<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 March 31, 1997
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 [ X ] No [ ]
The number of shares of common stock, no par value, outstanding
as of April 30, 1997: 8,961,345
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [ X ]
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VERSANT OBJECT TECHNOLOGY CORPORATION
FORM 10-QSB
Quarterly Period Ended March 31, 1997
Table of Contents
Part I. Financial Information
<TABLE>
<CAPTION>
Item 1. Financial Statements Page No.
<S> <C>
Condensed Consolidated Balance Sheets -- March 31, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Operations -- Three Months Ended March 31, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows --Three Months Ended March 31, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8
Part II.
Signature 13
</TABLE>
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VERSANT OBJECT TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------- -----------
(unaudited) (*)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 790 $ 5,267
Short-term investments 15,759 14,716
Accounts receivable, net 3,935 4,747
Other current assets 1,829 198
------- -------
Total current assets 22,313 24,928
Property and equipment, net 921 675
Other assets 307 85
Excess of cost of investment over fair value of
net assets acquired, net 3,336 -
------- -------
$26,877 $25,688
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 899 $ -
Current portion of capitalized lease obligations 232 226
Notes payable 106 -
Accounts payable 515 475
Accrued liabilities 2,476 2,374
Deferred revenue 2,361 2,811
Deferred taxes 169 115
------- -------
Total current liabilities 6,758 6,001
Long-term liabilities, net of current portion:
Capitalized lease obligations 352 413
Shareholders' equity:
Common stock 42,453 40,889
Accumulated deficit (22,686) (21,615)
------- -------
Total shareholders' equity 19,767 19,274
------- -------
$26,877 $25,688
======= =======
</TABLE>
* Derived from audited financial statements.
See accompanying notes
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VERSANT OBJECT TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------
1997 1996
---- ----
<S> <C> <C>
Revenue:
License $ 1,912 $ 1,971
Services 1,873 1,207
------- -------
Total revenue 3,785 3,178
Cost of revenue:
License 238 289
Services 782 545
------- -------
Total cost of revenue 1,020 834
------- -------
Gross profit 2,765 2,344
Operating expenses:
Marketing and sales 2,603 1,728
Research and development 937 687
General and administrative 497 276
------- -------
Total operating expenses 4,037 2,691
------- -------
Loss from operations (1,272) (347)
Interest income (expense) and other, net 204 (9)
------- -------
Loss before taxes (1,068) (356)
Foreign withholding tax expense 3 9
------- -------
Net loss $(1,071) $ (365)
======= ======
Net loss per share $ (0.12)
=======
Pro forma net loss per share $(0.06)
======
Weighted average common and
common equivalent shares
8,780
=======
Pro forma weighted average common and
common equivalent shares 6,103
======
</TABLE>
See accompanying notes
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VERSANT OBJECT TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $(1,071) $ (365)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:
Depreciation and amortization 135 82
Deferred rent (11) -
Changes in operating assets and liabilities,
net of acquisition of Versant Europe:
Accounts receivable 1,499 714
Other assets (783) 317
Accounts payable (258) (100)
Accrued liabilities and income tax payable (453) (376)
Deferred revenue (590) (243)
------- ------
Net cash (used in) provided by operating activities (1,532) 29
------- ------
INVESTING ACTIVITIES:
Purchase of property and equipment (259) (79)
Purchases of short-term investments (7,643) -
Proceeds from maturity of short-term investments 6,600 -
Acquisition of Versant Europe, net of cash acquired (1,987) -
Deposits (116) (10)
------- ------
Net cash used in investing activities (3,405) (89)
------- ------
FINANCING ACTIVITIES:
Net proceeds from sale of common stock to employees 420 21
Proceeds from (payment of) capital lease obligations (55) 97
Proceeds from borrowings 108 300
------- ------
Net cash provided by financing activities 473 418
Effect of exchange rate changes on cash (13) -
------- ------
NET CHANGE IN CASH AND CASH EQUIVALENTS (4,477) 358
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,267 1,281
------- ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 790 $1,639
======= ======
Supplemental disclosures of cash flow information
Cash paid for:
Interest $ 17 $ 12
Income taxes $ 100 $ -
Non-cash investing activities:
Common stock issued in the acquisition of Versant Europe $ 1,634 $ -
</TABLE>
See accompanying notes
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
1. Basis of Presentation
The condensed consolidated 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 10-KSB for
the year ending December 31, 1996 filed with the SEC. 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, 1997 or any other future period.
