despite our efforts to protect our proprietary rights, third parties may attempt to misappropriate or copy aspects of our products or our technologies, obtain or wrongfully use information we regard as proprietary or use or make unauthorized copies of our products or technologies in violation of license agreements. Policing unauthorized use of our products is difficult and enforcing our proprietary rights is potentially expensive. In addition, the laws of many jurisdictions do not protect our proprietary rights to as great an extent as do the laws of the United States. Shrink-wrap licenses may be wholly or partially unenforceable under the laws of certain jurisdictions and copyright and trade secret protection for software may be unavailable or very difficult to effectively enforce in certain foreign countries. Our means of protecting our proprietary rights may not be adequate, and our competitors may independently develop similar technologies, which they could then market and sell to our customers, which could have an adverse impact on our revenues.

        We may be subject to claims of intellectual property infringement.    Developers of software such as the Company are frequently subject to intellectual property infringement claims as the number of products, competitors and patents in our industry sector grows. Intellectual property infringement litigation can also arise when we acquire businesses or assets. For example, in 2004 we were the subject of a suit alleging that a company we purchased misappropriated intellectual property and the plaintiff in this litigation also brought an action against one of our customers on related facts, which resulted in that customer making a claim for indemnification against us. Although these suits were settled, any claim of this type, whether meritorious or not, could be time-consuming, could result in significant litigation expenses, could cause product shipment delays and require us to enter into royalty or licensing agreements or pay amounts in settlement of the claims or pursuant to judgments. If any of our products or technologies were found to infringe third-party rights, royalty or licensing agreements to

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use such third-party rights might not be available on terms acceptable to us, or at all, and we might be enjoined from marketing an infringing product or technology, each of which circumstances could have a material adverse effect on our business, operating results and financial condition.

        Our use of open source software could negatively impact our ability to sell our products.    The products, services or technologies we acquire, license, provide or develop may incorporate or use open source software. We monitor our use of open source software in an effort to avoid unintended consequences, such as reciprocal license grants, patent retaliation clauses, and the requirement to license our products at no cost. There is little or no legal precedent for interpreting the terms of these open source licenses, therefore we may be subject to unanticipated obligations regarding our products that incorporate open source software. In addition, disclosing the content of our source code could limit the intellectual property protection we can obtain or maintain for that source code or the products containing that source code and could facilitate intellectual property infringement claims against us.

        We may engage in future acquisitions of businesses or assets that could dilute our shareholders and cause us to incur debt or assume contingent liabilities.    As part of our strategy, we may from time to time review opportunities to buy other businesses or technologies that would complement our current products, expand the breadth of our markets or enhance our technical capabilities, or that may otherwise offer us growth opportunities. In the event of any future acquisitions, we potentially might take any or all of the following actions:

    pay amounts of cash to acquire assets or businesses;

    issue stock that would dilute current shareholders' percentage ownership;

    incur debt; and/or

    assume liabilities.

        Such acquisitions also involve numerous risks, including the following:

    problems combining the acquired operations, technologies or products or integration of new personnel;

    the incurrence of substantial transaction costs to effect such acquisitions;

    the incurrence of unanticipated costs in completing such acquisitions or in inheriting unforeseen liabilities and expenses of acquired businesses;

    diversion of management's attention from our core business;

    adverse effects on existing business relationships with suppliers and customers;

    risks associated with entering markets in which we have no or limited prior experience; and

    potential loss of key employees of purchased organizations.

        For example, in December 2008 we acquired for cash from privately-held Servo Software Inc., assets associated with Servo Software's db4o open source database solution for the embedded device market. We acquired these assets with the objective of expanding our product line and obtaining access to new customers and additional revenue opportunities. However this acquisition continues to be subject to many of the risks of acquisitions outlined above, including the fact that this product may generate losses for future fiscal periods and adversely affect our results of operations. In addition, the db4o business employees are located in many different countries, and thus, we face additional challenges in integrating these new personnel and retaining or replacing them.

        There can be no assurance that we will be able to successfully integrate the db4o business or any other businesses, products or technologies that we might purchase in the future.

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        Our common stock is listed on the NASDAQ Capital Market.    The listing of our common stock on The NASDAQ Capital Market may be perceived as a negative by investors and may adversely affect the liquidity and trading price of our common stock. We may be unable to list our common stock on The NASDAQ Global Market System, or NGMS.

        Charges to earnings resulting from our acquisition of businesses or assets may adversely affect the market value of our common stock.    In accordance with U.S. generally accepted accounting principles, we account for our merger with Poet, our acquisition of FastObjects, Inc. and our fiscal 2009 acquisition of the db4o assets of Servo Software using the purchase method of accounting, which result in charges to earnings that could have a material adverse effect on the market value of our common stock. Under the purchase method of accounting, we have allocated the total estimated purchase price of Poet, FastObjects and db4o to net tangible assets and amortizable intangible assets based on their fair values as of the respective dates of the closing of these acquisitions, and recorded the excess of the purchase price over those fair values as goodwill. We will incur additional amortization expense over the useful lives of certain intangible assets acquired in connection with these acquisitions, which will extend into future fiscal years. In addition, to the extent the value of goodwill or intangible assets is impaired we may be required to incur material charges relating to the impairment of those assets. Such amortization and potential impairment charges could have a material impact on our results of operations.

        An impairment loss could have a material adverse impact on our financial condition and results of operations.    The continued global economic crisis, resulting in, among other things, lower demand for our offerings and disruption of capital and credit markets could significantly affect our stock price and market capitalization. It is possible that further decline of economic conditions would result in a goodwill impairment loss that could have a material adverse impact on our financial condition and results of operations.

        Our stock price is volatile.    Our revenues, operating results and stock price have historically been and may continue to be subject to significant volatility, particularly on a quarterly basis. We have previously experienced revenues and earnings results that were significantly below levels expected by investors, which have had an immediate and significant adverse effect on the trading price of our common stock. This may occur again in the future. Additionally, as a significant portion of our revenues are often realized late in a fiscal quarter, we may not be aware of any revenue shortfall until late in a fiscal quarter and an unanticipated announcement of such a revenue shortfall, could result in an even more immediate and adverse effect on the trading price of our common stock. In addition, we have a relatively smaller number of holders of our stock and the market for our common stock is characterized by relatively small sales volumes, which contributes to the volatility of our stock price and its sensitivity to larger trades of stock. In December 2008, our Board of Directors approved a stock repurchase program under which the Company repurchased $3.2 million worth of our outstanding common shares. In November 2009, our Board of Directors approved a stock repurchase program under which the Company repurchased $4.3 million worth of our outstanding common shares. In November 2010, our Board of Directors approved a new stock repurchase program pursuant to which the Company is authorized to potentially repurchase up to $5.0 million of its common stock in fiscal year 2011. Repurchases of our shares will reduce the number of our outstanding common shares and might incrementally increase the potential for volatility in our stock by reducing the potential volumes at which our common shares may trade in the public markets.

        The Company may face risks associated with the trend of increased shareholder activism.    Publicly traded companies have increasingly become subject to campaigns by investors seeking to increase short-term shareholder value by advocating corporate actions such as financial restructuring, increased borrowing, special dividends, stock repurchases or even sales of assets or the entire company. Given the Company's market capitalization and other factors, it is possible that shareholders may in the future

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attempt to effect such changes or acquire control over the Company. Responding to proxy contests and other actions by activist shareholders would be costly and time-consuming, disrupting our operations and diverting the attention of our Board of Directors and senior management from the pursuit of business strategies, which could adversely affect the Company's results of operations and financial condition.

        Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.    Our worldwide operations could be subject to natural disasters and other business disruptions, which could seriously harm our revenue and financial condition and increase our costs and expenses. Our corporate headquarters in Redwood City, California, is located near major earthquake faults. The ultimate impact on us and our general infrastructure of being located near major earthquake faults is unknown, but our revenue, profitability and financial condition could suffer in the event of a major earthquake or other natural disaster. Losses and interruptions could also be caused by earthquakes, power shortages, telecommunications failures, water shortages, floods, fires, extreme weather conditions, medical epidemics and other natural or manmade disasters.

Item 1B.    Unresolved Staff Comments.

        None.

Item 2.    Properties.

        Our principal administrative, sales and marketing operations are headquartered at an approximately 6,800 square foot office facility we lease that is located at 255 Shoreline Drive, Suite 450, Redwood City, California 94065. Our current lease of this facility expires in May 2013.

        Our international subsidiary in Hamburg, Germany entered into a lease which commenced in December 2009 for a term of 60 months ending in November 2014. Our prior Hamburg office lease expired by its terms on December 31, 2009. Our Pune, India office lease expired by its terms on February 28, 2010. We believe that all of our current facilities are in reasonably good operating condition and will be adequate for our requirements for the next several years. Based on current commercial real estate market conditions, we believe that we will be able to lease alternative comparable facilities in Germany or in the U.S. if required to do so.

Item 3.    Legal Proceedings.

        We may from time to time be subject to legal proceedings in the ordinary course of business. Currently, we are not subject to any material legal proceedings required to be disclosed under this Item 3.

Item 4.    Reserved.

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PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Price Range of Common Stock

        Our common stock is listed on the Nasdaq Capital Market (formerly the Nasdaq SmallCap Market) under the symbol "VSNT." Our common stock commenced trading on the Nasdaq National Market on July 18, 1996. From July 19, 1999 until March 7, 2000, our common stock was traded on the Nasdaq SmallCap Market. From March 8, 2000 until September 30, 2002, our common stock was traded on the Nasdaq National Market. Our common stock has been traded on the Nasdaq Capital Market since October 1, 2002. We requested that listing of our common stock be transferred to the Nasdaq Capital Market as of October 1, 2002 since at that time it seemed unlikely that, in the near term, we would continue to be able to satisfy the then-applicable listing criteria of the Nasdaq National Market System.

        The following table lists the high and low selling price of our common stock, based on the last daily sale reported on the Nasdaq Capital Market for the periods indicated during the last two fiscal years.

Fiscal year ended October 31, 2010
  High   Low  
 

Fourth quarter

  $ 11.94   $ 10.58  
 

Third quarter

  $ 15.05   $ 10.63  
 

Second quarter

  $ 15.58   $ 14.35  
 

First quarter

  $ 19.31   $ 14.70  

 

Fiscal year ended October 31, 2009
   
   
 
 

Fourth quarter

  $ 19.59   $ 14.86  
 

Third quarter

  $ 15.99   $ 13.34  
 

Second quarter

  $ 17.69   $ 11.90  
 

First quarter

  $ 16.70   $ 11.50  

Shareholders

        There were approximately 91 holders of record of our common stock as of January 19, 2011. We believe that a significant number of beneficial owners of our common stock hold their shares in street name.

Dividend Policy

        We have neither declared nor paid any cash dividends on our common stock in the past. We currently intend to retain future earnings, if any, to fund development and growth of our business and, therefore, do not at this time anticipate that we will declare or pay cash dividends on our common stock in the foreseeable future.

Recent Sales of Unregistered Securities

        Versant made no issuances of unregistered securities in fiscal 2010.

Issuer Purchases of Equity Securities

        On December 1, 2008, Versant's Board of Directors approved a stock repurchase program authorizing Versant to repurchase up to $5.0 million worth of its outstanding common shares from time to time on the open market, in block trades or otherwise. That stock repurchase program expired by its

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terms on October 31, 2009. Versant acquired 222,688 common shares on the open market for approximately $3.2 million at an average purchase price of $14.52 per share under this stock repurchase program.

        On November 30, 2009, our Board of Directors approved a new stock repurchase program authorizing Versant to repurchase up to $5.0 million worth of its outstanding common shares from time to time on the open market, in block trades or otherwise (the "fiscal 2010 stock repurchase program"), which expired by its terms on October 31, 2010. Pursuant to this fiscal 2010 stock repurchase 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.

        The stock repurchase activity under our stock repurchase program during the three months and fiscal year ended October 31, 2010 is summarized in the following table:

 
  Total
Number of
Shares
Purchased
  Average
Price
Paid
Per Share(1)
  Total Number of
Shares Purchased
as Part of Publicly
Announced Program(2)
  Approximate
Dollar Value
of Shares That May
Yet be Purchased
Under the Program(2)
 

Period:

                         

August 1, 2010–August 31, 2010

    4,010   $ 10.55     4,010   $ 1,339,662  

September 1, 2010–September 30, 2010

    54,916   $ 11.49     54,916   $ 708,543  

October 1, 2010–October 31, 2010

    400   $ 11.64     400   $ 703,887  
                       

Three months ended October 31, 2010

    59,326   $ 11.43     59,326        

December 1, 2009–July 31, 2010

    296,778   $ 12.19     296,778        
                       

Fiscal year 2010 stock repurchase activity

    356,104   $ 12.06     356,104        
                       

(1)
Average price paid per share is calculated on a settlement basis and excludes commission.

(2)
All repurchases reflected in the above table were made pursuant to the Company's fiscal 2010 stock repurchase program, which authorized the repurchase of up to $5,000,000 of common stock. This repurchase program was announced on November 30, 2009 and terminated on October 31, 2010.

        On November 29, 2010 our Board of Directors approved a new stock repurchase program pursuant to which the Company is authorized to repurchase up to $5.0 million of its common stock in fiscal year 2011. The 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, terminated or extended at any time by the Company.

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Securities Authorized for Issuance Under Equity Compensation Plans

        The following table sets forth certain information as of October 31, 2010 with respect to compensation plans under which our equity securities are authorized for issuance:

 
  Number of securities to be issued upon exercise of outstanding options, warrants and rights   Weighted-average exercise price of outstanding options, warrants and rights   Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))  
 
  (a)
  (b)
  (c)
 

Plan category:

                   
 

Equity compensation plans approved by security holders(1)

    515,287   $ 16.84     219,808  
 

Equity compensation plans not approved by security holders

             
               
 

Total

    515,287   $ 16.84     219,808  

(1)
Please see Note 10 of our "Notes to Consolidated Financial Statements" in Item 8 of this report for a description of our equity compensation plans.

Stock Price Performance Graph and Cumulative Total Return

        The graph below compares the cumulative total stockholder return on Versant common stock with the cumulative total return on the Nasdaq Composite Index and the Nasdaq Computer and Data Processing Index for each of the last five fiscal years ended October 31, 2010, assuming an investment of $100 at the beginning of such period and the reinvestment of any dividends. The comparisons in the graphs below are based upon historical data and are not indicative of, nor intended to forecast, future performance of our common stock.


COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Versant Corporation, The NASDAQ Composite Index
And The NASDAQ Computer & Data Processing Index

GRAPHIC


      *
      $100 invested on 10/31/05 in stock or index, including reinvestment of dividends. Fiscal year ending October 31.

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Item 6.    Selected Financial Data

        The following selected consolidated financial data are qualified by reference to, and should be read in conjunction with, "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in Item 7 of this report and the Consolidated Financial Statements and related Notes of Versant included in Item 8 of this report. The selected consolidated balance sheet data as of October 31, 2010 and 2009 and selected consolidated statements of income data for the years ended October 31, 2010, 2009 and 2008, are derived from our audited consolidated financial statements included elsewhere in this report. The selected consolidated balance sheet data as of October 31, 2008, 2007 and 2006 and the selected consolidated statements of operations data for the years ended October 31, 2007 and 2006 were derived from audited consolidated financial statements not included in this report. Our historical results are not necessarily indicative of our future results.

 
  Fiscal Year Ended October 31,  
 
  2010   2009   2008   2007   2006  

Consolidated statements of operations data:

                               
 

Total revenues

  $ 15,766   $ 18,150   $ 25,298   $ 21,150   $ 16,745  
 

Gross profit

  $ 13,653   $ 15,919   $ 23,116   $ 19,112   $ 13,654  
 

Income from operations(1)(2)(3)(4)

  $ 1,971   $ 4,045   $ 9,951   $ 7,664   $ 3,515  
 

Net income from continuing operations before income taxes

  $ 2,121   $ 4,277   $ 10,822   $ 8,196   $ 3,992  
 

Net income from continuing operations(5)

  $ 1,654   $ 4,839   $ 9,391   $ 7,329   $ 3,602  
 

Net income

  $ 1,654   $ 4,839   $ 9,489   $ 7,633   $ 4,301  
 

Net income from continuing operations, basic

  $ 0.48   $ 1.33   $ 2.52   $ 2.01   $ 1.01  
 

Net income from continuing operations, diluted

  $ 0.48   $ 1.32   $ 2.48   $ 1.98   $ 1.01  
 

Net income, basic

  $ 0.48   $ 1.33   $ 2.54   $ 2.09   $ 1.20  
 

Net income, diluted

  $ 0.48   $ 1.32   $ 2.51   $ 2.06   $ 1.20  

 

 
  October 31,  
 
  2010   2009   2008   2007   2006  

Consolidated balance sheets data:

                               
 

Cash and cash equivalents

  $ 24,911   $ 27,812   $ 27,234   $ 19,086   $ 8,231  
 

Total assets(6)

  $ 39,129   $ 41,373   $ 38,561   $ 30,466   $ 20,261  
 

Total long-term liabilities

  $ 205   $ 272   $ 374   $ 674   $ 770  
 

Total stockholders' equity(7)(8)

  $ 34,444   $ 36,257   $ 33,154   $ 23,165   $ 13,792  

(1)
Restructuring charges of approximately $39,000, $139,000 and $218,000 were recorded in fiscal 2010, 2009, and 2006, respectively.

