<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, 1999
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 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 26, 1999: 10,138,449
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
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VERSANT CORPORATION
FORM 10-QSB
Quarterly Period Ended March 31, 1999
Table of Contents
<TABLE>
<CAPTION>
Part I. Financial Information
Item 1. Financial Statements Page No.
--------
<S> <C>
Consolidated Balance Sheets -- March 31, 1999 and December 31, 1998 3
Consolidated Statements of Operations -- Three Months Ended
March 31, 1999 and 1998 4
Consolidated Statements of Cash Flows -- Three Months
Ended March 31, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Part II. Other Information
Item 1. Legal Proceedings 19
Item 2. Exhibits and Reports on Form S-3 19
Signature 20
</TABLE>
2
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VERSANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
-------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,469 $ 3,564
Accounts receivable, net 6,057 5,878
Other current assets 714 1,318
-------- --------
Total current assets 8,240 10,760
Property and equipment, gross 13,561 13,604
Accumulated depreciation (6,614) (6,223)
-------- --------
Property and equipment, net 6,947 7,381
-------- --------
Other assets 395 433
Excess of cost of investment over fair value of
net assets acquired 1,974 2,095
-------- --------
Total assets $ 17,556 $ 20,669
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term bank borrowings $ 2,056 $ 2,426
Current maturities of long-term debt 1,970 2,223
Current portion of capitalized lease 572 561
obligations
Accounts payable 1,731 2,331
Accrued liabilities 2,907 3,692
Deferred revenue 3,178 2,830
-------- --------
Total current liabilities 12,414 14,063
-------- --------
Long-term liabilities, net of current portion:
Deferred revenue 614 704
Long-term notes payable 3,748 3,678
Capitalized lease obligations 248 369
-------- --------
Total liabilities 17,024 18,814
-------- --------
Shareholders' equity:
Common stock 45,697 45,727
Accumulated deficit (45,261) (43,890)
Cumulative other comprehensive income 96 18
-------- --------
Total shareholders' equity 532 1,855
-------- --------
Total liabilities and shareholders' equity $ 17,556 $ 20,669
======== ========
</TABLE>
* Derived from audited financial statements
The accompanying notes are an integral part of these statements
3
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VERSANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1999 1998
-------- --------
<S> <C> <C>
Revenue:
License $ 3,771 $ 2,724
Services 2,479 1,834
-------- --------
Total revenue 6,250 4,558
-------- --------
Cost of revenue:
License 289 614
Services 1,162 1,899
-------- --------
Total cost of revenue 1,451 2,513
-------- --------
Gross profit 4,799 2,045
-------- --------
Operating expenses:
Marketing and sales 3,038 5,011
Research and development 2,006 1,836
General and administrative 806 909
Amortization of goodwill 125 121
-------- --------
Total operating expenses 5,975 7,877
-------- --------
Loss from operations (1,176) (5,832)
Other expense (188) (62)
-------- --------
Loss before taxes (1,364) (5,894)
Provision for taxes 6 9
-------- --------
Net loss $ (1,370) $ (5,903)
======== ========
Basic net loss per share $ (0.14) $ (0.65)
======== ========
Diluted net loss per share $ (0.14) $ (0.65)
======== ========
Basic weighted average common shares 10,136 9,039
Diluted weighted average common shares 10,136 9,039
</TABLE>
The accompanying notes are an integral part of these statements
4
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VERSANT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1999 1998
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,370) $(5,903)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 581 595
Provision for doubtful accounts 165 158
Changes in current assets and liabilities:
Accounts receivable (344) 3,725
Prepaid expenses and other current assets 604 302
Deposits and other assets 38 (78)
Accounts payable (600) (124)
Accrued liabilities and taxes (785) (670)
Deferred revenue 258 (435)
------- -------
Net cash used in operating activities (1,453) (2,430)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale (purchases of) property and equipment 43 (1,510)
Proceeds from sale and maturities of short-term investments -- 6,112
------- -------
Net cash provided by investing activities 43 4,602
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repurchase of) net proceeds from sale of common stock (30) 377
Principal payments under capital lease obligations (110) (119)
Proceeds from (payments on) short term note and bank debt (623) 210
------- -------
Net cash provided by (used in) activities (763) 468
------- -------
Effect of exchange rate changes on cash 78 --
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,095) 2,640
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,564 3,717
======= =======
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,469 $ 6,357
======= =======
</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 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, 1998 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, 1999, or any other future period.
2. ORGANIZATION, OPERATIONS AND LIQUIDITY
Versant Corporation was incorporated in California in August 1988. References to
the "Company" in these Notes to Consolidated Financial Statements refer to
Versant Corporation and its subsidiaries. The Company operates in a single
industry segment and is involved in the design, development, marketing and
support of high performance object database management software systems.
The Company is subject to the risks associated with other companies in a
comparable stage of development. These risks include, but are not limited to,
fluctuations in operating results, seasonality, a lengthy sales cycle,
dependence on the acceptance of object database technology, competition, a
limited customer base, dependence on key individuals, product concentration, and
the ability to adequately finance its ongoing operations.
