<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, 1998
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
6539 Dumbarton Circle
Fremont, California 94555
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (510) 789-1500
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 27, 1998: 9,081,777
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, 1998
Table of Contents
Part I. Financial Information
<TABLE>
<CAPTION>
Item 1. Financial Statements Page No.
<S> <C>
Consolidated Balance Sheets -- March 31, 1998 and December 31, 1997 3
Consolidated Statements of Operations -- Three Months Ended March 31, 1998 and 1997 4
Consolidated Statements of Cash Flows --Three Months Ended March 31, 1998 and
1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 9
Part II. Other Information
Item 1. Legal Proceedings 18
Item 2. Change in Securities and Use of Proceeds 18
Signature 19
</TABLE>
2
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VERSANT OBJECT TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
-------- --------
(UNAUDITED) *
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,357 $ 3,717
Short-term investments 2 6,114
Accounts receivable, net 5,686 9,569
Deferred license cost 778 1,028
Other current assets 1,220 1,272
-------- --------
Total current assets 14,043 21,700
Property and equipment, gross 12,395 11,179
Accumulated depreciation (4,585) (4,111)
-------- --------
Property and equipment, net 7,810 7,067
-------- --------
Other assets 544 466
Excess of cost of investment over fair
value of net assets acquired 2,852 2,973
-------- --------
Total assets $ 25,249 $ 32,206
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term bank borrowings $ 839 $ 629
Current maturities of long-term debt 841 721
Current portion of capitalized lease 378 404
obligations
Notes payable 106 106
Accounts payable 948 1,072
Accrued liabilities 2,608 3,278
Deferred revenue 2,827 3,262
-------- --------
Total current liabilities 8,547 9,472
-------- --------
Long-term liabilities, net of current portion:
Deferred revenue 1,087 1,087
Long-term bank borrowing 1,681 1,801
Capitalized lease obligations 453 546
-------- --------
Total liabilities 11,768 12,906
-------- --------
Shareholders' equity:
Common stock 43,357 42,980
Accumulated deficit (29,858) (23,955)
Cumulative translation adjustment (18) 275
-------- --------
Total shareholders' equity 13,481 19,300
-------- --------
Total liabilities and
shareholders' equity $ 25,249 $ 32,206
======== ========
</TABLE>
* Derived from audited financial statements
The accompanying notes are an integral part of these statements
3
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VERSANT OBJECT TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1998 1997
------- -------
<S> <C> <C>
Revenue:
License $ 2,724 $ 1,912
Services 1,834 1,873
------- -------
Total revenue 4,558 3,785
------- -------
Cost of revenue:
License 614 238
Services 1,899 782
------- -------
Total cost of revenue 2,513 1,020
------- -------
Gross profit 2,045 2,765
------- -------
Operating expenses:
Marketing and sales 5,011 2,603
Research and development 1,836 937
General and administrative 909 489
Amortization of goodwill 121 8
------- -------
Total operating expenses 7,877 4,037
------- -------
Loss from operations (5,832) (1,272)
Interest income(expense), currency
translation and other, net (62) 204
------- -------
Loss before taxes (5,894) (1,068)
Provision for taxes 9 3
------- -------
Net loss $(5,903) $(1,071)
======= =======
Basic net loss per share $ (0.65) $ (0.12)
======= =======
Diluted net loss per share $ (0.65) $ (0.12)
======= =======
Basic weighted average common shares 9,039 8,780
Diluted weighted average common shares 9,039 8,780
</TABLE>
The accompanying notes are an integral part of these statements
4
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VERSANT OBJECT TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1998 1997
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(5,903) $(1,071)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 595 135
Provision for doubtful accounts 158 89
Changes in current assets and liabilities:
Accounts receivable 3,725 1,410
Prepaid expenses and other current assets 302 (783)
Short term note and bank debt 210 --
Accounts payable (124) (258)
Accrued liabilities and taxes (670) (464)
Deferred revenue (435) (590)
------- -------
Net cash used in operating activities (2,142) (1,532)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,510) (259)
Purchases of short-term investments -- (7,643)
Proceeds from sale and maturities of short-term investments 6,112 6,600
Acquisition of Versant Europe, net of cash acquired -- (1,987)
Deposits and other assets (78) (116)
------- -------
Net cash provided by (used in) investing activities 4,524 (3,405)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common stock 377 420
Principal payments under capital lease obligations (119) (55)
Proceeds from long-term borrowings -- 108
------- -------
Net cash provided by financing activities 258 473
------- -------
Effect of exchange rate changes on cash -- (13)
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,640 (4,477)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,717 5,267
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,357 $ 790
======= =======
</TABLE>
The accompanying notes are an integral part of these statements
5
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
1. BASIS OF PRESENTATION
The 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 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 ended
December 31, 1997 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, 1998, or any other future period.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Effective January 1, 1998, the Company adopted Statement of Position 97-2
"Software Revenue Recognition" ("SOP 97-2"). SOP 97-2 provides guidance on
applying generally accepted accounting principles in recognizing revenue on
software transactions. The adoption of SOP 97-2 did not have a material impact
on the Company's financial position or results of operations.
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 there is no significant modification of the
software, payments are due within the Company's normal payment terms and
collection of the resulting receivable is probable. 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.
Cost of license revenue consists principally of product royalty obligations,
product packaging, freight, users manuals, product media, production labor costs
and reserves for estimated bad debts.
Cost of services revenue consists principally of personnel costs associated with
providing training, consulting, technical support and nonrecurring engineering
work paid for by customers.
