Versant 10-Q 2011 Q3 Quarterly report

United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2011

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to              

Commission File Number 000-28540

VERSANT CORPORATION

(Exact name of Registrant as specified in its charter)

California	94-3079392
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

255 Shoreline Drive, Suite 450, Redwood City, California 94065

(Address of principal executive offices) (Zip code)

(650) 232-2400

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ý   No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý   No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer o	Accelerated Filer o
Non-Accelerated Filer o	Smaller reporting company x
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) o Yes No x

As of September 12, 2011, there were outstanding 2,950,195 shares of the Registrant’s common stock, no par value.

VERSANT CORPORATION

QUARTERLY REPORT ON FORM 10-Q

For the Quarterly Period Ended July 31, 2011

 Table of Contents

PART I. FINANCIAL INFORMATION	3
Item 1. Financial Statements (Unaudited)	3
Condensed Consolidated Balance Sheets at July 31, 2011 and October 31, 2010	3
Condensed Consolidated Statements of Income for the three and nine months ended July 31, 2011 and July 31, 2010	4
Condensed Consolidated Statements of Cash Flows for the nine months ended July 31, 2011 and July 31, 2010	5
Notes to Condensed Consolidated Financial Statements	6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3. Quantitative and Qualitative Disclosures About Market Risk	32
Item 4. Controls and Procedures	33
PART II. OTHER INFORMATION	33
Item 1. Legal Proceedings	33
Item 1A. Risk Factors	33
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 6. Exhibits	35
Signatures	36
Certifications

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PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

VERSANT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except for share amounts)

(unaudited)

	July 31, 2011			October 31, 2010
ASSETS
Current assets:
Cash and cash equivalents	$	23,142		$	24,911
Trade accounts receivable, net	2,173			3,186
Deferred income taxes	913			884
Other current assets	718			388
Total current assets	26,946			29,369
Property and equipment, net	1,012			634
Goodwill	8,589			8,589
Intangible assets, net	334			499
Other assets	38			38
Total assets	$	36,919		$	39,129
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	239		$	164
Accrued liabilities	1,032			1,294
Deferred revenues	3,215			3,022
Total current liabilities	4,486			4,480
Deferred revenues	13			66
Other long-term liabilities	127			139
Total liabilities	4,626			4,685
Commitments and contingencies
Stockholders’ equity:
Common stock, no par value, 7,500,000 shares authorized, 2,953,427 shares issued and outstanding at July 31, 2011, and 3,213,122 shares issued and outstanding at October 31, 2010	90,040			92,654
Accumulated other comprehensive income	108			43
Accumulated deficit	(57,855		)	(58,253		)
Total stockholders’ equity	32,293			34,444
Total liabilities and stockholders’ equity	$	36,919		$	39,129

See accompanying notes to condensed consolidated financial statements

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VERSANT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except for per share amounts)

(unaudited)

	Three Months Ended						Nine Months Ended
	July 31,			July 31,			July 31,			July 31,
	2011			2010			2011			2010
Revenues:
License	$	2,344		$	1,634		$	6,758		$	5,787
Maintenance	1,821			1,757			5,396			5,534
Professional services	39			33			139			73
Total revenues	4,204			3,424			12,293			11,394
Cost of revenues:
License	66			60			199			216
Amortization of intangible assets	26			76			164			230
Maintenance	384			342			1,111			1,098
Professional services	26			17			68			48
Total cost of revenues	502			495			1,542			1,592
Gross profit	3,702			2,929			10,751			9,802
Operating expenses:
Sales and marketing	1,341			1,150			4,161			3,471
Research and development	1,055			824			2,967			2,812
General and administrative	786			759			3,093			2,434
Restructuring	25			—			25			39
Total operating expenses	3,207			2,733			10,246			8,756
Income from operations	495			196			505			1,046
Interest and other income (expense), net	34			48			(14		)	141
Income before provision for income taxes	529			244			491			1,187
Provision for income taxes	(55		)	(114		)	(93		)	(454		)
Net income	$	474		$	130		$	398		$	733
Net income per share:
Basic	$	0.16		$	0.04		$	0.13		$	0.21
Diluted	$	0.16		$	0.04		$	0.13		$	0.21
Shares used in per share calculation:
Basic	3,021			3,375			3,122			3,468
Diluted	3,021			3,403			3,123			3,504

See accompanying notes to condensed consolidated financial statements

4

VERSANT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Nine Months Ended
	July 31,			July 31,
	2011			2010
Cash flows from operating activities:
Net income	$	398		$	733
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	282			242
Amortization of intangible assets	164			230
Share based compensation	768			828
Provision for (recovery of) allowance for doubtful accounts receivable	8			(19		)
Restructuring (reduction of) charges	25			(19		)
Changes in assets and liabilities:
Trade accounts receivable	1,054			477
Other assets	(318		)	251
Accounts payable	71			(45		)
Accrued liabilities and other long-term liabilities	(289		)	(258		)
Deferred revenues	93			(176		)
Net cash provided by operating activities	2,256			2,244
Cash flows from investing activities:
Acquisition of business	—			(180		)
Purchases of property and equipment	(670		)	(459		)
Proceeds from the sale of property and equipment	—			15
Net cash used in investing activities	(670		)	(624		)
Cash flows from financing activities:
Proceeds from issuance of common stock	202			167
Repurchases of common stock	(3,584		)	(3,630		)
Net cash used in financing activities	(3,382		)	(3,463		)
Effect of foreign exchange rate changes on cash and cash equivalents	27			(505		)
Net decrease in cash and cash equivalents from operating, investing and financing activities	(1,769		)	(2,348		)
Cash and cash equivalents at beginning of period	24,911			27,812
Cash and cash equivalents at end of period	$	23,142		$	25,464
Supplemental disclosures of cash flows information:
Cash paid for:
Interest	$	—		$	1
Income taxes	$	336		$	477

See accompanying notes to condensed consolidated financial statements

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VERSANT CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1. Basis of Presentation and Recent Accounting Pronouncements

Basis of Presentation

The unaudited condensed consolidated financial statements contained in this report on Form 10-Q include all of the assets, liabilities, revenues, expenses and cash flows of Versant and all entities in which Versant has a controlling interest (subsidiaries) required to be consolidated in accordance with U.S. generally accepted accounting principles. Inter-company accounts and transactions between consolidated companies have been eliminated in consolidation.

The financial statements included herein reflect all adjustments which, in the opinion of the Company, are necessary for a fair presentation of the results for the interim periods presented. All such adjustments are normal recurring adjustments. These financial statements have been prepared in accordance with generally accepted accounting principles related to interim financial statements and the applicable rules of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for annual financial statements.

The financial statements and related disclosures have been prepared with the presumption that users of the interim financial information have read or have access to the audited financial statements for the Company’s preceding fiscal year ended October 31, 2010. Accordingly, these financial statements should be read in conjunction with those audited financial statements and the related notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2010, filed on January 31, 2011 (File/Film No. 000-28540/11559912). The Company’s operating results for the three and nine months ended July 31, 2011 are not necessarily indicative of the results that may be expected for any other interim period or for the full fiscal year ending October 31, 2011, or for any future periods. Further, the preparation of condensed consolidated financial statements requires management to make estimates and assumptions that affect the recorded amounts reported therein. A change in facts or circumstances relating to the estimates could result in a change to the estimates and could impact future operating results.

Recently Adopted Accounting Pronouncements

Fair Value Measurement Disclosure

In January 2010, the Financial Accounting Standards Board ("FASB") amended the disclosure requirements for the fair value measurements for recurring and nonrecurring non-financial assets and liabilities. The guidance requires new disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements. It also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. The new disclosures and clarifications of existing disclosures are effective for the Company’s second quarter of fiscal year 2010, except for the disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements, which are effective for the Company’s first quarter of fiscal year 2012. The adoption of this guidance had no material impact on the Company’s consolidated financial statements.