The Company has suffered recurring losses from operations, is out of compliance
with debt covenants, has a net working capital deficit and will require
additional funding in 1999 to fund its ongoing operations and repay its debt
obligations. The Company has not achieved business volume sufficient to restore
profitability and a positive cash flow. The Company operated at a net loss of
$1.4 million, $19.9 million and $2.3 million in the quarter ended March 31, 1999
and the years ended 1998 and 1997, respectively. *Although the Company was not
in compliance with its bank line of credit and term loan covenants as of March
31, 1999, the Company expects to establish new terms to extend the line of
credit and establish new covenants for the current year in May 1999. Under the
terms of the current line and term loan the bank could demand repayment of the
entire outstanding balance at any time. The Company's existing line of credit
expires on May 31, 1999.
3. 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.
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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 stock method. Common stock equivalents
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,
1999 and 1998 were the same as basic net loss per share due to losses in these
quarters and the inclusion of common stock equivalents 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, 1999 and
1998, because they were antidilutive were 97,653 and 59,287 respectively.
4. 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,
----------------------------
1999 1998
------ ------
<S> <C> <C>
Net loss (1,370) (5,903)
Foreign currency translation adjustment 78 (293)
------ ------
Comprehensive loss (1,292) (6,196)
</TABLE>
5. SEGMENT INFORMATION
In 1998 the Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 131 "Disclosures About Segments of an Enterprise and Related Information."
SFAS No. 131 established standards for reporting information about operating
segments in annual financial statements and requires selected information about
operating segments in interim financial reports issued to stockholders. It also
established standards for related disclosures about products and services, and
geographic areas. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision making group, in
deciding how to allocate resources and in assessing performance. The Company's
chief operating decision
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making group is the Executive Management Committee, which is comprised of the
Chief Executive Officer, the Chief Financial Officer and various Executive Vice
Presidents of the Company.
The Company is organized geographically and by line of business. The Company has
three major lines of business operating segments: license, support, and
consulting/training. However, the Company also evaluates certain lines of
business segments by vertical industries as well as by product categories. While
the Executive Management Committee evaluates results in a number of different
ways, the line of business management structure is the primary basis for which
it assesses financial performance and allocates resources.
The license line of business licenses an object oriented database management
software (ODBMS). The ODBMS software can be classified into two broad
categories: systems and development tools, which enables users to create, store,
retrieve, and modify the various types of data stored in a computer system. The
support line of business provides customers with a wide range of support
services that include on-site support, telephone or internet access to support
personnel, as well as software upgrades. The consulting and training line of
business provides customers with a wide range of consulting and training
services to assist the customer in evaluating, installing and customizing the
database as well as training classes on the use and operation of the Company's
products.
The accounting policies of the line of business operating segments are the same
as those described in the summary of significant accounting policies.
The Company does not track assets by operating segments. Consequently, it is not
practicable to show assets by operating segment.
The table below presents a summary of operating segments (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
------- -------
<S> <C> <C>
Revenues from Unaffiliated Customers
License $ 3,771 $ 2,724
Support 1,526 998
Consulting & Training 953 836
------- -------
Total Revenue 6,250 4,558
Distribution Margin
License 3,482 2,110
Support 1,103 246
Consulting & Training 214 (311)
------- -------
Total Distribution Margin 4,799 2,045
Profit Reconciliation:
Other Operating Expenses 5,975 7,877
Other Income (Expense) (188) (62)
------- -------
Loss Before Provision for Income Taxes $(1,364) $(5,894)
======= =======
</TABLE>
The table below presents the Company's revenues by legal subsidiary (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
------ ------
<S> <C> <C>
Total Revenues Attributable To:
United States $2,795 $2,766
Germany 1,977 536
France 769 500
United Kingdom 452 327
Australia/Asia Pacific 257 429
------ ------
Total $6,250 $4,558
====== ======
</TABLE>
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6. RECENTLY ISSUED ACCOUNTING STANDARDS
In December 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-9, "Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions" ("SOP 98-9") which addresses
software revenue recognition as it applies to certain multiple-element
arrangements. SOP 98-9 also amends, Statement of Position 98-4, "Deferral of the
Effective Date of a Provision of SOP 97-2," (SOP 98-4) to extend the deferral of
application of certain passages of SOP 97-2 through years beginning on or before
March 15, 1999. All other provisions of SOP 98-9 are effective for transactions
entered into in years beginning after March 15, 1999. The Company has adopted
SOP 98-9 in 1999.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"), which establishes accounting and
reporting standards for derivative instruments and hedging activities. The
pronouncement is effective for years beginning after June 15, 1999. The
statement must be applied to derivative instruments that were issued, acquired,
or substantively modified after December 31, 1997. The Company does not
currently hedge in currency exposure. The adoption of SFAS No. 133 is not
expected to impact the Company's consolidated financial position or results of
operations.
7. LINE OF CREDIT
The Company maintains a revolving credit line with a bank that expires on May
31, 1999. The maximum amount that can be borrowed under the revolving credit
line is $5.0 million. As of March 31, 1999, $900,000 was allocated to a standby
letter of credit to support the Company's European banking line and $1,400,000
of borrowings were outstanding. Borrowings and the standby letter of credit
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. These borrowings bear interest at the bank's base lending rate (7.75% at
March 31, 1999). The loan agreement contains certain financial covenants and
also prohibits cash dividends and mergers and acquisitions without the bank's
prior approval. The Company renegotiated these original covenants, effective
June 30, 1998, in order to comply with the Company's projected financial
results. The Company is currently negotiating a new line of credit with a new
expiration date. The current line of credit is currently due on demand.