2. Summary of Significant Accounting Policies
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, Versant Object Technology GmbH ("Versant
Europe"). All intercompany accounts and transactions have been eliminated.
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.
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 LOSS PER COMMON SHARE
Except as noted below, net loss 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 No. 83
and Staff policy, such computations for the 1996 period 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 1996 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.
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In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting standards No. 128, "Earnings Per Share" (SFAS 128) and
No. 129, "Disclosure of Information About Capital Structure" (SFAS 129), which
are effective for fiscal years ending after December 15, 1997. Early application
is not permitted. The Company will adopt SFAS 128 and 129 for its year ending
December 31, 1997. The pro forma basic and diluted net loss per share for the
first quarter of 1997 would be the same as disclosed on the Condensed
Consolidated Statement of Operations:
INVESTMENTS
Investments have been accounted for in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115. The Company classifies its
investments as held-to-maturity investments as defined under the provisions of
SFAS 115 and carries such investments at amortized cost in its balance sheet.
SOFTWARE DEVELOPMENT COST
The Company capitalizes eligible 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.
3. Acquisition of Versant Europe
On March 26, 1997, the Company acquired Versant Object Technology GmbH
(Versant Europe), an independently owned distributor of the Company's products
in Europe. The Company paid $3.6 million to the shareholder of Versant Europe
consisting of $2.0 million in cash and 167,545 shares of common stock valued at
$9.75 per share. The shares of Company's Common Stock, no par value, paid to
the shareholder of Versant Europe were issued in a transaction exempt from
registration under the Securities Act of 1933, as amended, by virtue of Section
4(2), thereof. The acquisition was accounted for using the purchase method of
accounting. Accordingly, the results of operations of Versant Europe are
reflected in the condensed consolidated financial statements commencing on the
date of acquisition.
The acquisition of Versant Europe resulted in the Company recording an
intangible asset representing the cost in excess of fair value of the net assets
acquired (goodwill) in the amount of $3.3 million, which is being amortized over
a seven year period. Consolidated operations for the quarter ended March 31,
1997 include total revenue and operating expenses from Versant Europe of
approximately $1.0 million and $233,000, respectively, for the period from date
of acquisition to March 31, 1997.
A summary comparative pro forma statement of operations data for quarters ended
March 31, 1996 and 1997 assuming the acquisition had taken place at the
beginning of each period is as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1996 1997
-------- ---------
<S> <C> <C>
Revenue $ 3,317 $ 4,540
Net loss $ (644) $(1,866)
Net loss per share $ (0.11) $ (0.21)
</TABLE>
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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 within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended, and Section
27A of the Securities Act of 1933, as amended. These forward-looking statements
are subject to certain risks and uncertainties, including those discussed below
and in the section entitled "Other Factors that may Affect Future Operating
Results" in the Company's Form 10-KSB filed with the SEC on March 31, 1997 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", "expects", "may", "intends", and similar expressions are intended
to identify forward-looking statements; however, neither the preceding asterisk
nor these words are the exclusive means of identifying such statements. In
addition, the remainder of this "Overview" section, which has no asterisks for
improved readability, includes a number of forward-looking statements. The
Company undertakes no obligation to revise or update any forward-looking
statements to reflect events or circumstances that may arise after the date of
this report.
Substantially all of the Company'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's core product is the Versant ODBMS, a high performance object
database management system. In March 1997, the Company released version 5.0 of
the Versant ODBMS. In March 1997, the Company also released Versant Web and
Versant VIA, two new Internet/Intranet products. The Versant Web product is
designed to emulate a live database session using commercially available Web
browsers. Versant VIA is designed to allow users to import ODBMS query data over
the Web. Also in March 1997, the Company entered into its final Beta testing of
the Versant Java Direct Interface product which is designed to allow Internet
application developers to write Java applications directly to the Versant ODBMS.
