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| VSNT > SEC Filings for VSNT > Form 10-K on 14-Jan-2009 | All Recent SEC Filings |
14-Jan-2009
Annual Report
As indicated in the paragraph above in Item 1 of this report, this Form 10-K (including this Item 7) contains certain forward-looking statements within the meaning of the Securities Exchange Act of 1934 and the Securities Act of 1933. These forward-looking statements are based on Versant's current expectations about our business, industry, operating results and financial condition and reflect our current beliefs and assumptions as of the date of this report based upon information that is reasonably available to us at the date of this report. In many cases you may identify these forward-looking statements by words such as "will," "should," "may," "might," "believes," "anticipates," "expects," "intends," "estimates" and similar expressions. These forward-looking statements include, among other things, projections of our future financial performance, financial condition and trends anticipated for our business. We caution investors that forward-looking statements are only predictions or estimates based upon our current expectations about future events. The forward-looking statements are not guarantees or assurances of our future performance and are subject to significant risks and uncertainties that are inherently difficult to assess and predict. Our actual results and performance may differ materially from the results and performance anticipated by any forward-looking statements due to these risks and uncertainties, some of which are discussed in Item 1A of this report under the heading "Risk Factors.". Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect our business, financial performance or financial condition.
We design, develop, market and support high performance object-oriented database management systems and provide related maintenance and professional services. Our products and services address the complex data management needs of enterprises and providers of products requiring data management functions. Our products and services collectively comprise our single operating segment, which we call "Data Management".
Our end-user customers typically use our products to manage data for business systems and to enable these systems to access and integrate data necessary for the customers' data management applications. Our data management products and services offer customers the ability to manage real-time, XML and other types of hierarchical and navigational data. We believe that by using our data management solutions, customers cut their hardware costs, accelerate and simplify their development efforts, significantly reduce administration costs and deliver products with a significant competitive edge.
Our Data Management business is currently comprised of the following key products:
º •
º Versant Object Database or "VOD", previously known as VDS, a seventh
generation object database management system that is used in
high-performance, large-scale, real-time applications. We also offer
several optional ancillary products for use with Versant Object
Database to extend Versant Object Database's capabilities, provide
compatibility and additional protection of stored data.
º •
º FastObjects, an object-oriented database management system that can be
embedded as a high performance component into customers' applications
and systems.
º •
º db4o, an open source object database software solution targeted
towards the embedded device market.
Our Versant Object Database product offerings are used primarily by larger organizations, such as technology providers, telecommunications carriers, government defense agencies, defense contractors, healthcare companies and companies in the financial services and transportation industries, each of which have significant large-scale data management requirements. With the incorporation of Poet's
FastObjects solution into our product line following our March 2004 merger with Poet, we expanded the scope of our solutions to also address the data management needs of smaller business systems. With the recent acquisition of db4o in December 2008, we further expanded the scope of our solutions to include the embedded device market.
Our customers' data management needs can involve many business functions, ranging from management of the use and sharing of a company's internal enterprise data to the processing of externally originated information such as customer enrollment, billing and payment transaction data. Our solutions have also been used to solve complex data management issues such as fraud detection, risk analysis and yield management.
In addition to our product offerings, to assist users in developing and deploying applications based on Versant Object Database, FastObjects and db4o, we offer a variety of services, including consulting, training and technical support services.
We license our products and sell associated maintenance, training and consulting services to end-users through our direct sales force and through value-added resellers, systems integrators and distributors.
In addition to these products and services, we resell related software developed by third parties. To date, substantially all of our revenues have been derived from the following data management products and related services:
º •
º Sales of licenses for Versant Object Database and FastObjects;
º •
º Maintenance and technical support services for our products;
º •
º Consulting and training services;
º •
º Nonrecurring engineering fees received in connection with providing
services associated with Versant Object Database;
º •
º The resale of licenses, and maintenance, training and consulting
services for third-party products that complement Versant Object
Database;
º •
º Reimbursements received for out-of-pocket expenses, which we incurred
and are recorded as revenues in our statements of income.