Amendments to Variable Interest Entity Guidance

In June 2009, new guidance was issued which requires an enterprise to determine whether its variable interest or interests give it a controlling financial interest in a variable interest entity. The primary beneficiary of a variable interest entity is the enterprise that has both (1) the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance, and (2) the obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity. The guidance also requires ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. The guidance was effective for Versant beginning November 1, 2010. The adoption of this guidance had no material impact on the Company’s consolidated financial statements.

Multiple-Deliverable Revenue Arrangements

In October 2009, new guidance was issued by the FASB related to the revenue recognition of multiple element arrangements. The new guidance states that if vendor specific objective evidence, or third party evidence, of fair value for deliverables in an

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arrangement cannot be determined, companies will be required to develop a best estimate of the selling price for separate deliverables and allocate arrangement consideration using the relative selling price method. The new guidance is effective for Versant for revenue arrangements entered into or materially modified beginning on November 1, 2010. The adoption of this guidance had no material impact on the Company’s consolidated financial statements.

Revenue Recognition for Certain Arrangements that Include Software Elements

In October 2009, new guidance was issued by FASB related to certain revenue arrangements that include software elements. Previously, companies that sold tangible products with “more than incidental” software were required to apply software revenue recognition guidance. This guidance often delayed revenue recognition for the delivery of the tangible product. Under the new guidance, tangible products that have software components that are “essential to the functionality” of the tangible product will be excluded from the software revenue recognition guidance. The new guidance includes factors to help companies determine what is “essential to the functionality.” Software-enabled products will now be subject to other revenue guidance and will likely follow the guidance for multiple deliverable arrangements issued by the FASB in October 2009. The new guidance was effective for Versant for revenue arrangements entered into or materially modified beginning on November 1, 2010. The adoption of this guidance had no material impact on the Company’s consolidated financial statements.

Revenue Recognition — Milestone Method

In April 2010, the FASB issued guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate for research and development arrangements. A vendor can recognize consideration that is contingent upon achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. The guidance was effective for Versant beginning November 1, 2010. The adoption of this guidance had no material impact on the Company’s consolidated financial statements.

Receivables Disclosure

In July 2010, the FASB issued guidance which amends ASC 310, Receivables. This Accounting Standards Update (“ASU”) requires disclosures related to financing receivables and the allowance for credit losses by portfolio segment. The ASU also requires disclosures of information regarding the credit quality, aging, nonaccrual status and impairments by class of receivable. Trade accounts receivable with maturities of one year or less are excluded from the disclosure requirements. The effective date for disclosures as of the end of the reporting period was the first quarter of our fiscal year 2011. The effective date for disclosures for activity during the reporting period is the second quarter of our fiscal year 2011. The adoption of this guidance had no material impact on the Company’s consolidated financial statements.

Interactive Data Reporting

In January 2009, the SEC issued Release No. 33-9002, Interactive Data to Improve Financial Reporting. The final rule requires companies to provide their financial statements and financial statement schedules to the SEC and on their corporate websites in interactive data format using the eXtensible Business Reporting Language (“XBRL”). The rule was adopted by the SEC to improve the ability of financial statement users to access and analyze financial data. The SEC adopted a phase-in schedule indicating when registrants must furnish interactive data. Under this schedule, the Company is required to submit filings with financial statement information using XBRL commencing with this quarterly report on Form 10-Q for the quarter ended July 31, 2011.

Recent Accounting Pronouncements Not Yet Adopted

Goodwill Impairment Testing

In December 2010, the FASB issued guidance which amends ASC 350, Intangibles - Goodwill and Other. This Accounting Standards Update amends the criteria for performing Step 2 of the goodwill impairment test for reporting units with zero or negative carrying amounts and requires performing Step 2 if qualitative factors indicate that it is more likely than not that a goodwill impairment exists. This guidance is effective for fiscal years beginning after December 15, 2011 (November 1, 2012 for the Company). The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

Presentation of Comprehensive Income

In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income. The issuance of ASU 2011-5 is

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intended to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. The guidance in ASU 2011-5 supersedes the presentation options in ASC Topic 220 and facilitates convergence of U.S. generally accepted accounting principles and International Financial Reporting Standards by eliminating the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity and requiring that all non-owner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance will be appliedretrospectively and early adoption is permitted. This guidance is effective for fiscal years and interim periods within those years, beginning after December 15, 2011 (November 1, 2012 for the Company). The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

Note 2. Fair Value Measurements

Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures, defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market for the transaction and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.

The FASB guidance also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of inputs that may be used to measure fair value are as follows:

• Level 1: quoted prices in active markets for identical assets or liabilities;

• Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not

active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or

• Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Financial Assets Measured at Fair Value on a Recurring Basis

Our significant financial assets measured at fair value on a recurring basis consisted of the following types of instruments as of July 31, 2011 (Level 1, 2 and 3 inputs are defined above):

	Fair Value Measurements Using Input Type
	Level 1		Level 2		Level 3
	(in thousands)
Assets:
Money market funds	$	14,315	$	—	$	—
Time deposits	7,621		—		—
Total	$	21,936	$	—	$	—

The fair value of money market funds and time deposits reflect quoted market prices in an active market.

Note 3. Valuation and Qualifying Accounts and Reserves

Versant evaluates and revises its allowance for doubtful accounts receivable as part of its quarter end process at the subsidiary and corporate level. The Company’s management assigns a risk factor and percentage of risk to each account receivable, the collection of which is considered non-routine. Accounts are considered past due in accordance with contractual terms which usually provide for payment within 30 to 90 days. The Company also assigns a general reserve to all its overdue accounts, excluding the non-routine items.

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The following table summarizes the activities in the Company’s allowance for doubtful accounts:

	Nine Months Ended		Fiscal Year Ended
	July 31, 2011		October 31, 2010
	(in thousands)
Allowance for doubtful accounts:
Beginning balance	$	8	$	36
Adjustments to provision	9		(28		)
Ending balance	$	17	$	8

Note 4. Acquisitions, Goodwill and Intangible Assets

db4o

On December 1, 2008, the Company acquired the assets of the database software business of privately-held Servo Software, Inc. or “Servo” (formerly known as db4objects, Inc.) pursuant to an asset purchase agreement between Versant and Servo dated December 1, 2008 (the “db4o Purchase Agreement”). Versant uses the db4o assets to provide an open source object database software solution targeting the embedded device market.

The total purchase price for the db4o assets was $2.6 million and consisted of the following:

a) Initial cash payment of $2.1 million made in December 2008;

b) Direct transaction costs of $183,000; and

c) Contingent deferred payments of $280,000.

Under the terms of the db4o Purchase Agreement, in consideration of its acquisition of the assets of the db4o business, Versant paid Servo the above-mentioned closing payment of $2.1 million in cash, agreed to pay up to a maximum of an additional $300,000 payable in three contingent deferred payments of up to $100,000 each during the 18-month period immediately following the December 1, 2008 acquisition date and assumed certain liabilities of Servo under certain contracts included among the db4o assets. The three contingent deferred payments of up to $100,000 each were payable six months, twelve months and eighteen months, respectively, following the December 1, 2008 acquisition date. The Company made the first contingent deferred payment of $100,000 to Servo on May 29, 2009, the second payment of $90,000 on November 30, 2009 and the third payment of $90,000 on May 28, 2010.