This product was released in May 1997. The Company currently expects that
licenses of the Versant ODBMS and related products as well as 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 acquired Versant Object Technology GmbH, (Versant Europe)
its independent distributor for Europe, on March 26, 1997. The Company paid
$3.6 million to the shareholder of Versant Europe consisting of $2.0 million in
cash and 167,545 shares of common stock valued at $9.75 per share. The
acquisition was accounted for using the purchase method of accounting.
Accordingly, the results of operations of Versant Europe are reflected in the
Company's condensed consolidated financial statements commencing on the date of
acquisition. The acquisition of Versant Europe resulted in the Company
recording of an intangible asset representing the cost in excess of fair value
of the net assets acquired (goodwill) in the amount of approximately $3.3
million, which is being amortized over a seven year period. Consolidated
operations for the quarter ended March 31, 1997 include total revenue and
operating expenses from Versant Europe of approximately $1.0 million and
$233,000, respectively. Prior to the date of acquisition, Versant Europe would
have recorded a royalty payable to the Company in an amount equal to 40% of the
revenue. The Company, upon receipt of payment or the collection of the
receivable booked at the time of sale, would have recognized the royalty amount
as revenue. The acquisition enables the Company to directly manage and control
its European sales channel.
The Company's consolidated 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 may vary
significantly from any prior period, and it is impossible to predict revenue for
any period prior to its end.
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 first quarter of
1997, two customers accounted for approximately 26% of total revenue and 52% of
license 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. In addition, in the
first quarter of 1997, approximately 43% of the Company's license revenue and
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approximately 61% of the Company's total revenue were 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.
There can be no assurance that the Company will be profitable on an annual or
quarterly 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.
RESULTS OF OPERATIONS
The following table sets forth the percentages that compare Condensed
Consolidated Statement of Operations items to total revenue for the three months
ended March 31, 1996 and 1997.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
---- ----
<S> <C> <C>
Revenue:
License 50.5% 62.0%
Services 49.5% 38.0%
----- -----
Total revenue 100.0% 100.0%
Cost of revenue:
License 6.3% 9.0%
Services 20.6% 17.2%
----- -----
Total cost of revenue 26.9% 26.2%
Gross profit 73.1% 73.8%
Operating expenses:
Marketing and sales 68.7% 54.4%
Research and development 24.8% 21.6%
General and administrative 13.1% 8.7%
----- -----
Total operating expenses 106.6% 84.7%
Loss from operations -33.5% -10.9%
Interest income (expense) and other, net 5.3% -0.3%
Loss before taxes -28.2% -11.2%
Foreign withholding tax expense 0.1% 0.3%
----- -----
Net loss -28.3% -11.5%
===== =====
</TABLE>
Revenue
The Company's total consolidated revenue increased 19% from $3.2 million in the
first quarter of 1996 to $3.8 million in the first quarter of 1997. This
increase in revenue was due to the acquisition of Versant Europe, which resulted
in the Company recognizing $1.0 million of revenue as well as an increase in
consulting and training revenue and sales to new customers.
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License revenue
License revenue decreased 3% from $2.0 million in the first quarter of 1996 to
$1.9 million in the first quarter of 1997. License revenue as a percentage of
total revenue decreased from 62% for the first quarter of 1996 to 51% for the
first quarter 1997. The decrease in license revenue was primarily due to lower
domestic sales and deployments by the Company's customers.
Services revenue
Services revenue increased 55% from $1.2 million in the first quarter of 1996 to
$1.9 million in the first quarter of 1997. The increase in services revenue is
principally due to an increase in consulting and training business with new and
existing end-user customers as well as increased maintenance revenue from a
larger installed base offset in part by a decrease in nonrecurring engineering
fees.
Export sales
Export sales accounted for 37% of the Company's total revenue in the first
quarter of 1997 compared to 27% in the first quarter of 1996. The increase in
export sales as a percentage of total revenue was principally due to the
acquisition of Versant Europe which resulted in the Company recognizing revenue
by Versant Europe from a large sale to a telecommunication customer based in the
United Kingdom in March as well as lower domestic revenue. *The Company intends
to expand its sales and marketing activities outside the United States,
including but not limited to Europe, which will require significant management
attention and financial resources.
