<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-28540
VERSANT OBJECT TECHNOLOGY CORPORATION
(Exact name of Small Business Issuer as specified in its charter)
California 94-3079392
State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization
1380 Willow Road
Menlo Park, California 94025
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (415) 329-7500
Check whether the Issuer (1) 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 No X
--- ---
The number of shares of common stock, no par value, outstanding
as of July 20,1996: 8,472,069
Transitional Small Busines Disclosure Format (check one):
Yes No X
--- ---
<PAGE> 2
VERSANT OBJECT TECHNOLOGY CORPORATION
FORM 10-QSB
Quarterly Period Ended June 30, 1996
Table of Contents
Part I. Financial Information
Item 1. Financial Statements Page No.
Condensed Balance Sheets -- June 30, 1996 and December 31,
1995 3
Condensed Statements of Operations -- Quarters Ended June
30, 1996 and June 30, 1995, and Six Months Ended
June 30, 1996 and June 30, 1995. 4
Condensed Statements of Cash Flows -- Six Months Ended
June 30, 1996 and June 30, 1995. 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 18
Signature 19
<PAGE> 3
Part I. Financial Information
Item 1. Financial Statements
VERSANT OBJECT TECHNOLOGY CORPORATION
CONDENSED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- ------------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,647 $ 1,281
Accounts receivable, net 5,665 4,025
Other current assets 278 561
-------- --------
Total current assets 7,590 5,867
Property and equipment, net 350 365
Intangible assets 671 -
Long-term deposits 84 91
-------- --------
$ 8,695 $ 6,323
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit $ 300 $ -
Current portion of capitalized lease obligations 71 27
Accounts payable 281 193
Accrued liabilities 2,592 2,235
Deferred revenue 2,199 1,864
Deferred income taxes 12 -
-------- --------
Total current liabilities 5,455 4,319
Long-term liabilities, net of current portion:
Capitalized lease obligations 166 74
Deferred rent - 39
-------- --------
Total long-term liabilities 166 113
Shareholders' equity:
Preferred stock 4,429 4,429
Common stock 21,562 20,488
Accumulated deficit (22,917) (23,026)
-------- --------
Total shareholders' equity 3,074 1,891
-------- --------
$ 8,695 $ 6,323
======== ========
</TABLE>
<PAGE> 4
VERSANT OBJECT TECHNOLOGY CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
License $ 3,000 $ 2,094 $ 4,971 $ 3,538
Services 1,616 1,165 2,823 2,166
------- ------- ------- -------
Total revenue 4,616 3,259 7,794 5,704
Cost of revenue:
License 202 469 491 703
Services 645 500 1,190 977
------- ------- ------- -------
Total cost of revenue 847 969 1,681 1,680
Gross profit 3,769 2,290 6,113 4,024
Operating expenses:
Marketing and sales 2,127 1,476 3,855 3,016
Research and development 835 508 1,522 993
General and administrative 310 329 586 820
------- ------- ------- -------
Total operating expenses 3,272 2,313 5,963 4,829
Income (loss) from operations 497 (23) 150 (805)
Interest income (expense), net (9) 25 (18) 57
Foreign tax (expense) income
(expense) (2) 2 (11) (63)
------- ------- ------- -------
Income (loss) before taxes 486 4 121 (811)
Provision for income taxes 12 -- 12 --
------- ------- ------- -------
Net income (loss) $ 474 $ 4 $ 109 $ (811)
======= ======= ======= =======
Net income (loss) per share $ 0.07 $ 0.00 $ 0.02 $ (0.14)
======= ======= ======= =======
Weighted average common and 6,877 5,779 6,466 5,720
common equivalent shares ======= ======= ======= =======
</TABLE>
<PAGE> 5
VERSANT OBJECT TECHNOLOGY CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 109 $ (811)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 163 128
Changes in current assets and liabilities:
(Increase) decrease in accounts receivable (1,640) 486
Increase (decrease) in other current assets 35 (478)
Increase in accounts payable 88 27
Increase (decrease) in accrued liabilities 330 (634)
Increase (decrease) in deferred revenue 335 (312)
------- -------
Net cash used in operating activities (580) (1,594)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (148) (178)
Decrease in short-term investments -- 1,692
(Decrease) increase in long-term deposits (669) 63
------- -------
Net cash (used in) provided by investing activities (817) 1,577
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock, net of repurchases 1,326 302
Proceeds from (payment of) capital lease obligations 137 (18)
Proceeds from note payable to bank 300 --
------- -------
Net cash provided by financing activities 1,763 284
NET INCREASE IN CASH AND CASH EQUIVALENTS 366 267
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,281 1,647
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,647 $ 1,914
======= =======
</TABLE>
<PAGE> 6
NOTES TO CONDENSED FINANCIAL STATEMENTS - UNAUDITED
1. Basis of Presentation
The condensed financial statements included herein have been prepared
by Versant Object Technology Corporation ("Versant" or the "Company"), without
audit, pursuant to rules and regulations of the Securities and Exchange
Commission (the "SEC"). Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. However, the Company believes that the disclosures are adequate to
make the information presented not misleading. These condensed financial
statements and the notes thereto should be read in conjunction with the
Company's audited financial statements included in the Company's Form
SB-2 Registration Statement declared effective by the SEC on July 17, 1996. The
unaudited information has been prepared on the same basis as the annual
financial statements and, in the opinion of the Company's management, reflects
all normal recurring adjustments necessary for a fair presentation of the
information for the periods presented. The interim results presented herein are
not necessarily indicative of the results of operations that may be expected for
the full fiscal year ending December 31, 1996 or any other future period.