We acquired our newest product, db4o, through an asset purchase we consummated in December 2008, after the close of fiscal 2008. Consequently, the financial statements included in this report and the discussion of our financial results for fiscal years ended 2006 through 2008 in the remainder of this Item 7 do not reflect any revenues, expenses or other business activity related to the db4o product.
Financial Highlights for Fiscal 2008
º •
º Our net revenues in fiscal 2008 were $25.3 million, an increase of
$4.1 million (or 20%) from net revenues of $21.2 million in fiscal
2007. This increase in revenues was primarily due to the closing in
fiscal 2008 of several significant transactions with existing
customers through both our European and North American operations. We
depend heavily on our installed customer base for future revenues from
licenses of additional products or upgrades of existing products and
related maintenance renewal fees.
º •
º Net income for fiscal 2008 was $9.5 million compared to a net income
of $7.6 million in fiscal 2007. Net income from continuing operations
for fiscal 2008 was $9.4 million compared to net income from
continuing operations of $7.3 million in fiscal 2007. The increase of
$2.1 million in net income from continuing operations in fiscal 2008
was due directly to our increased revenues in fiscal 2008.
º •
º Our combined sales and marketing, research and development and general
and administrative expenses were $13.2 million in fiscal 2008, an
increase of $2.0 million (or 18%) from $11.2 million reported in
fiscal 2007. This increase was primarily due to an increase in our
general and administrative expenses, and to a lesser degree, to an
increase in our research and development expenses and sales and
marketing expenses during fiscal 2008.
º •
º Cash provided by operations in fiscal 2008 was $8.7 million compared
to $10.0 million of cash provided by operations in fiscal 2007. The
decrease in cash provided by operations in fiscal 2008 was primarily
due to cash usage resulting in a reduction in other liabilities as a
result of payment of corporate taxes for the tax years ended in 2007
and 2008, as well as bonuses paid in fiscal 2007 due to performance
over targeted bonus levels not repeated in fiscal 2008, and to a
lesser extent, a reduction in deferred revenues and an increase in
trade accounts receivable. During fiscal 2008, our cash and cash
equivalents balance increased by $8.1 million to $27.2 million at
October 31, 2008 compared to $19.1 million at October 31, 2007.
Fiscal 2008 and Beyond
During fiscal 2008, we focused our sales and marketing efforts on our data management products, Versant Object Database and FastObjects, and on related maintenance, consulting and training services. Versant Object Database was the key focus of our marketing efforts and the major source of our license and service revenues in fiscal 2008.
We again expect to derive most of our revenues in fiscal 2009 from Versant Object Database and FastObjects licenses and related services.
On December 1, 2008 we acquired the assets of the database software business of privately-held Servo Software, Inc. (formerly db4objects, Inc.) for $2.4 million in cash (including $300,000 of contingent payments). db4o is an open source object database software solution targeting the embedded device market. It is distributed under free open source licenses to a large, open source community of approximately 50,000 registered members located around the world, and in some cases is licensed on a fee-bearing basis to certain customers for redistribution.