NET INCOME (LOSS) PER SHARE
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128"), effective
December 15, 1997. This standard revises certain methodology for computing net
income (loss) per share and requires the reporting of two net income (loss) per
share figures: basic net income (loss) per share and diluted net income (loss)
per share. Basic net income (loss) per share is computed by dividing net income
(loss) by the weighted average number of shares outstanding. Diluted net income
(loss) per share is computed by dividing net income (loss) by the sum of the
weighted average number of shares outstanding plus the dilutive effect of shares
issuable through the exercise of stock options. The dilutive effect of stock
options is computed using the treasury
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stock method, and the dilutive effect of convertible preferred stock is computed
using the if converted method. Dilutive securities are excluded from the diluted
net income (loss) per share computation if their effect is antidilutive.
Basic net loss per share was computed using the weighted average number of
shares outstanding. Diluted net loss per share for the quarters ended March 31,
1998 and 1997 were the same as basic net loss per share due to losses in these
quarters and the diluted net loss per share calculation would have been
antidilutive. The number of weighted average potential common shares not
included in diluted loss per share for the quarters ended March 31, 1998 and
1997, because they were antidilutive, and may be dilutive in future periods,
were 59,287 and 6,160 respectively. The change in the way the Company previously
reported net income (loss) per share for financial reporting purposes is due in
part to the adoption of SFAS No. 128 and subsequently, Staff Accounting Bulletin
No. 98 on "Computations of Earnings per Share," which became effective in
February 1998.
RECLASSIFICATIONS
Certain reclassifications have been made to amounts in the prior period to
conform to the 1998 presentation.
ACQUISITION OF VERSANT EUROPE
On March 26, 1997, the Company acquired 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 Common
Stock paid to the shareholder of Versant Europe were issued in a transaction
exempt from registration under the Securities Act 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 consolidated financial statements commencing on the date of the
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 in the amount of $3.3 million, which is being amortized over a
seven-year period. The Company also acquired approximately $1.4 million of
prepaid sublicense credits which are being amortized and included in cost of
license revenue in conjunction with associated license revenue transactions
realized by Versant Europe.
The table below presents the pro forma results (in thousands, except for per
share data) for the quarters ended March 31, 1998 and 1997 had the Company's
acquisition of Versant Europe occurred at the beginning of 1997.
<TABLE>
<CAPTION>
MARCH 31,
1998 1997
------- -------
<S> <C> <C>
Total revenue $ 4,558 $ 4,540
Net loss (5,903) (1,866)
Pro forma basic and diluted net loss per share ($ 0.65) ($ 0.21)
Shares used in computing pro forma net loss per share 9,039 8,780
</TABLE>
COMPREHENSIVE INCOME (LOSS)
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"),
which was adopted by the Company in the first quarter of 1998. SFAS No. 130
requires companies to report a new, additional measure of income. "Comprehensive
income" includes foreign currency translation gains and losses and other
unrealized gains and losses that have been previously excluded from net income
and reflected instead in equity.
A summary of comprehensive income loss follows (in thousands):
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1998 1997
------ ------
<S> <C> <C>
Net loss (5,903) (1,071)
Foreign currency translation adjustment (293) --
------ ------
Comprehensive loss (6,196) (1,071)
</TABLE>
7
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3. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"), which establishes
standards for reporting information about operating segments in annual financial
statements and interim financial reports. It also establishes standards for
related disclosure about products and services, geographic areas and major
customers. As defined in SFAS No. 131, operating segments are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operation decision-maker in deciding how to
allocate resources and in assessing performance. Generally, financial
information is required to be reported on the basis that is used internally for
evaluating segment performance and deciding how to allocate resources to
segments. The Company will adopt SFAS No. 131 commencing with the Company's
fiscal 1998 annual report.
4. LINE OF CREDIT
On March 19, 1998, the Company converted an interest only, variable rate note to
a variable rate, term loan with principal and interest payable over 36 months.
Borrowings under the loan are secured by a lien on all assets acquired using the
proceeds of the loan, which have been used for the acquisition of equipment and
leasehold improvements. The loan bears interest at the bank's base lending rate,
currently at 8.5%, plus 0.5%. The loan contains certain financial covenants and
also prohibits cash dividends and mergers and acquisitions without the bank's
prior approval. Certain of the covenants, under which the Company was in default
as of March 31, 1998, have been waived through such date. The Company is
currently negotiating amendments to these covenants. However the Company may not
be successful in negotiating commercially reasonable amendments to these
covenants, and the Company may not be able to meet such amended covenants.
Failure to meet the Company's debt covenants in the future would have a material
adverse effect on the Company's financial condition.
5. LEGAL PROCEEDINGS
The Company and certain of its present and former officers and directors were
named as defendants in four class action lawsuits filed in the United States
District Court for the Northern District of California, filed on January 26,
1998, February 5, 1998, March 11, 1998 and March 18, 1998, respectively. The
complaints each allege violations of Sections 10(b) and 20(a) of the Exchange
Act, and Securities and Exchange Commission Rule 10b-5 promulgated under the
Exchange Act, in connection with public statements about the Company's expected
financial performance. The complaints seek an unspecified amount of damages. The
Company vigorously denies the plaintiffs' claims and has moved to dismiss the
allegations. However, securities litigation can be expensive to defend, consume
significant amounts of management time and result in adverse judgments or
settlements that could have a material adverse effect on the Company's results
of operations and financial condition.