The total purchase price for the db4o assets was allocated to db4o’s net tangible and identifiable intangible assets based on their estimated fair values as of the acquisition date, with the excess of the purchase price over these aggregate fair values recorded as goodwill. The fair value assigned to identifiable intangible assets acquired is determined using the income approach, which values each intangible asset based upon its estimated impact on the Company’s expected future after-tax cash flows and discounts the net changes in the Company’s expected future after-tax cash flows to present value. The discount was based on an analysis of the weighted-average cost of capital for the industry.

The Company’s allocation of the purchase price for the db4o assets and liabilities is summarized below (in thousands):

Tangible net assets acquired	$	84
Customer relationships	210
Developed technology	300
Trade name	100
Goodwill	1,869
Total	$	2,563

Purchased identifiable intangible assets are amortized on a straight-line basis over their useful lives. The estimated useful economic lives of the acquired customer relationships, developed technology and trade name are nine, five and five years, respectively. The weighted average amortization period of the db4o intangible assets is 6.4 years.

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Goodwill

The following table presents the Company’s goodwill balance as of July 31, 2011 and October 31, 2010 (in thousands):

	Net Carrying Amount
Goodwill:
Versant Europe	$	241
Poet Holdings, Inc.	5,752
FastObjects, Inc.	677
JDO Genie (PTY), Ltd	50
db4o	1,869
Total	$	8,589

Goodwill is subject to at least an annual assessment for impairment, applying a fair-value based test. Versant conducted its annual impairment test in October 2010 and determined there was no impairment.

The goodwill acquired in the db4o acquisition will be deductible for tax purposes based upon a 15 year tax life.

Intangible Assets

The Company’s intangible asset balances as of July 31, 2011 and October 31, 2010 are as follows (in thousands):

	July 31, 2011						October 31, 2010
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Intangible assets:
Poet Holdings, Inc.- Developed Technology & Customer Relationships (Amortized over 7 years)	$	1,919	$	1,919	$	—	$	1,919	$	1,832	$	87
db4o-Developed Technology (Amortized over 5 years)	300		160		140		300		115		185
db4o-Customer Relationships (Amortized over 9 years)	210		62		148		210		44		166
db4o-Trade Name (Amortized over 5 years)	100		54		46		100		39		61
Total	$	2,529	$	2,195	$	334	$	2,529	$	2,030	$	499

Aggregate amortization expense for intangible assets was $26,000 and $164,000, respectively, for the three and nine months ended July 31, 2011, and $76,000 and $230,000, respectively, for the three and nine months ended July 31, 2010.

The projected amortization of the Company’s existing intangible assets as of July 31, 2011 is as follows (in thousands):

	Amortization
Three months ending October 31, 2011	$	26
Fiscal year ending October 31,
2012	104
2013	103
2014	30
2015	23
Thereafter	48
Total	$	334

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Note 5.  Commitments and Contingencies

Lease commitments

Versant’s principal commitments as of July 31, 2011 consist of obligations under operating leases for facilities and equipment.

Versant leases office space for its U.S. headquarters in Redwood City, California and also leases field office space in Hamburg and Munich, Germany under multi-year operating lease agreements. The Company's operating lease arrangements as of July 31, 2011 are summarized below:

Leased Office Facility:	Lease Expiration Date	Total Rent Payable over the Remaining Lease Term		Options to Renew at Fair Value
Hamburg, Germany	11/30/2014	$	605,000	Two three year renewal options
Redwood City, California	5/31/2013	$	373,000	Single one year renewal option
Munich, Germany	2/28/2014	$	73,000	Single two year renewal option

Our minimum commitments under non-cancelable operating leases as of July 31, 2011 are as follows (in thousands): 

	Facilities Leases		Equipment Leases		Total
Three months ending October 31, 2011	$	102	$	1	$	103
Fiscal year ending October 31,
2012	412		5		417
2013	331		3		334
2014	191				191
2015	15				15
Total	$	1,051	$	9	$	1,060

Contingencies

The Company is subject to various legal proceedings and disputes that arise in the ordinary course of business from time to time. There were no ongoing material legal proceedings as of July 31, 2011.

The Company enters into indemnification agreements in the ordinary course of business. The Company's license agreements with customers generally require it to indemnify the customer against claims that its software infringes third party patent, copyright, trademark or other proprietary rights. Such indemnification obligations are generally limited in a variety of industry-standard respects. If a liability associated with any of the Company's indemnifications becomes probable and the amount of the liability is reasonably estimable or the minimum amount of a range of loss is reasonably estimable, then an appropriate liability will be established. The estimated fair value of these indemnification clauses is minimal.

Note 6. Per Share Data

Basic and diluted net income per common share has been computed using the weighted average number of shares of common stock outstanding during the period, less shares subject to repurchase. The following table presents the calculation of basic and diluted net income per share (in thousands, except per share amounts):

	Three Months Ended				Nine Months Ended
	July 31,		July 31,		July 31,		July 31,
	2011		2010		2011		2010
Net income	$	474	$	130	$	398	$	733
Calculation of basic net income per share:
Weighted average - common shares outstanding	3,021		3,375		3,122		3,468
Net income per share, basic	$	0.16	$	0.04	$	0.13	$	0.21

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	Three Months Ended				Nine Months Ended
	July 31,		July 31,		July 31,		July 31,
	2011		2010		2011		2010
Net income	$	474	$	130	$	398	$	733
Calculation of diluted net income per share:
Weighted average - common shares outstanding	3,021		3,375		3,122		3,468
Dilutive effect of employee and director stock options	—		28		1		36
Weighted average - common shares outstanding and potentially dilutive common shares	3,021		3,403		3,123		3,504
Net income per share, diluted	$	0.16	$	0.04	$	0.13	$	0.21

For the three months ended July 31, 2011 and 2010, 341,000 and 416,000 potentially dilutive shares, respectively, were excluded from the computation of diluted net income per share by the application of the treasury stock method. For the nine months ended July 31, 2011 and 2010, 355,000 and 347,000 potentially dilutive shares, respectively, were excluded from the computation of diluted net income per share by the application of the treasury stock method.

Note 7. Common Stock Repurchases

Fiscal 2011 Stock Repurchase Program.

On November 29, 2010 Versant’s Board of Directors approved a new stock repurchase program pursuant to which Versant is authorized to repurchase up to $5.0 million of its common stock in fiscal year 2011. This stock repurchase program is currently scheduled to expire upon the earlier of October 31, 2011, or such time as Versant has expended $5.0 million to repurchase outstanding common shares under the program; however the program may be suspended, discontinued or extended at any earlier time by the Company.

From the date of announcement of this stock repurchase program through July 31, 2011, Versant acquired under this program a total of 221,487 common shares on the open market for approximately $2.7 million at an average purchase price of $12.33 per share, leaving approximately $2.3 million in authorized funds available for future repurchases of stock under this program.

Fiscal 2010 Stock Repurchase Program.

On November 30, 2009, Versant’s Board of Directors approved a stock repurchase program authorizing Versant to repurchase up to $5.0 million of its outstanding common shares on the open market, in block trades or otherwise. This stock repurchase program expired by its terms on October 31, 2010. Pursuant to this program, Versant acquired 356,104 common shares on the open market and in block trades for approximately $4.3 million at an average purchase price of $12.06 per share.

Other Stock Repurchase

On March 10, 2011, Versant and the Company’s then Chief Executive Officer ("Former CEO") entered into a separation agreement (the “Separation Agreement”). On March 28, 2011, pursuant to the Separation Agreement, Versant repurchased 62,545 shares of Versant common stock owned by the Former CEO at a price of $13.50 per share, which reflected recent market trading prices of Versant’s common stock as of the date of the Separation Agreement.