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 7.75%, plus 0.5%. The loan contains certain financial covenants and
also prohibits cash dividends and mergers and acquisitions without the bank's
prior approval. The Company renegotiated the original covenants effective June
30, 1998 in order to comply with the Company's projected financial results. The
Company is currently negotiating new covenants for the current year ending
December 31, 1999. This line of credit is currently due on demand.
*Although the Company was not in compliance with its bank line of credit and
term loan covenants as of March 31, 1999, the Company expects to establish new
terms to extend the line of credit and establish new covenants for the current
year in May 1999. Under the terms of the current line and term loan the bank
could demand repayment of the entire outstanding balance at any time. The
Company's line of credit expires on May 31, 1999.
8. 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. On June
19, 1998, a Consolidated Amended Complaint was filed in the above mentioned
court, by the lead Plaintiff named by the court. The amended complaint alleges
violations of Sections 10(b) and 20(a) of the Securities Exchange Act, and
Securities and Exchange Commission Rule 10b-5 promulgated under the Securities
Exchange Act, in connection with public statements about the Company's expected
financial performance. The complaint seeks an unspecified amount of damages. The
Company vigorously denies the plaintiffs' claims and has moved to dismiss the
allegations. The Plaintiff has filed a response to the Company's motion to
dismiss and the Company has filed an opposition to Plaintiff's response. The
motion to dismiss was submitted to the court for consideration on November 13,
1998 and the court has not yet issued a decision.
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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.
9. SUBSEQUENT EVENTS
Soft Mountain Claim
The Company was advised by its counsel that the selling shareholders of the Soft
Mountain shares (see Note 11 of the footnotes to the financial statements, in
the annual 10KSB for December 31, 1998) have demanded that the Company
repurchase for approximately $1.1 million the 245,586 shares of the Company's
common stock issued to them in conjunction with the Company's purchase of all of
Soft Mountain's shares. The demand alleges that the Company has not registered
the shares issued in the transaction in a timely manner. The Company disputes
the right of such shareholders to receive such payment, however any potential
settlement could result in the payment of cash or the issuance of additional
Versant stock. Settlement discussions are ongoing. Arbitration or litigation may
result if a settlement cannot be reached.
S-3 Filing
On April 9, 1999, the Company filed a Form S-3 registration statement for shares
of the Company's common stock issued to the Soft Mountain shareholders and
Special Situations funds and for shares issuable upon conversion of the Vertex
note and upon exercise of the Special Situations Funds warrants. *The Company
expects the registration statement to become effective during May 1999.
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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
the Securities Exchange Act (the Securities Act) which reflect our current views
with respect to future events and financial performance. We have identified,
with a preceding asterisk, various sentences within this Form 10-QSB which
contain such forward-looking statements and words such as "believe,"
"anticipate," "expect," "intend" and similar expressions are also intended to
identify forward looking statements, but these are not the exclusive means of
identifying such statements. The forward looking statements included in this
Form 10-QSB involve numerous risks and uncertainties which are described
throughout this Form 10-QSB, including under "Revenues" and "Risk Factors"
within this Item 2. Please refer to our December 31, 1998 10KSB on file with the
Securities and Exchange Commission, the section labeled "Risk Factors" for
additional disclosure information. The actual results that we achieve may differ
materially from any forward looking statements due to such risks and
uncertainties.
We were incorporated in August 1988 and commenced commercial shipments of our
principal product, the Versant ODBMS, in 1991. Since that time, substantially
all of our revenue has been derived from:
1) sales of development, deployment and project licenses for the
Versant ODBMS
2) sales of the peripheral products for the Versant ODBMS
3) related maintenance and support, training, consulting and
nonrecurring engineering fees received in connection with
providing services associated with the Versant ODBMS and
4) the resale of licenses, maintenance, training and consulting for
third-party products that complement the Versant ODBMS
During the first quarter of 1999, the Company entered into 1 large pre-paid
license agreement accounting for $962,000 in license revenue and approximately
51 smaller customer license agreements, no one of which individually accounted
for over $203,000 of revenue in the first quarter. *This reflects the Company's
efforts to generate recurring revenue opportunities and improve our ability to
forecast revenues and consequently manage expenses by focusing more on smaller
and recurring license opportunities with our current and potential customers
than on large pre-paid project licenses. In the past, a significant portion of
our total revenue has been derived from a limited number of large pre-paid
licenses. *In addition, we seek to develop relationships with best-of-class
value-added resellers in the telecommunications and financial services markets
in order to strengthen our indirect sales activity, although we may not be
successful in developing such relationships and such value-added resellers may
not be successful in reselling our products. *We have taken significant actions
to decrease our operating expenses in recent quarters, and expect to continue to
take steps to decrease our operating expenses from first quarter 1999 levels.
Worldwide headcount as of March 31, 1999 was 115 compared to March 31, 1998
total of 183. However, our ability to manage expenses given the unpredictability
of our revenues is uncertain, and we are required to maintain a significant
infrastructure in order to develop, market and support our products.