Like many other software companies, we do not operate with a significant backlog of orders. Our license revenues, in particular, are difficult to forecast. The outlook into the Company's anticipated performance in fiscal 2009 is much more uncertain than in prior years, due principally to the recent significant worldwide recession. However, we currently expect our business to be at a level essentially comparable to fiscal 2008. Due to the recent strengthening of the U.S. dollar against the euro, a comparable level of business activity will translate into a lower amount of dollar-denominated revenue for the Company in fiscal 2009, assuming that the current U.S. dollar/ euro currency exchange rate continues during fiscal 2009. Therefore, for fiscal year 2009 we currently forecast revenues of between $22 million and $24 million, and diluted earnings per share of between $2.00 and $2.40. Without limitation, the estimates and forecasts in this paragraph are forward-looking statements.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amount of our assets and liabilities at the date of our financial statements and of our revenues and expenses during the reporting period covered by our financial statements. We base these estimates and judgments on information reasonably available to us, such as our historical experience and trends, industry, economic and seasonal fluctuations and on our own internal projections that we derive from that information. Although we believe our estimates to be reasonable under the circumstances, there can be no assurances that such estimates will be accurate given that the application of these accounting policies necessarily involves the exercise of subjective judgment and the making of assumptions regarding many future variables and uncertainties. We consider "critical" those accounting policies that require our most difficult, subjective or complex judgments, and that are the most important to the portrayal of our financial condition and results of operations. These critical accounting policies relate to revenue recognition, goodwill and acquired intangible assets, and income taxes.
Revenue Recognition
We recognize revenues in accordance with the provisions of Statement of Position ("SOP") 97-2, Software Revenue Recognition, SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain Transactions, and SOP 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts. Our revenues consist mainly of revenues earned under software license agreements, maintenance support agreements (otherwise known as post-contract customer support or "PCS") and, to a lesser degree, agreements for consulting and training activities.
We use the residual method to recognize revenues when a license agreement includes one or more elements to be delivered by us at a future date. If there is an undelivered element under the license arrangement, we defer revenues based on vendor-specific objective evidence ("VSOE") of the fair value of the undelivered element, as determined by the price charged when the element is sold separately. If VSOE of fair value does not exist for all undelivered elements of a transaction, we defer all revenues from that transaction until sufficient evidence of the fair value exists or until all elements have been delivered. Under the residual method, discounts are allocated only to the delivered elements in a multiple element arrangement, with any undelivered elements being deferred based on the vendor-specific objective evidence of the value of such undelivered elements. We typically do not offer discounts on future undeveloped products.
Revenues from software license arrangements, including prepaid license fees, are recognized when all of the following criteria are met:
º •
º Persuasive evidence of an arrangement exists.
º •
º Delivery has occurred and there are no future deliverables except PCS.
º •
º The fee is fixed and determinable. If we cannot conclude that a fee is
fixed and determinable, then assuming all other criteria have been
met, we recognize the revenues as payments become due in accordance
with paragraph 29 of SOP 97-2.
º •
º Collection is probable.
If an acceptance period or other contingency exists, revenues are not recognized until customer acceptance or expiration of the acceptance period, or until satisfaction of the contingency, as applicable. Our license fees are generally non-cancelable and non-refundable. Also, our customer agreements for prepaid deployment licenses do not make payment of our license fees contingent upon the actual deployment of the software. Therefore, a customer's delay or acceleration in its deployment schedule does not impact our revenue recognition in the case of a prepaid deployment license. Revenues from related PCS for all product lines are usually billed in advance of the service being
provided and are deferred and recognized on a straight-line basis over the term in which the PCS is to be performed, which is generally twelve months. In some cases PCS revenues are paid in arrears of the service being provided and are recognized as revenues at the time the customer provides a report to us for deployments made during a given time period. Training and consulting revenues are recognized when a purchase order is received, the services have been performed and collection is deemed probable. Consulting services are billed on an hourly, daily or monthly rate. Training classes are billed based on group or individual attendance.
We categorize our customers into two broad groups, End-Users and Value Added Resellers (VARs). End User customers are companies who use our products internally and do not redistribute our product outside of their corporate organizations. VAR customers include traditional Value Added Resellers, Systems Integrators, Original Equipment Manufacturers ("OEMs") and other vendors who redistribute our products to their external third party customers, either separately or as part of an integrated product.
