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Article by DailyStocks_admin    (03-28-08 04:58 AM)

The Daily Magic Formula Stock for 03/28/2008 is Versant Corp. According to the Magic Formula Investing Web Site, the ebit yield is 10% and the EBIT ROIC is >100 %.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


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BUSINESS OVERVIEW

Overview of the Company

We are a leading provider of object-oriented data management software that forms a critical component of the infrastructure of enterprise computing. Companies use Versant solutions to solve complex data management and data integration problems. We design, develop, market and support object-oriented database management system products to address such problems. We also provide related product support, training, and consulting services to assist users in developing and deploying software applications based on our products. We operate our business within a single operating segment that we refer to as Data Management.

Our mission is to be a preferred vendor of core data management solutions to world-class enterprises whose businesses require the successful management of large and complex bodies of data. To achieve this goal our general strategy has been to develop and offer powerful, scalable and highly reliable data management solutions capable of handling a wide array of challenging applications for sophisticated customers in many industries. For example, we market our products to companies in the telecommunications, technology and defense industries, as well as to customers in several vertical markets including financial services, transportation, and health care. Our software has been used in strategic distributed applications such as network modeling and management, fault diagnosis, fraud prevention, service activation and assurance, and customer billing, scheduling and other applications. We strive to continually improve our core data management products and related tools to make our solutions both more useful and increasingly dependable. In our research and development efforts we also strive to make our products usable and accessible by customers using different computing or software platforms, in order to expand the markets and industries we serve.

We were incorporated in California in August 1988 under the name Object Sciences Corporation and completed our initial public offering of our common stock under the name of Versant Object Technology Company in July 1996. The name of the company was changed to Versant Corporation on July 15, 1998. In November 2002, we acquired Mokume Software, Inc., a privately held company that developed technology for use in real-time applications. In March 2004, we acquired Poet Holdings, Inc. (Poet) through a merger. Prior to that merger, Poet was a provider of object-oriented data management software headquartered in the United States, whose stock was publicly traded on the Frankfurt Stock Exchange. In June 2004, we acquired the JDO Genie product line and its customers from JDO Genie (PTY) Ltd., a privately held South African company and in July 2004, we acquired FastObjects, Inc., a private company that held North American distribution rights with respect to Poet's FastObjects database management product. In September 2004, we sold Poet's Catalog solutions business. In August of 2005, we effected a 1-for-10 reverse split of our outstanding common stock. In February 2006, we sold our WebSphere consulting business. Our principal executive offices are located at 255 Shoreline Drive, Suite 450, Redwood City, California 94065 and our telephone number is (650)232-2400. Our website URL is www.versant.com . Other than as expressly set forth in this annual report, the information contained in, or referred to on, our website is not a part of this annual report.

We conduct most of our administrative operations from our U.S headquarters and the offices of our German subsidiary, Versant GmbH, in Hamburg, Germany. Our research and development activities are primarily conducted by our German subsidiary, Versant GmbH, which is headquartered in Hamburg, Germany and our Indian subsidiary, Versant India, which is headquartered in Pune, India.

In fiscal 2007 we liquidated the operations of our former U.K. subsidiary and transferred its operations to our offices in Germany.

Industry Background

Computerized data management has evolved significantly over the past few decades. As business computing became more sophisticated, network and hierarchical databases emerged in the 1970s to serve growing business data requirements. In the 1980s, these types of databases were largely superseded by relational database technology, which continues to be a widely prevalent database technology today. The mid to late 1980s saw the emergence of object-oriented software programming, in which smaller software building blocks called objects, which can perform specific functions, are aggregated with other objects in order to create larger software systems. With the advent of object-oriented software programming, it became possible to incorporate the unique features and advantages of object-based software into database management solutions. Our principal products are object-based database management software solutions, which we believe have advantages over relational database technology. In particular, we believe that object-based database management solutions are especially well suited for successfully addressing the complex and challenging data management and analytical requirements of companies who need to rapidly source, update, analyze and use very large changing bodies of complex data for a wide variety of business applications.

Certain Industry Terms

For reference purposes we have listed below certain well-known technical terms often used in our data management industry to assist readers in better understanding the information provided in this report:


API —means application program interface, a software source code interface that an operating system provides to enable other software programs to use and access the functionality of that operating system.


Application Server Software —Deployment software that is used to build and deploy Internet applications, including commercial websites and internal company websites.


Cache —Performance enhancing software that works with servers to improve their response times and throughput.


Data Integration —a broad term for a variety of techniques that enable the data from one software system to be used in other software systems.


Disk mirroring —a technique using specialized software, and often specialized hardware, to get the same data on two storage disks for the purpose of increasing the reliability or making a quick snapshot (duplicate backup) of a database.


Fault tolerant server —a server that offers higher reliability by the use of duplicated hardware and specialized software, so that, in the event of a failure of one database, the surviving database can continue offering normal service.


Java —a software programming language originally developed by Sun Microsystems.


J2EE-based —an application or software component that is deployed in a Java 2 Enterprise Edition (J2EE) software environments.


JDO— Java Data Object, a standard based Java API for Versant.


JDBC —Java Database Connectivity, a standard in the relational database world for processing SQL to Java.


JVI —Java Versant Interface, a proprietary based Java API for Versant.


Object-Oriented —object oriented software uses smaller building blocks called objects to create larger software systems.


ODBC —Open Database Connectivity, a standard in relational database world for processing SQL to other than Java.


Relational Database —Data management software that stores data as tables and columns and can be accessed using SQL.


Replication —a range of technical approaches that enable multiple databases to be approximately synchronized, or to contain the same data.


SQL —an industry standard computer software language used to retrieve and manage data, typically used in relational database management systems.


Two-Phase Commitment —A specialized protocol for performing database transactions across multiple distributed resources.


UMTS —Universal Mobile Telecommunication System, a third generation mobile phone technology.


XML —A standard format used to exchange data (information) between multiple software systems.

Overview of Our Products and Services

We provide sophisticated data management solutions designed to address complex data management needs. Our Versant Object Database product is used primarily by larger enterprises which have significant large-scale data management requirements, such as technology providers, telecommunications carriers, government defense agencies and defense contractors, healthcare companies and companies in the financial services and transportation industries. Since the incorporation of Poet's FastObjects solution into our product line in March 2004, we have expanded the scope of our solutions to address the data management needs of smaller systems as well. The data management needs of our customers usually involve many business functions, ranging from usage and management of the customer's internal 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, yield management, and a host of other problems that requires an application specific data management solution.

In addition to our product offerings, to assist users in their development and deployment of applications based on the Versant Object Database and FastObjects, we offer a variety of related services, including consulting, training, and technical support services. We also provide customers with maintenance and support services with respect to our products.

Benefits of Versant Solutions

Our products provide customers the following benefits for specialized data management:


High Performance. Our object-based architecture provides direct access or navigation to stored objects. The balanced client-server architecture of Versant products enhances performance by efficiently distributing processing burdens between clients and servers to leverage the processing power of networked computers.


Highly Scalable Support for Distributed Computing. Our products can work in various environments ranging from small workgroup operations to operations involving thousands of users over wide area networks or the Internet. This scalability can be achieved through object-level operations and other design features.


Reliability, Availability and Serviceability. Our Versant Object Database product offers a number of features designed to permit continuous operation, including features providing online backup and recovery and online modification of the database system, as well as system utilities that can operate while the system is running. These features, together with replication and disk mirroring provided by a Fault Tolerant Server, support continuous operation of our products.


Language-Independent Support for Object-Oriented Programming. Our products provide native support for the leading object-oriented software development languages of C++, Microsoft.NET and Java. This facilitates rapid and flexible application development by our customers and the maintenance and evolution of complex and dynamic applications that closely model real-world systems and processes.