2. Summary of Significant Accounting Policies
REVENUE RECOGNITION
Revenue consists mainly of revenue earned under software license
agreements, maintenance agreements and consulting and training activities.
Revenue from perpetual software license agreements is recognized as
revenue upon shipment of the software if no significant vendor obligations
remain, payments are due within the Company's normal payment terms and
collection of the resulting receivable is probable. In instances where a
significant vendor obligation exists, revenue recognition is delayed until such
obligation is satisfied. If an acceptance period is required, revenue is
recognized upon the earlier of customer acceptance or the expiration of the
acceptance period.
<PAGE> 7
The Company has entered into contracts with certain of its customers
that require the Company to perform development work in return for nonrecurring
engineering fees. Revenue related to such nonrecurring engineering fees is
generally recognized on a percentage of completion basis.
Maintenance revenue is recognized ratably over the term of the
maintenance contract. Consulting and training revenue is recognized when a
customer's purchase order is received and the services are performed.
NET INCOME PER SHARE
Except as noted below, net income per share is computed using the
weighted average number of outstanding shares of common and common equivalents
from outstanding stock options (using the treasury stock method when dilutive).
Common equivalent shares were excluded from the computation if their effect was
antidilutive except that, pursuant to the SEC Staff Accounting Bulletin and
Staff policy, such computations include all common and common stock equivalent
shares issued within 12 months preceding the filing date of the Company's
initial public offering as if they were outstanding for all periods presented
(using the treasury stock method assuming the public offering price).
Mandatorily redeemable convertible preferred stock outstanding during the
period were included (using the if converted method) in the computation as
common equivalent shares even though the effect is antidilutive. Primary and
fully diluted earnings per common share were substantially the same in all
periods presented.
SOFTWARE DEVELOPMENT COST
The Company capitalizes eligible computer software development costs
upon the establishment of technological feasibility, which the Company has
defined as completion of a working model. For the periods presented, costs
eligible for capitalization were insignificant and, thus, the Company charged
all software development costs to research and development expense as incurred.
INITIAL PUBLIC OFFERING
In July and August 1996, the Company consummated a public offering of
2,380,500 shares of common stock (including an over-allotment option of 310,500
shares, which was exercised in August 1996) at $8.00 per share (which included
243,658 shares sold by stockholders), resulting in net proceeds to the Company
of approximately $14,900,000 after offering costs.
<PAGE> 8
3. Stock Plans
1996 Equity Incentive Plan
In May 1996, the Board adopted the 1996 Equity Incentive Plan (the
"1996 Equity Plan") and the Company's shareholders approved the 1996 Equity Plan
in June 1996. The 1996 Equity Plan will serve as the successor equity incentive
program to the Company's 1989 Option Plan. The 1996 Equity Plan provides for the
grant of stock options and stock bonuses and the issuance of restricted stock by
the Company to its employees, officers, directors, consultants, independent
contractors and advisors. Options granted under the 1989 Option Plan before its
termination will remain outstanding in accordance with their terms, but no
further options will be granted under the 1989 Option Plan after the offering.