8
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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, 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 including in the section entitled "Other Factors
That May Affect Future Operating Results", and in the Company's Form 10-KSB for
the year ended December 31, 1997, 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 are intended to identify forward-looking
statements. In addition, the section entitled "Other Factors That May Affect
Future Operating Results" has no asterisks for improved readability, but
includes a substantial number of forward-looking statements, however neither
method is the exclusive manner of identifying such 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, deployment and project licenses for the Versant Object Database
Management System (the "Versant ODBMS"), (ii) sales of licenses for
object-oriented programming language interfaces, database query tools,
application development tools, legacy database access tools,
Internet/Intranet/Extranet integration tools and multimedia management tools
related to the Versant ODBMS (the "Peripheral Products"), (iii) related
maintenance and support, training and consulting (the "Associated Services") and
(iv) the resale of licenses, maintenance, training and consulting for
third-party products that complement the Versant ODBMS. During the first quarter
of 1998, the Company's operating results were adversely impacted by a decreased
willingness of the Company's current and potential customers to purchase large
pre-paid project licenses coupled with the Company's decision to limit its
practice of granting price discounts in connection with the sale of such
licenses. *In an effort to generate recurring revenue opportunities and improve
its ability to forecast revenues and consequently manage expenses, the Company
seeks to focus more on smaller and recurring license opportunities with its
current and potential customers than on large pre-paid project licenses. In the
past, a significant portion of the Company's total revenue has been derived from
a limited number of large pre-paid licenses, and the Company's decision to
reduce its focus on such licenses may adversely impact its operating results in
subsequent quarters. See "Other Factors That May Affect Future Operating
Results--Customer Concentration." *In addition, the Company seeks to develop
relationships with best-of-class value-added resellers ("VARs") in the
telecommunications and financial services markets in order to strengthen the
Company's indirect sales activity, although the Company may not be successful in
developing such relationships and such VARs may not be successful in reselling
the Company's products. See "Other Factors That May Affect Future Operating
Results--Lengthy Sales Cycle." *In response to the Company's operating results
in the first quarter of 1998, the Company has taken and is continuing to take
steps to decrease its operating expenses from first quarter 1998 levels.
However, the Company's ability to manage expenses given the unpredictability of
its revenues is uncertain, and the Company is required to maintain a significant
infrastructure in order to develop, market and support its products. See "Other
Factors That May Affect Future Operating Results--Unpredictability of Revenue"
and "--Uncertain Ability to Manage Costs Given Unpredictability of Revenue."
9
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Results of Operations
The following table sets forth the percentages that income statement items
compare to total revenue for the three months ended March 31, 1998 and 1997.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1998 1997
------ ------
<S> <C> <C>
Revenue:
License 59.8% 50.5%
Services 40.2% 49.5%
------ ------
Total revenue 100.0% 100.0%
------ ------
Cost of revenue:
License 13.5% 6.2%
Services 41.7% 20.7%
------ ------
Total cost of revenue 55.2% 26.9%
------ ------
Gross profit 44.8% 73.1%
------ ------
Operating expenses:
Marketing and sales 109.9% 68.8%
Research and development 40.3% 24.8%
General and administrative 19.9% 12.9%
Amortization of goodwill 2.7% 0.2%
------ ------
Total operating expenses 172.8% 106.7%
------ ------
Loss from operations -128.0% -33.6%
Interest income(expense), currency
translation and other, net -1.3% 5.4%
------ ------
Loss before taxes -129.3% -28.2%
Provision for taxes 0.2% 0.1%
------ ------
Net loss -129.5% -28.3%
====== ======
</TABLE>
REVENUE
Total consolidated revenue increased 21% from $3.8 million in the first quarter
of 1997 to $4.6 million in the first quarter of 1998. This increase in total
revenue was due to an increase in license revenues.
License revenue
License revenue increased 42% from $1.9 million in the first quarter of 1997 to
$2.7 in the first quarter of 1998. This increase was the result of an increase
in runtime licenses from current customers as well as the addition of new
development license customers. License revenue increased in the first quarter of
1998 to 60% of total sales compared to 51% in the first quarter of 1997. *The
Company believes license revenues in absolute dollars will increase but as a
percent of total revenues will decrease compared to 1997.
Service revenues
Services revenue remained relatively flat year to year at $1.8 million and $1.9
million in the first quarters of 1998 and 1997, respectively. Maintenance
revenue increased during this period but consulting and training revenues were
down due to the turnover in staff, the time required to train their replacements
and the lack of technical skills of selling high end object based consulting
services within the direct sales force. Services revenue decreased in the first
quarter of
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1998 to 40% of total sales compared to 49% in the first quarter of 1997. *The
Company believes service revenues in absolute dollars and as a percent of total
revenues will increase compared to 1997.
International sales
International revenue increased by 29% to $1.8 million in the first quarter of
1998 compared to $1.4 million in the first quarter of 1997. The increase in
international revenue during 1998 compared to 1997 resulted primarily from
higher sales in Europe as well as Australia. This increase in international
revenue resulted from the Company's increased marketing and sales investment,
including the hiring of additional personnel. In addition, as a result of the
acquisition of Versant Europe in March 1997, the Company began recognizing
license and service revenue from Versant Europe that would have been recognized
only at a 40 percent royalty rate and 25 percent royalty rate, respectively, had
Versant Europe not been acquired. *The Company intends to continue to expand its
sales and marketing activities outside the United States, including Europe, Hong
Kong, China, Malaysia, Japan and other Asia/Pacific countries, which will
require significant management attention and financial resources, and which may
increase costs and impact margins unless and until corresponding revenue is
achieved. International revenue as a percentage of total revenue increased from
37% in 1997 to 39% in 1998. *Due to the Company's increased emphasis on
international sales, especially through Versant Europe, the Company expects
international revenue to increase as a percentage of total revenue; however,
international revenue may not grow faster than domestic revenue, if at all.