(2)
In fiscal 2007, a loss on the liquidation of a foreign subsidiary of approximately $245,000 was recorded.

(3)
Beginning in fiscal year 2006, we determined stock-based compensation expense in accordance with ASC 718.

(4)
In fiscal 2008, a charge of $800,000 to settle litigation was recorded in operating expenses.

(5)
In fiscal 2009, we released approximately $939,000 of the valuation allowance against our net deferred tax assets.

(6)
In fiscal 2009, we acquired the assets of db4o for approximately $2.6 milllion. $2.4 million of the acquistion costs were paid in fiscal 2009 and $180,000 of the acquistion costs were paid in fiscal 2010.

(7)
In fiscal 2009, we repurchased 222,688 shares of Versant common stock for approximately $3.2 million.

(8)
In fiscal 2010, we repurchased 356,104 shares of Versant common stock for approximately $4.3 million.

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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

        As indicated in the paragraph above Item 1 of this report, this report on Form 10-K (including this Item 7) contains certain forward-looking statements within the meaning 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, the Company's industry and the market for the Company's goods and services, which are based on information that is reasonably available to the Company as of the date of this report. Forward-looking statements may include words such as "believes," "anticipates," "expects," "intends," "plans," "will," "may," "should," "estimates," "predicts," "forecasts," "guidance," "potential," "continue" or the negative of such terms, other variants of such terms or other similar expressions.

        We caution readers that these forward-looking statements are not 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, estimated, forecasted, 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 in Item 1A of this report under the heading "Risk Factors." 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, financial performance or financial condition. 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 design, develop, market and support high performance, object-oriented database management software 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.

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    db4o, an open source object-oriented database software solution targeting the embedded device market.

        Our Versant Object Database product offerings are used primarily by larger organizations, such as technology providers, telecommunications carriers, government defense agencies, defense contractors, healthcare companies and companies in the financial services and transportation industries, each of which have significant large-scale data management requirements. With the incorporation of the FastObjects solution into our product line following our March 2004 merger with Poet Holdings, Inc., we expanded the scope of our solutions to also address the data management needs of smaller business systems. By our recent acquisition of db4o in December 2008, we further expanded the scope of our solutions to include the embedded device market.

        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.

        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.

Continued Adverse Global Economic Conditions Are Negatively Impacting Our Business

        The United States and global economies and financial markets have experienced a prolonged downturn stemming from a multitude of factors, including adverse credit conditions, slower economic activity, the more recent crises relating to concerns about the debt and financial stability of certain European countries, concerns about failures or the instability of major financial institutions and other businesses, inflation and deflation, high rates of unemployment, reduced corporate profits and capital spending, adverse business conditions, liquidity concerns and other factors. The severity of these economic and financial market conditions and the length of time they may persist are unknown.

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        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 fiscal 2010, our selling environment remained very challenging, causing customers to delay or reduce technology purchases or to make smaller investments in our solutions and services. 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. The current difficult and uncertain economic conditions are causing some of our customers to face financial challenges and they may continue to face such challenges for the foreseeable future. The current economic downturn in our customers' industries has contributed to the substantial reduction in both our license and maintenance revenues and could continue to harm our business, operating results and financial condition.

Financial Highlights for Fiscal 2010

    Our net revenues in fiscal 2010 were $15.8 million, a decrease of $2.4 million (or 13%) from net revenues of $18.2 million in fiscal 2009. This decrease in revenues was primarily due to decreases in maintenance revenues related to fewer back maintenance transactions and customers choosing less expensive support options and to a lesser extent, fewer license transactions and the relative absence of larger license transactions. In fiscal 2010, our license revenues were negatively impacted by the weakened global economy. One customer accounted for 12% of our total revenues for the fiscal year ended October 31, 2010.We depend heavily on our installed customer base for future revenues from maintenance renewal fees.

    Our net income for fiscal 2010 was $1.7 million compared to a net income of $4.8 million in fiscal 2009. The decrease in net income in fiscal 2010 was primarily due to the decrease in our revenues and an increase in the provision for income taxes, partially offset by modest decreases in our cost of revenues and operating costs. The increase in the provision for income taxes resulted primarily from an adjustment to the Company's deferred tax assets in fiscal 2009 that was not repeated in fiscal 2010.

    Our combined sales and marketing, research and development, general and administrative and restructuring expenses were $11.7 million in fiscal 2010, representing a decrease of $192,000 (or 2%) from $11.9 million of such expenses reported in fiscal 2009. This decrease was primarily due to a $522,000 decrease in our general and administrative expenses, a $191,000 decrease in our research and development expenses and a $100,000 decrease in restructuring expense, partially offset by a $621,000 increase in our sales and marketing expenses during fiscal 2010.

    Cash provided by operations in fiscal 2010 was $2.3 million compared to $5.8 million in fiscal 2009. This decrease in cash provided by operations in fiscal 2010 was primarily due to an approximate $2.1 million reduction in operating income and a $979,000 increase in trade accounts receivable.

    Cash used in investing activities in fiscal 2010 was $645,000 compared to $2.5 million in fiscal 2009. The decrease in cash used in investing activities was primarily related to our acquisition of the db4o assets for approximately $2.4 million in cash in fiscal 2009, and $180,000 in cash in fiscal 2010.

    Cash used in financing activities in fiscal 2010 was $4.1 million compared to $3.0 million in fiscal 2009. The increase in cash used in financing activities in fiscal 2010 when compared to fiscal 2009 was due to an increase of approximately $1.1 million we used to repurchase shares of our common stock pursuant to our stock repurchase programs, together with a decrease of $118,000 in the proceeds we received from issuance of common stock. During fiscal 2010, our cash and cash equivalents balance decreased by $2.9 million to $24.9 million at October 31, 2010 compared to $27.8 million at October 31, 2009.

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Fiscal 2010 and Beyond

        During fiscal 2010, we focused our sales and marketing efforts on our data management products, (Versant Object Database, FastObjects and db4o) and on related maintenance, consulting and training services. Versant Object Database was the key focus of our marketing efforts and the major source of our license and service revenues in fiscal 2010.

        We again expect to derive most of our revenues in fiscal 2011 from Versant Object Database, FastObjects and db4o licenses and related services.

        On December 1, 2008 we acquired the assets of the database software business of privately-held Servo Software, Inc. (formerly db4objects, Inc.) for $2.6 million in cash. db4o is an open source object database software solution targeting the embedded device market. It is distributed under free open source licenses to a large, open source community of approximately 100,000 registered members located around the world, and in some cases is licensed on a fee-bearing basis to certain customers for redistribution.

        Like many other software companies, we do not operate with a significant backlog of orders. Our license revenues, in particular, are difficult to forecast. The outlook into the Company's anticipated performance in fiscal 2011 is uncertain, due principally to the prolonged worldwide recession and economic instability. In addition, Versant has plans to increase its sales and marketing spending levels by approximately 21% in fiscal 2011 compared to the prior fiscal year. The Company expects to recognize benefits from these additional sales and marketing expenditures over the medium term, and currently expects its total revenues in fiscal year 2011 to increase modestly from the fiscal year 2010 total revenues of $15.8 million. Due to the projected increased spending in sales and marketing, the Company is currently projecting income from operations to remain relatively stable for fiscal year 2011. Without limitation, the estimates, forecasts and other statements in this paragraph are forward-looking statements.

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 trends, industry, 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 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.

Revenue Recognition

        We recognize revenues in accordance with accounting principles generally accepted in the United States of America ("GAAP"), as set forth in:

    Accounting Standards Codification (ASC) 985-605, Software, Revenue Recognition, (formerly known as and comprised of Statement of Position ("SOP") 97-2, Software Revenue Recognition, SOP 98-9 and Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain Transactions),

    ASC 605-35, Revenue Recognition, Construction-Type and Production-Type Contracts, (formerly known as SOP 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts).

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        Our revenues consist mainly of revenues earned under software license agreements, maintenance support agreements (otherwise known as post-contract customer support or "PCS") and, to a lesser degree, agreements for consulting and training activities.

        We use the residual method to recognize revenues when a license agreement includes one or more elements to be delivered by us at a future date. If there is an undelivered element under the license arrangement, we defer revenues based on vendor-specific objective evidence ("VSOE") of the fair value of the undelivered element, as determined by the price charged when the element is sold separately. If VSOE of fair value does not exist for all undelivered elements of a transaction, we defer all revenues from that transaction until sufficient evidence of the fair value exists or until all elements have been delivered. Under the residual method, discounts are allocated only to the delivered elements in a multiple element arrangement, with any undelivered elements being deferred based on the vendor-specific objective evidence of the fair value of such undelivered elements. We typically do not offer discounts on future undeveloped products.

        We have established VSOE of fair value of our PCS as evidenced by stand alone renewal transactions using the "bell shaped curve approach." PCS of our Versant Object Database is priced as a percentage of the original software license fees. We perform quarterly analysis on a transaction by transaction basis to document the range of pricing in PCS renewals. We conclude that we have established VSOE of fair value for our PCS, if substantial majorities (greater than 80%) of our stand-alone renewal transactions are priced within a reasonably narrow range (plus or minus 15% from the midpoint of the range). For the year ended October 31, 2010, the pricing of over 95% of our stand alone PCS renewal transactions fell within the predefined pricing range.

        Revenues from software license arrangements, including prepaid license fees, are recognized when all of the following criteria are met:

    Persuasive evidence of an arrangement exists.

    Delivery has occurred and there are no future deliverables except PCS.

    The fee is fixed and determinable. If we cannot conclude that a fee is fixed and determinable, then assuming all other criteria have been met, we recognize the revenues as payments become due in accordance with ASC 985-605.

    Collection is reasonably assured.

        If an acceptance period or other contingency exists, revenues are not recognized until customer acceptance or expiration of the acceptance period, or until satisfaction of the contingency, as applicable. Our license fees are generally non-cancelable and non-refundable. Also, our customer agreements for prepaid deployment licenses typically do not make payment of our license fees contingent upon the actual deployment of the software. Therefore, a customer's delay or acceleration in its deployment schedule generally does not impact our revenue recognition in the case of a prepaid deployment license.

        Revenues from related PCS for all product lines are usually billed in advance of the service being provided and are deferred and recognized on a straight-line basis over the term in which the PCS is to be performed, which is generally twelve months. In some cases PCS revenues are paid in arrears of the service being provided and are recognized as revenues at the time the customer provides a report to us for deployments made during a given time period. Training and consulting revenues are recognized when a purchase order is received, the services have been performed and collection is deemed probable. Consulting services are billed on an hourly, daily or monthly rate. Training classes are billed based on group or individual attendance.

        We categorize our customers into two broad groups, End-Users and Value Added Resellers (VARs). End-User customers are companies who use our products internally and do not redistribute

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our product outside of their corporate organizations. VAR customers include traditional Value Added Resellers, Systems Integrators, Original Equipment Manufacturers ("OEMs") and other vendors who redistribute our products to their external third party customers, either separately or as part of an integrated product.

        We license our data management products 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 and test an application program that uses our software product. Before an End-User customer may deploy an application that it has developed under our development license, it must purchase deployment licenses in which the license fees are based on the number of computers connected to the server that will run the application using our product, or for certain applications, are based on the number of users. Pricing of Versant Object Database and FastObjects licenses varies according to several factors, including the number of computer servers on which the application runs and the number of users that are able to access the server at any one time. Customers may elect to simultaneously purchase development and deployment licenses for an entire project. These development and deployment licenses may also provide for prepayment to us of a nonrefundable amount for future deployment.

        VARs and distributors purchase development licenses from us on a per seat basis on terms similar to those of development licenses that we sell directly to End-Users. VARs are authorized to sublicense deployment copies of our data management products that are either bundled or embedded in the VAR's applications and sold directly to End-Users. VARs are required to report their distribution of our software and are charged a royalty that is either based on the number of copies of the application software that are distributed or computed as a percentage of the selling price charged by the VARs to their end-user customers. These royalties from VARs may be prepaid in full or paid upon deployment. Our VAR agreements for prepaid royalty arrangements are non-cancelable, non-refundable and do not make payment of our license fees contingent upon the actual deployment of our software, and therefore, the future deployment schedules of our VARs have no impact on revenue recognition. Provided that all other conditions for revenue recognition have been met, revenues from arrangements with VARs are recognized, (i) as to prepaid license arrangements, when the prepaid licenses are sold to the VAR, and (ii) as to other license arrangements, at the time the VAR provides a royalty report to us for sales made by the VAR during a given period.

        Revenues from our resale of third-party products or services are recorded at total contract value with the corresponding cost included in the cost of sales when we act as a principal in these transactions by assuming the risks and rewards of ownership (including the risk of loss for collection, delivery or returns). When we do not assume the risks and rewards of ownership, revenues from the resale of third-party products or services are recorded at contract value net of the cost of sales.

        On occasion, at a customer's request, we perform engineering work to port our products to an unsupported platform, to customize our software for specific functionality, or to perform other non-routine technical assignments for a customer. In these instances, we recognize revenues in accordance with ASC 605-35, Construction-Type and Production-Type Contracts, and use either the time and material percentage of completion method or the completed contract method for recognizing revenues. We use the percentage of completion method if we can make reasonable and dependable estimates of labor costs and hours required to complete the work in question. We periodically review these estimates in connection with the work performed and rates actually charged and recognize any losses when identified. Progress to completion is determined using the cost-to-cost method, whereby cost incurred to date as a percentage of total estimated cost determines the percentage completed and

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revenue recognized. When using the percentage of completion method, the following conditions must exist:

    An agreement must include provisions that clearly specify the rights regarding goods or services to be provided and received by both parties, the consideration to be exchanged and the manner and terms of settlement.

    The customer is able to satisfy its obligations under the contract.

    Versant is able to satisfy its obligations under the contract.

        The completed contract method is used when reasonable or dependable estimates of labor costs and time to complete the work cannot be made. As a result, in such situations, we defer all revenues until such time as the work is fully completed.

        Management makes significant judgments and estimates in connection with the determination of the revenue we recognize in each accounting period. If we had made different judgments or utilized different estimates for any period, material differences in the amount and timing of revenue recognized would have resulted.

Goodwill and Acquired Intangible Assets

        We account for purchases of acquired companies in accordance with ASC 805, Business Combinations, and allocate the cost of the acquired companies to the identifiable tangible and intangible assets acquired according to their respective fair values as of the date of completion of the acquisition, with the remaining amount being classified as goodwill.

        In accordance with ASC 350, Intangibles—Goodwill and Other, we test for any goodwill impairment within our single Data Management operating segment and reporting unit. All our goodwill reflected in the financial statements included in this report has been aggregated from, and acquired in connection with, the following acquisitions:

    Versant Europe, acquired in 1997;

    Poet Holdings, Inc., acquired in March 2004;

    Technology of JDO Genie (PTY) Ltd, acquired in June 2004;

    FastObjects, Inc., acquired in July 2004; and

    db4o, acquired in December 2008.

        Financial Accounting Standards Board ("FASB") guidance requires that goodwill be tested for impairment at the reporting unit level, at least annually and more frequently upon the occurrence of certain events. We use the market approach to assess the fair value of our assets and this value is compared with the carrying value of those assets to test for impairment. The total fair value of our assets is estimated by summing the fair value of our equity (as indicated by Versant's publicly traded share price and shares outstanding plus an estimated control premium) less our liabilities. Under this approach, if the estimated fair value of our assets is greater than their carrying value, then there is no goodwill impairment. If the estimated fair value of our assets is less than their carrying value, then we allocate the reporting unit's estimated fair value to its assets and liabilities as though the reporting unit had just been acquired in a business combination. The impairment loss is the amount, if any, by which the implied fair value of goodwill allocable to the reporting unit is less than that reporting unit's goodwill carrying amount and would be recorded in operating results during the period of such impairment.

        Identifiable intangibles are currently amortized using the straight-line method over five years in relation to the JDO Genie (PTY) Ltd acquisition, six years in relation to the FastObjects, Inc.