Support for Component Architectures. The Versant Object Database client integrates with leading J2EE application servers, including IBM WebSphere and BEA Weblogic application servers. These application servers enable users to build and deploy J2EE-based applications that will work compatibly and directly with the Versant Object Database in order to gain our productivity and performance advantages.


Support of Major Operating Systems. Versant products operate on a wide range of server platforms, including UNIX platforms from Sun Microsystems, Hewlett-Packard and IBM, Linux platforms from Red Hat, and Microsoft Windows platforms.

Products and Services

Versant Object Database (VOD)

VOD, a seventh generation object database management system, is designed to support multi-user, commercial applications in distributed computing environments. VOD enables users to store, manage, and distribute information that often cannot be administered effectively through traditional database technologies, including the following types of information:


real-time data, graphics, images, video, audio and unstructured text;


dynamic, graph-oriented data, such as network management data and advanced financial instruments; and


meta-data, data aiding integration of diverse systems, and workflow information, which together enable the construction of applications that integrate diverse systems and add new functionality, often making this functionality available over the Internet.

The object-oriented, balanced client-server architecture of VOD provides the basis for high-performance, scalable distributed applications. We believe that VOD's performance is superior compared to relational database management systems, particularly for complex data applications, for which VOD has the capability of processing a wide variety of abstract data types in a highly concurrent, high performance manner. We also believe that use of VOD allows our customers to reduce the time they need to develop applications for their data management systems and improves their system performance.

VOD is designed to integrate up to 65,000 databases connected over a like number of locations on a variety of hardware and software platforms. Each database has a theoretical storage capacity of 4.6 million terabytes, an amount far beyond the actual capacity of most existing operating systems. VOD implements a variety of database features, including two-phase commitment for distributed transaction integrity and "database triggers" to monitor changing events and data and to notify users and applications when specified events occur. In addition, on-line management utilities enable routine maintenance to be performed while the database is running. These include utilities to perform backup operations, manage log files, dynamically evolve database schema, add, delete and compress volumes on disk storage and related functions. These utilities provide multiple levels of administrative access and application security.

Version 7.0 of VOD includes our core object database management system, C++ and Java language interfaces (proprietary JVI and standards based JDO), and XML for import and export of data into the database. By bundling these components with VOD, we believe we are enhancing the solution that we are offering making it easier for customers to deploy applications requiring these components.

As part of the VOD family of solutions, we also offer Fault Tolerant Server, Vitness, Asynchronous Replication, Warm Standby, Vorkout, Versant SQL, and High Availability Backup Solution as add-on options that a customer can use in situations requiring advanced capabilities.


Versant Fault Tolerant Server provides highly reliable operations in mission-critical environments. This product provides transparent failure recovery by connecting database clients to synchronized copies of the database stored on physically separate computers. If one of the databases fails, due to operating system failure, hardware breakdown or any other form of interruption, the other database continues operation without application interruption. When the failed database is restored, the two databases automatically resynchronize and resume operations without any interruption in application processing.


Vitness is an add-on tool for the monitoring of Versant Object Databases, designed following the standard managing console/remote agent paradigm. The remote agent resides on the Versant server system, while the managing console is a graphical interface running on a Versant client system to display the ongoing activity of the monitored database.


Versant Asynchronous Replication add-on module for Versant Object Database supports both master-slave and peer-to-peer asynchronous replication between multiple object servers. This can be used to replicate data to a distributed recovery site or to replicate data between multiple local object servers for increased performance and reliability.


Versant's Warm Standby allows customers to keep a secondary database near the state of the production database for reporting and fast restore requirements. This option is especially useful for customers with very large data sets.


Vorkout allows the online compaction of production database data volumes for special categories of applications that are performing heavy data deletions. This option allows customers to ensure continuous operations at required performance levels by eliminating performance degradation due to fragmentation, a common problem for databases in this application category.


The Versant SQL (VSQL) product provides JDBC/ODBC driver connectivity, allowing the use of standard SQL enabled tooling to access The Versant Object Database. This is especially useful for customers who use industry standard reporting tools such as Crystal Reports and Microsoft Access.


Versant's High Availability Backup Solution enables VOD to use the mirroring and backup features of other enterprise storage systems to take an online backup of very large data volumes within seconds, without impacting transaction response times.

FastObjects

FastObjects is an object database management system designed to provide minimal administration and work natively with the customer's product. The primary target application for our FastObjects product line is for use as an embedded data management system to be integrated in a customer's products. FastObjects is used in a vast range of applications, including medical devices, vending machines, telecom equipment, and defense systems. The majority of FastObjects installations are now running under the Microsoft Windows Operating System.

Services

We derived approximately 40% of our revenues from services in fiscal 2007. Our services include maintenance and support programs for our data management products, consulting services and customer specific extensions to our products.

Maintenance Services. We provide maintenance and technical support services for our products that are generally available at an annual fee that varies depending on the type and level of support the customer requires. Maintenance and support contracts, which typically have twelve-month terms, are offered concurrently with the initial license of our product and entitle a customer to telephone support, product upgrades, and documentation updates. For additional fees, customers may purchase a special support package that provides dedicated support engineers and telephone support available for 24 hours per day and seven days a week. Maintenance contracts are typically renewable annually and typically are paid for in advance for all products, but in some instances maintenance and support fees are paid in arrears. For the support of older versions of our products, we offer specific obsolescence support options.

Professional Services. We also provide a variety of training and consulting services to assist customers in the design, development, training and management of applications that are built based on our core products. Training services are offered for a variety of Versant-specific and other object-related technologies and range from beginning to advanced levels. Consulting services are available for analysis and design assistance, mentoring and technical information transfer, application coding, design reviews and performance analysis. In addition, we provide custom development services to customers that request unique or proprietary product extensions.

Our Customers

We categorize our customers into two broad groups, End-Users and Value Added Resellers ("VARs"). End Users are companies who use our products internally and do not redistribute our products outside their corporate organizations. VAR customers, on the other hand, include traditional Value Added Resellers, Systems Integrators, OEMs and other vendors who redistribute Versant products to third party customers, either individually 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, typically sold on a per seat basis, authorize a customer to develop an application program that uses our software product. Under a deployment license, a customer is permitted to deploy an application that it has developed under a development license from us. End-Users generally purchase deployment licenses based on the number of central processing units (CPUs) supporting the server that will run the application using our database management system. For certain applications, we offer deployment licenses, priced on a per user basis. Pricing of Versant Object Database and FastObjects varies according to several factors, including the number of CPUs/Cores per server on which the applications run, and the number of users that are able to access the server at any particular time. Customers may elect to simultaneously purchase development and deployment licenses for their projects, or instead may initially purchase only a development license and purchase a deployment license only when their applications developed on our software are completed.

VARs and distributors purchase development licenses from us on a per seat basis and on terms similar to those of development licenses sold directly to End-Users. VARs are authorized to sublicense deployment copies of our data management products, which are either bundled or embedded in the VARs' applications, directly to End-Users. VARs are required to report the distribution of our software to us and are charged a royalty that is based either on the number of copies of application software distributed or computed as a percentage of the selling price charged by the VAR to its end-user customers. These royalties may be prepaid in full or paid upon deployment.

Our Vertical Markets

Versant Object Database and FastObjects are licensed for development or deployment, or both, in a wide range of applications. A substantial amount of our sales is for applications in telecommunications, technology, defense, healthcare and financial services sectors. Many of our customers have licensed multiple copies for use in different applications.

Our future performance will depend in significant part on the increase in the use and sales of the Versant Object Database and FastObjects in telecommunications, technology, defense, healthcare, online gaming and financial market applications and the continued acceptance of our products within these industries.

Sales and Marketing

Sales Channels. We market and sell our products principally through our direct sales force and through value-added resellers, systems integrators, and distributors.