COST OF REVENUE AND GROSS PROFIT
Total cost of revenue increased to $2.5 million in the first quarter of 1998
from $1.0 million in the first quarter of 1997. This increase was principally
the result of substantial growth in the training and consulting organization.
Total cost of revenue as a percentage of total revenues increased to 55% in the
first quarter of 1998 from 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 tools provided by third parties,
royalty obligations incurred by the Company under a porting services agreement,
product packaging, freight, user manuals, product media, production labor costs,
amortization of deferred license costs associated with the acquisition of
Versant Europe and reserves for estimated bad debts. Cost of license revenue
increased to $.6 million in the first quarter of 1998 compared to $.2 million in
the first quarter of 1997. This increase was the result of increased costs due
to the amortization of deferred license costs associated with the acquisition of
Versant Europe, additional accruals for bad debt reserves and increased license
revenues. As a result of these increased costs, cost of license revenue as a
percentage of total revenues increased to 13% in the first quarter of 1998 from
6% in the first quarter of 1997. As part of the acquisition of Versant Europe,
the Company allocated $1.4 million of the purchase price to deferred license
costs. In the first quarter of 1997 and 1998, the Company recognized zero and
$250,000 respectively, of these deferred license costs as a cost of license
revenue. *The Company expects to recognize the remaining $.7 million in deferred
license costs as a cost of license revenue during the next 3 quarters.
Cost of services revenue consists principally of personnel costs associated with
providing training, consulting, technical support and nonrecurring engineering
work paid for by customers. The increase in cost of services revenue to $1.9
million in the first quarter of 1998 from $.8 million in the first quarter of
1997, was attributable principally to a significant increase in training and
consulting costs, as well as costs associated with customer support activities
to service a larger customer base, offset by a reduction in subcontractor cost.
The significant increase between quarters was attributable principally to
significant investments in the Company's services organization infrastructure to
support the Company's sales efforts, including higher compensation and operating
costs resulting from additions in domestic and international services
management, and compensation pressures. Cost of services revenue as a percentage
of services revenue increased in 1998 compared to 1997 due to staff additions in
the consulting, training and support organizations without a corresponding
increase in consulting and training revenue. *The Company expects cost of
services revenue to be a significant percentage of services revenue due to the
need for the Company to maintain a significant services organization due to the
lack of third-party service support, the difficulty in forecasting billable
service demand, the unevenness of demand for services (which have historically
been reduced during holiday periods) and pricing pressure on fees for services
encountered in connection with license sales. *The Company also expects to
experience increased compensation pressures as a result of the intense demand
for managers and engineers in Silicon Valley, which the Company may not be able
to offset with increases in the fees the Company charges for maintenance and
training and consulting projects due to competitive pressures and restrictions
in contractual provisions regarding
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Associated Services. See "Other Factors That May Affect Future Operating Results
- - Reliance on Telecommunications, Internet/Intranet/Extranet and Financial
Services Markets."
MARKETING AND SALES EXPENSES
Marketing and sales expenses consist primarily of marketing and sales personnel
costs, including sales commissions, recruiting, travel, advertising, public
relations, seminars, trade shows, lead generation, product descriptive
literature, product management, sales offices, mailings and depreciation
expense. The increase in the first quarter of 1998 to $5.0 million from $2.6
million in the first quarter of 1997 resulted from costs associated with higher
compensation, including increased sales commissions related to increased total
revenue, increased costs associated with the expansion of the direct sales
force, and recruiting of new company personnel, primarily in the sales and
marketing area. *The Company expects, in 1998, marketing and sales expenses to
decrease in absolute dollar terms from first quarter 1998 level, but increase,
compared to 1997 levels, as the Company attempts to create the opportunities
necessary to generate higher revenues, but to decrease as a percentage of
revenue due to the Company's efforts to control commission costs and costs
associated with marketing programs. *The Company's operating results will be
adversely affected if its increased marketing and sales expenditures do not
result in increased revenue. As a percentage of total revenues marketing and
sales expenses increased to 110% in the first quarter of 1998 from 69% in the
first quarter of 1997. This significant increase in the first quarter of 1998
was the result of higher expenses and lower than expected revenues.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses consist primarily of salaries, recruiting and
other personnel-related expenses, the costs of an ISO 9001 quality program,
depreciation or expensing of development equipment, supplies and travel. The
increase to $1.8 million in the first quarter of 1998 from $.9 million in the
first quarter of 1997 resulted primarily from increases in compensation, and
costs of consultants used to supplement the efforts of Company software
engineers in porting the Company's products to additional platforms, and
increased depreciation, amortization and equipment expense, the cost of
initiating the Company's ISO 9001 training and certification program as well as
the costs of funding ongoing engineering activities in India. *The Company
believes that a significant level of research and development expenditures is
required to remain competitive and complete products under development.
*Accordingly, the Company anticipates that it will continue to devote
substantial resources to research and development to design, produce and
increase the quality, competitiveness and acceptance of its products. *The
Company expects research and development expenses to increase in absolute dollar
terms and as a percentage of revenue in 1998. However, if the Company continues
to upgrade its engineering infrastructure and hire additional personnel without
corresponding increases in revenue, the Company's results of operations would be
adversely affected. To date, all research and development expenditures have been
expensed as incurred. As a percent of total revenues, research and development
costs were 40% in the first quarter of 1998 compared to 25% in the first quarter
of 1997. The increase as a percentage of revenues was due to higher expenses and
lower than expected revenues.