Note 8. Employee and Director Benefit Plans

The Company grants common stock options under its 2005 Equity Incentive Plan and its 2005 Directors' Stock Option Plan and issues stock under its 2005 Employee Stock Purchase Plan, which plans have been approved by Versant's shareholders.

Shares Reserved for Future Issuance

At the Company's 2011 annual shareholder meeting, held on April 18, 2011, the shareholders approved an increase of 300,000

12

shares and 20,000 shares in the numbers of shares reserved under the Company's 2005 Equity Incentive Plan and 2005 Directors' Stock Option Plan, respectively.

The Company has reserved shares of common stock for the following purposes (in thousands):

Reserved for issuance:
Employee stock purchase plan	30
Stock options available for grant	350
Unexercised stock options	647
Balance as of July 31, 2011	1,027

The following table summarizes stock option activities under the Company’s equity-based compensation plans during the nine months ended July 31, 2011 and 2010:

	Nine Months Ended July 31,
	2011				2010
	Shares in thousands		Weighted average exercise price		Shares in thousands		Weighted average exercise price
Stock option activity:
Outstanding at the beginning of the period	515		$	16.84	386		$	18.45
Granted	165		11.96		148		18.15
Exercised	(7	)	4.03		(3	)	10.85
Forfeited and expired	(26	)	26.98		(27	)	38.56
Outstanding at the end of the period	647		$	15.31	504		$	17.32
Options exercisable at the end of the period	442		$	16.06	310		$	17.40

Note 9. Share Based Compensation

Under the fair value recognition guidance of ASC 718, Compensation — Stock Compensation, share based compensation cost is estimated at the grant date based on the fair value of the award and is recognized as expense over the requisite service period of the award. The fair value of each option granted is estimated on the date of grant and the fair value of each share issued under Versant’s Employee Stock Purchase Plan (or “ESPP”) is estimated at the beginning of the purchase period, using the Black-Scholes Option Pricing Model, based on the following weighted average assumptions:

	Stock Options		ESPP
	Nine Months Ended July 31,		Nine Months Ended July 31,
	2011	2010	2011	2010
Assumptions:
Volatility	46% - 53%	53% - 56%	23% - 31%	33% - 42%
Expected life	3.6 - 5.5 years	3.3 - 3.6 years	6 - 12 months	6 - 12 months
Weighted average risk-free interest rate	1.36% - 1.95%	1.43% - 1.87%	0.10% - 0.28%	0.15% - 0.35%
Dividend yield	—	—	—	—

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Share based compensation expense recognized in the condensed consolidated statements of income related to the Company’s stock option plans and the ESPP was as follows (in thousands):
	Three Months Ended					Nine Months Ended
	July 31,		July 31,			July 31,		July 31,
	2011		2010			2011		2010
Share based compensation expense:
Stock options	$	231	$	259		$	727	$	796
ESPP	13		(4		)	41		32
Total	$	244	$	255		$	768	$	828

Share based compensation recognized in the condensed consolidated statements of income, by income statement caption, was as follows (in thousands):
	Three Months Ended				Nine Months Ended
	July 31,		July 31,		July 31,		July 31,
	2011		2010		2011		2010
Share based compensation expense:
Cost of revenues	$	15	$	14	$	48	$	59
Sales and marketing	67		50		193		171
Research and development	50		52		154		175
General and administrative	112		139		373		423
Total	$	244	$	255	$	768	$	828

Note 10. Restructuring

In the fourth quarter of fiscal year 2009, the Company committed to the implementation of a restructuring plan pursuant to which it closed its research and development facility in Pune, India and is winding down the affairs of its subsidiary, Versant India Private Limited (“Versant India”). The restructuring plan was undertaken to consolidate the Company’s research and development efforts into one location in Germany in order to streamline operations, create management efficiencies and increase productivity. Since the plan was undertaken, Versant has incurred restructuring costs of $203,000 as of July 31, 2011. The restructuring was substantially completed during the second quarter ended April 30, 2010.

The following table reflects the type and amount of these restructuring charges (accrual reversal) included in operating expenses for the three and nine months ended July 31, 2011 and 2010 (in thousands):
	Three Months Ended				Nine Months Ended
	July 31,		July 31,		July 31,		July 31,
	2011		2010		2011		2010
Restructuring:
Severance, retention and related charges	$	—	$	—	$	—	$	38
Impairment of fixed assets	20		—		20		2
Impairment to other assets	5		—		5		(29		)
Contract termination costs	—		—		—		8
Other direct costs of closure	—		—		—		20
	$	25	$	—	$	25	$	39

Note 11. Income Taxes

The Company accounts for income taxes pursuant to the provisions of ASC 740, Income Taxes, which requires an asset and liability approach to accounting for income taxes. Deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and the tax basis of assets and liabilities and are measured using the enacted statutory tax rates in effect at the balance sheet date. The Company records a valuation allowance to reduce its deferred tax assets when uncertainty exists regarding the realizability of the deferred tax assets. The Company had net deferred tax assets of

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$913,000 and $884,000 as of July 31, 2011 and October 31, 2010, respectively.

The Company has significant deferred tax assets arising primarily from net operating loss ("NOL") carry forwards in the U.S., California and in Germany. Ultimately, the realization of the deferred tax assets is dependent upon the Company’s generation of sufficient future taxable income to enable it to use net operating loss and tax credit carry forwards during those periods in which such carry forwards can be utilized by the Company. In evaluating Versant’s ability to utilize its deferred tax assets, management of the Company considers all available positive and negative evidence, including past operating results in the most recent fiscal years and an assessment of expected future results of operations on a jurisdiction by jurisdiction basis.

The Company has experienced substantial past tax losses in its U.S. operations. Due to the lack of forecast future taxable income and the relative size of the Company’s Federal and California net operating loss carry forwards, considerable uncertainty exists that the Company will realize these deferred tax assets. Based on this objective evidence, a full valuation allowance has been recorded against the Company’s deferred tax assets related to its U.S. operations.

The Company has also experienced substantial past tax losses in its European operations. In its most recent fiscal years, the Company has generated taxable income and begun to utilize its deferred tax assets related to its German net operating loss carry forwards. Management of the Company has forecast taxable income for its European operations in fiscal 2011. The global economic downturn has negatively impacted the Company’s operating results in all regions.  The Company has experienced declining revenues as economic conditions have remained difficult. Given the uncertainty of the macroeconomic environment, future revenues and operating results are difficult to forecast. Therefore, management has concluded it is more likely than not that the Company will realize the benefit of its deferred tax assets related to its German net operating loss carry forwards only to the extent of its expected taxable income in fiscal 2011.

Significant management judgment is required to determine when, in the future, it will become more likely than not that additional net deferred tax assets will be realized. Management will continue to assess the realizability of the tax benefit available based on actual and forecast operating results. Management does not anticipate significant changes to its uncertain tax positions through October 31, 2011.

The provision for income tax expense was $55,000 and $114,000 for the three months ended July 31, 2011 and 2010, respectively, and $93,000 and $454,000 for the nine months ended July 31, 2011 and 2010, respectively. The provision for income tax expense differs from the amount estimated by applying the statutory federal income tax rate to income before taxes, primarily due to foreign income taxed at other than U.S. rates, foreign withholding taxes and state taxes.

The Company is 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, the Company is no longer subject to U.S. federal, state and local, or foreign tax examinations by tax authorities for tax years before 2005. However, with respect to tax years no longer subject to examination due to expiration of the statute of limitations, income may nevertheless be recomputed for the purpose of determining the amount of NOL that may be carried over to “open” years.

The Company recognizes interest and penalties accrued related to unrecognized tax benefits in the provision for income taxes for all periods presented, which were not significant.