The Company has reserved 850,000 shares of common stock for issuance under the
1996 Equity Plan. Any authorized shares that are not issued or subject to
outstanding grants under the 1989 Option Plan will be available for grant and
issuance in connection with future awards under the 1996 Equity Plan.
1996 Employee Stock Purchase Plan
In May 1996, the Board adopted the 1996 Employee Stock Purchase Plan
(the "Purchase Plan") and the Company's shareholders approved the Purchase Plan
in June 1996. The Company has reserved 125,000 shares of common stock for
issuance under the Purchase Plan. The Purchase Plan will enable eligible
employees to purchase common stock at 85% of the lower of the fair market value
of the Company's common stock on the first or last day of each offering period.
1996 Directors Stock Option Plan
In May 1996, the Board adopted the 1996 Directors Stock Option Plan
(the "Directors Plan") and the Company's shareholders approved the Directors
Plan in June 1996. The Company has reserved 75,000 shares of common stock for
issuance under the Directors Plan. The Directors Plan provides for the grant of
nonqualified stock options to nonemployee directors of the Company. The exercise
price of all options granted under the Directors Plan will be the fair market
value of the common stock on the date of grant. All options issued under the
Directors Plan will vest as to 50% of the shares on each of the first two
anniversaries following the date of grant, provided the optionee continues as a
member of the Board or as a consultant to the Company.
<PAGE> 9
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
This Management's Discussion and Analysis of Financial Condition and Results of
Operations includes a number of forward-looking statements written in the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
which reflect the Company's current views with respect to future events and
financial performance. These forward-looking statements are subject to certain
risks and uncertainties, including those discussed below and in the Company's
Form SB-2 Registration Statement, declared effective by the SEC on July 17,
1996, that could cause actual results to differ materially from historical
results or those anticipated in the forward-looking statements. The Company has
identified with a preceding asterisk ("*") various sentences within this Form
10-QSB which contain such forward-looking statements, and words such as
"believes," "anticipates," "expects," "may," "future," "intends" and similar
expressions as intended to identify forward-looking statements; however,
neither the preceding asterisk nor these words are the exclusive means of
identifying such statements. In addition, this remainder of this section, which
has no asterisks for improved readability, includes a substantial number of
forward-looking statements. The Company undertakes no obligation to revise any
forward-looking statements in order to reflect events or circumstances that may
arise after the date of this report.
Substantially all of Versant's revenue has been derived from (i) sales of
development and deployment licenses for the Versant ODBMS, (ii) related
maintenance and support, training, consulting and nonrecurring engineering fees
(the "Associated Services") and (iii) the resale of licenses, maintenance,
training and consulting for third-party products that complement the Versant
ODBMS ("Third-Party Products"). The Company released version 4.0 of the Versant
ODBMS in July 1995. The Company currently expects that licenses of the Versant
ODBMS and Associated Services will be the Company's principal sources of revenue
for the foreseeable future. As a consequence, the Company's future operating
results will depend upon its ability to expand market acceptance of the Versant
ODBMS.
The Company's operating results have varied significantly in the past and are
expected to vary significantly in the future, on a quarterly and annual basis,
as a result of a number of factors, many of which are outside the Company's
control. These factors include demand for the Company's products and services
and the size, timing and structure of significant licenses by customers. The
Company's license revenue is substantially dependent on orders booked and
shipped in that quarter, and historically a majority of the Company's revenue in
any quarter has been recorded in the third month of that quarter, with a
concentration of such revenue in the last few days of the quarter. Due to these
and other factors, the Company's revenue for any future period will vary
significantly from any prior period, and it is impossible to predict revenue for
any period prior to its end.
The Company has experienced a seasonal pattern in its operating results, with
the fourth quarter typically having higher total revenue and income from
operations than the first quarter, and often subsequent quarters, of the
following year. The Company believes that the seasonal pattern of its revenue
has resulted primarily from the budgeting cycles of its customers and the
structure of the Company's sales commission
<PAGE> 10
program, and the Company believes that this pattern is likely to continue for
the foreseeable future. However, there can be no assurance that this pattern
will continue.