The Company's European and other international operations are subject to
a number of risks. Such risks include but are not limited to longer receivable
collection periods, 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,
foreign exchange fluctuations, 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 increased 22% from $834,000 in the first quarter of
1996 to $1.0 million in the first quarter of 1997 principally as a result of the
continued growth of the training and consulting organization. Total cost of
revenue as a percentage of total revenue was essentially stable at 26% in the
first quarter of 1996 and 27% in the first quarter of 1997.
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 production
labor costs. Cost of license revenue decreased 18% from $289,000 or 15% of
license revenue in the first quarter of 1996 to $238,000 or 12% of license
revenue in the first quarter of 1997 due primarily to a decrease in royalty
obligations on Third-Party Products partially offset by an increases in bad debt
reserves, product packaging, freight, user manuals, product media and production
labor costs.
Cost of service revenue consists principally of personnel costs associated
with providing training, consulting, technical support and nonrecurring
engineering work paid for by customers. These costs increased 43% from $545,000
in the first quarter of 1996 to $782,000 in the first quarter of 1997 due to the
expansion of the training, consulting and support organizations. Cost of
services as a percentage of services revenue decreased from 45% in the first
quarter of 1996 to 42% in the first quarter of 1997. Cost of service revenue as
a percentage of service revenue has declined due to an increase in consulting
and maintenance revenue without a corresponding increase in the cost of
maintenance revenue and a lower number of outside consultants hired to meet
consulting obligations. The cost of services as a percentage of service revenues
may vary between periods due to the mix of services provided by the Company and
the resources used to provide these services. *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 domestic and international
marketing and sales personnel costs, including sales commissions, recruiting and
travel, advertising, public relations, seminars, trade shows, product
descriptive literature, product management, sales offices and mailings.
Marketing and sales expenses increased 51% from $1.7 million or 54% of total
revenue in the first quarter of 1996 to $2.6 million or 69% of total revenue in
the first quarter of 1997. The increase in marketing and sales expenses are
primarily due to an increase in compensation resulting from an expanded sales
and marketing staff, spending on travel, lease expense for new and expanded
offices and, marketing activities, including trade shows and promotional
expenses. The increase in marketing and sales expenses as a percentage of total
revenue is primarily due to lower than expected total revenue. *The Company
expects to continue hiring additional marketing and sales personnel and to
increase promotional expenses.
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Research and Development
Research and development expenses consist primarily of salaries, recruiting
and personnel-related expenses, and the costs of ISO 9001 quality program,
depreciation of development equipment, supplies and travel. Research and
development expenses increased 36% from $687,000 or 22% of total revenue in the
first quarter of 1996 to $937,000 or 25% of total revenue in the first quarter
of 1997. 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 completing an ISO 9001 quality
certification program. Generally, all research and development expenditures are
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 domestic and
international accounting, human resources, management information systems,
legal, amortization and depreciation and general management functions. In
addition, general and administrative expenses include public company, outside
legal and audit costs. General and administrative expenses increased 80% from
$276,000 or 9% of total revenue in first quarter of 1996 to $497,000 or 13% of
total revenue in the first quarter of 1997. This increase was primarily due to
the costs of being a public company as well as compensation resulting from an
expanded staff, spending on legal, insurance, accounting and communication
expenses. Additionally, general and administration expenses include the
amortization of goodwill resulting from the acquisition of Versant Europe. For
the first quarter of 1997, $8,000 of amortization expense was included in
general and administration expenses. *The Company expects to amortize the
balance of the goodwill at a rate of $123,000 per quarter over the next 27
quarters. *The Company believes that the dollar amount of its general and
administrative expenses will increase through most of 1997 due to the goodwill
amortization, relocation cost associated with the move of the corporate
headquarters and the Company's expansion of its administrative staff and
incurrence of additional costs related to being a public company.
Interest Income (Expense) and Other, net
Interest income (expense) and other, net includes interest earned on the
Company's cash reserves and interest expense related principally to leases. The
increase from a net interest and other of $9,000 in the first quarter of 1996 to
income of $204,000 in the first quarter of 1997 is due to the interest earned on
the proceeds received from the Company's initial public offering.