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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, 1999 and 1998.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1999 1998
------ ------
<S> <C> <C>
Revenue:
License 60.3% 59.8%
Services 39.7% 40.2%
------ ------
Total revenue 100.0% 100.0%
------ ------
Cost of revenue:
License 4.6% 13.5%
Services 18.6% 41.7%
------ ------
Total cost of revenue 23.2% 55.2%
------ ------
Gross profit 76.8% 44.8%
------ ------
Operating expenses:
Marketing and sales 48.6% 109.9%
Research and development 32.1% 40.3%
General and administrative 12.9% 19.9%
Amortization of goodwill 2.0% 2.7%
------ ------
Total operating expenses 95.6% 172.8%
------ ------
Loss from operations -18.8% -128.0%
Other expense -3.0% -1.3%
------ ------
Loss before taxes -21.8% -129.3%
Provision for taxes 0.1% 0.2%
------ ------
Net loss -21.9% -129.5%
====== ======
</TABLE>
REVENUE
Total consolidated revenue increased 37.1% from $4.5 million in the first
quarter of 1998 to $6.3 million in the first quarter of 1999. This increase in
total revenue was due to an increase in both license and service revenues.
License revenue
License revenue increased 38.4% from $2.7 million in the first quarter of 1998
to $3.8 million in the first quarter of 1999. 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 1999 to 60.3% of total sales compared to 59.8% in the first quarter
of 1998. See our December 31, 1998 10KSB, on file with the SEC, section labeled
"Risk Factors - Our revenue levels are unpredictable."
Service revenues
Services revenue increased 35.2% from $1.8 million in the first quarter of 1998
to $2.5 million in the first quarter of 1999. Maintenance as well as consulting
and training revenues increased during this period. Services revenue remained
relatively constant at approximately 40% of total revenue in both the first
quarters of 1999 and 1998.
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International sales
International revenue increased by 93% to $3.5 million in the first quarter of
1999 compared to $1.8 million in the first quarter of 1998. The increase in
international revenue during 1999 compared to 1998 resulted primarily from
higher sales in Europe. This increase in international revenue resulted from the
Company's increased marketing and sales investment, as well as the September
1998 acquisition of Soft Mountain. *We intend to maintain our sales and
marketing activities outside the United States, including Europe, 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 39% in 1998 to 55% in
1999. *Due to our increased emphasis on international sales, especially through
Versant Europe, we expect international revenue to remain a significant
percentage of total revenue.
COST OF REVENUE AND GROSS PROFIT
Total cost of revenue decreased to $1.4 million in the first quarter of 1999
from $2.5 million in the first quarter of 1998. This decrease was the result of
three factors. First, there was a substantial cost reduction in the service
organization due to our restructuring efforts completed in January 1999. Second
the amortization of certain deferred license costs associated with the
acquisition of Versant Europe was completed at the end of 1998. Total cost of
revenue as a percentage of total revenues decreased to 23.2% in the first
quarter of 1999 from 55.2% in the first quarter of 1998.
Cost of license revenue consists primarily of amortization of deferred license
costs, in 1998, associated with the acquisition of Versant Europe, adjustments
to bad debt reserves, product royalty obligations incurred by us when we
sublicense tools provided by third parties, royalty obligations incurred by us
under porting services agreements, user manuals, product media, product
packaging, production labor costs and freight. Cost of license revenue decreased
to $289,000 in the first quarter of 1999 compared to $614,000 in the first
quarter of 1998. This decrease was the result of the elimination of amortization
expense of certain deferred license costs associated with the acquisition of
Versant Europe, and reduced production costs associated with the restructuring
in January 1999. As a result of these decreased costs, cost of license revenue
as a percentage of license revenues decreased to 4.6% in the first quarter of
1999 from 13.5% in the first quarter of 1998. As part of the acquisition of
Versant Europe, we allocated $1.4 million of the purchase price to deferred
license costs. In the first quarter of 1999 and 1998, we recognized zero and
$250,000 respectively, of these deferred license costs as a cost of license
revenue.
Cost of services revenue consists principally of personnel costs associated with
providing consulting, training, technical support and nonrecurring engineering
work paid for by customers. The decrease in cost of services revenue to $1.1
million in the first quarter of 1999 from $1.9 million in the first quarter of
1998, was attributable to all areas of service. These decreases were
attributable to the restructuring activities completed in January 1999. Cost of
services revenue as a percentage of services revenue decreased to 46.9% in 1999
compared to 103.5% in 1998. *We expect cost of services revenue to be a
significant percentage of services revenue due to the need for us 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. *We also expect to experience increased compensation
pressures as a result of the intense demand for managers and engineers in
Silicon Valley, which we may not be able to offset with increases in the fees we
charge for maintenance and training and consulting projects due to competitive
pressures and restrictions in contractual provisions regarding associated
services. Since December 31, 1998 we have restructured our operations to reduce
employee costs and associated expenses. Worldwide headcount as of March 31, 1999
was 115 compared to March 31, 1998 total of 183. See our December 31, 1998
10KSB, on file with the SEC, section labeled "Risk Factors - We rely on
telecommunications and financial services markets characterized by complexity
and intense competition."