Direct Sales. Our direct sales organization is based in our corporate offices in Redwood City, California and Hamburg, Germany, and in some regional and other offices in the U.S. and Europe. The direct sales organization includes field sales personnel, who are responsible for account management, and systems engineers, who answer technical questions and assist customers in running benchmarks against competitive products and in developing prototype applications.

Indirect Sales. Part of our sales strategy is to further develop indirect distribution channels, such as value-added resellers and systems integrators. Systems integrators may integrate our products with their own or those of other vendors, in order to provide a complete solution to their customers. Under their agreements with Versant, value-added resellers and systems integrators are typically not subject to any minimum purchase or resale requirements and can cease marketing our products at any time. Some of our value-added resellers and systems integrators offer products they produced by themselves or other vendors, which may in some cases compete with our products.

Marketing. The primary objective of our marketing efforts is to build increased visibility for Versant and its products and to generate sales leads for our business. Our marketing programs include our efforts at cultivating media and analyst relations, fostering valuable investor communications, speakers' programs, online marketing, partner-marketing programs, sponsoring database technology scholarship programs at the university level, and participation in conferences and tradeshows. Our products are typically marketed through (i) development licenses, which entitle the customer to develop applications that use a Versant software product, and (ii) deployment licenses, which entitle the customer to sell and market product applications developed through use of our software.

Sales Process. The cycle for a complete sale of our products to new and large enterprise customers can often exceed nine months and may extend to a year or beyond. For existing customers with successfully deployed applications, sales cycles for new applications of our core products are generally shorter. During the sales cycle, meetings involving both technical and management staff are conducted frequently at the prospective customer's site and at our headquarters. As part of their product selection process, our prospective customers typically perform a detailed technical evaluation or benchmark of our object-based technologies, often directly comparing them to competitive products. Upon completion of the evaluation, a customer that chooses our solution may purchase one or more development licenses, depending upon the number of their programmers that will develop and build their customers' application. Development licenses enable the customer to develop applications that use our software. Additionally, a customer may purchase technical support, training courses and consulting services. Our customers may also purchase deployment licenses enabling them to deploy applications developed under a development license. In some cases our customers purchase deployment licenses at the same time they purchase development licenses. In other cases customers may instead defer their purchase of deployment licenses and related maintenance until they complete the application development under their development license (a process that typically takes at least six months and can exceed one year).

Shipping and Backlog. Our software may be either physically or electronically delivered to the customer. If physically delivered, our software product is shipped from either our Redwood City or Hamburg facilities and is delivered to the customer upon receipt of an approved order and a signed license agreement. We typically do not have a material backlog of unfilled license orders at any given time, and we do not consider backlog to be a meaningful indicator of our future performance.

International Sales and Marketing. Our international sales are recorded by our subsidiary in Germany, which sells our products through distributors and value-added resellers, as well as directly to end-users. For fiscal 2007, our international revenues derived from customers outside North America made up approximately 54% of our total revenues, compared to 63% for fiscal 2006 and 66% for fiscal 2005.

Competition

Our software products compete with companies offering object and relational database management systems. Our competitors, especially Oracle and Progress Software, have longer operating histories, significantly greater financial, technical, marketing, service and other resources, significantly greater name recognition, broader product offerings, larger and more established distribution channels and a larger installed base of customers. In addition, many of our competitors have well-established relationships with our current and potential customers and may offer broader suites of products with a wide array of complementary applications which may incentivize customers to purchase such competitors' data management products. We may not be able to compete successfully against current or future competitors, and competitive pressures could have a material adverse effect on the business, pricing, operating results and financial condition of the company.

Research and Development

Our research and development expenses consist primarily of personnel and related expenses, including payroll and employee benefits, expenses for facilities and payments made to outside software development contractors and, to a lesser degree, capital equipment expenses. Currently our research and development activity is conducted primarily in our Hamburg, Germany and Pune, India facilities. In fiscal 2007, fiscal 2006 and fiscal 2005, our research and development expenses were $3.4 million, $3.1 million and $3.9 million, respectively. We anticipate that we will continue to invest significant resources in research and development activities, particularly in Germany and India, in the future to develop new products, advance the technology of our existing products and develop new business opportunities.

Intellectual Property and Other Proprietary Rights

We regard our products as proprietary. We attempt to protect our product technology by relying primarily on a combination of copyright and trademark laws, trade secrets, confidentiality procedures and contractual provisions to protect our proprietary technology. For example, we license our software pursuant to signed license agreements and, to a lesser extent, "shrink-wrap" licenses displayed in evaluation downloads and in software installation screens, which impose certain restrictions on the licensee's ability to utilize our software. In addition, we take steps to avoid disclosure of our trade secrets, such as requiring persons with access to our proprietary information to execute non-disclosure agreements, and we restrict access to our software source code. We seek to protect our software, documentation and other written materials under trade secret and copyright laws, which afford only limited protection. We were awarded a United States patent (No. 5,822,759) for our proprietary cache system used within our product suites, which expires in 2015. We also have certain trademarks and service marks.

Employees

As of October 31, 2007, we and our subsidiaries had a total of 80 full time employees, of whom 15 were based in the United States, 32 in Europe, and 33 in India. Of the total, 49 employees were engaged in engineering and technical services, 11 were engaged in sales and marketing, 2 were engaged in the services organization, and the remaining 18 were engaged in general administration and finance. To the best of our knowledge, none of our employees is represented by a labor union. We have not experienced any organized work stoppage to date and believe that our relationship with our employees is generally good.

Our future performance depends mostly upon the continued service of our key technical, sales, and senior management personnel. The loss of the services of one or more of our key employees could have a material adverse effect on our business, operating results and financial condition.

CEO BACKGROUND
Jochen Witte has served on Versant's Board of Directors since March 2004 following Versant's merger with Poet Holdings, Inc. and is a member of the Strategic Transactions Committee and Employee Option Committee of the Board. Mr. Witte has been President and Chief Executive Officer of Versant since June 2005, and he served as the Company's Chief Financial Officer and Secretary from June 2005 to June 2006. From March 2004 to June 2005, he served as President, European Operations of Versant. Prior to joining Versant, Mr. Witte was CEO of Poet Holdings Inc., a company that merged with Versant in 2004 and which he co-founded in 1993. He initially worked as Poet's Managing Director of Germany and became Poet's Chief Financial Officer in 1999 when Poet went public. Prior to joining Poet, Mr. Witte was with BKS, a consulting and tools software company, where he rose to Managing Director after initially having responsibility for sales and training. Mr. Witte received a degree in Business Administration from the Berlin Technical University and also attended the University of Wales as an exchange student.

Uday Bellary has served as a director of Versant and Chairman of the Audit Committee of the Board of Directors since July 2003 and is also a member of the Compensation and Nominating Committees of the Board. Mr. Bellary is the Chief Executive Officer of Wortal, Inc., a privately-held company that provides consumers with focused and value-added information on topics such as entertainment, services, local activities, home needs and work-related matters through vertical, community-oriented portals accessible from the world wide web and mobile platforms. He most recently served as the Chief Financial Officer of Atrica, Inc., a privately held optical Ethernet company, on a full-time basis from November 2005 to January 2008, when Atrica was sold to Nokia Siemens Networks and previously on a part-time basis between April 2005 to October 2005. Mr. Bellary also served as part time Executive Vice President, Finance, Administration and Operations and Chief Financial Officer of VL, Inc. a privately held VoIP services company, and as a member of its board of directors from September 2003 to November 2005 and remained an advisor until 2007. Since July 2004 Mr. Bellary has also been a member of the board of directors of Backweb Technologies Ltd., a publicly held provider of software that enables mobile workers to access web-based applications. From February 2000 to August 2003, he served as the Senior Vice President, Finance & Administration and Chief Financial Officer of Metro Optix, Inc., a privately held provider of optical networking equipment, which, to satisfy its liabilities, disposed of its intellectual property and other assets to Xtera Communications and ceased operations in August of 2003. Mr. Bellary received a B.S. degree in Finance, Accounting and Economics from Karnatak University and a DMA degree in Finance from the University of Bombay, India. Mr. Bellary is a Certified Public Accountant and a Chartered Accountant.