A significant portion of the Company's total revenue has been, and the Company
believes will continue to be, derived from a limited number of orders placed by
large organizations. The timing of such orders and their fulfillment has caused,
and likely will continue to cause, material fluctuations in the Company's
operating results, particularly on a quarterly basis. In the second quarter of
1996, two customers accounted for approximately 50% of total revenue. The
Company's sales cycle, which varies substantially from customer to customer,
often exceeds six months and can extend to a year or more. Because of this
lengthy sales cycle and the relatively large average dollar size of individual
licenses, lost or delayed sales can have a significant impact on the Company's
operating results for a particular period. Further, in the second quarter of
1996, approximately 80% of the Company's license revenue was derived from
customers in the telecommunications industry. There can be no assurance that the
Company will earn comparable revenue from these customers or this industry in
future periods.
Although Versant was profitable in the second and fourth quarters of 1995 and
the second quarter of 1996, it has never been profitable on an annual basis, and
there can be no assurance that the Company will be profitable on a quarterly or
annual basis in the future. The Company's limited operating history and the
relative immaturity of its market make the prediction of future operating
results impossible. The market for the Company's products is highly competitive,
and the Company may experience increasing pricing pressures from both its
current competitors and new market entrants. Any material reduction in the price
of the Company's products would materially adversely affect the Company's
operating results.
<PAGE> 11
RESULTS OF OPERATIONS
The following table sets forth the percentages that income statement items are
to total revenue for the three months ended June 30, 1996 and 1995 and the six
months ended June 30, 1996 and 1995.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1996 1995 1996 1995
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue:
License 64.98% 64.25% 63.78% 62.03%
Services 35.02 35.75 36.22 37.97
------ ------ ------ ------
Total revenue 100.00 100.00 100.00 100.00
------ ------ ------ ------
Cost of revenue:
License 4.38 14.39 6.30 12.32
Services 13.97 15.34 15.27 17.14
------ ------ ------ ------
Total cost of revenue 18.35 29.73 21.57 29.46
------ ------ ------ ------
Gross Margin 81.65 70.27 78.43 70.54
------ ------ ------ ------
Operating Expenses:
Marketing and sales 46.08 45.30 49.46 52.87
Research and development 18.09 15.58 19.53 17.41
General and administrative 6.72 10.09 7.51 14.38
------ ------ ------ ------
Total operating expenses 70.89 70.97 76.50 84.66
------ ------ ------ ------
Income (loss) from operations 10.78 (0.70) 1.92 (14.11)
Interest income (expense), net (0.20) 0.77 (0.23) 1.00
Foreign withholding tax (expense) income (0.04) 0.06 (0.14) (1.10)
------ ------ ------ ------
Income (loss) before provision for income taxes 10.54 0.13 1.55 (14.21)
Provision for income taxes 0.26 0.00 0.15 0.00
------ ------ ------ ------
Net Income (loss) 10.27% 0.13% 1.40% (14.22)%
====== ====== ====== ======
</TABLE>
<PAGE> 12
Revenue
The Company's total revenue increased 42% from $3.3 million in the second
quarter of 1995 to $4.6 million in the second quarter of 1996. For the six
months ended June 30, 1996, the Company's total revenue increased 37% to $7.8
million from $5.7 million in the corresponding period of 1995. This increase was
due to increased sales of the Company's products and services, primarily in the
telecommunications industry, as well as a larger and more experienced direct
sales force.
License revenue increased 43% from $2.1 million in the second quarter of 1995 to
$3.0 million in the second quarter of 1996. License revenue increased 41% from
$3.5 million for the six months ended June 30, 1995 to $5.0 million for the
corresponding period of 1996. License revenue as a percentage of total revenue
remained stable at approximately 64% for the six months ended June 30, 1995 and
1996. The increase in license revenue was primarily due to larger average order
size as well as increased deployments by the Company's telecommunications
customers.
Services revenue increased 39% from $1.2 million in the second quarter of 1995
to $1.6 million in the second quarter of 1996. For the six months ended June 30,
1996, the Company's services revenue increased 30% to $2.8 million from $2.2
million in the corresponding period of 1995. The increase in services revenue is
principally due to an increase in training and consulting business with end-user
customers and increased maintenance revenue from a larger installed base offset
in part by a decrease in nonrecurring engineering fees.
Export sales accounted for 18% of the Company's total revenue in the second
quarter of 1996 and 46% in the second quarter of 1995. Export sales accounted
for 22% for the six months ended June 30, 1996 and 40% for the corresponding
period of 1995. The decrease in export sales was principally due to growth in
domestic revenue. Export sales in 1995 were unusually high due to a large
end-user contract with a single Canadian customer. *The Company intends to
expand its sales and marketing activities outside the United States,
<PAGE> 13
which will require significant management attention and financial resources.