MARKETING AND SALES EXPENSES
Marketing and sales expenses consist primarily of marketing and sales personnel
costs, including sales commissions, recruiting, travel, sales offices, product
descriptive literature, seminars, trade shows, product management, depreciation,
occupancy expense, lead generation and mailings. The decrease in the first
quarter of 1999 to $3.0 million from $5.0 million in the first quarter of 1998
resulted from the restructuring activities completed in January 1999. *We
expect, in 1999, marketing and sales expenses per quarter will decrease in both
absolute dollar terms and as a percentage of revenue from first quarter 1999
level, due to our efforts to control commission costs and costs associated with
marketing
13
<PAGE> 14
programs. *Our operating results will be adversely affected if our marketing and
sales expenditures do not decline or increased revenues are not achieved. As a
percentage of total revenues marketing and sales expenses decreased to 49% in
the first quarter of 1999 from 110% in the first quarter of 1998. This
significant decrease in the first quarter of 1999 was the result of reduced
expenses and higher revenues.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses consist primarily of salaries, other
personnel-related expenses, depreciation or the expensing of development
equipment, occupancy expenses, travel, supplies and the costs of an ISO 9001
quality program. The increase to $2.0 million in the first quarter of 1999 from
$1.8 million in the first quarter of 1998 resulted primarily from increased
costs of funding ongoing engineering activities in India and additional
operating expenses associated with Soft Mountain's engineering activity offset
in part by reduced domestic spending due to the restructuring in January 1999.
We believe that a significant level of research and development expenditures is
required to remain competitive and complete products under development.
*Accordingly, we anticipate that we will continue to devote substantial
resources to research and development to design, produce and increase the
quality, competitiveness and acceptance of our products. *Due to our
restructuring activities, we expect research and development expenses to
decrease compared to quarter 1, 1999 levels in absolute dollar terms and
decrease as a percentage of revenues in 1999. However, if we increase our
research and development efforts or do not increase revenues, our results of
operations could be adversely affected in the short term. To date, all research
and development expenditures have been expensed as incurred. As a percent of
total revenues, research and development costs were 32% in the first quarter of
1999 down from 40% in the first quarter of 1998. The decrease as a percentage of
revenues was due to higher revenues.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of salaries, recruiting
and other personnel-related expenses for our 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 decrease in the first quarter of 1999 to $.8 million
from $.9 million in the first quarter of 1998 was attributable principally to
the reduced expenses due to the restructuring completed in January 1999. *We
expect, in 1999, our quarterly general and administrative expenses to continue
to decrease in absolute dollar terms and as a percentage of revenues from first
quarter 1999 level. However, if we do not reduce our G&A expenses or revenues do
not increase over Q1 1999 levels then our results of operations would be
adversely affected. As a percentage of total revenues general and administrative
costs decreased in the first quarter of 1999 to 13% from 20% in the first
quarter of 1998. The increase as a percentage of revenues was also due to lower
expenses and higher revenues.
AMORTIZATION OF GOODWILL
The acquisition of Versant Europe in March 1997 resulted in our 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 1999, we amortized $63,800 while
in the first quarter of 1998 the Company amortized $121,000. This reduction of
amortization costs relates to our write down of the Versant Europe goodwill by
$1.6 million in the fourth quarter of 1998, due to our revised estimated
discounted cash flow over the next five years. *We will amortize $174,000 of
this remaining goodwill amount in 1999. The acquisition of Soft Mountain in
September 1998 resulted in our recording an intangible asset representing the
cost in excess of fair value of the net assets acquired in the amount of $1.2
million, which is being amortized over a five-year period. During the first
quarter of 1999, we amortized $61,200 of this amount. *We will amortize $245,000
of this amount in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by $2.1 million from $3.6 million at
December 31, 1998 to $1.5 million at March 31, 1999. We had no short term
investments on December 31, 1998 or March 31, 1999, however 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, 1999, our operating activities used $1.5
million of cash and cash equivalents primarily as a result of funding the net
loss for the quarter, decreases in accrued liabilities, accounts payables and
increases in our accounts receivables, offset by, reduced prepaid and other
assets, increases in deferred revenues, depreciation, amortization and provision
for doubtful accounts. Investing activities generated cash from the sale of
14
<PAGE> 15
older equipment no longer needed in the operational activities. Financing
activities used cash of $.8 million due to principle payments on our bank and
lease financing arrangements.
Total assets decreased by 15% from $20.7 million at December 31, 1998 to $17.8
million at March 31, 1999. The decrease in total assets was primarily due to the
reduction in cash and net property and equipment balances as depreciation
expense far exceeded the additional assets added in the first quarter of 1999.
*We have and will continue to make certain investments in software applications
and systems to ensure that our products are Year 2000 compliant. In particular,
our purchase of approximately $9 million of property and equipment during 1997
and 1998 included substantial investments in management and information systems
designed to be Year 2000 compliant. We are currently in the process of testing
our internal and external systems for compliance as well as contacting our
customers, suppliers and providers of third-party technology that may be
integrated with our products for information concerning their Year 2000
compliance status. In the event that any of our significant suppliers or
customers, or such third-party technology providers, does not successfully and
timely achieve Year 2000 compliance, our business or operations could be
adversely affected. See "Risk Factors - Our business may be harmed by Year 2000
problems."
Total liabilities decreased 9.5% from $18.8 million at December 31, 1998 to
$17.0 million at March 31, 1999. This decrease was due to a reduction of accrued
liabilities, accounts payables, reduced bank and lease debt partially offset by
increases in net deferred revenue and accrued interest on our convertible
secured note.
Total shareholders' equity decreased 71% from $1.9 million at December 31, 1998
to $.5 million at March 31, 1999. This decrease primarily results from the net
loss of $1.4 million for the quarter.