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acquisition, seven years in relation to our acquisition of Poet, nine years in relation to the acquisition of the db4o customer relationships, and five years for other db4o related acquired intangible assets.

        We performed our annual valuation and analysis of goodwill in October 2010, October 2009 and October 2008. We did not perform impairment tests related to our intangible assets during fiscal 2010, fiscal 2009 and fiscal 2008, as there were no triggering events which might indicate impairment. As a result, we determined that the value of our goodwill and intangible assets had been fairly recorded in our financial statements, and therefore no impairment charges were recorded against our goodwill and intangible assets in fiscal 2010, fiscal 2009 and fiscal 2008.

Income Taxes

        We account for income taxes using the asset and liability method provided by ASC 740, Income taxes. We estimate our income taxes in each of the jurisdictions in which we operate and account for income taxes payable as part of the preparation of our consolidated financial statements. This process involves estimating our actual current tax expense as well as assessing temporary differences resulting from differing treatment of items, such as depreciation and amortization, for financial and tax reporting purposes. These differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheet to the extent deemed realizable. We assess the likelihood that, and the extent to which, our deferred tax assets will be realized and establish a valuation allowance to reduce deferred tax assets to an amount for which realization is more likely than not. If we establish or release a valuation allowance then we must increase or decrease the tax provision in our statements of income.

        Significant management judgment is required in determining any valuation allowance recorded against our net deferred tax assets. Based upon our operating results in recent years and through October 31, 2010 as well as an assessment of our expected future results of operations, we determined that it is more likely than not that we will realize the benefit of a portion of our net deferred tax assets in Germany to the extent of our expected taxable income for fiscal 2011. Due to uncertainties related to our ability to utilize the balance of our deferred tax assets, we have maintained a valuation allowance at October 31, 2010 of $33.9 million. As of October 31, 2009, we had a valuation allowance of $36.4 million for our deferred tax assets.

        As required by ASC 740, Income taxes, we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

        We are 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, we are no longer subject to U.S. federal, state and local, or foreign tax examinations by tax authorities for tax years before 2005. With respect to prior 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.

        We recognize interest and penalties accrued related to unrecognized tax benefits in the provision for income taxes for all periods presented, which were not significant.

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Results of Operations

        The following table sets forth the historical results of operations for Versant for our three fiscal years ended October 31, 2010, 2009 and 2008, expressed as a percentage of our total revenues for the fiscal year in question.

 
  Percentage of Revenues Fiscal Year Ended October 31,  
 
  2010   2009   2008  

Revenues:

                   
 

License

    53 %   50 %   63 %
 

Maintenance

    46     49     36  
 

Professional services

    1     1     1  
               
   

Total revenues

    100     100     100  
               

Cost of revenues:

                   
 

License

    2     1     1  
 

Amortization of intangible assets

    2     2     1  
 

Maintenance

    9     8     6  
 

Professional services

        1     1  
               
   

Total cost of revenues

    13     12     9  
               
   

Gross profit

    87     88     91  
               

Operating expenses:

                   
 

Sales and marketing

    30     22     14  
 

Research and development

    24     22     16  
 

General and administrative

    20     20     22  
 

Restructuring

        1      
               
   

Total operating expenses

    74     65     52  
               
 

Income from operations

    13     23     39  
 

Interest and other income, net

    1     1     4  
               
 

Income from continuing operations before income taxes

    14     24     43  
 

Income tax benefit (expense)

    (3 )   3     (6 )
               
 

Net income from continuing operations

    11     27     37  
 

Net income from discontinued operations, net of income taxes

            1  
               
 

Net income

    11 %   27 %   38 %
               

Revenues

        Total Revenues:    The following table summarizes our total revenues (in thousands, except percentages) for fiscal 2010, 2009 and 2008:

 
  Fiscal Year Ended October 31,   Fiscal 2010 vs 2009
Increase (Decrease)
  Fiscal 2009 vs 2008
Increase (Decrease)
 
 
  2010   2009   2008   In Dollars   Percentage   In Dollars   Percentage  

Total revenues

  $ 15,766   $ 18,150   $ 25,298   $ (2,384 )   (13 %) $ (7,148 )   (28 %)

        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

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spending, changes in geographic mix, and the corresponding impact of fluctuations in foreign currency exchange rates. Further, product life cycles impact revenues periodically as old contracts expire and new products are released. Our revenues as shown in the above table and in the accompanying statements of income included in this report do not include revenues from our disposed WebSphere consulting practice. Instead, as required by generally accepted accounting principles, our financial statements report former WebSphere activities as "net income from discontinued operations, net of income taxes". See Note 15 of our "Notes To Consolidated Financial Statements" in Item 8 of this report for more information regarding this transaction.

        Our total revenues decreased by $2.4 million (or 13%) in fiscal 2010 compared to fiscal 2009. This decrease resulted primarily from a decrease of $1.5 million (or 17%) in maintenance revenues and from a decrease of $703,000 (or 8%) in license revenues in fiscal 2010 compared to fiscal 2009. The decrease in maintenance revenues in fiscal 2010 was principally due to fewer back maintenance transactions and customers choosing less expensive support options. We believe the principal factors that caused our license revenues to decrease in fiscal 2010 included adverse global economic conditions, smaller license transactions and fewer license transactions.

        Our total revenues decreased by $7.1 million (or 28%) in fiscal 2009 compared to fiscal 2008. This decrease resulted primarily from a decrease of $6.9 million (or 43%) in license revenues in fiscal 2009 compared to fiscal 2008. The decrease in total revenues also included approximately $1.2 million resulting from unfavorable foreign currency exchange rate fluctuations which comprised 17% of the $7.1 million decrease in total revenues. We believe factors that caused our license revenues to decrease in fiscal 2009 included the adverse global economic conditions, the relative absence of larger license transactions, fewer license transactions and the stronger U.S. Dollar as compared to the Euro in fiscal 2009, which resulted in lower consolidated revenues in fiscal 2009 compared to fiscal 2008. Maintenance revenues remained relatively stable in fiscal 2009 over fiscal 2008, decreasing by $208,000 (or 2%).

        In fiscal year 2010, one customer accounted for 12% of our total revenues for the fiscal year. Two different customers accounted for 12% and 13% of our total revenues in our fourth fiscal quarter of 2010. No one customer accounted for 10% or more of our total revenues in fiscal 2009 and fiscal 2008 and for the quarters ended October 31, 2009 and October 31, 2008.

        The inherently unpredictable business cycle of an enterprise software company makes discernment of continued and meaningful business trends difficult. In terms of license revenues, we are still experiencing lengthy sales cycles and customers' preference for licensing our software on an "as needed" basis where payment is tied to actual usage or deployment of our software, versus the older historical practice of prepaying license fees in advance of usage, a factor which can adversely affect the amount of our license revenues. License revenues also are 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. The outlook into the Company's anticipated performance in fiscal 2011 is uncertain, due principally to the significant worldwide economic slowdown.

        We are currently expecting our total revenues for fiscal 2011 to increase approximately 5% from fiscal 2010.

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        Revenues by Category:    The following table summarizes our revenues by category (in thousands, except percentages) in fiscal 2010, 2009 and 2008:

 
  Fiscal Year Ended October 31,   Fiscal 2010 vs 2009
Increase (Decrease)
  Fiscal 2009 vs 2008
Increase (Decrease)
 
 
  2010   2009   2008   In Dollars   Percentage   In Dollars   Percentage  

Total revenues by category:

                                           
 

License

  $ 8,342   $ 9,045   $ 15,922   $ (703 )   (8 )% $ (6,877 )   (43 )%
 

Maintenance

    7,331     8,833     9,041     (1,502 )   (17 )   (208 )   (2 )
 

Professional services

    93     272     335     (179 )   (66 )   (63 )   (19 )
                                   
   

Total

  $ 15,766   $ 18,150   $ 25,298   $ (2,384 )   (13 )% $ (7,148 )   (28 )%
                                   

Percentage of revenues by category:

                                           
 

License

    53 %   50 %   63 %                        
 

Maintenance

    46     49     36                          
 

Professional services

    1     1     1                          
                                       
   

Total

    100 %   100 %   100 %                        
                                       

Fiscal 2010 Compared to Fiscal 2009

        License revenues:    License revenues represent perpetual license fees received and recognized from our End-Users and Value Added Resellers.

        License revenues were $8.3 million (or 53% of total revenues) for fiscal 2010, a decrease of approximately $703,000 (or 8%) from $9.0 million (or 50% of total revenues) reported for fiscal 2009. The reduced license revenues in absolute dollars for fiscal 2010 were mainly attributable to fewer and smaller license transactions. The decrease in license revenues from fiscal 2010 compared to fiscal 2009 included unfavorable foreign currency fluctuations of approximately $14,000. The majority of our license revenues in fiscal 2010 continued to be transactions with existing VAR customers in the telecommunications industry, which was our largest vertical market in fiscal 2010.

        Maintenance revenues:    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 $7.3 million (or 46% of total revenues) for fiscal 2010, a decrease of $1.5 million (or 17%) from $8.8 million (or 49% of total revenues) reported for fiscal 2009. The decrease in maintenance revenues for fiscal 2010 was partially due to an approximate decrease of $671,000 in recognized back maintenance compared to fiscal 2009 and an approximate decrease of $441,000 resulting from certain customers electing less expensive support and maintenance options in fiscal 2010. The decrease in maintenance revenues from fiscal 2010 compared to fiscal 2009 included unfavorable foreign currency fluctuations of approximately $27,000.

        Professional services revenues:    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 $93,000 (or 1% of total revenues) in fiscal 2010, a decrease of $179,000 (or 66%) from $272,000 (or 1% of total revenues) reported in fiscal 2009. This decrease in the absolute dollar amount of professional services revenues for fiscal 2010 compared to fiscal 2009 was attributable to decreases in consulting and training revenues in both the US and the European

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operations including the absence in fiscal 2010 of $62,000 of consulting revenue derived from one customer and recognized in fiscal 2009 that was not repeated in fiscal 2010.

Fiscal 2009 Compared to Fiscal 2008

        License revenues:    License revenues were $9.0 million (or 50% of total revenues) for fiscal 2009, a decrease of approximately $6.9 million (or 43%) from $15.9 million (or 63% of total revenues) reported for fiscal 2008. The reduced license revenues for fiscal 2009 were mainly attributable to fewer larger license transactions in fiscal 2009 and included unfavorable foreign currency fluctuations of approximately $677,000 comprising approximately 10% of the $6.9 million decrease in license revenues. During fiscal year 2008 we derived approximately $5.3 million of revenues from several significant license transactions with four telecommunications customers, whereas we did not have comparable license transactions of this scale during fiscal year 2009.

        The majority of our license revenues in fiscal 2009 resulted from transactions with existing VAR customers in the telecommunications industry, which was our largest vertical market in fiscal 2009.

        Maintenance revenues:    Maintenance revenues were $8.8 million (or 49% of total revenues) for fiscal 2009, a decrease of approximately $208,000 (or 2%) from $9.0 million (or 36% of total revenues) reported for fiscal 2008. The decrease in maintenance revenues for fiscal 2009 included unfavorable foreign currency fluctuations of approximately $544,000 (or 262% of the $208,000 decrease), back maintenance of approximately $200,000 earned in fiscal 2008 that was not repeated in fiscal 2009, and the lapse of a project with one European telecom customer for $91,000.These decreases were partially offset by back maintenance of $617,000 derived from two European customers in fiscal 2009.

        Professional services revenues:    Professional services revenues were $272,000 (or 1% of total revenues) in fiscal 2009, a decrease of $63,000 (or 19%) from $335,000 (or 1% of total revenues) reported in fiscal 2008. This decrease in the absolute dollar amount of professional services revenues for fiscal 2009 compared to fiscal 2008 was attributable to decreases in consulting and training revenues in both the US and the European operations and relates to the decrease in license transactions in fiscal 2009.

        International revenues:    The following table summarizes our total revenues by geographic area (in thousands, except percentages) in fiscal 2010, 2009 and 2008:

 
  Fiscal Year Ended October 31,   Fiscal 2010 vs 2009
Increase (Decrease)
  Fiscal 2009 vs 2008
Increase (Decrease)
 
 
  2010   2009   2008   In Dollars   Percentage   In Dollars   Percentage  

Total revenues by geographic area:

                                           
 

North America

  $ 6,232   $ 6,964   $ 9,292   $ (732 )   (11 )% $ (2,328 )   (25 )%
 

Europe

    8,764     10,656     13,275     (1,892 )   (18 )   (2,619 )   (20 )
 

Asia

    770     530     2,731     240     45     (2,201 )   (81 )
                                   
   

Total

  $ 15,766   $ 18,150   $ 25,298   $ (2,384 )   (13 )% $ (7,148 )   (28 )%
                                   

Percentage of revenues by geographic area:

                                           
 

North America

    40 %   38 %   37 %                        
 

Europe

    55     59     52                          
 

Asia

    5     3     11                          
                                       
   

Total

    100 %   100 %   100 %                        
                                       

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Fiscal 2010 Compared to Fiscal 2009

        Total revenues decreased $2.4 million (or 13%) in fiscal 2010 compared to fiscal 2009. The decrease in total revenues occurred across geographic regions as the global economy remained weak. The decrease in absolute dollars from fiscal 2010 compared to fiscal 2009 was primarily due to a revenue decrease of $1.9 million in Europe, and to a lesser extent a revenue decrease of $732,000 in North America, partially offset by a revenue increase of $240,000 in Asia. As a percentage of total revenues, international (non-North American) revenues decreased slightly representing approximately 60% and 62% of our total revenues in fiscal 2010 and fiscal 2009, respectively.

        Revenues from North America:    The $732,000 (or 11%) decrease in revenues from North America in fiscal 2010 compared to fiscal 2009 was primarily due to a decrease of $432,000 in maintenance revenues and a decrease of $300,000 in license revenues. North American maintenance revenues declined from fiscal 2009 to fiscal 2010 as customers chose less expensive support options or maintained fewer licenses. North American license revenues decreased due to fewer license transactions and the approximate $170,000 decrease to license revenues resulting from one customer's previous misreporting and overpayment of royalties to Versant. See Note 7 of our "Notes to Consolidated Financial Statements" in Item 8 of this report for more information regarding this transaction.

        Revenues from Europe:    The $1.9 million (or 18%) decrease in revenues from Europe in fiscal 2010 compared to fiscal 2009 was primarily due to a decrease of $1.3 million in European maintenance revenues and to a lesser extent, a $594,000 decrease in European license revenues. The decrease in European maintenance revenues from fiscal 2009 to fiscal 2010 included an approximate $663,000 decrease in back maintenance transactions and an approximate $394,000 decrease as a result of customers choosing less expensive support options. The decrease in European license revenues from fiscal 2009 to fiscal 2010 reflected fewer license transactions in Europe and the relative absence of larger license transactions. The decrease in total revenues from Europe also included approximately $42,000 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:    We experienced an increase of $240,000 (or 45%) in revenues from our Asia Pacific region during fiscal 2010 compared to fiscal 2009, primarily due to increased revenues from our distributor in Japan.

        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) and the generally difficult economic environment currently being experienced in the global economy, which may negatively impact demand for our products and services.

Fiscal 2009 Compared to Fiscal 2008

        Total revenues decreased $7.1 million (or 28%) in fiscal 2009 compared to fiscal 2008. The decrease in total revenues occurred across geographic regions as the global economy slowed. The decrease in absolute dollars of revenue from fiscal 2009 compared to fiscal 2008 was due to revenue decreases of $2.3 million in North America, $2.6 million in Europe and $2.2 million in Asia. As a percentage of total revenues, international (non-North American) revenues remained stable representing approximately 62% and 63% of our total revenues in fiscal 2009 and fiscal 2008, respectively.

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        Revenues from North America:    The $2.3 million (or 25%) decrease in revenue from North America in fiscal 2009 compared to fiscal 2008 was primarily due to fewer license transactions and the relative absence of larger license transactions in fiscal 2009. For example in fiscal 2008 we closed license transactions with two customers totaling approximately $1.9 million, while there were no such comparable transactions in fiscal 2009.

        Revenues from Europe:    The $2.6 million (or 20%) decrease in revenue from Europe in fiscal 2009 compared to fiscal 2008 reflected in large part the closing of license transactions with a European based telecommunications customer totaling approximately $1.7 million in fiscal 2008, which were not matched by comparable transactions in fiscal 2009. The decrease in total revenues from Europe also included approximately $1.0 million resulting from unfavorable foreign currency exchange rate fluctuations.