During 1995, the Company entered into an agreement with ISAR-Vermogensverwaltung
Gbr mbH ("ISAR"), an entity formed by a group of European investors, pursuant to
which ISAR organized and funded Versant Europe. Versant provided Versant Europe
with exclusive European distribution rights for the Company's products, subject
to the rights of existing distributors, and with management responsibilities for
Versant's existing distributors in Europe. *The Company expects export sales as
a percentage of total revenue to increase in the future. International
operations are subject to a number of risks including longer receivable
collection periods and greater difficulty in accounts receivable collections,
unexpected changes in regulatory requirements, dependence on independent
resellers, multiple and conflicting regulations and technology standards,
import and export restrictions and tariffs, difficulties and costs of staffing
and managing foreign operations, potentially adverse tax consequences, the
burdens of complying with a variety of foreign laws and the impact of business
cycles and economic instability outside the United States.
Cost of Revenue
Total cost of revenue decreased 13% from $969,000 in the second quarter of
1995 to $847,000 in the second quarter of 1996. Total cost of revenue as a
percentage of total revenue decreased from 30% in the second quarter of 1995 to
18% in the second quarter of 1996. The Company's total cost of revenue remained
stable at $1.7 million for the six months ended June 30, 1996 and $1.7 million
for the six months ended June 30, 1995. Total cost of revenue as a percentage of
revenue decreased from 29% for the six months ended June 30, 1995 to 22% for the
six months ended June 30, 1996. The decrease in cost of revenue as a percentage
of revenue was principally attributable to a decrease in royalty obligations on
Third-Party Products.
Cost of license revenue consists primarily of product royalty obligations
incurred by the Company when it sub-licenses Third-Party Products, royalty
obligations incurred by the Company under a porting services agreement, bad debt
reserves, product packaging, freight, user manuals, product media and
<PAGE> 14
production labor costs. Cost of license revenue decreased 57% from $469,000 or
22% of license revenue in the second quarter of 1995 to $202,000 or 7% of
license revenue in the second quarter of 1996. Sales of Third-Party Products,
for which the Company has related product royalty obligations, were unusually
high in the second quarter of 1995 due to a large end-user contract with
one Canadian customer. For the six months ended June 30, 1996 cost of license
revenues decreased 30% to $491,000 or 10% of license revenue from $703,000 or
20% of license revenue in the corresponding period of 1995. The decrease in
cost of license revenue was primarily due to a decrease in royalty obligations
on Third-Party Products partially offset by an increase in the Company's bad
debt reserve.
Cost of services revenue consists principally of personnel costs associated
with providing training, consulting, technical support and nonrecurring
engineering work paid for by customers. These costs increased from $500,000 in
the second quarter of 1995 to $645,000 in the second quarter of 1996 due to the
expansion of the training, consulting and support organizations. Cost of
services as a percentage of services revenue decreased from 43% in the second
quarter of 1995 to 40% in the second quarter of 1996. For the six months ended
June 30, 1996, cost of services revenue as a percentage of services revenue was
42% compared to 45% in the corresponding period in 1995. Cost of service revenue
as a percentage of service revenue has declined due to an increase in
maintenance revenue without a corresponding increase in the cost of maintenance
revenue and reductions in the number of outside consultants that the Company
hired to meet its consulting obligations. *The Company anticipates that cost of
services revenue will increase in absolute dollar terms and that such cost as a
percentage of services revenue will not continue to decline. *To the extent
that services revenue increases relative to license revenue, overall gross
margins would decline, which could have a material adverse effect on the
Company's operating results and financial condition.
Operating Expenses
Marketing and Sales. Marketing and sales expenses consist primarily of
marketing and sales personnel costs, including sales commissions, recruiting and
travel, advertising, public relations,
<PAGE> 15
seminars, trade shows, product descriptive literature, product management, sales
offices and mailings. Marketing and sales expenses increased from $1.5 million
or 45% of total revenue in the second quarter of 1995 to $2.1 million or 46% of
total revenue in the second quarter of 1996. The increase in marketing and sales
expenses are primarily due to growth of the sales force, higher commissions
associated with increased revenue and expanded marketing activities, including
trade shows and promotional expenses. For the six months ended June 30, 1996
marketing and sales expenses increased to $3.9 million or 49% of total revenue
from $3.0 million or 53% of total revenue. The decrease in marketing and sales
expenses as a percentage of total revenue was attributable to the growth in
revenue. *The Company expects to continue hiring additional marketing and sales
personnel and to increase promotional expenses. *Marketing and sales expense may
increase as a percentage of total revenue as a result.