At March 31, 1999, we had $1.5 million in cash and cash equivalents and negative
working capital of approximately $4.2 million. We maintain a revolving credit
line with a bank that expires on May 31, 1999. The maximum amount that can be
borrowed under the revolving credit line is $5.0 million. As of March 31, 1999,
$900,000 was allocated to a standby letter of credit to support our European
banking line and $1,400,000 of borrowings were outstanding. Borrowings and the
standby letter of credit under the revolving credit line are limited to 80% of
eligible accounts receivable and are secured by a lien on substantially all of
our assets. These borrowings bear interest at the bank's base lending rate
(7.75% at March 31, 1999). The loan agreement contains certain financial
covenants and also prohibits cash dividends and mergers and acquisitions without
the bank's prior approval. We renegotiated these original covenants, effective
June 30, 1998, in order to comply with our projected financial results for 1998.
As of March 31, 1999, we were negotiating a new line of credit with a new
expiration date. The current line of credit is currently due on demand.
We 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 7.75%, plus 0.5%. The loan contains certain financial covenants and
also prohibits cash dividends and mergers and acquisitions without the bank's
prior approval. We renegotiated these original covenants, effective June 30,
1998, in order to comply with our projected financial results for 1998. As of
March 31, 1999, we were negotiating new covenants for the current year ending
December 31, 1999. Therefore, This loan is currently due on demand and has been
restated as a current liability in our financial statements.
*Although the Company was not in compliance with its bank line of credit and
term loan covenants as of March 31, 1999, the Company expects to establish new
terms to extend the line of credit and establish new covenants for the current
year in May 1999. Under the terms of the current line and term loan the bank
could demand repayment of the entire outstanding balance at any time. The
Company's line of credit expires on May 31, 1999.
Although we seek to negotiate new financial covenants for our existing bank
debt, the bank is not required to amend our existing covenants. Moreover, any
new covenants that we negotiate may contain terms that significantly restrict
our business activities.
*We believe that our current cash, cash equivalents, our lines of credit, and
the net cash provided by operations, if any, may be insufficient to meet our
anticipated cash needs for working capital and capital expenditures for 1999. At
March 31, 1999, our commitments for capital expenditures were not material. *If
cash provided by operations is insufficient to satisfy our liquidity
requirements, we will seek additional debt or equity financing. Such financing
may not be available
15
<PAGE> 16
on terms acceptable to us, if at all. The sale of additional equity or
convertible debt securities could result in dilution to our shareholders. *A
portion of our cash may be used to acquire or invest in complementary businesses
or products or to obtain the right to use complementary technologies. From time
to time, we evaluate potential acquisitions of such businesses, products and
technologies.
To date, we have not achieved business volume sufficient to restore
profitability and a positive cash flow. We operated at a net loss of $1.4
million, $19.9 million and $2.3 million in the quarter ending March 31, 1999,
year ending 1998 and 1997 respectively. Our available cash and credit facilities
may not be sufficient to fund our operations and successfully implement our
business plan, part of which consists of pursuing potential strategic
relationships, acquisitions of companies, products and technologies. As a
result, our ability to continue as a going concern is dependent upon future
events, including our ability to obtain additional debt or equity financing.
Additional debt or equity financing, if required, may not be available to us on
commercially reasonable terms, or at all. Even if we were able to obtain
additional debt or equity financing, the terms of this financing may
significantly restrict our business activities. If we are unable to obtain
additional debt or equity financing and do not generate consistent positive cash
flows from operations for the immediate and foreseeable future, we will be
required to cease or substantially reduce operations.
The actual cash resources required to successfully implement our business plan
in year 1999 will depend upon numerous factors, including but not limited to
those described in our December 31, 1998 10KSB on file with the SEC and the
following additional Risk Factors.
RISK FACTORS
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 our business and prospects.
RISKS RELATED TO OUR BUSINESS
OUR LIMITED WORKING CAPITAL MAY PREVENT US FROM CONTINUING AS A GOING CONCERN.
We incurred a significant reduction in working capital in 1998 and a further
reduction as a result of our first quarter 1999 loss. To date, we have not
achieved business volume sufficient to restore profitability and a positive cash
flow. We operated at a net loss of $20 million in 1998 and as of March 31, 1999
have incurred an additional operating loss of $1.4 million. Our available cash
and credit facilities may not be sufficient to fund our operations and
successfully implement our business plan, part of which consists of pursuing
potential strategic relationships, acquisitions of companies, products and
technologies. Also, the Soft Mountain shareholders have demanded that we
repurchase for approximately $1.1 million the 246,586 shares of our common stock
issued to them in connection with our purchase of Soft Mountain shares as a
result of our inability to register their shares by December 31, 1998. Our
ability to continue as a going concern is therefore dependent upon future
events, including our ability to obtain additional debt or equity financing. In
Quarter 4, 1998, we raised $3.6 million through the sale of a convertible
secured subordinated promissory note to Vertex Technology Fund, and $1.4 million
through the sale of equity securities to Special Situations Fund. We may raise
additional funds through the sale of equity securities or other means in the
near future. *However, funds may not be available on favorable terms, if at all.
*If we are unable to raise additional funds, we will be dependent on cash flow
from operations to fund operations and to repay outstanding bank debt. *Unless
we generate consistent positive cash flows from operations for the immediate and
foreseeable future, we will be required to cease or substantially reduce
operations. *The sale of additional equity or convertible debt securities would
result in dilution to our shareholders.