GENERAL AND ADMINISTRATIVE EXPENSES
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, audit and public reporting costs. The increase in the first quarter of
1998 to $.9 million from $.5 million in the first quarter of 1997 was
attributable principally to the inclusion of general and administrative expenses
related to its Versant Europe subsidiary, compensation costs associated with an
increased number of information systems, human resources and accounting
employees, relocation and ongoing facility costs resulting from the occupancy of
a significantly larger facility and increased legal, accounting and investor
relation costs associated with being a public company with significant
international operations. *The Company expects, in 1998, general and
administrative expenses to decrease in absolute dollar terms from first quarter
1998 level, but increase, compared to 1997 levels, due to the costs associated
with supporting the Company's expected growth, the costs associated with
defending the securities litigation against the Company and certain of its
current and former directors and officers, and certain severance costs incurred
in connection with recent changes to the Company's management, but that general
and administrative expenses will remain flat as a percentage of revenue.
However, if the Company continues to upgrade its administration infrastructure
and hire additional personnel without corresponding increases in revenue, the
Company's results of operations would be adversely affected. As a percentage of
total revenues general and administrative costs increased in the first quarter
of 1998 to 20% from 13% in the first quarter of 1997. The increase as a
percentage of revenues was also due to higher expenses and lower than expected
revenues.
12
<PAGE> 13
AMORTIZATION OF GOODWILL
The acquisition of Versant Europe in March 1997 resulted in the Company
recording an intangible asset representing the cost in excess of fair value of
the net assets acquired in the amount of $3.3 million, which is being amortized
over a seven-year period. During the first quarter of 1997, the Company
amortized $8,000 while in the first quarter of 1998 the Company amortized
$121,000. *The Company expects to amortize $121,000 per quarter for the
remainder of 1998.
INTEREST INCOME AND OTHER, NET
Interest income represents income earned on the Company's cash, cash equivalents
and short-term investments. The decrease in interest income from $217,000 in the
first quarter of 1997 to interest expense of $61,000 in the first quarter of
1998 was due to decreased interest income from lower cash balances and to
increased interest on additional equipment leases and an increase in short-term
borrowings to fund the Company's European operations.
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
The increase in basic and diluted net loss per share in the first quarter of
1998 to $.65 from a basic and diluted net loss per share of $.12 per share in
the first quarter of 1997 was due to the increase in net loss in the first
quarter of 1998 to $5.9 million from a net loss of $1.1 million in the first
quarter of 1997. This increase in net loss was the result of lower than expected
revenues as well as an increase in operating expenses to support the higher
expected revenue stream. The increases in basic and diluted net loss per share
was slightly offset by a greater number of shares used to calculate basic and
diluted net loss per share. Because the Company experienced a net loss, there
was no additional calculation for dilutive purposes. The calculation would have
been antidilutive.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased by $2.6 million from $3.7 million at
December 31, 1997 to $6.3 million at March 31, 1998. However, short-term
investments decreased by $6.1 million from $6.1 million at December 31, 1997 to
$2,000 at March 31, 1998. The decrease in short-term investments resulted from
the financing of the net loss experienced in the first quarter of 1998. The
Company's short-term investments consisted 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.
For the first quarter ended March 31, 1998, the Company's operating activities
used $2.1 million of cash and cash equivalents primarily as a result of funding
the net loss for the quarter and decreases in accrued liabilities, deferred
revenue and accounts payable, offset by collections in accounts receivables,
increases in depreciation, amortization and provision for doubtful accounts, and
decreases in other assets and an increase in the line of credit borrowings.
Investing activities generated cash from the sale of short term investments,
while the acquisition of equipment, principle payments on the equipment leases
and reduction in deposits and other assets used cash. Financing activities
provided cash of $0.25 million primarily due to proceeds from the sale of common
stock to employees.
The Company's total assets decreased by 22% from $32.2 million at December 31,
1997 to $25.2 million at March 31, 1998. The decrease in total assets was
primarily due to the reduction in accounts receivable balances, due to reduced
revenues, as well as a reduction in cash balances used to fund operating
activities.
The Company's total liabilities decreased 8% from $12.9 million at December 31,
1997 to $11.8 million at March 31, 1998. This decrease was primarily due to a
reduction of accrued liabilities and deferred revenue.
The Company's total shareholders' equity decreased 31% from $19.3 million at
December 31, 1997 to $13.5 million at March 31, 1998. This decrease primarily
results from the net loss of $5.9 million for the quarter.
The Company maintains a revolving credit line with a bank that expires June 1,
1998. The maximum amount that can be borrowed under the revolving credit line is
$5.0 million. As of March 31, 1998, $839,000 of borrowings were outstanding.
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.
13
<PAGE> 14
These borrowings bear interest at the bank's base lending rate (8.5 percent at
March 31, 1998). The loan agreement contains certain financial covenants and
also prohibits cash dividends and mergers and acquisitions without the bank's
prior approval. Certain of the covenants, which the Company was not in
compliance with as of March 31, 1998, have been waived through such date. The
Company is currently negotiating an extension of the loan and amendments to
these covenants. However the Company may not be successful in extending the loan
or negotiating commercially reasonable amendments to these covenants, and the
Company may not be able to meet any such amended covenants. Failure to extend
the loan or meet the Company's debt covenants in the future would have a
material adverse effect on the Company's financial condition.