William Henry Delevati has been the Chairman of the Board since June 2005 and has served as a director of the Company since October 1999. He is currently the Chairman of the Nominating Committee and a member of the Audit, Compensation, Strategic Transactions and Employee Option Committees of the Board. Mr. Delevati has also served as a consultant to various companies located in the Silicon Valley area since April 2000. From October 1999 to April 2000, Mr. Delevati served as the Senior Vice President, Information Technology and Chief Information Officer of Aspect Communications Corporation, a provider of customer call center solutions. From November 1995 to April 1999, he served as Vice President of Worldwide Information Services for Quantum Corporation, a storage device company. From April 1995 to November 1995, he was the Chief Information Officer, Senior Vice President of MIS for Conner Peripherals, a storage device company. From September 1994 to April 1995, he was the Chief Information Officer, Vice President of Worldwide MIS for Borland Corporation, a software tools company. From September 1993 to September 1994, he was the Chief Information Officer, Vice President of Worldwide MIS for Logitech, a computer peripheral device company. From December 1987 to September 1993, he was the Director of Application Development and Global Information Resources for Sun Microsystems, Inc. Mr. Delevati received a Bachelor of Science degree in Computer Science from UC Berkeley and an MBA from Arizona State University.

Dr. Herbert May has served as a director of the Company since March 2004, is currently the Chairman of the Compensation Committee and as a member of the Audit and Nominating Committees of the Board. From November 2000 to March 2004, he served as Chairman of the Board of Directors of Poet Holdings, Inc. In addition, Dr. May served as a member of both the Audit and Compensation Committees of Poet Holdings, Inc. Dr. May has held several leading positions at Alcatel in both Stuttgart and Paris. His last position at Alcatel was Head of the Office of Communication Division. From February 1994 to September 1995, Dr. May took a leading role as CEO in establishing DeTeSystems, a German wholly owned subsidiary of Deutsche Telekom AG that provides system solutions for telecommunications services to significant accounts in Germany. In 1995, he was appointed to the Board of Management of Deutsche Telekom AG, where he was responsible for large business customers, multimedia and systems solutions until May 1998. Currently, Dr. May manages his own consulting and investment company and is a member of the advisory boards of several IT and multimedia companies. He currently serves on the Board of Directors of InfoVista S.A., a publicly held French company that provides software products that monitor and analyze the performance of telecommunications and IT infrastructures.

Bernhard Woebker has served as a director of the Company since June 2005 and was previously a director of the Company from June 1999 until the Company's merger with Poet Holdings, Inc. in March 2004. He currently serves as a member of the Strategic Transactions Committee of the Board. Mr. Woebker has been a consultant to various investment banking and venture capital firms in Europe and the United States since late 1999. From January 1999 until July 2001, he served as Executive Vice President of the Company and from March 1997 until January 1999 he served as the Company's Vice President and General Manager in Europe. From 1994 to March 1997, he was the President of Versant Object Technology GmbH, an independently-owned distributorship for Versant products in Europe, which was acquired by Versant in March 1997. From 1976 until 1994, Mr. Woebker held a variety of positions in Germany and the United States with Nixdorf Computer AG, Nixdorf Computer Engineering Corp. and Siemens Nixdorf Informationssysteme AG, all information technology companies, including the position of President and CEO of Nixdorf Computer Engineering Corp. in Boston, Massachusetts from 1986 to 1989. Mr. Woebker has also served as Senior Vice President, Pyramid Technology Corp. in Europe and as Vice President, NeXT Computer, Inc. in Europe. Mr. Woebker received a Masters of Science degree in Mathematics and Computer Science from the University of Hannover.

COMPENSATION

Executive Compensation Program

Components of Versant's Compensation Program

Base Salary

The Compensation Committee sets base salaries for Versant's Named Executive Officers on the basis of general market levels and officer's past personal performance. Specifically, compensation is determined relative to job scope and responsibilities, past and current contributions, compensation for similar positions at peer and/or other high-technology companies, and individual factors (such as unique skills, demand in the labor market, and longer-term development and succession plans). Each individual's base pay is positioned relative to the officer's total compensation package, including annual cash incentives and long-term equity incentives.

For fiscal 2007, the annual base salary rate for Mr. Witte, who is based in Germany and whose base salary is paid in Euros, was €216,000. This annual base salary rate was established pursuant to Mr. Witte's November 2006 employment agreement which was approved by the Compensation Committee on November 27, 2006 and was equivalent to approximately $284,000 based on the currency exchange rate for the US Dollar and Euro in effect on November 27, 2006.

For fiscal 2007, the annual base salary rate for Mr. Wong was $170,000 as established pursuant his employment offer letter with the Company dated June 27, 2006 which was extended when Mr. Wong joined Versant in June 2006.

For fiscal 2007, the annual base salary rate for Mr. Huben, who is also based in Germany and whose base salary is paid in Euros, was €108,000, (equivalent to $140,454 based on the currency exchange rate for the US Dollar and Euro in effect on January 5, 2007, the date the Compensation Committee approved Mr. Huben's annual base salary for fiscal 2007). Mr. Huben's base salary forms part of his target compensation pursuant to an employment agreement entered into between Mr. Huben and Versant's German subsidiary, Versant GmbH, effective as of November 1, 2006, which the Compensation Committee approved on January 5, 2007. Mr. Huben was promoted to Executive Vice President of Field Operations in December 2005.

Annual Cash Incentive Bonuses

We pay cash bonuses to Versant's Named Executive Officers pursuant to compensation programs approved by the Compensation Committee, which make these officers eligible to receive contingent cash bonus payments conditioned upon the individual and/or Versant achieving specific financial results and strategic goals. In setting the target cash incentive bonus programs approved for Versant's Named Executive Officers for fiscal 2007, the Committee determined that there was a reasonable probability that each such officer would achieve his targeted bonus levels if that officer (and in some cases all the Named Executive Officers) exerted strong efforts on behalf of the Company in fiscal 2007, but also recognized that achievement of target bonus levels was by no means assured.

In fiscal 2007 Mr. Witte was entitled to receive a cash bonus based on the Company's net income for fiscal 2007. The Compensation Committee approved this program in recognition of the Company's improved performance under Mr. Witte's leadership and to provide increased contingent pay incentives for further improvements in the Company's financial performance. The Compensation Committee decided to base Mr. Witte's cash bonus on net income, since net income was a key financial performance metric for the Company's 2007 operating plan and a fair indicator of improvement in the Company's operating results in fiscal 2007. Under Mr. Witte's fiscal 2007 bonus arrangement, following each of the first three quarters of fiscal 2007, Mr. Witte earned a bonus equal to 3% of the Company's net income for the quarter, computed before deduction of the amount of the bonus Mr. Witte could earn for that fiscal quarter ("Bonusable Net Income", and each such quarterly bonus payment a "Bonus Advance") and, following the close of fiscal 2007, a bonus equal to 6% of the Company's Bonusable Net Income for fiscal 2007 minus all previously paid quarterly Bonus Advances. If the Bonus Advances exceeded 6% of the Company's Bonusable Net Income for fiscal 2007, then Mr. Witte would nevertheless retain all Bonus Advances. Versant achieved net income of $1.706 million, $1.906 million and $1.934 million for the first three quarters of fiscal 2007 and net income of $7.633 million for fiscal 2007. Accordingly, pursuant to his bonus arrangement, the Compensation Committee confirmed and awarded Mr. Witte a cash bonus, based on the Company's Bonusable Net Income for fiscal 2007, of €329,129 (equivalent to US$485,465 based on the exchange rate of approximately $1.475 for €1.0 Euro in effect on the date the Compensation Committee approved Mr. Witte's fiscal 2007 bonus amount).