        Revenues from Asia:    We also experienced a decrease of $2.2 million (or 81%) in revenues from our Asia Pacific region during fiscal 2009, which reflected three significant license transactions totaling approximately $1.9 million with two Asia Pacific telecommunications customers in fiscal 2008, for which there were no comparable transactions in fiscal 2009.

Cost of Revenues

        Cost of Revenues:    The following table summarizes the cost of revenues (in thousands, except percentages) in fiscal 2010, 2009 and 2008:

 
  Fiscal Year Ended October 31,   Fiscal 2010 vs 2009
Increase (Decrease)
  Fiscal 2009 vs 2008
Increase (Decrease)
 
 
  2010   2009   2008   In Dollars   Percentage   In Dollars   Percentage  

Total revenues

  $ 15,766   $ 18,150   $ 25,298   $ (2,384 )   (13 )% $ (7,148 )   (28 )%

Cost of license revenues

    279     273     309     6     2     (36 )   (12 )

Amortization of intangibles

    303     373     315     (70 )   (19 )   58     18  

Cost of maintenance revenues

    1,470     1,452     1,446     18     1     6     0  

Cost of professional services revenues

    61     133     112     (72 )   (54 )   21     19  
                                   
 

Total cost of revenues

  $ 2,113   $ 2,231   $ 2,182   $ (118 )   (5 )% $ 49     2 %
                                   

Gross margin

  $ 13,653   $ 15,919   $ 23,116   $ (2,266 )   (14 )% $ (7,197 )   (31 )%
                                   

Gross margin percentage

    87 %   88 %   91 %                        

        Cost of revenues was $2.1 million (or 13% of total revenues) in fiscal 2010, a decrease of $118,000 (or 5%) from the cost of revenues of $2.2 million (or 12% of total revenues) reported in fiscal 2009. The decrease resulted from a $70,000 reduction in amortization of intangible assets and a $72,000 reduction in the cost of professional services revenue in fiscal 2010 compared to fiscal 2009 and was partially offset by slight increases in the cost of license and maintenance revenues.

        Cost of revenues was $2.2 million (or 12% of total revenues) in fiscal 2009, an increase of $49,000 (or 2%) from the cost of revenues of $2.2 million (or 9% of total revenues) reported in fiscal 2008. This increase (discussed further below) was primarily due to an increase in the amortization of intangibles related to our acquisition of db4o of $95,000 and an increase in the cost of maintenance revenues to support db4o of $58,000, partially offset by favorable foreign currency fluctuations of $96,000.

        Gross margin percentages (gross margin as a percentage of total revenues) remained relatively stable at 87% in fiscal 2010, 88% in fiscal 2009 and 91% in fiscal 2008.

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

        The following table summarizes the cost of license revenues (in thousands, except percentages) in fiscal 2010, 2009 and 2008:

 
  Fiscal Year Ended October 31,   Fiscal 2010 vs 2009
Increase (Decrease)
  Fiscal 2009 vs 2008
Increase (Decrease)
 
 
  2010   2009   2008   In Dollars   Percentage   In Dollars   Percentage  

License:

                                           

Revenues

  $ 8,342   $ 9,045   $ 15,922   $ (703 )   (8 )% $ (6,877 )   (43 )%

Cost

    279     273     309     6     2     (36 )   (12 )
                                   

Margin

  $ 8,063   $ 8,772   $ 15,613   $ (709 )   (8 )% $ (6,841 )   (44 )%
                                   

Margin percentage

    97 %   97 %   98 %                        

Fiscal 2010 Compared to Fiscal 2009

        Cost of license revenues was $279,000 (or 3% of license revenues) in fiscal 2010, remaining stable in both absolute dollars and as a percentage of license revenues compared to $273,000 (or 3% of license revenues) in fiscal 2009.

Fiscal 2009 Compared to Fiscal 2008

        Cost of license revenues was $273,000 (or 3% of license revenues) in fiscal 2009, remaining relatively stable in both absolute dollars and as a percentage of license revenues compared to $309,000 (or 2% of license revenues) in fiscal 2008. The decrease of $36,000 in fiscal 2009 was primarily attributable to favorable foreign currency fluctuations of $18,000.

        Cost of maintenance revenues:    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.

        The following table summarizes the cost of maintenance revenues (in thousands, except percentages) in fiscal 2010, 2009 and 2008:

 
  Fiscal Year Ended October 31,   Fiscal 2010 vs 2009
Increase (Decrease)
  Fiscal 2009 vs 2008
Increase (Decrease)
 
 
  2010   2009   2008   In Dollars   Percentage   In Dollars   Percentage  

Maintenance:

                                           

Revenues

  $ 7,331   $ 8,833   $ 9,041   $ (1,502 )   (17 )% $ (208 )   (2 )%

Cost

    1,470     1,452     1,446     18     1     6     0  
                                   

Margin

  $ 5,861   $ 7,381   $ 7,595   $ (1,520 )   (21 )% $ (214 )   (3 )%
                                   

Margin percentage

    80 %   84 %   84 %                        

Fiscal 2010 Compared to Fiscal 2009

        Cost of maintenance revenues was $1.5 million (or 20% of maintenance revenues) in fiscal 2010, remaining consistent in absolute dollars compared to $1.5 million (or 16% of maintenance revenues) in fiscal 2009. The Company has elected to maintain our core technical support team and its associated costs, which has resulted in the slight increase in the cost of maintenance revenues as a percentage of maintenance revenues in fiscal 2010, in which our maintenance revenues were lower than in fiscal 2009.

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Fiscal 2009 Compared to Fiscal 2008

        Cost of maintenance revenues was $1.5 million (or 16% of maintenance revenues) in fiscal 2009, remaining consistent in both absolute dollars and as a percentage of maintenance revenues compared to $1.5 million (or 16% of maintenance revenues) in fiscal 2008. The slight increase of $6,000 in fiscal 2009 was primarily attributable to increased consulting costs of approximately $58,000 related to db4o technical support services and an increase in allocated overhead in our domestic operations of $25,000, substantially offset by favorable foreign currency fluctuations of $68,000.

        Cost of professional services revenues:    Cost of professional services consists of salaries, bonuses, third party consulting fees and other costs associated with supporting our professional services organization.

        The following table summarizes the cost of professional services revenues (in thousands, except percentages) in fiscal 2010, 2009 and 2008:

 
  Fiscal Year Ended October 31,   Fiscal 2010 vs 2009
Increase (Decrease)
  Fiscal 2009 vs 2008
Increase (Decrease)
 
 
  2010   2009   2008   In Dollars   Percentage   In Dollars   Percentage  

Professional Services:

                                           

Revenues

  $ 93   $ 272   $ 335   $ (179 )   (66 )% $ (63 )   (19 )%

Cost

    61     133     112     (72 )   (54 )   21     19  
                                   

Margin

  $ 32   $ 139   $ 223   $ (107 )   (77 )% $ (84 )   (38 )%
                                   

Margin percentage

    34 %   51 %   67 %                        

Fiscal 2010 Compared to Fiscal 2009

        Cost of professional services revenues was $61,000 (or 66% of professional services revenues) in fiscal 2010, a decrease of $72,000 (or 54%) compared to $133,000 (or 49% of professional services revenues) in fiscal 2009.

        Cost of professional services as a percentage of professional services revenues is affected by the mix of services provided (i.e., training vs. consulting) and the travel costs incurred. Versant provided fewer consulting and training services in fiscal 2010 when compared to fiscal 2009, and incurred higher costs related to fewer students per training class.

Fiscal 2009 Compared to Fiscal 2008

        Cost of professional services revenues was $133,000 (or 49% of professional services revenues) in fiscal 2009, an increase of $21,000 (or 19%) compared to $112,000 (or 33% of professional services revenues) in fiscal 2008.

        Cost of professional services as a percentage of professional services revenues is affected by the mix of services provided (i.e., training vs. consulting) and the travel costs incurred. Versant provided more consulting service and fewer training classes in fiscal 2009 compared to fiscal 2008, and therefore incurred higher relative costs.

        Amortization of Intangible Assets:    The amortization of intangible assets in fiscal 2010 related to our fiscal 2004 acquisitions of Poet Holdings, Inc., FastObjects, Inc. and JDO Genie technology and our fiscal 2009 acquisition of db4o.

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        The following table summarizes the amortization of intangible assets (in thousands, except percentages) in fiscal 2010, 2009 and 2008:

 
  Fiscal Year Ended October 31,   Fiscal 2010 vs 2009
Increase (Decrease)
  Fiscal 2009 vs 2008
Increase (Decrease)
 
 
  2010   2009   2008   In Dollars   Percentage   In Dollars   Percentage  

Amortization of intangible assets:

                                           

Poet Holdings, Inc. 

  $ 189   $ 189   $ 189   $     % $     %

JDO Genie (PTY), LTD

        73     110     (73 )   (100 )   (37 )   (34 )

FastObjects, Inc. 

    11     16     16     (5 )   (31 )        

db4o

    103     95         8     8     95     100  
                                   

Total amortization of purchased intangibles

  $ 303   $ 373   $ 315   $ (70 )   (19 )% $ 58     18 %
                                   

Fiscal 2010 Compared to Fiscal 2009

        Amortization of intangible assets was $303,000 (or 4% of license revenues) in fiscal 2010, a $70,000 (or 19%) decrease compared to $373,000 (or 4% of license revenues) in fiscal 2009. Intangible assets related to JDO Genie technology were fully amortized in the third quarter of fiscal 2009 and intangible assets related to FastObjects customer relationships were fully amortized in the third quarter of fiscal 2010, resulting in a decrease of $70,000 in amortization of intangible assets in fiscal 2010 as compared to fiscal 2009. Based on current conditions, we expect to incur quarterly amortization charges of approximately $73,000 for the first quarter of fiscal 2011, $65,000 for the second quarter of fiscal 2011 and $26,000 for the third and fourth quarters of fiscal 2011.

Fiscal 2009 Compared to Fiscal 2008

        Amortization of intangible assets was $373,000 (or 4% of license revenues) in fiscal 2009, a $58,000 (or 18%) increase compared to $315,000 (or 2% of license revenues) in fiscal 2008. The increase in fiscal 2009 was primarily due to amortization of the intangible assets acquired with the db4o business of $95,000, partially offset by a decrease of $37,000 as the JDO Genie intangible asset was fully amortized in the third quarter of fiscal 2009.

Operating Expenses

        Operating Expenses.    The following table summarizes our operating expenses (in thousands, except percentages) for fiscal 2010, 2009 and 2008:

 
  Fiscal Year Ended October 31,   Fiscal 2010 vs 2009
Increase (Decrease)
  Fiscal 2009 vs 2008
Increase (Decrease)
 
 
  2010   2009   2008   In Dollars   Percentage   In Dollars   Percentage  

Operating expenses:

                                           

Sales and marketing

  $ 4,722   $ 4,101   $ 3,620   $ 621     15 % $ 481     13 %

Research and development

    3,778     3,969     4,066     (191 )   (5 )   (97 )   (2 )

General and administrative

    3,143     3,665     5,479     (522 )   (14 )   (1,814 )   (33 )

Restructuring

    39     139         (100 )   (72 )   139     100  
                                   

Total

  $ 11,682   $ 11,874   $ 13,165   $ (192 )   (2 )% $ (1,291 )   (10 )%
                                   

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Fiscal 2010 Compared to Fiscal 2009

        Total operating expenses were $11.7 million (or 74% of total revenues) for fiscal year 2010 and $11.9 million (or 65% of total revenues) for fiscal year 2009. The decrease of $192,000 (or 2%) in total operating expenses in fiscal 2010 (discussed further below) resulted from a $522,000 decrease in our general and administrative expenses primarily related to reduced professional services and regulatory compliance costs, a $191,000 decrease in research and development expenses predominantly related to the reduced use of outside consultants, and a $100,000 decrease in restructuring costs related to the substantial completion of the restructuring plan in our second fiscal quarter, with these decreases being partially offset by increases in sales and marketing costs of $621,000 primarily related to the expansion of our global sales and marketing efforts. Operating expenses for fiscal year 2010 include favorable foreign currency exchange fluctuations of approximately $47,000 when compared to fiscal 2009. However, due to the decrease in total revenues from fiscal 2009 to fiscal 2010, total operating expenses represented a higher percentage of total revenues in fiscal 2010 than in fiscal 2009.

        Sales and Marketing:    Sales and marketing expenses consist primarily of personnel and related expenses, commissions earned by sales personnel, trade shows, travel and other marketing communication costs, such as advertising and other marketing programs.

        Sales and marketing expenses were $4.7 million (or 30% of revenues) for fiscal year 2010 and $4.1 million (or 22% of total revenues) for fiscal year 2009. The $621,000 (or 15%) increase in absolute dollars for fiscal 2010 was primarily due to an expansion of our global sales operations, including increases in total compensation expense, recruiting, higher facility costs attributable to additional personnel, travel and related costs resulting in an approximate increase of $331,000 related to U.S. sales operations, an approximate increase of $103,000 in European sales operations and an approximate increase of $66,000 in Asian sales operations. The year over year increase also includes an approximate $451,000 increase in global marketing programs including the addition of a new marketing manager and our VP Marketing and Strategic Product Development, along with lead generation and qualification, emarketing and other new initiatives. These increases in sales and marketing costs for fiscal 2010 when compared to fiscal 2009 were partially offset by an approximate decrease of $275,000 related to a non-recurring separation payment made to the former Executive Vice President of Field Operations in the first quarter of fiscal 2009, an approximate reduction of $29,000 in executive bonuses and a decrease of $22,000 in favorable foreign exchange fluctuations.

        We expect our sales and marketing expenses to increase approximately 21% in fiscal 2011 over fiscal 2010 due to anticipated increases in sales and marketing personnel and programs and we expect that sales and marketing expenses will continue to represent a considerable percentage of our total operating expenditures in the future.

        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 $3.8 million (or 24% of revenues) for fiscal 2010 and $4.0 million (or 22% of revenues) in fiscal 2009. The $191,000 (or 5%) decrease in absolute dollars for research and development expenses in fiscal 2010 was due primarily to an approximate $157,000 decrease related to the reduced use of outside engineering services and an approximate $16,000 decrease due to favorable foreign currency exchange fluctuations. The closure of our Indian operations resulted in an approximate $472,000 decrease in research and development costs in fiscal 2010 compared to fiscal 2009, and this decrease was fully offset by an approximate $489,000 increase in salary and related costs for personnel additions in our European operations consolidating our engineering activities into one location.

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        We anticipate that we will continue to invest significant resources in research and development activities in the future to develop new products, advance the technology of our existing products and develop new business opportunities, including research and development activities related to our acquisition of db4o in December 2008. We expect our research and development expenses to remain relatively stable in fiscal 2011 compared to our research and development expense levels in fiscal 2010.

        General and Administrative:    General and administrative expenses consist primarily of personnel and related expenses, professional services and general operating expenses.

        General and administrative expenses were $3.1 million (or 20% of total revenues) in fiscal 2010 and $3.7 million (or 20% of total revenues) in fiscal 2009. The $522,000 (or 14%) decrease in absolute dollars in general and administrative expenses in fiscal 2010 was primarily due to an approximate $231,000 decrease in professional services and regulatory compliance costs, including audit fees, consulting services and salary related expenses. The year over year decrease also included an approximate $82,000 decrease in share based compensation and travel expenses of the executives and directors, a decrease of $50,000 in bad debt expense, a decrease of $37,000 in facilities costs and favorable foreign currency exchange fluctuations of approximately $9,000.

        We expect our general and administrative expenses in fiscal 2011 to remain relatively stable compared to fiscal 2010.

        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 was undertaken to consolidate our research and development efforts into one location in Germany in order to streamline operations, create management efficiencies and increase productivity. The restructuring was substantially completed during the second fiscal quarter ended April 30, 2010.

        The following table reflects the restructuring charges included in operating expenses for fiscal year 2010 and 2009 (in thousands):

 
  Fiscal Year Ended October 31,  
 
  2010   2009  

Restructuring:

             

Severance, retention and related charges

  $ 38   $ 32  

Impairment of fixed assets (non-cash charges)

    2     61  

Reserve for (recovery of) impairment of other current assets

    (29 )   42  

Contract termination costs

    8      

Other direct costs of closure

    20     4  
           

Total restructuring charges

  $ 39   $ 139  
           

        There were no restructuring charges during fiscal 2008.