The Company entered into an interest only, variable rate note of $2.5 million
with a bank that matured March 1, 1998. On March 19, 1998, this note was
converted to a variable rate, term loan with principal and interest payable over
36 months. Borrowings under the loan are secured by a lien on all assets
acquired using the proceeds of the loan, which have been used for the
acquisition of equipment and leasehold improvements. The loan bears interest at
the bank's base lending rate, currently at 8.5%, plus 0.5%. The loan contains
certain financial covenants and also prohibits cash dividends and mergers and
acquisitions without the bank's prior approval. Certain of the covenants, which
the Company was not in compliance with as of March 31, 1998, have been waived
through such date. The Company is currently negotiating amendments to these
covenants. However the Company may not be successful negotiating commercially
reasonable amendments to these covenants, and the Company may not be able to
meet any such amended covenants. Failure to meet the Company's debt covenants
in the future would have a material adverse effect on the Company's financial
condition.
*It is likely that the Company will attempt to raise additional funds through
the sale of equity securities or other means in the near future, and such may be
required by the terms of the Company's amended debt covenants. *There can be no
assurance that any such funds will be available on favorable terms, if at all.
*If the Company is unable to raise additional funds the Company will be
dependent on revenue from operations to fund operations, and possibly to repay
outstanding bank debt. *There can be no assurance that revenue from operations
would be sufficient for that purpose, and the Company could be required to
reduce operations or take other actions that could have a material adverse
effect on the Company's business. *The sale of additional equity would result in
dilution to the Company's shareholders.
OTHER FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
This Form 10-QSB contains forward-looking statements that involve risks and
uncertainties, including, but not limited to, those set forth below, that could
cause actual results to differ materially from those in the forward-looking
statements. The matters set forth below should be carefully considered when
evaluating the Company's business and prospects.
UNPREDICTABILITY OF REVENUE. The Company's revenue has fluctuated
dramatically on a quarterly and annual basis, and the Company expects this trend
to continue. These dramatic fluctuations result from a number of factors,
including: (i) the lengthy and highly consultative sales cycle associated with
the Company's products; (ii) uncertainty regarding the timing and scope of
customer deployment schedules of applications based on the Versant ODBMS; (iii)
fluctuations in domestic and foreign demand for the Company's products and
services, particularly in the telecommunications, Internet/Intranet/Extranet and
financial services markets; (iv) the impact of new product introductions by the
Company and its competitors; (v) the Company's inability or unwillingness to
meet lower prices set by the Company's competitors; (vi) the effect of
publications of opinions about the Company and its competitors and their
respective products; and (vii) customer order deferrals in anticipation of
product enhancements or new product offerings by the Company or its competitors.
A number of other factors make it impossible to predict the Company's operating
results for any period prior to the end of that period. The Company's software
is typically shipped to a customer shortly after the Company's receipt of the
customer's order, and consequently, the Company usually has little if any order
backlog. As a result, license revenue in any quarter is substantially dependent
on orders booked and shipped in that quarter. Historically, a majority of the
Company's total revenue in any quarter has been recorded, and a majority of the
orders for the Company's products have been booked, in the third month of that
quarter, with a concentration of such revenue and orders in the last few days of
that quarter. The Company expects this trend to continue. Many of these factors
are beyond the Company's control. In addition, the Company's increasing practice
of licensing products on a project basis may reduce the potential for recurring
deployment revenue for certain customer applications.
UNCERTAIN ABILITY TO MANAGE COSTS GIVEN UNPREDICTABILITY OF REVENUE. The Company
expended significant resources in 1997 to build its infrastructure and hire
personnel, particularly in the services and sales and marketing sectors, in
14
<PAGE> 15
expectation of higher revenue growth than actually occurred. Although the
Company is seeking to control costs, the Company continues to plan for revenue
growth in 1998 and is maintaining, with some reductions, its investments in
infrastructure and personnel accordingly. If planned revenue growth does not
materialize, the Company's business, financial condition and results of
operations will be materially adversely affected.
LIMITED WORKING CAPITAL. The Company incurred a significant reduction in working
capital in the first quarter of 1998. *It is likely that the Company will
attempt to raise additional funds through the sale of equity securities or
other means in the near future, and such may be required by the terms of the
Company's amended debt covenants. *There can be no assurance that any such
funds will be available on favorable terms if at all. *If the Company is
unable to raise additional funds the Company will be dependent on revenue from
operations to fund operations, and possibly to repay outstanding bank debt.
*There can be no assurance that revenue from operations would be sufficient for
that purpose, and the Company could be required to reduce operations
or take other actions that could have a material adverse effect on the
Company's business. *The sale of additional equity would result in dilution to
the Company's shareholders.
RELIANCE ON TELECOMMUNICATIONS, INTERNET/INTRANET/EXTRANET AND FINANCIAL
SERVICES MARKETS. Historically, the Company has been highly dependent upon the
telecommunications industry and is becoming increasingly dependent upon the
Internet/Intranet/Extranet and financial services markets. The Company's success
in the telecommunications, Internet/Intranet/Extranet and financial service
markets is dependent, in part, on the Company's ability to compete with
alternative technology providers and the extent to which the Company's customers
and potential customers believe the Company has the expertise necessary to
provide effective solutions in these markets. If these conditions, among others,
are not satisfied, the Company may not be successful in generating additional
opportunities in these markets. The need for and type of applications and
commercial products for the telecommunications, Internet/Intranet/Extranet and
financial services markets is continuing to develop, is rapidly changing, and is
characterized by an increasing number of new entrants whose products may compete
with those of the Company. As a result, it is difficult to predict the future
growth of these markets, and demand for object-oriented databases in these
markets may not develop or be sustainable. The Company also may not be
successful in attaining a significant share of such market. In addition,
organizations in these markets generally develop sophisticated and complex
applications that require substantial customization of the Company's products.