OUR COMMON STOCK MAY BE DELISTED FROM NASDAQ. Our common stock is listed on the
Nasdaq National Market. Nasdaq has continued listing requirements which we must
meet to avoid delisting. Currently, we do not meet the $4 million tangible net
assets requirement and have been so notified by Nasdaq. We believe that we will
be able to meet this requirement if Vertex converts its note and if additional
equity can be raised in time to satisfy Nasdaq. We may be unable to timely
secure or conclude these commitments, however. Companies traded on the Nasdaq
Markets are also required to maintain a minimum bid price of one dollar per
share. Our stock price may decline below this requirement. There are other
requirements as well. If our common stock is delisted, we may not be able to
satisfy the higher requirements for relisting on either the Nasdaq National or
Nasdaq SmallCap Market. After delisting, trading in our common stock may be
conducted in the over-the-counter market in what are commonly referred to as the
"pink sheets". As a result, investors would find it more difficult to buy, sell
or quote our common stock.
16
<PAGE> 17
OUR EXISTING DEBT BURDEN IS SUBSTANTIAL, AND WE MAY DEFAULT ON OUR LOANS. At
March 31, 1999, we had the following outstanding borrowings:
(1) $2.1 million under a bank revolving loan, which expires on May
31, 1999;
(2) $2.0 million under a bank term loan, which expires on March 18,
2001; and
(3) $3.6 million plus accrued interest of $140,000 under our
convertible subordinated secured promissory note, which is due
in October 2001.
Because we were not in compliance with the covenants that apply to the bank
revolving loan and the bank term loan at March 31, 1999, the bank has the
ability to declare a default on these loans and demand immediate payment of
approximately $4.1 million in currently outstanding borrowings. Therefore,
unless we are able to renegotiate our covenants and extend or refinance this
debt, we will need to generate a significant amount of cash in the immediate
future, and in any event by the May 31, 1999 expiration date of the bank
revolving loan. As in previous quarters in which we were not in compliance with
our financial covenants, we are currently pursuing discussions with the bank to
amend the terms of our loans, including their repayment schedules and financial
covenants. However, we may not be successful in this endeavor. Even if we are
successful amending the terms of or refinancing our loans, the new terms could
be significantly less attractive than our current financing arrangements and
could significantly restrict our operating activities.
OUR BUSINESS MAY BE HARMED BY YEAR 2000 PROBLEMS. We and our customers and
suppliers are aware and concerned about the risks associated with Year 2000
computer issues. If our systems do not recognize the correct date when the year
changes to 2000, there could be a material adverse effect on our operations. We
are at risk from both internal and external areas. We have categorized our risk
into the following categories:
(1) internal systems required to operate our business (e.g.
operational, financial, product development, safety and
environmental controls);
(2) external supplier systems that are necessary to support our
business requirements (e.g. raw materials, supplies, shipping
and delivery systems, banking, payroll and government systems);
and
(3) product warranty exposure with our customer base.
We are currently evaluating our exposure in all these areas. We have been
reviewing our facility, financial and operating systems to identify and assess
the requirements to bring hardware systems and software applications to Year
2000 compliance. We expect to conclude our estimate of exposure to Year 2000
problems, associated costs and required correction plans by the end of July 1999
and to correct any Year 2000 problems by October 31, 1999. We have not
identified any alternative remediation plans in the event Year 2000 issues can
not be adequately corrected. We will define any alternative plans if and when we
discover systems that can not be made Year 2000 compliant. If implementation of
upgrade or replacement systems is delayed or if significant new non-compliance
issues are discovered, our operations could be materially adversely affected.
We have and will continue to make certain investments in software applications
and systems to ensure that we are Year 2000 compliant with respect to our
internal systems. In particular, our purchase of $9 million of property and
equipment during 1997 and 1998 included substantial investments in management
and information systems designed to be Year 2000 compliant.
We have contracted with an outside independent consulting firm to provide
internal Year 2000 equipment testing and consulting services to assist us in the
process of defining and implementing a Year 2000 compliance project. This
compliance project includes the following phases:
<TABLE>
<CAPTION>
EXPECTED
COMPLETION
NAME OF PHASE: DESCRIPTION: STATUS: DATE:
- -------------- ------------ --------- ----------
<S> <C> <C> <C>
Awareness and Educate the company on the Year 2000 Completed --
Assessment Phase project, the potential problems associated
with this date issue, inventory our systems
and products that require compliance testing.
</TABLE>
17
<PAGE> 18
<TABLE>
<CAPTION>
EXPECTED
COMPLETION
NAME OF PHASE: DESCRIPTION: STATUS: DATE:
- -------------- ------------ --------- ----------
<S> <C> <C> <C>
Testing and Test our systems and products and identify Begins July 1999
Validation Phase the non-compliant areas, develop March 1999
remediation plans, map the conversion process
to correct non-compliant areas and validate
the changes that need to be made to correct
non-compliant areas.
Implementation Convert non-compliant areas with compliant Begins October
and Certification products (hardware or software), verify August 1999 1999
Phase that all intended changes have been made
successfully and that all planned Year 2000
compliance changes have been made.