Fiscal 2009 Compared to Fiscal 2008

        Total operating expenses were $11.9 million (or 65% of total revenues) for fiscal year 2009 and $13.2 million (or 52% of total revenues) for fiscal year 2008. The decrease of $1.3 million (or 10%) in total operating expenses in fiscal 2009 (discussed further below) resulted primarily from a $1.1 million decrease in our general and administrative expenses, due to litigation settlement-related expenses incurred in fiscal 2008 not being repeated in fiscal 2009, a decrease of $530,000 in our general and administrative expenses in fiscal 2009 related to regulatory compliance, and favorable foreign currency exchange fluctuations of $736,000, with these decreases partially offset by increases in sales, marketing

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and research and development costs of $867,000 primarily related to db4o. However, due to the decrease in total revenues from fiscal 2008 to fiscal 2009, total operating expenses represented a higher percentage of total revenues in fiscal 2009 than in fiscal 2008.

        In December 2008, we acquired the db4o assets to further expand the scope of our solutions to include the embedded device market. Our results of operations thus include db4o transactions from the acquisition date of December 1, 2008, or eleven months in fiscal 2009.

        Sales and Marketing:    Sales and marketing expenses were $4.1 million (or 22% of revenues) for fiscal year 2009 and $3.6 million (or 14% of total revenues) for fiscal year 2008. The $481,000 (or 13%) increase in absolute dollars for fiscal 2009 was primarily due to an expansion of our U.S. sales operations, including an approximate $301,000 increase in total compensation expense, recruiting, higher facility costs attributable to additional personnel, travel and related costs associated with hiring two additional salespeople and a VP of Sales North America, and an increase of $177,000 in marketing consulting fees. The year over year increase also includes db4o-related sales and marketing expenses for an approximate $107,000 of salary and related costs for one employee, $132,000 in consulting fees and international distributor costs as well as $75,000 in advertising costs. These increases were partially offset by favorable foreign currency exchange fluctuations of $207,000. The increase in sales and marketing costs related to expansion of our U.S. sales efforts and included an approximate $275,000 non-recurring separation payment made to the former Executive Vice President of Field Operations in the first quarter of fiscal 2009. This increase was partially offset by reduced expenses in our European operations of approximately $367,000 in salary and related expenses attributable to the departure of the Executive Vice President of Field Operations and two other sales and marketing personnel, and reduced trade show and collateral expenses of $88,000.

        As db4o was acquired on December 1, 2008, only eleven months of sales and marketing expenditures associated with db4o as described above are reflected in the Company's statement of income for fiscal year 2009 and no db4o associated expenses are reflected for fiscal year 2008.

        Research and Development:    Research and development expenses were $4.0 million (or 22% of revenues) for fiscal 2009 and $4.1 million (or 16% of revenues) in fiscal 2008. The $97,000 (or 2%) decrease in absolute dollars for research and development expenses in fiscal 2009 was due to favorable foreign currency exchange fluctuations of approximately $438,000, reduced costs of third party contractors of approximately $140,000 and decreased operating costs of $90,000 as our Indian operations begin to wind down, with these decreases being partially offset by approximately $553,000 of increased consulting and personnel costs related to db4o.

        General and Administrative:    General and administrative expenses were $3.7 million (or 20% of total revenues) in fiscal 2009 and $5.5 million (or 22% of total revenues) in fiscal 2008. The $1.8 million (or 33%) decrease in absolute dollars in general and administrative expenses in fiscal 2009 was primarily due to a decrease of $1.1 million in expenses related to the settlement of litigation occurring in fiscal 2008 and not repeated in fiscal 2009, an approximate $530,000 decrease in regulatory compliance costs including audit fees, consulting services and salary related expenses, an approximate decrease of $192,000 in employee bonuses due to reduced revenue and net income levels, and favorable foreign currency exchange fluctuations of approximately $91,000.These decreases were partially offset by an $82,000 increase in share based compensation expense as a result of the higher average market value of stock option grants.

        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. During the fourth quarter of our fiscal 2009, we incurred $32,000 of severance and retention costs, $61,000 of impairment charges to our fixed assets, $4,000 of direct costs of closure and a $42,000 impairment charge to other current assets. There were no restructuring charges during fiscal 2008.

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Interest and Other Income, Net

        Interest and other income, net consists of interest income earned from our cash and cash equivalents net of interest expense due to our financing activities, miscellaneous refunds and foreign exchange rate gains and losses as a result of settling transactions denominated in currencies other than our functional currency.

        The following table summarizes our interest and other income, net (in thousands, except percentages) in fiscal 2010, 2009 and 2008:

 
  Fiscal Year Ended October 31,   Fiscal 2010 vs 2009
Increase (Decrease)
  Fiscal 2009 vs 2008
Increase (Decrease)
 
 
  2010   2009   2008   In Dollars   Percentage   In Dollars   Percentage  

Interest and other income, net:

                                           

Interest income

  $ 59   $ 267   $ 880   $ (208 )   (78 )% $ (613 )   (70 )%

Interest expense

    (1 )       (1 )   (1 )   (100 )   1     100  

Foreign exchange gain (loss)

    91     (35 )   (13 )   126     360     (22 )   (169 )

Other income

    1         5     1     100     (5 )   (100 )
                                   

Total

  $ 150   $ 232   $ 871   $ (82 )   (35 )% $ (639 )   (73 )%
                                   

Fiscal 2010 Compared to Fiscal 2009

        Interest and other income, net was $150,000 (or 1% of total revenues) in fiscal 2010 compared to $232,000 (or 1% of revenues) in fiscal 2009. The absolute dollar decrease of $82,000 (or 35%) was primarily due to a decrease of $208,000 in interest income from both our European and U.S. operations as a result of significantly reduced interest rates, partially offset by a favorable change of approximately $126,000 in foreign exchange gains and losses resulting from settling transactions denominated in currencies other than our functional currency.

Fiscal 2009 Compared to Fiscal 2008

        Interest and other income, net was $232,000 (or 1% of total revenues) in fiscal 2009 compared to $871,000 (or 4% of revenues) in fiscal 2008. The absolute dollar decrease of $639,000 (or 73%) was primarily due to a decrease of $566,000 in interest income from both our European and U.S. operations as a result of significantly reduced interest rates, and included unfavorable foreign currency fluctuations of approximately $54,000.

Provision for Income Taxes

        Provision for income taxes primarily consists of corporate income taxes for our subsidiaries in Germany and India, foreign withholding taxes and state income and franchise taxes in the U.S. The provision also reflects the release of the estimated realizable portion of the valuation allowance against the net deferred tax assets.

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        The following table summarizes our provision for (benefit from) income taxes (in thousands, except percentages) in fiscal 2010, 2009 and 2008:

 
  Fiscal Year Ended October 31,   Fiscal 2010 vs 2009
Increase (Decrease)
  Fiscal 2009 vs 2008
Increase (Decrease)
 
 
  2010   2009   2008   In Dollars   Percentage   In Dollars   Percentage  

Provision for income taxes:

                                           

Foreign withholding taxes

  $ 68   $ 54   $ 253   $ 14     26 % $ (199 )   (79 )%

Provision for income taxes Europe

    395     (653 )   1,155     1,048     160     (1,808 )   (157 )

Provision for income taxes India

        14     19     (14 )   (100 )   (5 )   (26 )

Federal, state and franchise taxes

    4     23     4     (19 )   (83 )   19     475  
                                   

Total

  $ 467   $ (562 ) $ 1,431   $ 1,029     183 % $ (1,993 )   (139 )%
                                   

Fiscal 2010 Compared to Fiscal 2009

        In evaluating our ability to utilize our deferred tax assets, we consider all available positive and negative evidence, including our past operating results in the most recent fiscal years and our assessment of expected future results of operations on a jurisdiction by jurisdiction basis. Based on all the available evidence, we determined that it had become more likely than not that we would realize a portion of our net deferred tax assets in Germany. As a result, we released approximately $939,000 of our valuation allowance in fiscal year 2009, which was recorded as an income tax benefit. As of October 31, 2010, we have concluded that 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. We have a remaining valuation allowance of approximately $33.9 million against net deferred tax assets in the U.S. and foreign jurisdictions. Significant management judgment is required to determine when, in the future, the realization of our net deferred tax assets will become more likely than not. The Company will continue to assess the realizability of the tax benefit available based on actual and forecasted operating results.

        As of October 31, 2010, we had U.S. federal and state net operating loss carry forwards of approximately $66.9 million and $11.6 million, respectively, and U.S. federal and state tax credit carry forwards of approximately $1.4 million and $627,000, respectively. The federal and state net operating loss carry forwards expire on various dates through 2029, including $6.9 million of federal net operating loss carry forward expiring in 2011. The U.S. federal tax credit carry forwards expire on various dates through 2023, if not utilized. The state tax credit can be carried forward indefinitely. Additionally, at October 31, 2010, we had German net operating tax loss carry forwards of approximately $26.2 million. The German tax code provides for certain annual statutory limitations related to the use of tax loss carry forward amounts. For each taxable year, we may utilize German tax loss carry forwards fully up to the first million euros of taxable income, and thereafter, the tax loss carry forwards are limited to 60% of taxable income. The provision for income taxes in Germany included approximately $395,000 and $285,000 for fiscal 2010 and fiscal 2009, respectively, attributable to taxable income related to our German operations that were in excess of the allowable utilization of the tax loss carry forwards, and therefore, subject to corporate taxes. During fiscal 2010, the strengthening of the US dollar against the euro created taxable gains from US denominated currencies held by our German operations which increased our taxable income in Germany.

        Due to "change in ownership" provisions of the Internal Revenue Code of 1986, the availability of net operating loss and tax carry forwards to offset federal taxable income in future periods is subject to an annual limitation. Future shifts in our stock ownership could subject our net operating loss and tax carry forwards to additional limitations restricting their use in sheltering future taxable income.

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        We incurred foreign withholding taxes and state income and franchise taxes of approximately $72,000 and $77,000 in fiscal 2010 and fiscal 2009, respectively, which we have included in our income tax provision.

        A portion of deferred tax assets relating to net operating losses pertains to net operating loss carry forwards resulting from tax deductions upon the exercise of employee stock options of approximately $1.6 million. When recognized, the tax benefit of these loss carry forwards will be accounted for as a credit to additional paid-in capital rather than a reduction of income tax expense.

Fiscal 2009 Compared to Fiscal 2008

        As of October 31, 2008, a full valuation allowance was recorded against our net deferred tax assets. Based on all the available evidence, we determined that it had become more likely than not that we would realize a portion of our net deferred tax assets in Germany. As a result, we released approximately $939,000 of our valuation allowance in fiscal year 2009 which was recorded as an income tax benefit.

        The provision for income taxes in Germany included approximately $285,000 and $1.2 million for fiscal 2009 and fiscal 2008, respectively, attributable to taxable income related to our German operations that were in excess of the allowable utilization of the tax loss carry forwards, and therefore, subject to corporate taxes.

        We incurred foreign withholding taxes and state income and franchise taxes of approximately $77,000 and $257,000 in fiscal 2009 and fiscal 2008, respectively, which we have included in our income tax provision.

Income from Discontinued Operations, Net of Income Taxes

        In February 2006, we sold our WebSphere consulting business to Sima Solutions, a privately held company, in exchange for a one-time cash payment plus certain contingent payments during a 24-month period following the close of the transaction. As a result, we have reflected the results of operations of the WebSphere consulting practice for fiscal 2008 as income from discontinued operations, net of income taxes. (Our results for fiscal 2009 and 2010 do not include any amounts from discontinued operations since our rights to receive revenues from our Websphere business terminated in January, 2008.) Therefore, reported revenues for these periods no longer include any revenues from the WebSphere consulting practice.

        The following table summarizes our income from discontinued operations, net of income taxes (in thousands, except percentages) in fiscal 2010, 2009 and 2008:

 
  Fiscal Year Ended October 31,   Fiscal 2010 vs 2009
Increase (Decrease)
  Fiscal 2009 vs 2008
Increase (Decrease)
 
 
  2010   2009   2008   In Dollars   Percentage   In Dollars   Percentage  

Income from discontinued operations, net of income taxes

  $   $   $ 98   $     % $ (98 )   (100 )%

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Liquidity and Capital Resources

        The following table sets forth certain consolidated balance sheets and consolidated statements of cash flows data for the fiscal years 2010 and 2009 (in thousands, except percentages):

 
  October 31,
2010
  October 31,
2009
  Percentage
Change
 
 
  (unaudited)
   
 

Working Capital

  $ 24,889   $ 26,791     (7 )%

Cash and cash equivalents

  $ 24,911   $ 27,812     (10 )%

 
  Fiscal Year Ended  
 
  October 31,
2010
  October 31,
2009
  Percentage
Change
 
 
  (unaudited)
   
 

Net cash provided by operating activities

  $ 2,285   $ 5,771     (60 )%

Net cash used in investing activities

    (645 )   (2,547 )   75  

Net cash used in financing activities

  $ (4,143 ) $ (2,961 )   (40 )%

Cash and Cash Equivalents

        In fiscal 2010, we financed our operations and met our capital expenditure requirements primarily through cash flows from operations and cash reserves. As of October 31, 2010, we had cash and cash equivalents of approximately $24.9 million, a decrease of $2.9 million over the $27.8 million of cash and cash equivalents we held at October 31, 2009. The decrease in cash and cash equivalents was primarily attributable to our repurchase of 356,104 share of our common stock for approximately $4.3 million during fiscal 2010.

        As of October 31, 2010, $6.6 million of our $24.9 million in cash and cash equivalents were held in foreign financial institutions, of which $2.3 million was held in foreign currencies.

        The following table summarizes our cash balances held in foreign currencies and their equivalent U.S. dollar amounts (in thousands):

 
  As of October 31, 2010  
 
  Local Currency   U.S. Dollar  

Cash in foreign currency:

             

Euros

    €1,375   $ 1,917  

British Pound

    £32     52  

Indian Rupee

    Rs 13,692     302  
             
 

Total

        $ 2,271  
             

        We transact business in various foreign currencies and, accordingly, we are subject to exposure from adverse movements in foreign currency exchange rates. The effect of changes in foreign currency exchange rates on our net operating results in fiscal 2010 were comprised of $42,000 of unfavorable foreign currency fluctuations on our revenues, $7,000 of favorable foreign currency fluctuations on our cost of revenues, and $47,000 of favorable foreign currency fluctuations on our operating expenses, resulting in a net favorable effect of approximately $12,000 on our operating income for fiscal 2010. Operating expenses incurred by our foreign subsidiaries are denominated primarily in local currencies. We currently do not use financial instruments to hedge these operating expenses. We intend to continue to assess the need to utilize financial instruments to hedge currency exposures on an ongoing basis during fiscal 2011.

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        Our exposure to foreign exchange risk is primarily related to the magnitude of foreign net profits and losses denominated in euros, as well as our net position of monetary assets and monetary liabilities in the euro (though in the future the same could be true of other foreign currencies depending on the source of our revenues). This exposure has the potential to produce fluctuations within our consolidated results. However, in some instances our European operations act as a natural hedge, since both operating expenses as well as revenues are denominated in local currencies. In these instances, although an unfavorable change in the exchange rate of the euro against the U.S. dollar will result in lower revenues when translated into U.S. dollars, our European operating expenditures will be lower as well. Additionally, we held approximately 91% of our total cash balances at October 31, 2010 in the form of U.S. dollars to assist in neutralizing the impact of foreign currency fluctuations.

        In relation to our cash balances held overseas, there were no European Union foreign exchange restrictions on repatriating our overseas-held cash to the United States. However, we may be subject to income tax withholding in the source countries and to U.S. federal and state income taxes in the future if the payment or transfer of cash from our subsidiaries to the U.S. parent were to be classified as a dividend. Other payments made by our European overseas subsidiaries in the ordinary course of business (e.g. payment of royalties or interest from the subsidiaries to the U.S. parent) were generally not subject to income tax withholding due to tax treaties.

        Our cash equivalents primarily consist of money market accounts and short-term time deposits; accordingly, our interest rate risk is not considered significant.

        In December 2008, we committed $2.6 million in cash (including $280,000 of contingent payments subsequently made in fiscal 2009 and 2010) to acquire the assets of the database software business of privately-held Servo Software, Inc. (formerly db4objects, Inc.).

        On December 1, 2008, Versant's Board of Directors approved a stock repurchase program authorizing Versant to repurchase up to $5.0 million worth of its outstanding common shares from time to time on the open market, in block trades or otherwise. This stock repurchase program expired by its terms on October 31, 2009. Versant acquired 222,688 common shares on the open market for approximately $3.2 million at an average purchase price of $14.52 per share under this stock repurchase program.

        On November 30, 2009, Versant's Board of Directors approved a stock repurchase program pursuant to which the Company was authorized to repurchase up to $5.0 million of its common stock in fiscal year 2010. The stock repurchase program expired by its terms on October 31, 2010. Versant acquired 356,104 common shares on the open market for approximately $4.3 million at an average purchase price of $12.06 per share under the stock repurchase program.