Research and Development. Research and development expenses consist
primarily of salaries, recruiting and personnel-related expenses, depreciation
of development equipment, supplies and travel. Research and development expenses
increased from $508,000 or 16% of total revenue in the second quarter of 1995 to
$835,000 or 18% of total revenue in the second quarter of 1996. For the six
months ended June 30, 1996 research and development costs increased from $1.0
million or 17% of total revenue to $1.5 million or 20% of total revenue in the
corresponding period in 1995. The increase in research and development expense
is primarily attributable to an increase in the number of software engineers and
related recruiting expenses as well as the costs of an ongoing ISO 9001 quality
certification program. To date, nearly all research and development expenditures
have been expensed as incurred. *The Company anticipates that it will continue
to devote substantial resources to research and development in order to remain
competitive.
General and Administrative. General and administrative expenses consist
primarily of salaries, recruiting and other personnel-related expenses for the
Company's accounting, human resources, management information systems, legal and
general management functions. In addition, general and administrative expenses
include outside legal and audit costs. General and administrative expenses
<PAGE> 16
decreased from $329,000 or 10% of total revenue in the second quarter of 1995 to
$310,000 or 7% of total revenue in the second quarter of 1996. For the six
months ended June 30, 1996 general and administrative expenses decreased to
$586,000 or 8% of total revenue from $820,000 or 14% of total revenue for the
corresponding period in 1995. General and administrative expenses were unusually
high in the first six months of 1995 due to the cost of litigating an
intellectual property matter settled in 1995. General and administrative
expenses outside of these litigation costs remained relatively unchanged and
therefore decreased as a percentage of total revenue due to the growth of
revenue. *The Company believes that the dollar amount of its general and
administrative expenses will increase through the remainder of 1996 as the
Company expands its administrative staff and incurs additional costs related to
being a public company.
Liquidity and Capital Resources
Total assets as of June 30, 1996 increased $2.4 million from December 31,
1995. The increase was primarily due to increases in accounts receivable,
intangible assets and cash. Net accounts receivable increased $1.6 million
primarily due to increased sales activity as well as a temporary delay in
payment by one large customer which has since substantially paid the amount it
owed to the Company. The increase in intangible assets include certain
capitalized costs of the initial public offering completed on July 23, 1996.
Cash and cash equivalents increased $366,000 for the six months ended June 30,
1996, primarily as a result of the sale of Common Stock to ISAR and the
Company's employees, offset in part by cash used in operating activities.
Total liabilities as of June 30, 1996, increased $1.2 million from December
31, 1995. The increase was primarily due to borrowings under the Company's line
of credit as well as increases in accrued liabilities, deferred revenue and
accounts payable. During the first quarter of 1996, the Company borrowed
$300,000 under its revolving credit line which was repaid in July 1996. The
increases in accrued liabilities and accounts payable are primarily due to
increased expense levels as well as estimated costs of the public offering. The
increase in deferred revenue is primarily attributable to higher transaction
volume and associated deferrals of revenue related to maintenance agreements.
<PAGE> 17
For the six months ended June 30, 1996, operating activities used $580,000
primarily as a result of an increase in accounts receivable. Investing
activities used cash of $817,000 primarily as a result of costs associated with
the public offering completed July 23, 1996. Financing activities provided $1.8
million primarily from the private sale of common stock.
At June 30, 1996, the Company had $1.6 million in cash and cash equivalents. The
Company maintains a revolving credit line with a bank that expires June 1997.
The maximum amount that can be borrowed under the revolving credit line is $2.5
million. Borrowings under the revolving credit line are limited to 80% of
eligible accounts receivable and are secured by a lien on substantially all of
the Company's assets (which lien shall be released at such time and for so long,
as the Company meets certain net profit and tangible net worth tests). These
borrowings bear interest at a rate of 0.50% over the bank's prime lending rate.