Note 12. Other Comprehensive Income

Accumulated other comprehensive income presented in the accompanying condensed consolidated balance sheets consists of cumulative foreign currency translation adjustments.

Comprehensive income for the three and nine month periods ended July 31, 2011 and 2010 was as follows (in thousands):
	Three Months Ended						Nine Months Ended
	July 31,			July 31,			July 31,		July 31,
	2011			2010			2011		2010
Net income, as reported	$	474		$	130		$	398	$	733
Foreign currency translation adjustment	(93		)	(51		)	65		(549		)
Comprehensive income	$	381		$	79		$	463	$	184

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Note 13. Segment and Geographic Information

ASC 280, Segment Reporting establishes standards for the manner in which public companies report information about operating segments in annual and interim financial statements which require the reporting of segment information using the “management approach.” Under this approach, operating segments are identified in substantially the same manner as they are reported internally and used by the Company’s chief operating decision maker (“CODM”) for purposes of evaluating performance and allocating resources. Based on this approach, the Company has determined that it operates in a single operating segment, Data Management.

One health care customer accounted for approximately 11% of our total revenues in the three months ended July 31, 2011 and had no accounts receivable balance as of July 31, 2011. In addition, the aggregate revenues of one telecommunications customer accounted for approximately 11% of our total revenues in the three months ended July 31, 2011 and 10% of our total revenues in the nine months ended July 31, 2011. The related accounts receivable balance for this customer was approximately $255,000 as of July 31, 2011.  

In aggregate, the revenues generated by all projects in all locations of a telecommunications customer accounted for approximately 15% of total revenues in the three months ended July 31, 2010 and 13% of total revenues in the nine months ended July 31, 2010. The related accounts receivable balance for this customer was approximately $402,000 as of July 31, 2010.

The Company operates in North America, Europe and Asia. In general, revenues are attributed to the country in which the revenue-bearing contract originates.

The following table reflects revenues for the three and nine months ended July 31, 2011 and 2010 by each geographic region (in thousands):

	Three Months Ended				Nine Months Ended
	July 31,		July 31,		July 31,		July 31,
	2011		2010		2011		2010
Revenues by region:
North America	$	1,953	$	1,396	$	4,941	$	4,401
Europe	1,950		1,918		6,756		6,365
Asia	301		110		596		628
	$	4,204	$	3,424	$	12,293	$	11,394

 The following table reflects long-lived assets as of July 31, 2011 and October 31, 2010 in each geographic region (in thousands):

	July 31, 2011		October 31, 2010
Total long-lived assets by region:
North America	$	401	$	127
Germany	643		506
Asia	6		39
	$	1,050	$	672

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Item 2 and the discussion and analysis included in this item should be read in conjunction with the Company’s financial statements and accompanying notes included in this report and the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2010 filed with the SEC on January 31, 2011. Our historic operating results are not necessarily indicative of results that may occur in future periods.

The following discussion and analysis contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. These forward-looking statements include, among other things, statements regarding the Company’s expected future financial performance, assets, liquidity and trends anticipated for the Company’s business. These statements are based on the Company’s current expectations, assumptions, estimates and projections about the Company’s business and the Company’s industry, which in turn are based on information that is reasonably available to the Company as of the date of this report. Forward-looking statements may include, without limitation, words such as “believes,” “anticipates,” “expects,” “intends,” “plans,” “will,” “may,” “should,” “estimates,” “predicts,” “forecasts,” “guidance,” “potential,” “continue” or the negative of such terms or other similar expressions. We caution readers that these forward-looking statements are not intended to be assurances of our future performance or financial condition and are subject to, and involve, significant known and unknown risks, uncertainties and other factors that may cause the Company’s actual operating results, financial condition, levels of activity, performance or achievement to be materially different from any future operating results, financial condition, levels of activity, performance or achievements that are expressed, forecast, projected, implied in, anticipated or contemplated by the forward-looking statements.  These known and unknown risks, uncertainties and other factors include, but are not limited to, those risks, uncertainties and factors discussed elsewhere in this report, in the Company’s other SEC filings and in Part I, Item 1A (“Risk Factors”) and in Part II, Item 7 (“Management’s Discussion and Analysis of Financial Condition and Results of Operations”) of the Company’s report on Form 10-K for the fiscal year ended October 31, 2010. Versant undertakes no obligation to revise or update any forward-looking statement in order to reflect events or circumstances that may arise or occur after the date of this report.

Background and Overview

We are a leading provider of object-oriented data management software that forms a critical component of the infrastructure of enterprise computing. We design, develop, market and support high performance, object-oriented database management solutions 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 and services with a significant competitive edge.

Our Data Management business is currently comprised of the following key products:

• Versant Object Database or “VOD”, previously known as VDS, an eighth generation object-oriented database management system that is used in high-performance, large-scale, real-time commercial applications in distributed computing environments. We also offer several optional ancillary products for use with Versant Object Database to extend its capabilities, and 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.

• db4o, an open source object-oriented database software solution targeting the embedded device market.

 Our Versant Object Database product and ancillary offerings are used primarily by larger organizations, such as telecommunications carriers, health care companies, technology providers, government defense agencies and defense contractors and companies in the transportation and financial services industries, each of which have significant large-scale data management requirements. Our FastObjects solution extends the scope of our solutions to also address the data management needs of smaller business systems. By our acquisition of db4o, we further expanded the scope of our solutions to include the embedded market.

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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 and can be adapted for use with many different applications. In addition to our product offerings, we provide maintenance and technical support services to assist users in using our products. We also offer a variety of consulting and training services to assist users in developing and deploying applications based on Versant Object Database, FastObjects and db4o solutions. 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, including db4o;

• 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 statements of income.

Negative and Uncertain Global Economic Conditions Are Continuing to Impact Our Business

Global economic developments like the recent recessions and debt crises in the U.S. and Europe have continued to adversely effect the enterprise software market. Economic growth in the U.S. and many other countries has remained very slow and the length of time these adverse economic conditions may persist is unknown. Our business has been negatively affected by these ongoing worldwide economic conditions. It is unclear when or to what extent the macroeconomic environment may improve. During the first nine months of fiscal 2011, our selling environment remained very challenging. We are seeing continuing pressures on our customers’ budgets, and as they are facing uncertainty and cost pressures in their own businesses, some of our customers are deferring purchases of our products or electing less expensive levels of our maintenance services. The current difficult and uncertain economic conditions are causing some of our customers to face financial challenges and they may continue to face such challenges for the foreseeable future. The current economic uncertainty could continue to harm our business, operating results and financial condition in the foreseeable future.

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 industry trends, 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 our 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.

During the first nine months of fiscal 2011, there were no significant changes in our critical accounting policies and estimates. Please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for our fiscal year ended October 31, 2010, filed with the SEC on January 31, 2011 (File/Film No. 000-28540/11559912) for a more complete discussion of our critical accounting policies and estimates.