        On November 29, 2010 Versant's Board of Directors approved a new stock repurchase program pursuant to which the Company is authorized to repurchase up to $5.0 million of its common stock in fiscal year 2011. The 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 this program may be suspended, discontinued, terminated or extended at any time by the Company.

        Taking into consideration the cash outflows related to potential common stock repurchases and with our current and estimated revenues, collections and cost structure, we expect to operate with a moderate negative cash flow in fiscal 2011.

Cash Flows from Operating Activities

        The main source of our operating cash flows is cash collections from customers who have purchased our products and services. Our primary uses of cash in operating activities are payments for personnel related expenditures and facilities costs.

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Fiscal 2010

        We generated $2.3 million of cash flows from operations in fiscal 2010. This amount resulted from $1.7 million in net income, adjusted for non-cash charges of $1.6 million and partially offset by a $1.0 million increase in operating assets net of liabilities since the beginning of fiscal 2010. The increase in operating assets net of liabilities was primarily attributable to an increase of $979,000 in trade accounts receivable.

        Non-cash adjustments were approximately $1.6 million, as reflected in our cash flow statement in fiscal 2010, which were primarily share based compensation expense of $1.1 million and depreciation and amortization expense of $612,000. Non-cash adjustments may increase or decrease in the future and, as a result, this might positively or negatively impact our future operating results, but they will not have a direct impact on our cash flows.

        The timing of payments to our vendors for accounts payable and collections from our customers for accounts receivable will impact our cash flows from operating activities. We typically pay our vendors and service providers in accordance with their invoice terms and conditions. Our standard payment terms for our invoices are usually between 30 and 90 days net.

        We measure the effectiveness of our collection efforts by an analysis of our accounts receivable and our days sales outstanding (DSO). We calculate DSO by taking the ending accounts receivable balances (net of bad debt allowance) divided by the average daily sales amount. Average daily sales amount is calculated by dividing the total quarterly revenue recognized net of changes in deferred revenues by 91.25 days. Collection of accounts receivable and related DSO could fluctuate in future periods, due to the timing and amount of our revenues and the effectiveness of our collection efforts. Our DSOs were 69 days, 55 days and 51 days for the three months ended October 31, 2010, October 31, 2009 and October 31, 2008, respectively.

Fiscal 2009

        We generated $5.8 million of cash flows from operations in fiscal 2009. This was primarily derived from $4.8 million in net income, adjusted for non-cash charges of $895,000.

        Non-cash adjustments were approximately $895,000, as reflected in our cash flow statement in fiscal 2009, which were primarily share based compensation expense of $970,000, depreciation and amortization expense of $710,000 and restructuring charges of $135,000, partially offset by the deferred income tax benefit of $939,000.

        Our working capital was $26.8 million as of October 31, 2009 compared to $25.4 million as of October 31, 2008.

Fiscal 2008

        We generated $8.7 million of cash flows from operations in fiscal 2008. This was primarily derived from $9.5 million in net income offset by a $936,000 reduction in accounts payables and other liabilities.

        Non-cash adjustments were $1.5 million, as reflected in our cash flow statement in fiscal 2008, which were primarily share based compensation expense of $921,000 and depreciation and amortization expense of $638,000.

        Our working capital was $25.4 million as of October 31, 2008 compared to $15.3 million as of October 31, 2007.

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Cash Flows from Investing Activities

        Our primary uses of cash in investing activities have typically been for the purchases of property and equipment (mostly information technology related equipment). Purchases of property and equipment were $480,000, $164,000 and $240,000 in fiscal years 2010, 2009 and 2008, respectively. Our cash used in investing activities also reflects our acquisition of db4o for $180,000 and $2.4 million in fiscal years 2010 and 2009, respectively.

        We anticipate a moderate decrease in our overall spending related to property and equipment in fiscal 2011 compared to fiscal 2010.

Cash Flows from Financing Activities

        Our primary use of cash in financing activities has been the repurchase of common stock under our stock repurchase programs, partially offset by cash proceeds from sales of common stock under our employee stock option and stock purchase plans. Purchases of our common stock were approximately $4.3 million and $3.2 million in fiscal years 2010 and 2009, respectively. No stock repurchases were made in fiscal 2008. Proceeds from issuance of our common stock were approximately $167,000, $285,000 and $792,000 in fiscal years 2010, 2009 and 2008, respectively.

        Our future liquidity and capital resources could be impacted by the exercise of outstanding common stock options and the cash proceeds we receive upon exercise of these securities. As of October 31, 2010 we had approximately 220,000 shares available to issue under our current equity incentive and director plans. The timing of the issuance of options under these plans, the duration and timing of their vesting schedules and their grant price will all impact the timing of any exercises and proceeds. Accordingly, we cannot estimate the amount of such proceeds at this time.

        On November 29, 2010 Versant's Board of Directors approved a new stock repurchase program pursuant to which the Company is authorized to repurchase up to $5.0 million of its common stock in fiscal year 2011. The 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, terminated or extended at any time by the Company.

        We currently do not anticipate establishing a credit or loan facility in fiscal 2011.

Commitments and Contingencies

        Our principal commitments as of October 31, 2010 consist of obligations under operating leases for facilities and equipment. In September 2009, the Company entered into an amended lease agreement to extend the office facilities lease for its U.S. headquarters and in July 2009, the Company entered into a new lease agreement for its European headquarters.

        On November 29, 2010 Versant's Board of Directors approved a new stock repurchase program pursuant to which the Company is authorized to repurchase up to $5.0 million of its common stock in fiscal year 2011. The 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, terminated or extended at any time by the Company. Any repurchases made under the stock repurchase program are expected to be funded from the Company's working capital.

        After taking into account potential common stock repurchases under our current stock repurchase program, we believe that our existing cash and cash equivalents and cash forecast from operations will be sufficient to finance our operations during the next twelve months.

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Recent Accounting Pronouncements

        For information with respect to new accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note 2 of Notes to Consolidated Financial Statements under item 8 of this report.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk.

Foreign currency exchange risk.

        We transact business in various foreign currencies and, accordingly, we are subject to exposure from adverse movements in foreign currency exchange rates. The effect of changes in foreign currency exchange rates on our net operating results in fiscal 2010 were comprised of $42,000 of unfavorable foreign currency fluctuations on our revenues, $7,000 of favorable foreign currency fluctuations on our cost of revenues, and $47,000 of favorable foreign currency fluctuations on our operating expenses, resulting in a net favorable effect of approximately $12,000 on our operating income for fiscal 2010. Operating expenses incurred by our foreign subsidiaries are denominated primarily in local currencies. We currently do not use financial instruments to hedge these operating expenses. We intend to continue to assess the need to utilize financial instruments to hedge currency exposures on an ongoing basis during fiscal 2011.

        Our exposure to foreign exchange risk is primarily related to the magnitude of foreign net profits and losses denominated in euros, as well as our net position of monetary assets and monetary liabilities in the euro (though in the future the same could be true of other foreign currencies depending on the source of our revenues). This exposure has the potential to produce fluctuations within our consolidated results. However, in some instances our European operations act as a natural hedge, since both operating expenses as well as revenues are denominated in local currencies. In these instances, although an unfavorable change in the exchange rate of the euro against the U.S. dollar will result in lower revenues when translated into U.S. dollars, our European operating expenditures will be lower as well. Additionally, we held approximately 91% of our total cash balances at October 31, 2010 in the form of U.S. dollars to assist in neutralizing the impact of foreign currency fluctuations.

        We do not own any derivative financial instruments as of October 31, 2010.

        Interest rate risk.    Our cash equivalents primarily consist of money market accounts and short-term time deposits; therefore, we do not believe that our interest rate risk is significant at this time.

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Item 8.    Financial Statements and Supplementary Data.


VERSANT CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND OTHER INFORMATION

Report of Independent Registered Public Accounting Firm

   

Consolidated Balance Sheets as of October 31, 2010 and 2009

   

Consolidated Statements of Income for the Years Ended October 31, 2010, 2009 and 2008

   

Consolidated Statements of Stockholders' Equity and Comprehensive Income for the Years Ended October 31, 2010, 2009 and 2008

   

Consolidated Statements of Cash Flows for the Years Ended October 31, 2010, 2009 and 2008

   

Notes to Consolidated Financial Statements:

   
 

Note 1—The Company and Basis of Presentation

   
 

Note 2—Summary of Significant Accounting Policies

   
 

Note 3—Fair Value Measurements

   
 

Note 4—Valuation and Qualifying Accounts and Reserves

   
 

Note 5—Acquisition, Goodwill and Intangible Assets

   
 

Note 6—Lease Obligations

   
 

Note 7—Contingencies

   
 

Note 8—Stockholders' Equity and Income Per Share

   
 

Note 9—Stock Repurchase Program

   
 

Note 10—Employee and Director Benefit Plans

   
 

Note 11—Share Based Compensation

   
 

Note 12—Settlement of Litigation

   
 

Note 13—Restructuring

   
 

Note 14—Income Taxes

   
 

Note 15—Discontinued Operations

   
 

Note 16—Subsequent Events

   
 

Note 17—Selected Quarterly Information

   

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders of Versant Corporation and Subsidiaries:

        We have audited the accompanying consolidated balance sheets of Versant Corporation and Subsidiaries as of October 31, 2010 and 2009, and the related consolidated statements of income, stockholders' equity and comprehensive income, and cash flows for each of the three years in the period ended October 31, 2010. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Versant Corporation and Subsidiaries at October 31, 2010 and 2009, and the consolidated results of their operations and their cash flows for each of the three years in the period ended October 31, 2010 in conformity with accounting principles generally accepted in the United States of America.

/s/ GRANT THORNTON LLP
San Francisco, California
January 31, 2011

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VERSANT CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except for share amounts)

 
  October 31,
2010
  October 31,
2009
 

ASSETS

             

Current assets:

             
 

Cash and cash equivalents

  $ 24,911   $ 27,812  
 

Trade accounts receivable, net of allowance for doubtful accounts of $8 and $36 at October 31, 2010 and 2009, respectively

    3,186     2,251  
 

Deferred income taxes

    884     939  
 

Other current assets

    388     633  
           
   

Total current assets

    29,369     31,635  

Property and equipment, net

   
634
   
488
 

Goodwill

    8,589     8,410  

Intangible assets, net

    499     802  

Other assets

    38     38  
           
   

Total assets

  $ 39,129   $ 41,373  
           

LIABILITIES AND STOCKHOLDERS' EQUITY

             

Current liabilities:

             
 

Accounts payable

  $ 164   $ 154  
 

Accrued liabilities

    1,294     1,215  
 

Deferred revenues

    3,022     3,475  
           
   

Total current liabilities

    4,480     4,844  

Deferred revenues

   
66
   
177
 

Deferred rent

    49      

Other long-term liabilities

    90     95  
           
   

Total liabilities

    4,685     5,116  
           

Commitments and contingencies (Notes 6 & 7)

             

Stockholders' equity:

             
 

Common stock, no par value, 7,500,000 shares authorized, 3,213,122 shares issued and outstanding at October 31, 2010, and 3,552,946 shares issued and outstanding at October 31, 2009

    92,654     95,730  
 

Accumulated other comprehensive income, net

    43     434  
 

Accumulated deficit

    (58,253 )   (59,907 )
           
   

Total stockholders' equity

    34,444     36,257  
           
   

Total liabilities and stockholders' equity

  $ 39,129   $ 41,373  
           

See accompanying notes to consolidated financial statements.

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VERSANT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except for per share amounts)

 
  Fiscal Year Ended  
 
  October 31,
2010
  October 31,
2009
  October 31,
2008
 

Revenues:

                   
 

License

  $ 8,342   $ 9,045   $ 15,922  
 

Maintenance

    7,331     8,833     9,041  
 

Professional services

    93     272     335  
               
   

Total revenues

    15,766     18,150     25,298  
               

Cost of revenues:

                   
 

License

    279     273     309  
 

Amortization of intangible assets

    303     373     315  
 

Maintenance

    1,470     1,452     1,446  
 

Professional services

    61     133     112  
               
   

Total cost of revenues

    2,113     2,231     2,182  
               
   

Gross profit

    13,653     15,919     23,116  
               

Operating expenses:

                   
 

Sales and marketing

    4,722     4,101     3,620  
 

Research and development

    3,778     3,969     4,066  
 

General and administrative

    3,143     3,665     5,479  
 

Restructuring

    39     139      
               
   

Total operating expenses

    11,682     11,874     13,165  
               
 

Income from operations

    1,971     4,045     9,951  
 

Interest and other income, net

    150     232     871  
               
 

Income from continuing operations before income taxes

    2,121     4,277     10,822  
 

Income tax benefit (expense)

    (467 )   562     (1,431 )
               
 

Net income from continuing operations

    1,654     4,839     9,391  
 

Net income from discontinued operations, net of income taxes

            98  
               
 

Net income

  $ 1,654   $ 4,839   $ 9,489  
               

Basic income per share:

                   
 

Net income from continuing operations

  $ 0.48   $ 1.33   $ 2.52  
 

Net income from discontinued operations, net of income taxes

  $   $   $ 0.02  
               
 

Net income per share, basic

  $ 0.48   $ 1.33   $ 2.54  

Diluted income per share:

                   
 

Net income from continuing operations

  $ 0.48   $ 1.32   $ 2.48  
 

Net income from discontinued operations, net of income taxes

  $   $   $ 0.03  
               
 

Net income per share, diluted

  $ 0.48   $ 1.32   $ 2.51  

Shares used in per share calculation:

                   
 

Basic

    3,411     3,626     3,729  
 

Diluted

    3,444     3,663     3,783  

See accompanying notes to consolidated financial statements.

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VERSANT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME

(in thousands, except for share amounts)

 
  Common    
  Accumulated
Other
Comprehensive
Income
   
   
 
 
  Accumulated
Deficit
  Total
Stockholders'
Equity
  Total
Comprehensive
Income
 
 
  Shares   Amount  

Balance at October 31, 2007

    3,671,924   $ 96,004   $ (74,185 ) $ 1,346   $ 23,165        
 

Adjustment to retained earnings related to ASC §740

               
(50

)
       
(50

)
     
 

ESPP

    18,984     290                 290        
 

Exercise of stock options

    55,673     502                 502        
 

Non-cash share based compensation expense

          921                 921        
 

Net income

                9,489           9,489     9,489  
 

Foreign currency translation adjustments

                      (1,163 )   (1,163 )   (1,163 )
                                     
   

Total comprehensive income

                                $ 8,326  
                           

Balance at October 31, 2008

    3,746,581   $ 97,717   $ (64,746 ) $ 183   $ 33,154        
 

Repurchases of common stock

   
(222,688

)
 
(3,242

)
             
(3,242

)
     
 

ESPP

    15,691     164                 164        
 

Exercise of stock options

    13,362     121                 121        
 

Non-cash share based compensation expense

          970                 970        
 

Net income

                4,839           4,839     4,839  
 

Foreign currency translation adjustments

                      251     251     251  
                                     
   

Total comprehensive income

                                $ 5,090  
                           

Balance at October 31, 2009

    3,552,946   $ 95,730   $ (59,907 ) $ 434   $ 36,257        
 

Repurchases of common stock

   
(356,104

)
 
(4,310

)
             
(4,310

)
     
 

ESPP

    13,093     132                 132        
 

Exercise of stock options

    3,187     35                 35        
 

Non-cash share based compensation expense

          1,067                 1,067        
 

Net income

                1,654           1,654     1,654  
 

Foreign currency translation adjustments

                      (391 )   (391 )   (391 )
                                     
   

Total comprehensive income

                                $ 1,263  
                           

Balance at October 31, 2010

    3,213,122   $ 92,654   $ (58,253 ) $ 43   $ 34,444        
                             

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VERSANT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 
  Fiscal Year Ended October 31,  
 
  2010   2009   2008  

Cash flows from operating activities:

                   
 

Net income

  $ 1,654   $ 4,839   $ 9,489  
 

Adjustments to reconcile net income to net cash provided by operating activities:

                   
   

Net income from discontinued operations, net of income taxes

            (98 )
   

Deferred income tax benefit

        (939 )    
   

Depreciation and amortization

    309     337     323  
   

Amortization of intangible assets

    303     373     315  
   

Share based compensation

    1,067     970     921  
   

Charges to (reduction of) restructuring costs

    (19 )   135      
   

Provision for (recovery of) allowance for doubtful accounts receivable

    (26 )   19     (54 )
   

Changes in assets and liabilities:

                   
     

Trade accounts receivable

    (979 )   778     (536 )
     

Other assets

    235     (75 )   (18 )
     

Accounts payable

    (40 )   (233 )   224  
     

Accrued liabilities and other long-term liabilities

    222     (418 )   (1,160 )
     

Deferred revenues

    (441 )   (15 )   (748 )
               
       

Net cash provided by operating activities

    2,285     5,771     8,658  
               

Cash flows from investing activities:

                   
 

Acquisition of business

    (180 )   (2,383 )    
 

Proceeds from sale of property and equipment

    15          
 

Purchases of property and equipment

    (480 )   (164 )   (240 )
               
       

Net cash used in investing activities

    (645 )   (2,547 )   (240 )
               

Cash flows from financing activities:

                   
 

Proceeds from issuance of common stock

    167     285     792  
 

Repurchases of common stock

    (4,310 )   (3,242 )    
 

Principal payments under capital lease obligations

        (4 )   (10 )
               
       

Net cash (used in) provided by financing activities

    (4,143 )   (2,961 )   782  
               

Effect of foreign exchange rate changes on cash and cash equivalents

    (398 )   315     (1,150 )
               

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

    (2,901 )   578     8,050  

Net increase in cash and cash equivalents from discontinued operations—operating activities

            98  

Cash and cash equivalents at beginning of period

    27,812     27,234     19,086  
               

Cash and cash equivalents at end of period

  $ 24,911   $ 27,812   $ 27,234  
               

Supplemental disclosures of cash flows information:

                   
 

Cash paid for:

                   
 

Interest

  $ 1   $   $ 1  
 

Income taxes

  $ 385   $ 713   $ 1,806  

See accompanying notes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

October 31, 2010

NOTE 1.    THE COMPANY AND BASIS OF PRESENTATION

        Versant Corporation (with its subsidiaries, collectively referred to in this report as "Versant" or "the Company") was incorporated in California in August 1988. Versant is a leading provider of object-oriented data management software that forms a critical component of the infrastructure of enterprise computing. The Company designs, develops, markets and supports object-oriented database management system products to solve complex data management and data integration problems of enterprises. Versant also provides related product support, training and consulting services to assist users in the use of its products and in development and deployment of software applications based on its products. The Company operates its business within a single operating segment referred to as Data Management. Versant's principal executive offices are located in Redwood City, California. Versant has international operations in Germany and India and markets its software products and related maintenance services directly through telesales and field sales organizations in North America and Germany and indirectly through distributors and resellers worldwide.