We license our data management products through two types of perpetual licenses-development licenses and deployment licenses. Development licenses are typically sold on a per seat basis and authorize a customer to develop and test an application program that uses our software product. Prior to an End-User customer being able to deploy an application that it has developed under our development license, it must purchase deployment licenses based on the number of computers connected to the server that will run the application using our product. For certain applications, we offer deployment licenses priced on a per user basis. Pricing of Versant Object Database and FastObjects licenses varies according to several factors, including the number of computer servers on which the application runs and the number of users that are able to access the server at any one time. Customers may elect to simultaneously purchase development and deployment licenses for an entire project. These development and deployment licenses may also provide for prepayment to us of a nonrefundable amount for future deployment.
VARs and distributors purchase development licenses from us on a per seat basis on terms similar to those of development licenses that we sell directly to End-Users. VARs are authorized to sublicense deployment copies of our data management products that are either bundled or embedded in the VAR's applications and sold directly to End-Users. VARs are required to report their distribution of our software and are charged a royalty that is either based on the number of copies of the application software that are distributed or computed as a percentage of the selling price charged by the VARs to their end-user customers. These royalties from VARs may be prepaid in full or paid upon deployment. Provided that all other conditions for revenue recognition have been met, revenues from arrangements with VARs are recognized, (i) as to prepaid license arrangements, when the prepaid licenses are sold to the VAR, and (ii) as to other license arrangements, at the time the VAR provides a royalty report to us for sales made by the VAR during a given period.
Revenues from our resale of third-party products or services are recorded at total contract value with the corresponding cost included in the cost of sales when we act as a principal in these transactions by assuming the risks and rewards of ownership (including the risk of loss for collection, delivery or returns). When we do not assume the risks and rewards of ownership, revenues from the resale of third-party products or services are recorded at contract value net of the cost of sales.
On occasion, at a customer's request, we perform engineering work to port our products to an unsupported platform or to customize our software for specific functionality, or we perform any other non-routine technical assignment for a customer. In these instances, we recognize revenues in accordance with SOP 81-1 Accounting Research Bulletin ("ARB") No. 45 (As Amended), Long-Term Construction-Type Contracts and use either the time and material percentage of completion or completed contract methods for recognizing revenues. We use the percentage of completion method if we can make reasonable and dependable estimates of labor costs and hours required to complete the
work in question. We periodically review these estimates in connection with the work performed and rates actually charged and recognize any losses when identified. Progress to completion is determined using the cost-to-cost method, whereby cost incurred to date as a percentage of total estimated cost determines the percentage completed and revenue recognized. When using the percentage of completion method, the following conditions must exist:
º •
º An agreement must include provisions that clearly specify the rights
regarding goods or services to be provided and received by both
parties, the consideration to be exchanged and the manner and terms of
settlement.
º •
º The customer is able to satisfy its obligations under the contract.
º •
º Versant is able to satisfy its obligations under the contract.
The completed contract method is used when reasonable or dependable estimates of labor costs and time to complete the work cannot be made. As a result, in such situations, we defer all revenues until such time as the work is fully completed.
Management makes significant judgments and estimates in connection with the determination of the revenue we recognize in each accounting period. If we had made different judgments or utilized different estimates for any period, material differences in the amount and timing of revenue recognized would have resulted.
Goodwill and Acquired Intangible Assets
We account for purchases of acquired companies in accordance with SFAS No. 141, Business Combinations and account for the related acquired intangible assets in accordance with SFAS No. 142, Goodwill and Other Intangible Assets. In accordance with SFAS 141, we allocate the cost of the acquired companies to the identifiable tangible and intangible assets acquired according to their respective fair values as of the date of completion of the acquisition, with the remaining amount being classified as goodwill. Certain intangible assets, such as acquired technology, are amortized to expense over time, while in-process research and development costs, or "IPR&D", if any, are charged to operations expenditures at the time of acquisition.
We test for any goodwill impairment within our single Data Management operating segment. All our goodwill reflected in the financial statements included in this report has been aggregated from, and acquired in connection with, the following acquisitions:
º •
º Versant Europe, acquired in 1997;
º •
º Poet Holdings, Inc., acquired in March 2004;
º •
º Technology of JDO Genie (PTY) Ltd, acquired in June 2004; and
º •
º FastObjects, Inc., acquired in July 2004.