The loan agreement contains certain financial covenants and also prohibits cash
dividends and mergers and acquisitions without the Bank's prior approval. The
Company is currently in compliance with these covenants. The Company also has a
line of credit from a finance company that provides $500,000 for use in leasing
of approved capital equipment through March 31, 1997. In July and August 1996,
the Company consummated an initial public offering (including the exercise of
the Underwriters' over-allotment option in August 1996), which resulted in net
proceeds to the Company of approximately $14.9 million. The Company expects that
its available funds will satisfy the Company's projected working capital and
capital expenditures for at least the next twelve months.
<PAGE> 18
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
In April 1996, the Company solicited the written consents of its shareholders
to approve the following matters: (i) an increase in the number of shares
issuable under the Company's 1989 Stock Option Plan by 150,000 shares, from
1,863,826 shares to 2,013,826 shares; (ii) an amendment to the Company's
Amended and Restated Articles of Incorporation to reflect the increase in the
number of shares issuable under the Company's 1989 Stock Option Plan; (iii) an
amendment to the Company's Preferred Stock Purchase Agreement to reflect the
increase in the number of shares issuable under the Company's 1989 Stock
Option Plan; and (iv) the waiver of any right of first refusal, under the
Company's Preferred Stock Purchase Agreement or otherwise, in connection with
the sale by the Company of 100,000 shares of the Company's Common Stock to the
Company's European distributor or an affiliated party. The Company received the
consents of 2,132,938 shares of its outstanding Common Stock (50.7%) and
1,953,026 shares of its outstanding Preferred Stock (82.50%) approving each of
the foregoing matters. Consents were not returned to the Company with respect
to 2,073,489 shares of its outstanding Common Stock and 414,398 shares of its
outstanding Preferred Stock.
In May 1996, the Company solicited the written consents of its shareholders to
approve the following names: (i) an amendment to the Company's Articles of
Incorporation to increase the number of authorized shares of Common Stock from
10,000,000 to 30,000,000 and to authorize an additional 3,000,000 shares of
Preferred Stock: (ii) the elimination of cumulative voting for the election of
directors, effective at such time as the Company becomes a "listed" corporation;
(iii) the form of Indemnity Agreement to be entered into by the Company with its
officers and directors; (iv) the Company's 1996 Equity Incentive Plan and the
reservation of both 850,000 shares of Common Stock and certain shares of Common
Stock previously reserved under the Company's 1989 Stock Option Plan for
issuance thereunder; (v) the Company's 1996 Directors Stock Option Plan and the
reservation of 75,000 shares of Common Stock for issuance thereunder; (vi) the
Company's 1996 Employee Stock Purchase Plan and the reservation of 125,000
shares of Common Stock for issuance thereunder; (vii) the amendment and
restatement of the Company's Bylaws; (viii) the restatement of the Company's
Articles of Incorporation following the Company's initial public offering; and
(ix) an increase in the number of shares issuable under the Company's 1989 Stock
Option Plan by 150,000 shares, from 1,863,826 shares to 2,013,826 shares. The
Company received the consents of 2,849,494 shares of its outstanding Common
Stock (67.74%) and 1.922,678 shares of its outstanding Preferred Stock (81.22%)
approving each of the foregoing matters. Consents were not returned to the
Company with respect to 912,522 shares of its outstanding Common Stock and
444,696 shares of its outstanding Preferred Stock.
<PAGE> 19
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VERSANT OBJECT TECHNOLOGY CORPORATION
Date: August 14, 1996 /s/ Richard I. Kadet
_____________________ _____________________________________
Richard I. Kadet
Vice President Finance and Administration.
Chief Financial Officer, Treasurer and Secretary
(Duly Authorized Officer and Principal
Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENTS OF OPERATIONS AND BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1647
<SECURITIES> 0
<RECEIVABLES> 5908
<ALLOWANCES> 243
<INVENTORY> 0
<CURRENT-ASSETS> 7590
<PP&E> 3451
<DEPRECIATION> 3101
<TOTAL-ASSETS> 8695
<CURRENT-LIABILITIES> 5455
<BONDS> 0
4429
0
<COMMON> 21562
<OTHER-SE> (22917)
<TOTAL-LIABILITY-AND-EQUITY> 8695
<SALES> 7794
<TOTAL-REVENUES> 7794
<CGS> 0
<TOTAL-COSTS> 1681
<OTHER-EXPENSES> 5974
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18
<INCOME-PRETAX> 121
<INCOME-TAX> 12
<INCOME-CONTINUING> 109
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 109
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