The Compensation Committee approved a target bonus of up to $40,000 for Mr. Wong for fiscal 2007 without establishing any pre-determined objectives for Mr. Wong. Given the Company's size, the Compensation Committee decided not to set specific pre-determined goals for Mr. Wong in fiscal 2007 to enable Mr. Wong greater flexibility to focus his efforts in areas where he, in consultation with Versant's Chief Executive Officer, believed the Company most needed improvement and because certain objectives, such as successfully managing the Company's financial reporting and internal controls functions, were understood to be important aspects of Mr. Wong's duties. Based on the following achievements, the Compensation Committee awarded Mr. Wong a bonus of $60,000, or 150% of his target bonus for fiscal 2007: achievement of objectives assigned to him by Versant's Chief Executive Officer in fiscal 2007, improving the internal processes (including accounting processes), the successful and prompt relocation of the Company's U.S. headquarters from Fremont, California to Redwood City, California and effectively managing the Company's accounting, financial, reporting and related administrative functions, and the Company's overall fiscal 2007 performance. In addition, the Compensation Committee awarded Mr. Wong a discretionary bonus of $40,000 for fiscal 2007 to recognize his overall outstanding performance during the fiscal year and to bring his total cash compensation for the year to $270,000, a level the Compensation Committee believed reflected Mr. Wong's achievements and that was commensurate with his position as a chief financial officer of a public technology company headquartered in Silicon Valley.

Pursuant to Mr. Huben's Employment Agreement with the Company, the Compensation Committee established his target cash compensation, including salary and bonus for fiscal 2007 at €250,000. In January 2007 the Compensation Committee approved a fiscal 2007 compensation program under which Mr. Huben was eligible to earn a total target cash bonus of €142,000 based on the following targets and more if he exceeded these targets: (1) cash commission on the Company's sales revenue under a formula which would result in a total commission to Mr. Huben of approximately €72,000 if the Company achieved target revenues of $17.0 million in fiscal 2007, with an increased commission rate for all revenues above the target amount; (2) a variable bonus based on the Company's income from operations in fiscal 2007 that would provide a target bonus of €45,000 if the Company achieved a target level of income from operations in fiscal 2007 of $4.1 million and (3) up to a maximum of €25,000 for achieving certain quarterly Company objectives defined by Versant's Chief Executive Officer, including among others, signing agreements with new customers and attaining certain public relations objectives. Mr. Huben's cash commissions on sales revenue and his bonus payable on operating income were payable based upon Company revenue or income from operations the Company achieved in fiscal 2007 at fixed rates, whether or not targeted fiscal 2007 revenue or income from operations, respectively, were achieved. Following the close of fiscal 2007, the Compensation Committee reviewed fiscal 2007 results and Mr. Huben's performance and awarded Mr. Huben a bonus of €346,262 for fiscal year 2007, or 191% of his 2007 target bonus, determined as follows: €237,123 based on the commission on fiscal 2007 sales revenues, €84,139 based on the Company's net income from operations for fiscal 2007 and €25,000 based on the Committee's determination that Mr. Huben achieved his specified personal quarterly Company objectives.

For fiscal 2008, the Compensation Committee set the annual salaries and target cash bonus incentive levels and related performance targets for Versant's executive officers as described below under "Approval of Fiscal Year 2008 Cash Compensation for Named Executive Officers."

Equity-Based Long Term Incentive Compensation

We utilize stock options to ensure that Versant's executive officers have a continuing stake in Versant's long-term success and to align their interests with the interests of Versant's shareholders. Option grants allow the officers to acquire shares of the Company's common stock at a fixed price per share (the market price on the grant date) over a specified period of time. The options vest in periodic installments over a three-year period, contingent upon the executive officer's continued employment with the Company. The vesting schedule and the number of shares granted are established to ensure a meaningful incentive in each year following the year of grant. Accordingly, the option will provide a return to the executive officer only if he remains in the Company's employ, and then only if the market price of the Company's Common Stock appreciates over the option term. We also believe that our Named Executive Officers should have a greater percentage of their equity compensation in the form of stock options rather than restricted stock or restricted stock unit awards, as stock options have greater risk associated with them than these other equity grants due to the executive's need to make an investment by paying for option shares to realize any appreciation in our stock. We believe that our executive officers should have a larger portion of their equity incentive awards at risk compared to other employees.

The Compensation Committee evaluates the percentage of ownership of Versant of each Named Executive Officer on a fully-diluted basis, each executive officer's current holdings of unvested equity and the extent to which those holdings provide adequate retention incentives to determine whether any additional equity awards are warranted. When setting the number of share-based awards to be granted to each executive, the Compensation Committee also considers the impact of a potential award on Versant's financial statements based on FAS 123(R).

In determining equity grants for Versant's Named Executive Officers for fiscal 2007, the Compensation Committee took into account the above factors. Based on this information, the Compensation Committee granted stock options to Mr. Witte (20,000 shares) and Mr. Huben (10,000) shares in November 2006 and to Mr. Wong (7,500 shares) in February 2007. Mr. Wong's grant was made somewhat later in the fiscal year due to the fact he had been employed by Versant only since June of 2006.

All grants of options to Versant's executive officers and other employees, as well as to Versant's directors, have been granted with exercise prices equal to or exceeding the fair value of the underlying shares of common stock on the grant date, as determined by Versant's Board of Directors, which was the closing price of Versant's Stock on The NASDAQ Stock Market on the date of grant. All equity-based awards have been reflected in Versant's consolidated financial statements, based upon the applicable accounting guidance.

We do not have any program, plan or practice that requires us to grant stock options to Versant's executive officers on specified dates, however, we generally (but not exclusively) consider stock option grants to Versant's executives on an annual basis, typically following fiscal year end when preliminary results for the preceding fiscal year are available for review by the Compensation Committee and forecasts for the following fiscal year are presented for review by the Board of Directors. Accordingly, the Compensation Committee makes all such grants of stock options to Versant's executives at its regularly scheduled meetings.

Perquisites

Our executive officers are eligible for the same health and welfare programs and benefits as the rest of Versant's salaried employees. In addition, Mr. Witte receives an automobile lease allowance of €800 per month and Mr. Huben receives an automobile lease allowance of €700 per month, as Messrs. Witte and Huben is each resident in our German office where such a benefit is customary for executives holding similar positions. In addition, the Company pays life insurance premiums for Mr. Witte of approximately €150 per month.

Employment Contracts

Versant and its subsidiary Versant GmbH have entered into a joint employment agreement and managing director service contract with Mr. Witte which provides that if Mr. Witte is terminated during the term of the agreement (which ends on October 31, 2009) other than for cause, then Mr. Witte will be entitled to, in exchange for a release of claims, severance payments equivalent to the sum of (1) the base salary paid to him by Versant GmbH in the Company's three most recent fiscal quarters ended prior to the date of termination and (2) an amount equal to any bonus advances or other bonus payments made to him by the Company in the three most recent fiscal quarters ended prior to the date of termination. This severance is to be paid in equal monthly installments over a six-month period following termination. In addition, all of Mr. Witte's then-outstanding stock options will be subject to 12 months of accelerated vesting.

Versant has also entered into an employment agreement with Mr. Huben which provides that the Company may terminate Mr. Huben at its discretion, though the Company is required to give Mr. Huben nine months notice in the case of his termination or in the alternative, the Company may release Mr. Huben from his work duties while paying his compensation for the remainder of the employment term.

Versant believes that these severance arrangements are necessary for the Company to attract and retain talented and qualified executive officers in the markets in which it competes for talent. In addition, Versant believes that the provisions of these employment contracts are customary for high-technology companies similarly situated with Versant, particularly in light of the fact that the Company does not have change of control arrangements with any of our executive officers.