Although the Company seeks to generate consulting revenue in connection with
these customization efforts, the Company has offered, and will likely continue
to offer, free or reduced price consulting in certain circumstances. This
practice has impacted, and will continue to impact, the Company's service
margins and will require that the Company maintain a highly skilled service
infrastructure with specific expertise in these markets.
CUSTOMER CONCENTRATION. 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, and the timing of such orders
and their fulfillment has caused, and is likely to cause in the future, material
fluctuations in the Company's operating results, particularly on a quarterly
basis. For example, in the first quarter of 1998, three customers accounted for
27% of the Company's total revenue. In addition, the Company's major customers
tend to change from year to year The loss of any one or more of the Company's
major customers or the Company's inability to replace a customer that has become
less significant in a given year with a different major customer could have a
material adverse effect on the Company's business and operating results.
LENGTHY SALES CYCLE. The Company's sales cycle, which varies substantially
from customer to customer, often exceeds six months and can extend to a year or
more. Due in part to the strategic nature of the Company's products and
associated expenditures, potential customers are typically cautious in making
product acquisition decisions. The decision to license the Company's products
generally requires the Company to provide a significant level of education to
prospective customers regarding the uses and benefits of the Company's products,
and the Company must frequently commit pre-sales support resources, such as
assistance in performing bench marking and application prototype development.
Because of the lengthy sales cycle and the relatively large average dollar size
of individual licenses, a lost or delayed sale could have a significant impact
on the Company's operating results for a particular period. Although the Company
seeks to develop relationships with best-of-class VARs in the telecommunications
and financial services markets in order to strengthen the Company's indirect
sales activity, the Company has not yet entered into such
15
<PAGE> 16
relationships and may not be successful in developing such relationships. In
addition, the Company's VARs may be subject to a lengthy sales cycle for the
Company's products.
TECHNOLOGY DEVELOPMENT RISKS. Versant believes that significant research and
development expenditures will be necessary to remain competitive. While the
Company believes its research and development expenditures will improve the
Versant ODBMS and result in successful peripheral product introductions, due to
the uncertainty of software development projects, these expenditures will not
necessarily result in successful product introductions. Uncertainties impacting
the success of software development project introductions include technical
difficulties, market conditions, competitive products and consumer acceptance of
new products and operating systems. In particular, the Company notes that it has
not yet achieved commercial acceptance for its VMA, VIA and VersantWeb products,
which the Company believes is due to the fact that these products are new and to
the highly competitive nature of the markets for Internet/Intranet/Extranet
development tools, and there is a risk that these products may not achieve
commercial acceptance.
Versant also faces certain challenges in integrating third-party technology
with its products, including the technological challenges of integration, which
may result in development delays, and uncertainty regarding the economic terms
of the relationship between the Company and the third-party technology provider,
which may result in delays of the commercial release of new products. In
particular, the Company is currently negotiating the terms of a relationship
with a provider of certain third-party technology that may be integrated with
VersantACE; however, the Company may not be successful in establishing this
relationship on commercially acceptable terms.
COMPETITION. The market for the Company's products is intensely competitive.
The Company believes that the primary competitive factors in its market include
database performance (including the speed at which operations can be executed
and the ability to support large amounts of different information), vendor
reputation, the ability to handle abstract data types and more complex data
relationships, ease of use, database scalability, the reliability, availability
and serviceability of the database, compatibility with customers' existing
technology platforms and the ease and speed with which applications can be
developed, price and service and support.
The Company's current and prospective competitors include companies that
offer a variety of database solutions using various technologies including
object database, object-relational database and relational database
technologies. Competitors offering object and object-relational database
management systems include Oracle Corporation, Computer Associates
International, Inc., Object Design, Inc., Informix and its Illustra Information
Technologies, Inc. subsidiary, Objectivity, Inc., Gemstone Systems, Inc., Poet
Software Corporation, O2 Corp., ONTOS, Inc., and Fujitsu America, Inc. In
addition, the Company's products compete with traditional relational database
management systems, many of which have been or are expected to be modified to
incorporate object-oriented interfaces and other functionality, and to leverage
Java. The principal competitors in the relational database market are Oracle,
Sybase, Informix, IBM and Microsoft. The Company expects to face additional
competition from other established and emerging companies as the object database
market continues to develop and expand. In 1997, Oracle released its Oracle8
product, which, with its objects option, provides object-relational database
capabilities, and Computer Associates released its Jasmine ODBMS, which is a
pure object-oriented database. Although the Company believes that the decision
of relational database vendors to pursue object-relational or object-oriented
approaches validates the Company's belief that object-oriented database
solutions will be increasingly demanded by today's business organizations, the
Company is facing heightened competition, which could result in fewer customer
orders, price reductions, reduced transaction size, reduced gross margins and
loss of market share, any of which could have a material adverse effect on the
Company's business, operating results and financial condition and on the market
price of the Company's Common Stock. The Company believes that the Versant ODBMS
is currently more expensive than typical RDBMSs as well as Oracle's Oracle8 and
Computer Associate's Jasmine. Due to the introduction by Oracle and Computer
Associates of competing products with lower prices than the Versant ODBMS, the
Company may not be able to maintain prices for its products at levels that will
enable the Company to market its products profitably. Any decrease in per unit
prices, as a result of competition or otherwise, could have a material adverse
effect on the Company's business, operating results and financial condition.
The Company is also indirectly facing competition from developers of
middleware products that allow users to connect object-oriented applications to
existing legacy data and RDBMSs. To the extent that these products gain market
acceptance, they may reduce the market for the Versant ODBMS for less complex
object-oriented applications.