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Results of Operations The following table sets forth, for the periods indicated, the percentage relationship of certain items from our condensed consolidated statements of income to total revenues:
	Three Months Ended				Nine Months Ended
	July 31,		July 31,		July 31,		July 31,
	2011		2010		2011		2010
Revenues:
License	56	%	48	%	55	%	51	%
Maintenance	43		51		44		48
Professional services	1		1		1		1
Total revenues	100		100		100		100
Cost of revenues:
License	2		2		1		2
Amortization of intangible assets	1		2		1		2
Maintenance	9		10		9		10
Professional services	—		—		—		—
Total cost of revenues	12		14		11		14
Gross profit	88		86		89		86
Operating expenses:
Sales and marketing	31		34		34		31
Research and development	25		24		24		25
General and administrative	19		22		25		21
Restructuring	1		—		—		—
Total operating expenses	76		80		83		77
Income from operations	12		6		6		9
Interest and other income (expense), net	1		1		—		1
Income before provision for income taxes	13		7		6		10
Provision for income taxes	1		3		1		4
Net income	12	%	4	%	5	%	6	%

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Revenues

The following table summarizes license, maintenance and professional services revenues for the three and nine months ended July 31, 2011 and 2010 (in thousands, except percentages):

	Three Months Ended
	July 31,		July 31,		Change
	2011		2010		Amount			Percentage
	(unaudited)
Revenues:
License	$	2,344	$	1,634	$	710		43	%
Maintenance	1,821		1,757		64			4
Professional services	39		33		6			18
Total	$	4,204	$	3,424	$	780		23	%
	Nine Months Ended
	July 31,		July 31,		Change
	2011		2010		Amount			Percentage
	(unaudited)
Revenues:
License	$	6,758	$	5,787	$	971		17	%
Maintenance	5,396		5,534		(138		)	(2	)
Professional services	139		73		66			90
Total	$	12,293	$	11,394	$	899		8	%

Total Revenues. 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 economic and industry conditions, product and customer mix, general trends in information technology spending, changes in geographic mix, and the corresponding impact of changes in foreign currency exchange rates. Further, product life cycles impact revenues periodically as old contracts expire and new products are released. In addition, delays in forecast revenue transactions with customers or royalty reporting to us of items such as back maintenance charges, can cause revenue fluctuations, particularly on a quarterly basis.

Our total revenues for the three months ended July 31, 2011 increased approximately $780,000 (or 23%) when compared to the corresponding period in fiscal 2010. This resulted primarily from an approximate $710,000 (or 43%) increase in license revenues. Total revenues also reflected approximately $296,000 of favorable foreign currency exchange rate fluctuations.

Our total revenues increased by $899,000 (or 8%) for the nine months ended July 31, 2011 compared to the corresponding period in fiscal 2010. This increase resulted primarily from an approximate $971,000 (or 17%) increase in license revenues and an approximate $66,000 (or 90%) increase in professional services revenues, partially offset by an approximate $138,000 (or 2%) decrease in maintenance revenues for the nine months ended July 31, 2011 compared to the corresponding period in fiscal 2010. Total revenues for the nine months ended July 31, 2011 also included approximately $226,000 of favorable foreign currency exchange rate fluctuations.

One health care customer accounted for approximately 11% of our total revenues in the three months ended July 31, 2011 . In addition, the aggregate revenues generated by a telecommunications customer accounted for approximately 11% of our total revenues in the three months ended July 31, 2011 and approximately 10% of our total revenues in the nine months ended July 31, 2011.

In aggregate, the revenues generated by a telecommunications customer accounted for approximately 15% of total revenues in the three months ended July 31, 2010 and approximately 13% of total revenues in the nine months ended July 31, 2010.

The inherently unpredictable business cycle of an enterprise software company makes discernment of continued and meaningful business trends difficult, particularly in the current uncertain economic environment. In terms of license revenues,

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we are still experiencing lengthy sales cycles and customer 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. In addition, the stagnation in general economic conditions has further lengthened our sales cycle and created increased pricing pressure as many customers strive to reduce their operating costs. License revenues are also a critical 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 over future fiscal periods. As customers endeavor to control costs, the Company may experience lower rates of maintenance contract renewal as well as migration from premium support options to less expensive support levels, which would adversely affect the levels of our maintenance revenues.

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

License revenues were $2.3 million for the three months ended July 31, 2011, an increase of $710,000 (or 43%) from $1.6 million reported for the comparable period in fiscal 2010. The increase in license revenues resulted primarily from a greater number of relatively larger license transactions in our North American operations in the quarter as well as a modest increase globally in the value of the average license transaction. License revenues for the three months ended July 31, 2011 included an approximate $159,000 increase resulting from favorable foreign currency exchange rate fluctuations.

License revenues were $6.8 million for the nine months ended July 31, 2011, an increase of $971,000 (or 17%) from $5.8 million reported for the comparable period in fiscal 2010. The increase in license revenues resulted primarily from a modest increase in average license volume per customer and an increase in relatively larger transactions primarily in our North American operations. License revenues for the nine months ended July 31, 2011 included an approximate $111,000 increase resulting from favorable foreign currency exchange rate fluctuations.

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

Maintenance revenues were $1.8 million for the three months ended July 31, 2011, an increase of $64,000 (or 4%) from $1.8 million reported for the comparable period in fiscal 2010. The increase in maintenance revenues resulted primarily from an approximate $134,000 increase in favorable foreign currency exchange rate fluctuations and an approximate $66,000 increase due to back maintenance recognized in the current quarter. These increases were partially offset by an approximate $105,000 decrease resulting from certain customers electing less expensive support and maintenance options.

Maintenance revenues were $5.4 million for the nine months ended July 31, 2011, a decrease of $138,000 (or 2%) from $5.5 million reported for the comparable period in fiscal 2010. The decrease in maintenance revenues resulted primarily from an approximate $303,000 decrease occasioned by certain customers electing less expensive support and maintenance options and an approximate $187,000 decrease attributable to non-renewal of maintenance contracts by certain customers. These decreases were partially offset by an approximate $165,000 increase related to back maintenance revenues derived from one North American customer, an approximate $77,000 increase created by new maintenance contracts and an approximate $116,000 increase resulting from favorable foreign currency exchange rate fluctuations during the nine months ended July 31, 2011 compared to the corresponding period in fiscal 2010.

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 $39,000 for the three months ended July 31, 2011, an increase of $6,000 (or 18%) from $33,000 reported for the comparable period in fiscal 2010. Professional services revenues were $139,000 for the nine months ended July 31, 2011, an increase of $66,000 (or 90%) from $73,000 reported for the comparable period in fiscal 2010. The increase in professional services revenues for the nine months ended July 31, 2011 resulted primarily from a consulting engagement with one European customer for approximately $53,000.

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International Revenues. The following table summarizes our revenues by geographic area for the three and nine months ended July 31, 2011 and 2010 (in thousands, except percentages):

	Three Months Ended July 31,
			Percentage				Percentage		Change
	2011		of revenues		2010		of revenues		Amount			Percentage
	(unaudited)
Revenues by region:
North America	$	1,953	46	%	$	1,396	41	%	$	557		40	%
Europe	1,950		46		1,918		56		32			2
Asia	301		8		110		3		191			174
	$	4,204	100	%	$	3,424	100	%	$	780		23	%
	Nine Months Ended July 31,
			Percentage				Percentage		Change
	2011		of revenues		2010		of revenues		Amount			Percentage
	(unaudited)
Revenues by region:
North America	$	4,941	40	%	$	4,401	39	%	$	540		12	%
Europe	6,756		55		6,365		56		391			6
Asia	596		5		628		6		(32		)	(5	)
	$	12,293	100	%	$	11,394	100	%	$	899		8	%

Total revenues increased approximately $780,000 (or 23%) in the three months ended July 31, 2011 compared to the corresponding period of fiscal 2010. The increase in total revenues was primarily due to an approximate $557,000 (or 40%) increase in North American revenues and an approximate $191,000 (or 174%) increase in revenues from Asia. The increases in North American and Asia Pacific revenues in this period resulted primarily from increased license revenues. Total revenues for the three months ended July 31, 2011 also included approximately $296,000 in favorable foreign currency exchange rate fluctuations, which are primarily connected with our European operations. Each region’s revenue as a percentage of total revenue varies from quarter to quarter as a result of the transactions specific to that region in each quarter and does not necessarily reflect a trend.