Approval of Fiscal Year 2008 Cash Compensation for Named Executive Officers

In January 2008, the Compensation Committee established the base salaries for our Named Executive Officers for the Company's fiscal year ending October 31, 2008 as follows: Mr. Witte €216,000, Mr. Wong $190,000 and Mr. Huben €108,000. Mr. Witte's and Mr. Huben's base salaries were unchanged from their fiscal 2007 levels. Mr. Wong's base salary was increased from $170,000 to $190,000 in recognition of his performance in fiscal 2007 and to make his base salary commensurate with his position as a chief financial officer of a public technology company headquartered in Silicon Valley.

In January 2008, the Compensation Committee also approved the targets for our Named Executive Officer's annual cash incentive compensation or bonus programs for the fiscal year ending October 31, 2008, which are summarized below.

Mr. Witte is eligible to earn a bonus based on Versant's net income (determined in accordance with US generally accepted accounting principles) for fiscal 2008, computed before deduction of this bonus (the "Bonusable Income"). This bonus will be payable as a percentage of a certain amount of the Bonusable Income up to a target level and at an increased percentage rate for any Bonusable Income that may be achieved above the target Bonusable Income level. This bonus is payable quarterly, except for the portion of the bonus (if any) that may be payable at the increased percentage rate, which is to be paid after the public announcement of Versant's fiscal 2008 operating results. The structure of this fiscal 2008 bonus program is similar to Mr. Witte's net income-based bonus program for fiscal 2007, except that it computes the amount of Mr.Witte's bonus at lower percentage rates than his fiscal 2007 program and provides for an increase in the bonus rate after a certain net income level is met, though still at a lower percentage rate than Mr. Witte's fiscal 2007 net income-based bonus. Mr. Witte is also eligible to earn an additional bonus at the close of fiscal 2008 if the market price of Versant common stock on the last day of fiscal 2008 has increased over its market price at October 31, 2007 (the "2008 Rate of Increase") by a rate in excess of the increase in the NASDAQ Composite Index (the "IXIC") for the same time period. If Versant's Common Stock has a 2008 Rate of Increase that is 50% more than the increase in the IXIC for fiscal 2008, then the bonus rate will double with respect to each percentage point by which the 2008 Increase exceeds 50% more than the increase in the IXIC. In addition, Mr. Witte will be eligible to receive a discretionary bonus of up to $45,000 as determined by the Compensation Committee, based on the Company's business progress in fiscal 2008. Based on Mr. Witte's compensation program for fiscal 2008, if he achieves exactly the "target" amounts for each component of his bonus program his target fiscal 2008 bonus will be $284,700.

Mr. Wong is eligible to earn a bonus based on the same target Bonusable Income level as for Mr. Witte. This bonus will be payable to Mr. Wong as a percentage of a certain amount of the Bonusable Income up to the target level and at an increased percentage rate for any Bonusable Income that may be achieved above the target Bonusable Income level. This bonus is payable quarterly, except for the portion of the bonus (if any) that may be payable at the increased percentage rate, which is to be paid after the public announcement of Versant's fiscal 2008 operating results. In addition, Mr. Wong is eligible to earn a bonus of $40,000 by achieving certain operational objectives in fiscal 2008 as determined by the Company's Chief Executive Officer, including among others the implementation of compliance programs related to Section 404 of The Sarbanes-Oxley Act of 2002 and other objectives which have not yet been established. Based on Mr. Wong's compensation program for fiscal 2008, if he achieves exactly the "target" amounts for each component of his bonus program his target fiscal 2008 bonus will be $80,000.

Mr. Huben is eligible to earn a bonus determined as a percentage of Versant's revenue for fiscal 2008, as determined in accordance with US generally accepted accounting principles and publicly reported by Versant. This bonus will be paid as a percentage of fiscal 2008 revenue until a target revenue level is met and will be paid at an increased percentage rate for any revenue achieved in excess of the target revenue. For purposes of this bonus the Versant Board retains the ability to adjust the revenue amounts to reflect certain currency exchange rate fluctuations outside a predetermined range. Mr. Huben is also eligible to earn a bonus on Versant's net income from operations in fiscal 2008 determined in accordance with US generally accepted accounting principles as publicly reported by Versant in fiscal 2008 ("Operating Income") as a percentage of fiscal 2008 Operating Income. In addition, Mr. Huben is also eligible to receive a discretionary bonus of up to €10,000 as determined by the Compensation Committee based on progress achieved in obtaining customers in a certain industry segment during fiscal 2008. Based on Mr. Huben's compensation program for fiscal 2008, if he achieves exactly the "target" amounts for each component of his bonus program his target fiscal 2008 bonus will be €180,440, or approximately $265,247, based on the exchange rate of approximately $1.470 to €1.0.

For more detailed information on the fiscal 2008 incentive compensation programs for Versant's Named Executive Officers, please see our report on Form 8-K filed with the Securities and Exchange Commission on January 8, 2008.

MANAGEMENT DISCUSSION FROM LATEST 10K

Background and Overview

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 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:


Versant Object Database, 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 provide compatibility and additional protection of stored data.


FastObjects , an object-oriented database management system that can be embedded as a high performance component into customers' applications and systems.

Our Versant Object Database product offerings are used primarily by larger organizations, such as technology providers, telecommunications carriers, government defense agencies and 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.

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 and FastObjects, 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:


Sales of licenses for Versant Object Database and FastObjects;


Maintenance and technical support services for our products;


Consulting and training services;


Nonrecurring engineering fees received in connection with providing services associated with Versant Object Database;


The resale of licenses, and maintenance, training and consulting services for third-party products that complement Versant Object Database;


Reimbursements received for out-of-pocket expenses, which we incurred and are recorded as revenues in our statement of operations.

Financial Highlights for Fiscal 2007


Our net revenues in fiscal 2007 were $21.2 million, an increase of $4.4 million (or 26%) from net revenues of $16.7 million in fiscal 2006. This increase in revenues was primarily due to the closing in fiscal 2007 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.


Net income for fiscal 2007 was $7.6 million compared to a net income of $4.3 million in fiscal 2006. Net income from continuing operations for fiscal 2007 was $7.3 million compared to net income from continuing operations of $3.6 million in fiscal 2006. The increase of $3.7 million in net income from continuing operations in fiscal 2007 was due directly to our increased revenues in fiscal 2007.


Our combined sales and marketing, research and development and general and administrative expenses were $11.2 million in fiscal 2007, an increase of $1.3 million (or 13%) from $9.9 million reported in fiscal 2006. This increase was primarily due to an increase in our general and administrative and sales and marketing expenses and, to a lesser degree, from an increase in our research and development expenses during fiscal 2007


Cash provided by operations in fiscal 2007 was $10.0 million compared to $3.3 million of cash provided by operations in fiscal 2006, primarily due to higher net income and, to a lesser extent, a reduction in accounts receivable. During fiscal 2007, our cash and cash equivalents balance increased by $10.9 million to $19.1 million at October 31, 2007 compared to $8.2 million at October 31, 2006.

Fiscal 2007 and Beyond

During fiscal 2007, 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 2007.

We again expect to derive most of our revenues in fiscal 2008 from Versant Object Database and FastObjects licenses and related services.

Like many other software companies, we do not operate with a significant backlog of orders. Our license revenues, in particular, are difficult to forecast. For fiscal 2008, we currently estimate total year revenues of approximately $24.0 million, or an approximate 13% increase from fiscal 2007. We also believe that quarterly revenues during fiscal 2008 may fluctuate as a result of there being a limited number of revenue transactions in the sales pipeline at any given point in time, and the difficulty in accurately assessing when such transactions may actually close. We currently estimate net income of approximately $9.5 million for fiscal 2008, resulting in estimated diluted net income per share of approximately $2.50 for fiscal 2008, based on our current capitalization. Without limitation, the estimates and forecasts in this paragraph are forward-looking statements.