Many of the Company's competitors, and especially Oracle and Computer
Associates, have longer operating histories, significantly greater financial,
technical, marketing, service and other resources, significantly greater name
16
<PAGE> 17
recognition, broader product offerings and a larger installed base of customers
than the Company. In addition, many of the Company's competitors have
well-established relationships with current and potential customers of the
Company. As a result, the Company's competitors may be able to devote greater
resources to the development, promotion and sale of their products, may have
more direct access to corporate decision-makers based on previous relationships
and may be able to respond more quickly to new or emerging technologies and
changes in customer requirements. There can be no assurance that the Company
will be able to compete successfully against current or future competitors or
that competitive pressures will not have a material adverse effect on its
business, operating results and financial condition.
STOCK PRICE VOLATILITY. The Company's revenue, operating results and stock
price have been and may continue to be subject to significant volatility,
particularly on a quarterly basis. Versant has previously experienced shortfalls
in revenue and earnings from levels expected by securities analysts and
investors, which has had an immediate and significant adverse effect on the
trading price of the Company's Common Stock. This may occur again in the future.
Additionally, as a significant portion of the Company's revenues often occur
late in the quarter, the Company may not learn of revenue shortfalls until late
in the quarter, which could result in an even more immediate and adverse effect
on the trading price of the Company's Common Stock.
SECURITIES LITIGATION. The Company and certain of its present and former
officers and directors were named as defendants in four class action lawsuits
filed in the United States District Court for the Northern District of
California, filed on January 26, 1998, February 5, 1998, March 11, 1998 and
March 18, 1998, respectively. The complaints each allege violations of Sections
10(b) and 20(a) of the Exchange Act, and Securities and Exchange Commission Rule
10b-5 promulgated under the Exchange Act, in connection with public statements
about the Company's expected financial performance. The complaints seek an
unspecified amount of damages. The Company vigorously denies the plaintiffs'
claims and has moved to dismiss the allegations. However, securities litigation
can be expensive to defend, consume significant amounts of management time and
result in adverse judgments or settlements that could have a material adverse
effect on the Company's results of operations and financial condition.
YEAR 2000 RISKS. The Company has and will continue to make certain
investments in software applications and systems to ensure that the Company's
products are Year 2000 compliant. In particular, the Company's purchase of $7.3
million of property and equipment during 1997 included substantial investments
in management and information systems designed to be Year 2000 compliant. The
Company does not currently have any information concerning the Year 2000
compliance status of its suppliers and customers or of providers of third-party
technology that may be integrated with the Company's products. In the event that
any of the Company's significant suppliers or customers, or such third-party
technology providers, does not successfully and timely achieve Year 2000
compliance, the Company's business or operations could be adversely affected.
17
<PAGE> 18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and certain of its present and former officers and directors were
named as defendants in four class action lawsuits filed in the United States
District Court for the Northern District of California, filed on January 26,
1998, February 5, 1998, March 11, 1998 and March 18, 1998, respectively. The
complaints each allege violations of Sections 10(b) and 20(a) of the Exchange
Act, and Securities and Exchange Commission Rule 10b-5 promulgated under the
Exchange Act, in connection with public statements about the Company's expected
financial performance. The complaints seek an unspecified amount of damages. The
Company vigorously denies the plaintiffs' claims and has moved to dismiss the
allegations. However, securities litigation can be expensive to defend, consume
significant amounts of management time and result in adverse judgments or
settlements that could have a material adverse effect on the Company's results
of operations and financial condition.
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
On August 13, 1996, the Company completed an initial public offering of its
Common Stock, no par value (the "Offering"). The shares of Common Stock sold in
the Offering were registered under the Securities Act on a Registration
Statement on Form SB-2 (the "Registration Statement") (Registration Number
333-4910-LA). The Registration Statement was declared effective by the
Securities and Exchange Commission on July 17, 1996.
After deducting the underwriting discounts and commissions and the expenses of
the Offering, net proceeds to the Company from the Offering were approximately
$14.8 million. Of this amount, the Company has used approximately $300,000 to
repay indebtedness of the Company, $2 million to acquire Versant Europe, $7.7
million to acquire network and computer equipment, associated services,
leasehold improvements, furnishings and fixtures for the Company's new
headquarters and payment of the cash portion of the lease security deposit on
the new headquarters. The balance of $4.8 million has been used for working
capital to support the Company's operations. As of March 31, 1998 all of the
proceeds from the Offering have been applied.
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<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: May 14, 1998 /s/ Gary Rhea
- ---------------------- ------------------------------------------------
Gary Rhea
Vice President Finance and Administration.
Chief Financial Officer, Treasurer and Secretary
(Duly Authorized Officer and Principal
Financial Officer)
19
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 6,357
<SECURITIES> 2
<RECEIVABLES> 6,510
<ALLOWANCES> 824
<INVENTORY> 0
<CURRENT-ASSETS> 14,043
<PP&E> 12,395
<DEPRECIATION> 4,585
<TOTAL-ASSETS> 25,249
<CURRENT-LIABILITIES> 8,547
<BONDS> 0
0
0
<COMMON> 43,357
<OTHER-SE> (29,876)
<TOTAL-LIABILITY-AND-EQUITY> 25,249
<SALES> 4,558
<TOTAL-REVENUES> 4,558
<CGS> 2,513
<TOTAL-COSTS> 2,513
<OTHER-EXPENSES> 7,877
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (61)
<INCOME-PRETAX> (5,894)
<INCOME-TAX> 9
<INCOME-CONTINUING> (5,903)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,903)
<EPS-PRIMARY> (0.65)
<EPS-DILUTED> (0.65)
</TABLE>