Our total revenues increased by $899,000 (or 8%) for the nine months ended July 31, 2011 compared to the corresponding period in fiscal 2010. The increase in total revenues was principally due to an approximate $540,000 (or 12%) increase in North American revenues and an approximate $391,000 (or 6%) increase in revenues from Europe which were partially offset by approximate $32,000 (or 5%) decrease in revenues generated in the Asia Pacific region. The increases in revenues generated in North America and Europe during the nine months ended July 31, 2011 were primarily a result of increased license revenues. Total revenues for the nine months ended July 31, 2011 also included approximately $226,000 in favorable foreign currency exchange rate fluctuations, which are primarily connected with our European operations.

International revenues (revenues from the European and Asian regions) represented approximately 54% of our total revenues for the three months ended July 31, 2011, as compared to 59% for the comparable period in fiscal 2010.

International revenues (revenues from the European and Asian regions) represented approximately 60% of our total revenues for the nine months ended July 31, 2011, as compared to 61% for the comparable period in fiscal 2010.

Revenues from North America. The $557,000 (or 40%) revenue increase from North America in the three months ended July 31, 2011 was primarily the result of an increase in license revenues, while services revenues from this region decreased slightly. The increase in license revenues was primarily due to a larger transaction with one significant health care customer.

Revenues from North America during the nine months ended July 31, 2011 increased approximately $540,000 (or 12% ) compared to the nine months ended July 31, 2010. The increase in total revenues originating in North America was principally a result of an increase in license revenues, while services revenues remained relatively stable. The increase in license revenues was primarily due to two transactions with two significant health care customers during the nine months ended July 31, 2011. Services revenues included back maintenance from a North American customer recognized in the first nine months of fiscal

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2011 which was offset by certain customers electing less expensive support and maintenance options and to non-renewal of maintenance contracts.

Revenues from Europe. Revenues from Europe increased $32,000 (or 2%) in the three months ended July 31, 2011, remaining relatively consistent with the comparable period in fiscal 2010. Services revenues generated in Europe decreased due to certain customers electing less expensive support and maintenance options, but this decrease was largely offset by back maintenance revenues recognized in the current quarter. Total revenues from Europe for the three months ended July 31, 2011 included an approximate $296,000 increase resulting from favorable foreign currency exchange rate fluctuations.

The $391,000 (or 6%) increase in European revenues for the nine months ended July 31, 2011, over the comparable period in fiscal 2010 was primarily due to an increase in license revenues resulting from larger average licensing volume per customer and was partially offset by a small decrease in service revenues. Total revenues from Europe for the nine months ended July 31, 2011, included an approximate $226,000 increase resulting from favorable foreign currency exchange rate fluctuations.

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

Revenues from Asia. Revenues from the Asia Pacific region increased $191,000 (or 174%) during the three months ended July 31, 2011 when compared to the three months ended July 31, 2010. This increase is primarily due to an increase in license revenues from a customer in Singapore. Total revenues from the Asia Pacific region during the nine months ended July 31, 2011 decreased approximately $32,000 (or 5%) when compared to the corresponding period of fiscal 2010.

A variety of factors may impact Versant’s future revenues, including the potential strengthening of the U.S. dollar (which would have the effect of reducing portions of our revenue resulting from favorable currency exchange fluctuations), the generally more difficult economic environment currently being experienced in the global economy, which may negatively impact demand for our products and services, and competitive market conditions.

Cost of Revenues

The following table summarizes total cost of revenues for the three and nine months ended July 31, 2011 and 2010 (in thousands, except percentages): 

	Three Months Ended
	July 31,		July 31,		Change
	2011		2010		Amount			Percentage
	(unaudited)
Cost of revenues:
License	$	66	$	60	$	6		10	%
Amortization of intangible assets	26		76		(50		)	(66	)
Maintenance	384		342		42			12
Professional services	26		17		9			53
Total	$	502	$	495	$	7		1	%

	Nine Months Ended
	July 31,		July 31,		Change
	2011		2010		Amount			Percentage
	(unaudited)
Cost of revenues:
License	$	199	$	216	$	(17	)	(8	)%
Amortization of intangible assets	164		230		(66		)	(29	)
Maintenance	1,111		1,098		13			1
Professional services	68		48		20			42
Total	$	1,542	$	1,592	$	(50	)	(3	)%

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Total Cost of Revenues. Total cost of revenues was $502,000 (or 12% of revenues) for the three months ended July 31, 2011 increasing slightly in absolute dollars and declining slightly as a percentage of revenues compared to $495,000 (or 14% of revenues) for the comparable period in fiscal 2010. Total cost of revenues for the nine months ended July 31, 2011 was $1.5 million (or 11% of revenues) decreasing $50,000 (or 3%) from $1.6 million (or 14% of revenues) for the comparable period in fiscal 2010.

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

Cost of license revenues was $66,000 (or 3% of license revenues) for the three months ended July 31, 2011, an increase of $6,000 (or 10%) from $60,000 (or 4% of license revenues) reported for the comparable period in fiscal 2010. Cost of license revenues was $199,000 (or 3% of license revenues) for the nine months ended July 31, 2011, a decrease of $17,000 (or 8%) from $216,000 (or 4% of license revenues) reported for the comparable period in fiscal 2010. This comparative decrease in the cost of license revenues in the nine months ended July 31, 2011 was primarily due to the increased costs in fiscal 2010 associated with the major release of Version 8 of the Versant Object Database in February 2010, which generated additional printing and other production costs in fiscal 2010.

Amortization of Intangible Assets. Amortization of intangible assets results from our fiscal 2009 acquisition of db4o and fiscal 2004 acquisitions of Poet Holdings, Inc. and FastObjects, Inc.

Amortization of intangible assets was $26,000 for the three months ended July 31, 2011, a decrease of $50,000 (or 66%) from $76,000 reported for the comparable period in fiscal 2010. Amortization of intangible assets was $164,000 for the nine months ended July 31, 2011, a decrease of $66,000 (or 29%) from $230,000 reported for the comparable period in fiscal 2010. The $50,000 and $66,000 decreases in amortization of intangible assets when comparing the three and nine months ended July 31, 2011 to the corresponding periods of fiscal 2010 were due to intangible assets related to Poet Holdings, Inc. and FastObjects, Inc. being fully amortized in the second quarter of fiscal 2011 and the third quarter of fiscal 2010, respectively. We expect to incur amortization charges of approximately $26,000 for the fourth quarter of fiscal 2011.

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

Cost of maintenance revenues was $384,000 (or 21% of maintenance revenues) for the three months ended July 31, 2011, an increase in both absolute dollars and as a percentage of maintenance revenues, compared to $342,000 (or 19% of maintenance revenues) reported for the comparable period in fiscal 2010. The increase in the cost of maintenance revenues for the three months ended July 31, 2011 over the corresponding period in fiscal 2010 is primarily related to an approximate $27,000 increase due to unfavorable foreign currency exchange rate fluctuations as well as an approximate $12,000 increase in personnel related costs.

Cost of maintenance revenues was $1.1 million (or 21% of maintenance revenues) for the nine months ended July 31, 2011, a slight increase in both absolute dollars and as a percentage of revenues, compared to slightly less than $1.1 million (or 20% of maintenance revenues) reported for the comparable period in fiscal 2010. The increase in the cost of maintenance revenues is primarily related to an approximate increase of $16,000 due to unfavorable foreign currency exchange rate fluctuations.

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 increased $9,000 to $26,000 (or 67% of professional services revenues) for the three months ended July 31, 2011 compared to $17,000 (or 52% of professional services revenues) reported for the comparable period in fiscal 2010. Cost of professional services revenues increased $20,000 to $68,000 (or 49% of professional services revenues) for the nine months ended July 31, 2011 compared to $48,000 (or 66% of professional services revenues) reported for the comparable period in fiscal 2010. Cost of professional services to provide training and consulting vary according to product mix, number of participants and travel arrangements.