Results of Operations

Total revenues are comprised of license fees and fees for maintenance, training, consulting, technical and other support services. Fluctuations in our total revenues can be attributed to changes in product and customer mix, general trends in information technology spending, changes in geographic mix, and the corresponding impact of changes in foreign exchange rates. Further, product life cycles impact revenues periodically as old contracts expire and new products are released. Our revenues as shown in the above table and in the accompanying statements of operations included in this report do not include revenues from our disposed WebSphere consulting practice. Instead, as required by generally accepted accounting principles, our financial statements report former WebSphere activities as "net income (loss) from discontinued operations, net of income taxes". See NOTE 4 of our "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS" in Item 8 of this Report for more information regarding this transaction.

Our total revenues increased by $4.4 million (or 26%) in fiscal 2007 compared to fiscal 2006. This increase resulted primarily from a 50% increase in license revenues and a 22% increase in maintenance revenues in fiscal 2007 compared to fiscal 2006, included favorable foreign currency fluctuations of $1.1 million and was partly offset by a decrease in professional services revenues. We believe that license revenues increased in fiscal 2007 over fiscal 2006 due to various factors, including increased maturity, stability and focus of our sales organization, the increased acceptance and success of our VAR customers' applications with end-users, the overall reputation and acceptance of our products in the vertical markets (including telecommunications, technology and defense) that we serve, the relative strength of the worldwide economy in fiscal 2007, and the strong Euro as compared to the United States Dollar in fiscal 2007, resulting in higher consolidated revenues. Maintenance revenues increased in fiscal 2007 over fiscal 2006 primarily as a result of the increased license revenues in the same period.

Our total revenues increased by $999,000 (or 6%) in fiscal 2006 compared to fiscal 2005. This increase resulted primarily from a 153% increase in professional services revenues and a 7% increase in maintenance revenues in fiscal 2006 compared to fiscal 2005, and included favorable foreign currency fluctuations of $186,000, and was partly offset by a decrease in license revenues.

One customer accounted for 21% of our total revenues for the quarter ended October 31, 2007, and one customer accounted for 14% of our total revenues for fiscal 2007. One customer accounted for 30% of our total revenues for the quarter ended October 31, 2006, and no one customer accounted for 10% or more of our total revenues for fiscal 2006.

The inherently unpredictable business cycle of an enterprise software company makes discernment of continued and meaningful business trends difficult. In terms of license revenues, we are still experiencing lengthy sales cycles and customers' preference for licensing our software on an "as needed" basis, versus the historical practice of prepaying license fees in advance of usage, a factor which can adversely affect the amount of our license revenues. License revenues also are a factor in driving the amount of our services revenues, as new license customers typically enter into support and maintenance agreements with us.

We are currently forecasting total revenues for fiscal 2008 to increase approximately 13% compared to total revenues for fiscal 2007, and we intend to increase our sales personnel headcounts during fiscal 2008.

Fiscal 2007 Compared to Fiscal 2006

License revenues: License revenues represent perpetual license fees received and recognized from our End-Users and Value Added Resellers.

License revenues were $12.7 million (or 60% of total revenues) in fiscal 2007, an increase of $4.2 million (or 50%) from license revenues of $8.5 million (or 51% of total revenues) reported in fiscal 2006. The higher license revenues for fiscal 2007 were due in part to two significant license agreements with two U.S. customers for approximately $787,000 and $479,000, and one significant license transaction with a U.S. customer for approximately $1.0 million sourced through our European operations, as well as three additional license agreements with three European customers for approximately $1.1 million, $689,000 and $270,000.

The majority of the growth in our license revenues in fiscal 2007 over fiscal 2006 was driven primarily by license transactions with existing VAR customers in the telecommunications industry, which was our largest vertical market in fiscal 2007.

Maintenance revenues: Maintenance and technical support revenues include revenues derived from maintenance agreements, under which we provide customers with internet and telephone access to support personnel and software upgrades, dedicated technical assistance and emergency response support options.

Maintenance revenues were $8.2 million (or 39% of total revenues) in fiscal 2007, representing an increase of $1.5 million (or 22%) from maintenance revenues of $6.7 million (or 40% of total revenues) reported in fiscal 2006. The increased maintenance revenues for fiscal 2007 are due primarily to incremental revenues of $1.1 million recognized during fiscal 2007 from new maintenance agreements attributable to the license revenue growth from both U.S. and European based customers and, to a lesser extent, maintenance revenues of $266,000 related to the sale of premium support and maintenance agreements for software applications using older versions of our software.

Professional services revenues: Professional services revenues consist of revenues from consulting, training and technical support as well as billable travel expenses incurred by our professional services organization.

Professional services revenues were $244,000 (or 1% of total revenues) in fiscal 2007, a decline of $1.3 million (or 84%) from $1.6 million (or 9% of total revenues) reported in fiscal 2006. This decline in fiscal 2007 compared to fiscal 2006 was mainly due to the fact that in fiscal 2006, we recognized $1.3 million in revenues from two significant percentage-of-completion consulting projects with two European customers but had no such corresponding professional services revenue transactions of this magnitude in fiscal 2007.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Results of Operations

Total Revenues. Total revenues are comprised of license fees, and revenues from maintenance, consulting, training and other support services. Fluctuations in total revenues are generally attributable to changes in product and customer mix, general trends in

information technology spending, as well as to changes in geographic mix and the corresponding impact of changes in foreign
exchange rates. Further, product life cycles impact revenues periodically as old contracts end and new products are released. Our revenues as shown in the above table and in the accompanying statements of operations included in this report do not include revenues from our disposed WebSphere consulting practice. Instead, as required by generally accepted accounting principles, our financial statements report former WebSphere activities as “net income from discontinued operations, net of income taxes”. See NOTE 7 of our “NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ” in Item 1 of this Quarterly Report on Form 10-Q.



Our total revenues increased by $ 1.1 million (or 22 %) for the three months ended January 31, 2008 from the corresponding period in fiscal 2007. This increase resulted primarily from an approximate $798,000 (or 25 %) increase in license revenues and an approximate $313,000 (or 16 %) increase in maintenance revenues for the three months ended January 31, 2008 compared to the corresponding period in fiscal 2007, and included favorable foreign currency fluctuations of approximately $376,000.



One customer accounted for 23% of our total revenues for the three months ended January 31, 2008. No one customer accounted for 10% or more of our total revenues for the three months ended January 31, 2007.



The inherently unpredictable business cycle of an enterprise software company makes discernment of continued and meaningful business trends difficult. In terms of license revenues, we are still experiencing lengthy sales cycles and customers’ preference for licensing our software on an “as needed” basis, versus the historical practice of prepaying license fees in advance of usage, a factor which can adversely affect the amount of our license revenues. License revenues also are a factor in driving the amount of our services revenues, as new license customers typically enter into support and maintenance agreements with us, from which our maintenance revenues are derived.



License. License revenues represent license fees received and recognized from our End-Users and Value Added Resellers.



License revenues were $4.0 million for the three months ended January 31, 2008, an increase of $798,000 (or 25%) from $3.2 million reported for the comparable period in fiscal 2007. The higher license revenues for the three months ended January 31, 2008 were mainly attributable to one significant license agreement with an Asia Pacific telecommunications customer (an independent software vendor) for approximately $1.4 million.



Maintenance . Maintenance and technical support revenues include revenues derived from maintenance agreements, under which we provide customers with internet and telephone access to support personnel and software upgrades, dedicated technical assistance and emergency response support options.



Maintenance revenues were $2.2 million for the three months ended January 31, 2008, an increase of $313,000 (or 16%) from $1.9 million reported for the comparable period in fiscal 2007. The increase in maintenance revenues for the three months ended January 31, 2008 was due primarily to incremental maintenance revenues of approximately $316,000 recognized in the first quarter of fiscal 2008 related primarily to license revenue growth from both U.S. and European based customers over the past year .