Maintenance Phase This phase puts processes and procedures in Begins December
place to minimize the likelihood that November 1999 1999
Year 2000 compliance problems will be
reintroduced into the compliant
systems and products.
</TABLE>
STATUS:
Awareness and Assessment Phase: We have written and published an awareness
statement to educate our employees, vendors and customers about the Year 2000
issues and potential problems associated with the Year 2000 rollover problem and
what effect this will have on our company and customers. We have published this
statement internally to our employees and management and will be distributing
this statement via our web site "versant.com" and by mail to certain vendors and
customers by May 1999. We have identified all internal systems (products and
software) that need to be tested for Year 2000 compliance.
Testing and Validation Phase: We have tested our personal computers and servers
used by our information management systems, engineering development teams and
employees to complete their daily work assignments. The results were 3 personal
computers (one 486 and two Pentiums), and two servers (both Pentiums) failed our
Year 2000 test. We intend to replace both servers and the 486 system with
existing Y2k compliant inventory, and upgrade the remaining two Pentiums with
bios upgrades if possible or replace. We will be testing or seeking validation
with respect to Year 2000 compliance regarding external providers for phone
service, security service, utility service, internet service and air
conditioning service. We will then develop remediation plans to correct
non-compliant systems.
In addition to the internal testing, evaluation and remediation project, we will
implement a program that will query our suppliers and providers of third-party
technology that may be integrated with our products to determine if the
suppliers operations', products and services are Year 2000 compliant. We expect
these questionnaires to be sent to our third party providers and key suppliers
by the end of May 1999 and conclude our review by the end of July 1999. Where
practical, we will take the necessary actions to reduce our exposure to
suppliers that are not Year 2000 compliant by finding alternative suppliers.
However, there may be critical suppliers that cannot be substituted and this
could have a material adverse effect on our operations.
We believe our products are Year 2000 compliant. However, not every customer
situation can be anticipated, especially in areas that involve third party
products. Extensive testing has been performed on our products and additional
testing will continue as we become aware of our customer's Year 2000 needs and
issues. We may see an increase in customer demands for warranty service. This
may create additional service costs that can not be recovered. In addition, if
our products are not Year 2000 compliant, we could face litigation regarding
Year 2000 compliance issues.
The process to insure our systems and our supplier systems are Year 2000
compliant is expected to be significantly completed by October 31, 1999, with
testing to be done through the remainder of 1999. In addition, we could face
reduced demand for our products through 1999 if customers focus on purchasing
solutions to their Year 2000 problems rather than purchasing our products, which
are not designed to solve Year 2000 problems.
18
<PAGE> 19
Customer's purchasing plans could be affected by the Year 2000 problem if they
need to expend significant resources to correct their existing systems. This
situation may result in reduced funds available to implement solutions based
upon our products. In addition, some customers may defer the license of our
products until after the Year 2000 while they complete remediation and testing
of their current systems to ensure Year 2000 compliance. A decrease in demand
for our products due to customers' Year 2000 issues would seriously harm our
business and results of operations.
Please refer to our December 31, 1998 10KSB, on file with the SEC, section
labeled "Risk Factors" for a complete description of the risk factors facing our
company.
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. On June
19, 1998, a Consolidated Amended Complaint was filed in the above mentioned
court, by the lead Plaintiff named by the court. The amended complaint alleges
violations of Sections 10(b) and 20(a) of the Securities Exchange Act, and
Securities and Exchange Commission Rule 10b-5 promulgated under the Securities
Exchange Act, in connection with public statements about the Company's expected
financial performance. The complaint seeks an unspecified amount of damages. The
Company vigorously denies the plaintiffs' claims and has moved to dismiss the
allegations. The Plaintiff has filed a response to the Company's motion to
dismiss and the Company has filed an opposition to Plaintiff's response. The
motion to dismiss was submitted to the court for consideration on November 13,
1998 and the court has not yet issued a decision. 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. EXHIBITS AND REPORTS ON FORM 8K
(a)
<TABLE>
<CAPTION>
Exhibit No. Exhibit Title
- ----------- -------------
<S> <C>
27.01 Financial Data Schedule
</TABLE>
(b) None
19
<PAGE> 20
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 12, 1999 /s/ Gary Rhea
- ---------------------- -----------------------------
Gary Rhea
Vice President Finance and
Administration. Chief Financial Officer,
Treasurer and Secretary (Duly Authorized
Officer and Principal Financial Officer)
20
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------ -------------
<S> <C>
27.01 -- Financial Data Schedule
</TABLE>
21
<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
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,469
<SECURITIES> 0
<RECEIVABLES> 6,557
<ALLOWANCES> 500
<INVENTORY> 0
<CURRENT-ASSETS> 8,240
<PP&E> 13,561
<DEPRECIATION> 6,614
<TOTAL-ASSETS> 12,414
<CURRENT-LIABILITIES> 8,547
<BONDS> 0
0
0
<COMMON> 45,697
<OTHER-SE> (45,165)
<TOTAL-LIABILITY-AND-EQUITY> 532
<SALES> 6,250
<TOTAL-REVENUES> 6,250
<CGS> 1,451
<TOTAL-COSTS> 1,451
<OTHER-EXPENSES> 5,975
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (246)
<INCOME-PRETAX> (1,364)
<INCOME-TAX> 6
<INCOME-CONTINUING> (1,370)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,370)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