We test goodwill for impairment in accordance with SFAS 142, which requires that goodwill be tested for impairment at the reporting unit level, at least annually and more frequently upon the occurrence of certain events, as provided in SFAS 142. We use the market approach to assess the fair value of our assets and this value is compared with the carrying value of those assets to test for impairment. The total fair value of our assets is estimated by summing the fair value of our equity (as indicated by Versant publicly traded share price and shares outstanding plus a control premium) less our liabilities. Under this approach, if the estimated fair value of our assets is greater than their carrying value, then there is no goodwill impairment. If the estimated fair value of our assets is less than their carrying value, then we allocate the reporting unit's estimated fair value to its assets and liabilities as though the reporting unit had just been acquired in a business combination. The impairment loss is the amount, if any, by which the implied fair value of goodwill allocable to the
reporting unit is less than that reporting unit's goodwill carrying amount and would be recorded in operating results during the period of such impairment.
Identifiable intangibles are currently amortized over five years in relation to the JDO Genie (PTY) Ltd acquisition, six years in relation to the FastObjects, Inc. acquisition, and seven years in relation to our acquisition of Poet, using the straight-line method in each of these cases.
We performed our annual valuation and analysis of goodwill based on the requirements of SFAS 142 in October 2008, October 2007 and October 2006. We did not perform impairment tests related to our intangible assets during fiscal 2008, fiscal 2007 and fiscal 2006 based on the requirements of SFAS 144, as there were no triggering events which might indicate impairment. As a result, we determined that the value of our goodwill and intangible assets had been fairly recorded in our financial statements, and therefore no impairment charges against our goodwill and intangible assets related to our Poet, JDO Genie (PTY) and FastObjects acquisitions were recorded in fiscal 2008, fiscal 2007 and fiscal 2006.
Income Taxes
We estimate our income taxes in each of the jurisdictions in which we operate and account for income taxes payable as part of the preparation of our consolidated financial statements. This process involves estimating our actual current tax expense as well as assessing temporary differences resulting from differing treatment of items, such as depreciation and amortization, for financial and tax reporting purposes. These differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheet to the extent deemed realizable. We then assess the likelihood that our deferred tax assets will be recovered from future taxable income and the extent we believe that recovery is not likely. We establish a valuation allowance against our net deferred tax assets to the extent such assets are not deemed to be realizable. If we establish a valuation allowance or increase it in a given period, then we must increase the tax provision in our statements of income.
Significant management judgment is required in determining any valuation allowance recorded against our net deferred tax assets. Due to uncertainties related to our ability to utilize our deferred tax assets, we have established full valuation allowances at October 31, 2007 and October 31, 2008 for our deferred tax assets.
In addition, we adopted the provisions of Financial Accounting Standards Board ("FASB") Interpretation Number 48, "Accounting for Uncertainty in Income Taxes," ("FIN 48") on November 1, 2007. Previously, we had accounted for tax contingencies in accordance with Statement of Financial Accounting Standards ("SFAS") No. 5, "Accounting for Contingencies". As required by FIN 48, which clarifies SFAS No. 109, "Accounting for Income Taxes," we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. At November 1, 2007, we applied FIN 48 to all tax positions for which the statute of limitations remained open and determined there are no material unrecognized tax benefits as of that date. In addition, we determined that there have been no material changes in unrecognized benefits since November 1, 2007. As a result, the adoption of FIN 48 did not have a material effect on our financial condition, or results of operations.
We are subject to U.S. federal income taxes and to income taxes in various states in the U.S. as well as in foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, we are no longer subject to U.S. federal, state and local, or foreign tax examinations by tax authorities for tax years before 2003.
We recognize interest and penalties accrued related to unrecognized tax . . .
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