Professional Services . Professional services revenues consist of revenues from consulting, training and technical support as well as billable travel expenses incurred by our professional services organization.



Professional services revenues were $92,000 for the three months ended January 31, 2008, an increase of $22,000 (or 31%) from $70,000 reported for the comparable period in fiscal 2007. The increase in professional services revenues for the three months ended January 31, 2008 was mainly attributable to consulting revenues derived from our European operations.



International Revenues . The following table summarizes our revenues by geographic area for the three months ended January 31, 2008 and January 31, 2007 (in thousands, except percentages)

International revenues (revenues from the European and Asian regions) represented approximately 68% of our total revenues for the three months ended January 31, 2008, as compared to 53% for the comparable period in 2007.



For the three months ended January 31, 2008, we experienced a higher proportion of international revenues than in recent quarters due primarily to the closing of a significant license transaction for approximately $1.4 million with an Asia Pacific telecommunications customer.



Since the Company’s acquisition of Poet Holdings, Inc. in early 2004, we have generally derived a higher percentage of international revenues due to stronger demand for our products in Europe. We expect in the future to experience a somewhat stronger demand for our products in Europe as compared to our other geographic markets.

Cost of Revenues

Total Cost of Revenues. Total cost of revenues was $570,000 for the three months ended January 31, 2008 remaining at a relatively consistent level in absolute dollars compared to $572,000 for the comparable period in fiscal 2007, although revenues for the three months ended January 31, 2008 increased by 22% over revenues for the corresponding period in fiscal 2007.



License. Cost of license revenues consists primarily of royalties, the cost of third party products which we resell to our customers, product media and packaging costs.



Cost of license revenues was $80,000 (or 2% of license revenues) for the three months ended January 31, 2008, an increase of $33,000 (or 70%) from $47,000 (or 1% of license revenues) reported for the comparable period in fiscal 2007. The increase in cost of license revenues for the three months ended January 31, 2008 was primarily due to an increase in cost of third party products in our U.S. operations of approximately $18,000.

Amortization of Intangible Assets. Amortization of intangible assets consists of the amortization of intangible assets from our fiscal 2004 acquisitions of Poet Holdings, Inc., FastObjects, Inc. and JDO Genie technology.



Amortization of intangible assets was $79,000 for the three months ended January 31, 2008, which was consistent with the amount incurred in the corresponding period in fiscal 2007. We expect to incur quarterly amortization charges of approximately $79,000 for the remainder of fiscal 2008.



Maintenance. Cost of maintenance revenues consists primarily of customer support personnel and related expenses, including payroll, employee benefits and allocated overhead.



Cost of maintenance revenues was $384,000 (or 17% of maintenance revenues) for the three months ended January 31, 2008, a decrease of $21,000 (or 5%) from $405,000 (or 21% of maintenance revenues) reported for the comparable period in fiscal 2007. The decrease was primarily due to a reduction in facility expenses in our U.S. operations as a result of our occupying lesser square footage in our new Redwood City facility than in our former Fremont offices.



Cost of maintenance revenues as a percentage of maintenance revenues decreased by 4% for the three months ended January 31, 2008 from the corresponding period in fiscal 2007. This decrease was primarily due to the fact that, during the first quarter of fiscal 2008, we have been able to provide increased maintenance and support services with approximately the same number of personnel as we used to provide such services for the corresponding period in fiscal 2007 and also due to the fact that maintenance revenues increased by 16% for the three months ended January 31, 2008 compared to the corresponding period in fiscal 2007.



Professional Services. Cost of professional services consists of salaries, bonuses, third party consulting fees and other costs associated with supporting our professional services organization.



Cost of professional services revenues was $ 27 ,000 (or 29 % of professional services revenues) for the three months ended January 31, 2008, a decrease of $14,000 (or 34%) from $ 41 ,000 (or 59 % of professional services revenues) reported for the comparable period in 2007. The decrease was primarily due to cost of professional services related to a one time consulting project performed through our Indian operations in the first quarter of fiscal 2007 that was not replicated in the first quarter of fiscal 2008.

Operating Expenses

Total Operating Expenses. Total operating expenses were $3.0 million for the three months ended January 31, 2008, an increase of $121,000 (or 4%) from $2.9 million reported for the comparable period in 2007. This increase resulted primarily from an increase in our research and development expenses and, to a lesser degree, from an increase in our sales and marketing expenses, and were partially offset by a decrease of approximately $123,000 in our general and administrative expenses during the three months ended January 31, 2008, and included an unfavorable foreign currency exchange fluctuation of approximately $116,000.



For the remainder of fiscal year 2008, we expect our quarterly operating expenses to be moderately higher than we experienced in the first quarter of this fiscal year as further explained below.



Sales and Marketing. Sales and marketing expenses consist primarily of personnel and personnel related expenses, commissions earned by sales personnel, trade shows, travel and other marketing communication costs, such as advertising and other marketing programs.

Sales and marketing expenses were $841,000 (or 13% of revenues) for the three months ended January 31, 2008 and $760,000 (or 15% of revenues) for the comparable period in fiscal 2007. The $81,000 (or 11%) increase in absolute dollars for the three months ended January 31, 2008 was primarily due to an approximate $62,000 increase in marketing expenses related to advertising campaigns, trade shows and other marketing programs in our European operations.



For the remainder of fiscal 2008, we expect our quarterly sales and marketing expenses to increase moderately due to anticipated increases in sales personnel and in marketing programs. Sales and marketing expense will continue to represent a considerable percentage of our operating expenditures.



Research and Development. Research and development expenses consist primarily of personnel and related expenses, including payroll and employee benefits, facility expenses and costs to engage software development contractors.



Research and development expenses were $1.1 million (or 17% of revenues) for the three months ended January 31, 2008 and $891,000 (or 17% of revenues) for the comparable period in fiscal 2007. The $163,000 (or 18%) increase in absolute dollars for the three months ended January 31, 2008 was mainly due to an increase of eight headcounts in our European operations, resulting in an increase of approximately $ 176 ,000 in salary and payroll related expenses from the corresponding period in fiscal 2007, and an increase of approximately $130,000 as a result of using third party contractors for certain research and development projects during the three months ended January 31, 2008, and an increase in building rent expense in our Indian facility of approximately $45,000 from the comparable period of fiscal 2007. These increases were partially offset by a decrease in research and development expenses as a result of headcount reductions of four personnel in our U.S. operations, resulting in a reduction of salary and payroll related expenses of approximately $188,000.



We anticipate that we will continue to invest significant resources in research and development activities to develop new products, advance the technology of our existing products and develop new business opportunities. We expect research and development expenditures to generally remain at the current levels for the remainder of fiscal 2008.



General and Administrative. General and administrative expenses consist primarily of personnel and related expenses and general operating expenses.



General and administrative expenses were $1.1 million (or 17% of revenues) for the three months ended January 31, 2008 and $1.2 million (or 24% of revenues) for the comparable period in fiscal 2007. The $123,000 (or 10%) decrease in absolute dollars for the three months ended January 31, 2008 was primarily due an approximate $72,000 decrease in facility expenses in our U.S. operations as a result of our occupying lesser square footage in our new Redwood City facility than in our former Fremont offices, and an approximate $54,000 decrease in the first quarter of fiscal 2008 in legal fees and costs associated with our pending litigation with Rockwell Automation.



For the remainder of fiscal 2008, we expect our quarterly general and administrative expenses to increase from the levels we experienced in the first quarter. We anticipate increased quarterly costs associated with implementation of Section 404 of the Sarbanes-Oxley Act of 2002 and legal fees and other costs related to the Company’s pending litigation with Rockwell Automation.


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