Liquidity and Capital Resources
Cash and cash equivalents decreased $4.5 million from $5.3 million at
December 31, 1996 to $790,000 at March 31, 1997. For the first quarter ended
March 31, 1997, the Company's operating activities used $1.5 million primarily
as a result of funding the net loss for the quarter, an increase in other assets
and a decrease in accounts payable, accrued liabilities and deferred revenue,
which amounts were partially offset by the collection of receivable balances.
Investing activities used cash of $3.4 million primarily as a result of net
purchases of short-term investments and payment of the $2.0 million cash portion
of the acquisition of Versant Europe, the acquisition of equipment and payment
of the cash portion of the lease security deposit on the new headquarter
offices. Financing activities provided cash of $473,000 primarily due to
proceeds from the sale of common stock to employees and proceeds from borrowings
by Versant Europe offset by the principal payments on capital leases.
Short-term investments increased $1.1 million from $14.7 million at
December 31, 1996 to $15.8 million at March 31, 1997. The increase in
short-term investments resulted from the use of cash to fund net investment
purchases. The Company's short-term investments consist of United States
Treasury Bills. *Management expects that, in the future, cash in excess of
current requirements will be invested in short-term interest-bearing investment
grade securities.
The Company's total assets remained relatively flat, increasing by 5% from
$25.7 million at December 31, 1996 to $26.9 million at March 31, 1997. The
increase in total assets was primarily due to the acquisition of Versant
Europe, which was partially financed by the issuance of common stock.
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The Company's total current liabilities increased 13% from $6.0 million at
December 31, 1996 to $6.8 million at March 31, 1997. This increase was primarily
due to short-term borrowings assumed as result of the acquisition of Versant
Europe and issuance of a note payable to secure the lease on the new corporate
offices offset in part by a reduction in deferred revenue.
The Company's total shareholders' equity increased 3% from $19.3 million at
December 31, 1997 to $19.8 million at March 31, 1997. This increase primarily
results from the issuance of 167,545 shares of common stock valued at $1.6
million to the shareholder of Versant Europe in connection with the acquisition
of that company offset by a net loss of $1.1 million for the quarter.
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 .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 expects to
replace or extend its current credit line, although there can be no assurance of
this. *The Company believes its available cash, cash equivalents and short-term
investments and credit line will satisfy the Company's projected working capital
and capital expenditures at least for the next twelve months.
12
<PAGE> 13
PART II OTHER INFORMATION
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits are filed herewith.
(b) On March 26, 1997, the Company filed a Form 8-K to
report the acquisition of Versant Europe, the terms of
which are described in Part I of this Form-10QSB. The
financial information and pro forma financial
information required to be filed pursuant to Item 7(a)
and 7(b) of the Form 8-K was not available at the time
of filing the Form 8-K and will be filed on a Form
8-K/A as soon as practicable, but in no event later
than 60 days after the date the Form 8-K was required
to be filed.
13
<PAGE> 14
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: May 14, 1997 /s/ GARY RHEA
- --------------------- -------------
Gary Rhea
Vice President Finance and Administration.
Chief Financial Officer, Treasurer and Secretary
(Duly Authorized Officer and Principal
Financial Officer)
14
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
- -------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from (a) the
statements of operations and balance sheets and is qualified in its entirety by
reference to such (b) financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 790
<SECURITIES> 15,759
<RECEIVABLES> 4,627
<ALLOWANCES> 692
<INVENTORY> 0
<CURRENT-ASSETS> 22,313
<PP&E> 4,396
<DEPRECIATION> 3,475
<TOTAL-ASSETS> 26,877
<CURRENT-LIABILITIES> 6,758
<BONDS> 0
0
0
<COMMON> 42,453
<OTHER-SE> (22,686)
<TOTAL-LIABILITY-AND-EQUITY> 26,877
<SALES> 3,785
<TOTAL-REVENUES> 3,785
<CGS> 0
<TOTAL-COSTS> 1,020
<OTHER-EXPENSES> 4,040
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17
<INCOME-PRETAX> (1,068)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,071)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,071)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