NOTE 2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    Principles of Consolidation

        The consolidated financial statements include 100% of the assets, liabilities, revenues, expenses and cash flows of Versant and all entities in which Versant has a controlling voting interest (subsidiaries) required to be consolidated in accordance with Financial Accounting Standards Board (FASB) guidance pursuant to Accounting Standards Codification (ASC) 810, Consolidation. All significant intercompany accounts and transactions among consolidated companies have been eliminated in consolidation.

        The financial position and operating results of foreign operations are consolidated using the local currency as their functional currency. Local currency assets and liabilities are translated into U.S. dollars at the rates of exchange on the balance sheet date, and local currency revenues and expenses are translated using rates that approximate the average rates of exchange during the period. Resulting translation gains or losses are included in the accompanying consolidated statement of stockholders' equity as a component of accumulated other comprehensive income.

    Use of Estimates

        The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America ("GAAP"), requires management to make estimates and assumptions which affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates.

    Cash and Cash Equivalents

        Cash and cash equivalents include all highly liquid investments with an original maturity of three months or less at the time of purchase. The Company's cash and cash equivalents at October 31, 2010 and October 31, 2009 consisted of deposits in banks, short-term time deposits and money market funds. As of October 31, 2010 and 2009 cash balances held in foreign financial institutions were $6.6 million and $14.7 million, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

October 31, 2010

NOTE 2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

    Concentration of Credit Risk

        The Company's financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents and trade accounts receivable. The Company maintains its cash and cash equivalents, with balances which may exceed insured limits, with financial institutions and invests in highly rated short-term securities. The Company maintains an allowance for doubtful accounts as an estimate of the inability of its customers to make required payments. The allowance was $8,000 and $36,000 at October 31, 2010 and October 31, 2009, respectively. The amount of the Company's allowance is based on historical experience and an analysis of its accounts receivable balances. Credit losses to date have been within management's expectations. However, actual results could differ from such estimates.

    Property and Equipment

        Property and equipment are stated at cost less accumulated depreciation, computed using the straight-line method based on the estimated useful lives of the assets, generally ranging from three to five years. Depreciation commences upon placing the asset in service. Each capital lease is recorded at the lesser of the fair value of the leased asset at the inception of the lease or the present value of the minimum lease payments as of the beginning of the lease term. Leased assets are amortized on a straight-line basis over the estimated useful life of the asset or the lease term. Leasehold improvements are amortized over the shorter of the useful life or the remaining lease term. The Company reviews its property and equipment for impairment periodically or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

        The following table summarizes the breakdown of the Company's property and equipment as of October 31, 2010 and October 31, 2009 (in thousands):

 
  As of October 31,  
 
  2010   2009  

Property and equipment:

             

Computer equipment

  $ 1,395   $ 1,508  

Furniture and fixtures

    222     360  

Software

    694     749  

Leasehold improvements

    393     255  

Capital lease and other assets

    35     35  
           

    2,739     2,907  

Less: accumulated depreciation and amortization

    (2,105 )   (2,419 )
           
 

Total

  $ 634   $ 488  
           

        Total depreciation expense for fiscal 2010, fiscal 2009 and fiscal 2008 was $309,000, $337,000, and $323,000, respectively.

    Impairment of Goodwill and Intangible Assets

        Goodwill represents the excess of the purchase price of an acquired business over the fair value of the identifiable assets acquired and liabilities assumed in business combinations. As required by

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

October 31, 2010

NOTE 2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

ASC 350, Intangibles—Goodwill and Other, the Company evaluates its goodwill for impairment on an annual basis.

        In accordance with ASC 350, Goodwill, we test for any goodwill impairment within our single Data Management operating segment and reporting unit. FASB guidance requires that goodwill be tested for impairment at the reporting unit level, at least annually and more frequently upon the occurrence of certain events. The Company uses the market approach to assess the fair value of its assets and this value is compared with the carrying value of those assets to test for impairment. The total fair value of the Company's assets is estimated by summing the fair value of the Company's equity (as indicated by the publicly traded share price for Versant's shares and the number of shares outstanding plus an estimated control premium) and its liabilities. Under this approach, if the estimated fair value of the Company's assets is greater than their carrying value, then there is no goodwill impairment. If the estimated fair value of the Company's assets is less than their carrying value, an allocation would be made of the reporting unit's estimated fair value to its assets and liabilities as though the reporting unit had just been acquired in a business combination. The impairment loss is the amount, if any, by which the implied fair value of goodwill allocable to the reporting unit is less than that reporting unit's goodwill carrying amount and would be recorded in operating results during the period of such impairment.

        Versant performed its annual evaluations of the Company's goodwill based on the requirements of ASC 350 in October 2010, October 2009 and October 2008. As a result of these impairment tests and valuation analyses, Versant determined that no impairment charges against the Company's goodwill were required in fiscal 2010, fiscal 2009 or fiscal 2008.

        Purchased intangible assets other than goodwill are amortized over their useful lives unless these lives are determined to be indefinite. Purchased intangible assets with definite lives are carried at cost less accumulated amortization. Identifiable intangibles are currently amortized using the straight-line method over useful lives ranging from 5-9 years. Intangible assets consist of acquired technology, customer relationships and trade names. Versant tests and evaluates its intangible assets for impairment whenever indicators of potential impairment are identified.

        In fiscal 2010, fiscal 2009 and fiscal 2008, there were no triggering events to indicate impairment of Versant's intangible assets, and the Company did not perform impairment tests and valuation analyses of its intangible assets. Versant determined that the value of the Company's intangible assets had been fairly recorded in its financial statements, and therefore, no impairment charges against the Company's intangible assets related to the Company's Poet, FastObjects, JDO Genie and db4o acquisitions were recorded in fiscal 2010, fiscal 2009 or fiscal 2008.

    Revenue Recognition

        We recognize revenues in accordance with GAAP, as set forth in:

    ASC 985-605, Software, Revenue Recognition (formerly known as and comprised of Statement of Position ("SOP") 97-2, Software Revenue Recognition and SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain Transactions),

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October 31, 2010

NOTE 2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

    ASC 605-35, Revenue Recognition, Construction-Type and Production-Type Contracts (formerly known as SOP 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts).

        The Company's revenues consist mainly of revenues earned under software license agreements, maintenance support agreements (otherwise known as post-contract customer support or "PCS") and, to a lesser degree, agreements for consulting and training activities.

        Versant uses the residual method to recognize revenues when a license agreement includes one or more elements to be delivered by the Company at a future date. If there is an undelivered element under the license arrangement, the Company defers revenues based on vendor-specific objective evidence ("VSOE") of the fair value of the undelivered element, as determined by the price charged when the element is sold separately. If VSOE of fair value does not exist for all undelivered elements of a transaction, the Company defers all revenues from that transaction until sufficient evidence of the fair value exists or until all elements have been delivered. Under the residual method, discounts are allocated only to the delivered elements in a multiple element arrangement, with any undelivered elements being deferred based on the vendor-specific objective evidence of the fair value of such undelivered elements. Versant typically does not offer discounts on future undeveloped products.

        The Company has established VSOE of fair value of PCS as evidenced by stand alone renewal transactions using the "bell shaped curve approach." PCS of the Versant Object Database is priced as a percentage of the original software license fees. The Company performs quarterly analysis on a transaction by transaction basis to document the range of pricing in PCS renewals. The Company has established VSOE of fair value for PCS, if substantial majorities (greater than 80%) of stand-alone renewal transactions are priced within a reasonably narrow range (plus or minus 15% from the midpoint of the range). For the year ended October 31, 2010, the pricing of over 95% of stand alone PCS renewal transactions fell within the predefined pricing range.

        Revenues from software license arrangements, including prepaid license fees, are recognized when all of the following criteria are met:

    Persuasive evidence of an arrangement exists.

    Delivery has occurred and there are no future deliverables except PCS.

    The fee is fixed and determinable. If we cannot conclude that a fee is fixed and determinable, then assuming all other criteria have been met, we recognize the revenues as payments become due in accordance with ASC 985-605.

    Collection is reasonably assured.

        If an acceptance period or other contingency exists, revenues are not recognized until customer acceptance or expiration of the acceptance period, or until satisfaction of the contingency, as applicable. The Company's license fees are generally non-cancelable and non-refundable. Also, the Company's customer agreements for prepaid deployment licenses generally do not make payment of our license fees contingent upon the actual deployment of the software. Therefore, a customer's delay or acceleration in its deployment schedule typically does not impact our revenue recognition in the case of a prepaid deployment license.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

October 31, 2010

NOTE 2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

        Revenues from related PCS for all product lines are usually billed in advance of the service being provided and are deferred and recognized on a straight-line basis over the term in which the PCS is to be performed, which is generally twelve months. In some cases PCS revenues are paid in arrears of the service being provided and are recognized as revenues at the time the customer provides the Company a report for deployments made during a given time period. Training and consulting revenues are recognized when a purchase order is received, the services have been performed and collection is deemed probable. Consulting services are billed on an hourly, daily or monthly rate. Training classes are billed based on group or individual attendance.

        Versant categorizes its customers into two broad groups, End-Users and Value Added Resellers (VARs). End-User customers are companies who use Versant's products internally and do not redistribute the Company's product outside of their corporate organizations. VAR customers include traditional Value Added Resellers, Systems Integrators, Original Equipment Manufacturers ("OEMs") and other vendors who redistribute Versant's products to their external third party customers, either separately or as part of an integrated product.

        Versant licenses its data management products 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 and test an application program that uses Versant's software product. Before an End-User customer may deploy an application that it has developed under the Company's development license, it must purchase deployment licenses based on the number of computers connected to the server that will run the application using Versant's product or, for certain applications, the number of users. Pricing of Versant Object Database and FastObjects licenses varies according to several factors, including the number of computer servers on which the application runs and the number of users that are able to access the server at any one time. Customers may elect to simultaneously purchase development and deployment licenses for an entire project. These development and deployment licenses may also provide for prepayment to Versant of a nonrefundable amount for future deployment.

        VARs and distributors purchase development licenses from Versant on a per seat basis on terms similar to those of development licenses that the Company sells directly to End-Users. VARs are authorized to sublicense deployment copies of Versant's data management products that are either bundled or embedded in the VAR's applications and sold directly to End-Users. VARs are required to report their distribution of Versant's software and are charged a royalty that is either based on the number of copies of the application software that are distributed or computed as a percentage of the selling price charged by the VARs to their end-user customers. These royalties from VARs may be prepaid in full or paid upon deployment. VAR agreements for prepaid royalty arrangements are non-cancelable, non-refundable and do not make payment of the license fees contingent upon the actual deployment of the software, and therefore, the future deployments of the VARs have no impact on revenue recognition. Provided that all other conditions for revenue recognition have been met, revenues from arrangements with VARs are recognized, (i) as to prepaid license arrangements, when the prepaid licenses are sold to the VAR, and (ii) as to other license arrangements, at the time the VAR provides a royalty report to Versant for sales made by the VAR during a given period.

        Revenues from the Company's resale of third-party products or services are recorded at total contract value with the corresponding cost included in the cost of sales when Versant acts as a principal

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October 31, 2010

NOTE 2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


in these transactions by assuming the risks and rewards of ownership (including the risk of loss for collection, delivery or returns). When the Company does not assume the risks and rewards of ownership, revenues from the resale of third-party products or services are recorded at contract value net of the cost of sales.

        On occasion, at a customer's request, Versant performs engineering work to port the Company's products to an unsupported platform, to customize its software for specific functionality, or other non-routine technical assignment. In these instances, Versant recognizes revenues in accordance with ASC 605-35, Construction-Type and Production-Type Contracts, and uses either the time and material percentage of completion method or the completed contract method for recognizing revenues. The Company uses the percentage of completion method if it can make reasonable and dependable estimates of labor costs and hours required to complete the work in question. The Company periodically reviews these estimates in connection with the work performed and rates actually charged and recognizes any losses when identified. Progress to completion is determined using the cost-to-cost method, whereby cost incurred to date as a percentage of total estimated cost determines the percentage completed and revenue recognized. When using the percentage of completion method, the following conditions must exist:

    An agreement must include provisions that clearly specify the rights regarding goods or services to be provided and received by both parties, the consideration to be exchanged and the manner and terms of settlement.

    The customer is able to satisfy its obligations under the contract.

    Versant is able to satisfy its obligations under the contract.

        The completed contract method is used when reasonable or dependable estimates of labor costs and time to complete the work cannot be made. As a result, in such situations, Versant defers all revenues until such time as the work is fully completed.

        Management of the Company makes significant judgments and estimates in connection with the determination of the revenue Versant recognizes in each accounting period. If Versant had made different judgments or utilized different estimates for any period, material differences in the amount and timing of revenue recognized would have resulted.

    Foreign Currency Translation

        The functional currencies of the Company's foreign subsidiaries are their respective local currencies. The Company translates the assets and liabilities of international subsidiaries into the U.S. dollar at the current exchange rates in effect on the balance sheet date and revenues and expenses are translated using rates that approximate the average rates of exchange during the period. Gains and losses from translation adjustments are included in stockholders' equity on the consolidated balance sheets captioned as accumulated other comprehensive income, net.

        The Company records net gains and losses resulting from settling transactions denominated in currencies other than our functional currency as a component of interest and other income, net. Foreign exchange gain (loss) was approximately $91,000, $(35,000) and $(13,000), respectively, for the fiscal years ended October 31, 2010, October 31, 2009 and October 31, 2008, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

October 31, 2010

NOTE 2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

    Other Comprehensive Income

        Accumulated other comprehensive income, net presented in the accompanying consolidated balance sheets consist of cumulative foreign currency translation adjustments.

        The following table summarizes the breakdown of comprehensive income for the years ended October 31, 2010, October 31, 2009 and October 31, 2008 (in thousands):

 
  Fiscal Year Ended October 31,  
 
  2010   2009   2008  

Net income, as reported

  $ 1,654   $ 4,839   $ 9,489  

Foreign currency translation adjustment

    (391 )   251     (1,163 )
               
 

Other comprehensive income

  $ 1,263   $ 5,090   $ 8,326  
               

    Warranties and Indemnification Obligations

        The Company recognizes warranty and indemnification obligations under ASC 460, Guarantees. This FASB guidance requires a guarantor to recognize and disclose a liability for obligations it has undertaken in relation to the issuance of the guarantee.

        The Company's software license agreements generally include certain provisions for indemnifying customers against liabilities if the Company's software products infringe upon a third party's intellectual property rights. The Company has not provided for any reserves for such warranty liabilities.

        The Company's software license agreements also generally include a warranty that the Company's software products will substantially operate as described in the applicable program documentation. The Company also warrants that services the Company performs will be provided in a manner consistent with industry standards. In Europe, there is typically a one-year warranty period for all of the Company's products and services. To date, Versant has not incurred any material costs associated with these product and service performance warranties, and as such the Company has provided no warranty reserve balance in its consolidated financial statements.

    Deferred Revenue

        Deferred revenue represents amounts billed to customers under certain maintenance, software and service contracts for which the revenue earning process has not been completed and revenue has not been recognized. Deferred revenues are recognized as revenue ratably over the life of the contract or when the service is rendered and the Company has satisfied all other revenue recognition criteria.

 
  As of October 31,  
 
  2010   2009  
 
  (in thousands)
 

Deferred revenue:

             

Short-term deferred maintenance

  $ 3,022   $ 3,475  

Long-term deferred maintenance

    66     177  
           

  $ 3,088   $ 3,652  
           

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

October 31, 2010

NOTE 2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

    Accrued Liabilities

        The breakdown of short-term accrued liabilities as of October 31, 2010 and October 31, 2009 was as follows (in thousands):

 
  As of October 31,  
 
  2010   2009  

Accrued liabilities:

             

Payroll and related

  $ 804   $ 737  

Taxes payable

    105     1  

Deferred rent

    14     10  

Other

    371     467  
           

  $ 1,294   $ 1,215  
           

    Software Development Costs

        Software development costs are included in research and development and are expensed as incurred. After technological feasibility is established, material software development costs are capitalized in accordance with ASC 985-20, Software, Costs of Software to Be Sold, Leased or Marketed. The time period between achieving technological feasibility, which Versant has defined as the establishment of a working model, which typically occurs when the beta testing commences, and the general availability of such software has generally been short, and therefore to date, software development costs qualifying for capitalization have been insignificant. No software development costs have been capitalized for the periods ended October 31, 2010, October 31, 2009 and October 31, 2008.

    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 regarding realizability exists.

        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 prior 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.

        The Company applies the net basis of income statement presentation for taxes collected from customers and remitted to government authorities.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

October 31, 2010

NOTE 2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

    Share Based Compensation

        Beginning in fiscal 2006, Versant has accounted for share-based compensation costs in accordance with ASC 718, Compensation, Stock Compensation. Under the fair value recognition guidance of ASC 718, 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 Company utilizes the Black-Scholes option pricing model to estimate the fair value of employee share based compensation awards at the date of grant. This model requires the use of assumptions, including expected volatility, expected term, risk-free interest rate and dividend yield, some of which require significant management judgment. Further, the Company estimates forfeiture rates for those options granted which are not expected to vest. Changes in these inputs and assumptions can materially affect the measure of estimated fair value of our share-based compensation. The estimated fair value is charged to earnings on a straight-line basis over the vesting period of the underlying awards, which are generally three years under the Company's Equity Incentive Plans and two years under the Directors Stock Option Plans. While the estimate of fair value and the associated charge to earnings materially impacts the Company's results of operations, it has no impact on its cash position.

        Versant employs historical volatility over a period equal to the expected term of the options as the basis for estimating expected volatility. The Company, however, takes into account all available current information to determine the expected volatility. Versant bases the expected term of its options on historical exercise data, while considering other factors that could possibly impact the future life of the options. Versant uses the Treasury Constant Maturities rates reported by The Federal Reserve to approximate the risk free interest rate. Versant has not distributed any dividends to its common stockholders and does not expect to do so in the near future.

        Versant uses historical forfeiture data, modified by any available relevant information, to arrive at the estimated forfeiture rate. ASC 718 requires that forfeitures be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Versant applies the forfeiture rate to the unvested portion of the option valuation and performs a true up if the actual forfeiture rate is different from the one applied in prior periods.

        Versant estimates the fair value of employee rights to purchase shares under its employee stock purchase plan, or "ESPP", using the Black-Scholes Option Pricing Model. The purchase price of shares which employees may acquire under the Company's ESPP, at any purchase period, is 85% of the lesser of either of the following: the fair market value of the shares on the offering date or the fair market value of the shares on the purchase date. Versant records compensation expense based on the estimated fair value of the shares granted under the ESPP.

    Employee Benefit Plans

        The Company's employee savings and retirement plan is qualified under Section 401(k) of the United States Internal Revenue Code. Employees may make voluntary, tax-deferred contributions to the 401(k) Plan up to the statutorily prescribed annual limit. No matching contributions to employees'

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October 31, 2010

NOTE 2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

voluntary contributions to the 401(k) plan were made by the Company in fiscal years 2010, 2009 and 2008.

    Restructuring and Related Charges

        Restructuring charges are recognized and measured according to the provisions of ASC 420, Exit or Disposal Cost Obligations, which requires a liability for a cost associated with an exit or disposal activity to be recognized at its fair value in the period in which the liability is incurred, except for a liability for one-time termination benefits that is incurred over time. Restructuring charges include employee termination and related costs, contract termination costs, and other costs directly associated with exit activities, including impairment of property and other assets. Costs for such activities are estimated by management after evaluating detailed analyses of the cost to be incurred.

    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. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. The method for determining what information to report is based on the way management organizes the operating segments within the Company for making operating decisions and assessing financial performance. The Company's chief operating decision-maker is considered to be the Company's chief executive officer (CEO). The CEO reviews financial information presented on an entity level basis accompanied by non-aggregated information about revenues by product type and certain information about geographic regions for purposes of making operating decisions and assessing financial performance. The entity level financial information is identical to the information presented in the accompanying consolidated statements of income. Therefore, the Company has determined that it operates in a single operating segment, Data Management.

        In aggregate, the revenues generated by one significant telecommunications customer accounted for approximately 12% of total revenues in the fiscal year ended October 31, 2010.

        The Company operates in North America, Europe and Asia. In general, revenues are attributed to the country in which the contract originates.

        The following tables summarize revenues and long-lived assets by each geographic region (in thousands):

 
  Fiscal Year Ended October 31,  
 
  2010   2009   2008  

Total revenues by geographic area:

                   
 

North America

  $ 6,232   $ 6,964   $ 9,292  
 

Europe

    8,764     10,656     13,275  
 

Asia

    770     530     2,731  
               
   

Total

  $ 15,766   $ 18,150   $ 25,298  
               

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October 31, 2010

NOTE 2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

 

 
  As of October 31,  
 
  2010   2009  

Total long-lived assets by geographic area:

             
 

North America

  $ 127   $ 164  
 

Germany

    506     287  
 

Asia

    39     75  
           
   

Total

  $ 672   $ 526  
           

    Recently Adopted Accounting Pronouncements

    Subsequent Events

        In February 2010, the FASB issued amended guidance on subsequent events. Under this amended guidance, Securities and Exchange Commission (SEC) filers are no longer required to disclose the date through which subsequent events have been evaluated in originally issued and revised financial statements. This guidance was effective immediately and the Company adopted this new guidance in the quarter ended April 30, 2010. The adoption of this amendment has had no material impact on the Company's financial position, results of operations or cash flows.

    Intangibles—Goodwill and Other

        In April 2008, the FASB issued authoritative guidance used to determine the useful life of intangible assets. This guidance amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. This change is intended to improve the consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset. The requirement for determining useful lives must be applied prospectively to intangible assets acquired after the effective date and the disclosure requirements must be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. The guidance is effective for fiscal years beginning after December 15, 2008 (November 1, 2009 for the Company) and interim periods within those years, with earlier adoption prohibited. The adoption of this guidance has had no material impact on the Company's financial position, results of operations, or cash flows.

    Business Combinations

        In December 2007, new guidance was issued providing greater consistency in the accounting and financial reporting of business combinations. It requires the acquiring entity in a business combination to recognize all assets acquired and liabilities assumed in the transaction, establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed, and requires the acquirer to disclose the nature and financial effect of the business combination. The guidance is effective for fiscal years beginning after December 15, 2008 (November 1, 2009 for the Company) and interim periods within those years, with earlier adoption prohibited. The adoption of this new guidance had no material impact on the Company's financial position, results of operations, or cash flows.

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NOTE 2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

        In April 2009, additional guidance was issued which requires that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value, if fair value can be determined during the measurement period. This new rule specifies that an asset or liability should be recognized at time of acquisition if the amount of the asset or liability can be reasonably estimated and that it is probable that an asset existed or that a liability had been incurred at the acquisition date. This new rule is effective for all fiscal years beginning after December 15, 2008 (November 1, 2009 for the Company). The adoption of this new guidance had no material impact on the Company's financial position, results of operations, or cash flows.

    Fair Value Measurements

        In August 2009, the FASB issued additional guidance regarding fair value measurements. This guidance provides clarification for circumstances in which a quoted price in an active market for the identical liability is not available. In these circumstances, a reporting entity is required to measure fair value using one or more of the following methods: (1) a valuation technique that uses a) the quoted price of the identical liability when traded as an asset or b) quoted prices for similar liabilities or similar liabilities when traded as assets and/or (2) a valuation technique that is consistent with U.S. GAAP (e.g. an income approach or market approach). This guidance also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include inputs relating to the existence of transfer restrictions on that liability. This guidance is effective for fiscal years and fiscal quarters beginning after August 26, 2009 (November 1, 2009 for the Company). The adoption of this standard had no material effect on the Company's consolidated financial statements.

    Fair Value Measurement Disclosure

        In January 2010, the 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.

    Recent Accounting Pronouncements Not Yet Adopted

    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

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NOTE 2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 is effective at the start of a company's first fiscal year beginning after November 15, 2009 (November 1, 2010 for the Company). We do not expect that the adoption of this new guidance will have an impact on our historical consolidated financial position, cash flows and results of operations.

    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 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. We are currently evaluating the impact this guidance may have on our results of operations, financial position and cash flows.

    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 will include 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 is effective for Versant for revenue arrangements entered into or materially modified beginning on November 1, 2010. We are currently evaluating the impact this guidance may have on our results of operations, financial position and cash flows.

    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 is effective for Versant beginning November 1, 2010. We are currently evaluating the impact this guidance may have on our results of operations, financial position and cash flows.

    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

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October 31, 2010

NOTE 2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 is the first quarter of fiscal year 2011. The effective date for disclosures for activity during the reporting period is the second quarter of fiscal year 2011. The adoption will not have a material effect on the Company's consolidated financial statements.

NOTE 3.    FAIR VALUE MEASUREMENTS

        Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures, defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market for the transaction and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.

        The Financial Accounting Standards Board (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.

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October 31, 2010

NOTE 3.    FAIR VALUE MEASUREMENTS (Continued)

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 October 31, 2010 (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

  $ 18,017   $   $  
 

Time deposits

    5,600          
               
   

Total

  $ 23,617   $   $  
               

        The fair value of money market funds and time deposits reflect quoted market prices in an active market.

NOTE 4.    VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

        Versant evaluates and revises its allowance for doubtful accounts receivable as part of its quarter end process at each 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 (in thousands):

 
  Fiscal Year Ended October 31,  
 
  2010   2009   2008  

Allowance for doubtful accounts:

                   

Beginning balance

  $ 36   $ 16   $ 68  

Adjustments to provision

    (28 )   20     (52 )
               

Ending balance

  $ 8   $ 36   $ 16  
               

NOTE 5.    ACQUISITIONS, GOODWILL AND INTANGIBLE ASSETS

    Acquisition

        On December 1, 2008, the Company acquired the assets of the database software business of privately-held Servo Software, Inc. or "Servo" (formerly known as db4objects, Inc.) pursuant to an asset purchase agreement between Versant and Servo dated December 1, 2008 (the "db4o Purchase Agreement"). The acquisition of the db4o assets allows Versant to provide an open source object

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October 31, 2010

NOTE 5.    ACQUISITIONS, GOODWILL AND INTANGIBLE ASSETS (Continued)

database software solution targeting the embedded device market. Our results of operations include db4o transactions from the acquisition date of December 1, 2008.

        The total purchase price of $2.6 million for the db4o assets 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 as of October 31, 2010 is summarized below (in thousands):

Tangible net assets acquired

  $ 84  

Customer relationships

    210  

Developed technology

    300  

Trade name

    100  

Goodwill

    1,869  
       

  $ 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.

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October 31, 2010

NOTE 5.    ACQUISITIONS, GOODWILL AND INTANGIBLE ASSETS (Continued)

        db4o's results of operations for periods prior to this acquisition were not material to the Company's condensed consolidated statements of income and, accordingly, pro forma financial information has not been presented.

    Goodwill

        The following table presents goodwill balances and acquisitions of, and adjustments to, goodwill during the fiscal year ended October 31, 2010 (in thousands):

 
  Net carrying
amount as of
October 31,
2009
  Goodwill
acquired
  Adjustments
to Goodwill
  Net carrying
amount as of
October 31,
2010
 

Goodwill:

                         

Versant Europe

  $ 241   $   $   $ 241  

Poet Holdings, Inc. 

    5,752             5,752  

FastObjects, Inc. 

    677             677  

JDO Genie (PTY), LTD

    50             50  

db4o

    1,690     180     (1 )   1,869  
                   
 

Total

  $ 8,410   $ 180   $ (1 ) $ 8,589  
                   

        Goodwill is subject to at least an annual assessment for impairment, applying a fair-value based test. Versant conducted its annual impairment test in October 2010 and determined there was no impairment.

        The goodwill acquired in the db4o acquisition will be deductible for tax purposes based upon a 15 year tax life.

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October 31, 2010

NOTE 5.    ACQUISITIONS, GOODWILL AND INTANGIBLE ASSETS (Continued)

    Intangible Assets

        The Company's intangible assets' balances as of October 31, 2010 and October 31, 2009 are as follows (in thousands):

 
  As of October 31, 2010   As of October 31, 2009  
Intangible assets:
  Gross
Carrying
Amount
  Accumulated
Amortization
  Net
Carrying
Amount
  Gross
Carrying
Amount
  Accumulated
Amortization
  Net
Carrying
Amount
 

Poet Holdings, Inc.—Developed Technology & Customer Relationships (Amortized over 7 years)

  $ 1,919   $ 1,832   $ 87   $ 1,919   $ 1,643   $ 276  

db4o—Developed Technology (Amortized over 5 years)

    300     115     185     300     55     245  

db4o—Customer Relationships (Amortized over 9 years)

    210     44     166     210     21     189  

FastObjects, Inc.—Customer Relationships (Amortized over 6 years)

    148     148         148     137     11  

db4o—Trade Name (Amortized over 5 years)

    100     39     61     100     19     81  
                           
 

Total

  $ 2,677   $ 2,178   $ 499   $ 2,677   $ 1,875   $ 802  
                           

        Aggregate amortization expense for intangible assets was $303,000, $373,000 and $315,000, respectively, for the fiscal years ended October 31, 2010, October 31, 2009 and October 31, 2008, respectively.

        The projected amortization of the Company's existing intangible assets as of October 31, 2010 is as follows (in thousands):

 
  Amortization  

Fiscal year ending October 31,

       

2011

  $ 190  

2012

    104  

2013

    103  

2014

    30  

2015

    23  

Thereafter

    49  
       
 

Total

  $ 499  
       

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October 31, 2010

NOTE 6.    LEASE OBLIGATIONS

        Versant's principal commitments as of October 31, 2010 consist of obligations under operating leases for facilities and equipment commitments.

        Versant leases office space for its U.S. headquarters in Redwood City, California and also leases field office space in Hamburg, 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 has a term of sixty months, which commenced in December 2009. Versant has the option to extend the term of the lease for up to two additional three-year periods at an inflation adjusted monthly rent. The total rent payable over the lease term remaining as of October 31, 2010, will be approximately $679,000.

        On September 3, 2009, the Company and CA-Shorebreeze Limited Partnership entered into the First Amendment (the "Amendment") of an Office Building Lease executed between the parties on March 23, 2007. The Amendment extends 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, and also provided for a one-year renewal option at fair market rent. The total rent payable over the lease term remaining as of October 31, 2010 will be approximately $520,000.

        Consolidated rent expense in fiscal years ended October 31, 2010, 2009 and 2008, was approximately $427,000, $507,000, and $550,000, respectively.

        The Company's future annual minimum commitments as of October 31, 2010 under non-cancelable operating leases are listed as follows (in thousands):

 
  Facilities
Leases
  Equipment
Leases
  Total  

Fiscal year ending October 31,

                   

2011

  $ 360   $ 5   $ 365  

2012

    368     5     373  

2013

    287     2     289  

2014

    169         169  

2015

    15           15  

Thereafter