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Operating Expenses

The following table summarizes our operating expenses for the three and nine months ended July 31, 2011 and 2010 (in thousands, except percentages):

	Three Months Ended
	July 31,		July 31,		Change
	2011		2010		Amount		Percentage
	(unaudited)
Operating expenses:
Sales and marketing	$	1,341	$	1,150	$	191	17	%
Research and development	1,055		824		231		28
General and administrative	786		759		27		4
Restructuring	25		—		25		100
Total	$	3,207	$	2,733	$	474	17	%

	Nine Months Ended
	July 31,		July 31,		Change
	2011		2010		Amount			Percentage
	(unaudited)
Operating expenses:
Sales and marketing	$	4,161	$	3,471	$	690		20	%
Research and development	2,967		2,812		155			6
General and administrative	3,093		2,434		659			27
Restructuring	25		39		(14		)	(36	)
Total	$	10,246	$	8,756	$	1,490		17	%

Total Operating Expenses. Total operating expenses were $3.2 million (or 76% of revenues) for the three months ended July 31, 2011 and $2.7 million (or 80% of revenues) for the comparable period in fiscal 2010. The $474,000 (or 17%) increase in total operating expenses for the three months ended July 31, 2011 resulted primarily from a $231,000 increase in research and development costs and a $191,000 increase in sales and marketing efforts aimed at expansion of our customer base. Operating expenses also included an approximate increase of $228,000 due to unfavorable foreign currency exchange rate fluctuations which predominantly effect research and development costs and sales and marketing expenses.

Total operating expenses were $10.2 million (or 83% of revenues) for the nine months ended July 31, 2011 and $8.8 million (or 77% of revenues) for the comparable period in fiscal 2010. The $1.5 million (or 17%) increase in total operating expenses for the nine months ended July 31, 2011 resulted primarily from an approximate $470,000 increase due to one-time separation costs as a result of the departure of the Company's former CEO, the planned $690,000 increase in sales and marketing efforts aimed at expansion of our customer base and an approximate increase of $134,000 due to unfavorable foreign currency exchange rate fluctuations.

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

Sales and marketing expenses were $1.3 million (or 31% of revenues) for the three months ended July 31, 2011 and $1.2 million (or 34% of revenues) for the comparable period in fiscal 2010. The $191,000 increase (or 17%) in sales and marketing expenses in the three months ended July 31, 2011 compared to the corresponding period in 2010 includes an approximate $67,000 increase related to sales expansion in both our North American and European operations, an approximate $50,000 increase resulting from the costs of distribution and of localization of our products in the Asia Pacific market and an increase of approximately $71,000 resulting from unfavorable foreign currency exchange fluctuations.

Sales and marketing expenses were $4.2 million (or 34% of revenues) for the nine months ended July 31, 2011 and $3.5 million (or 31% of revenues) for the comparable period in fiscal 2010. The $690,000 (or 20%) increase in sales and marketing expenses is primarily due to the planned $206,000 increase related to the addition of our VP Marketing and Strategic Product

25

Development and marketing manager, who were hired in the second and third quarters of fiscal 2010, respectively, as well as the hiring of an additional marketing professional late in the second quarter of 2011. The increase in sales and marketing expense during the nine months ended July 31, 2011 compared to the corresponding period in fiscal 2010 also includes an approximate $48,000 increase in marketing activities including lead qualification and website design costs, an approximate $190,000 increase related to sales operations expansion, an approximate $154,000 increase resulting from the costs of distribution and of localization of our products in the Asia Pacific markets, an approximate $44,000 increase in executive bonuses and an increase of approximately $37,000 resulting from unfavorable foreign currency exchange fluctuations.

For the remainder of fiscal 2011, we expect our quarterly sales and marketing expenses to remain relatively stable and to continue to represent a considerable percentage of our total operating expenditures in the future as we invest in efforts to expand our customer base.

Research and Development. 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.

Research and development expenses were $1,055,000 (or 25% of revenues) for the three months ended July 31, 2011 and $824,000 (or 24% of revenues) for the comparable period in fiscal 2010. The $231,000 (or 28%) increase was primarily due to an approximate $88,000 increase related to personnel additions in our European operations and an approximate $122,000 increase due to unfavorable foreign currency exchange fluctuations.

Research and development expenses were $3.0 million (or 24% of revenues) for the nine months ended July 31, 2011 and $2.8 million (or 25% of revenues) for the comparable period in fiscal 2010. The $155,000 (or 6%) increase was primarily due to an approximate $235,000 increase related to personnel additions in our European operations, which was partially offset by an approximate $152,000 decrease related to the wind-down of our former operations in India, both of which were part of a plan to consolidate our research and development activities into one location in Germany. The increase in research and development activities during the nine months ended July 31, 2011 over the corresponding period of fiscal 2010 includes an approximate $73,000 increase due to unfavorable foreign currency exchange fluctuations.

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 current levels for the remainder of fiscal 2011.

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

General and administrative expenses were $786,000 (or 19% of revenues) for the three months ended July 31, 2011 and $759,000 (or 22% of revenues) for the comparable period in fiscal 2010. The $27,000 (or 4%) increase in general and administrative expense for the three months ended July 31, 2011 when compared to the three months ended July 31, 2010 was primarily due to an approximate $35,000 increase due to unfavorable foreign currency exchange fluctuations.

General and administrative expenses were $3.1 million (or 25% of revenues) for the nine months ended July 31, 2011 and $2.4 million (or 21% or revenues) for the comparable period in fiscal 2010. The $659,000 (or 27%) increase in general and administrative expenses was primarily due to an approximate $470,000 increase attributable to one-time separation costs related to the departure of the Company's former CEO, including additional share based compensation resulting from modifications to existing stock option grants. The increase in general and administrative expenses in the first nine months of fiscal 2011 also included an approximate $99,000 increase in professional and outside services costs, an approximate $33,000 increase in bad debt expense and an approximate $24,000 increase due to unfavorable foreign currency exchange fluctuations. These increases were partially offset by an approximate $115,000 decrease in share based compensation expense due to the lower average fair value of the options being amortized in fiscal 2011.

We expect our general and administrative expenses for the full fiscal year 2011 to increase moderately from fiscal 2010 due to the separation costs associated with the departure of our former CEO.

Restructuring. On September 22, 2009, the Company committed to the implementation of a restructuring plan pursuant to which it closed its research and development facility in Pune, India. The restructuring plan, which was substantially completed in the second quarter of fiscal 2010, was undertaken to consolidate our research and development efforts into one location in Germany to streamline operations, create management efficiencies and increase productivity. Restructuring charges were $25,000 for the three and nine months ended July 31, 2011. These restructuring charges related primarily to impairments of fixed assets and other assets located in India. Restructuring charges were $39,000 in the nine months ended July 31, 2010 and

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were primarily related to severance and retention costs.

Interest and Other Income (Expense), Net

The following table summarizes our interest and other income (expense), net for the three and nine months ended July 31, 2011 and, 2010 (in thousands, except percentages):

	Three Months Ended
	July 31,		July 31,		Change
	2011		2010		Amount			Percentage
	(unaudited)
Interest and other income (expense), net:
Interest income	$	13	$	15	$	(2	)	(13	)%
Foreign exchange gain (loss)	21		33		(12		)	(36	)
Other income	—		—		—			—
Total	$	34	$	48	$	(14	)	(29	)%

	Nine Months Ended
	July 31,			July 31,		Change
	2011			2010		Amount			Percentage
	(unaudited)
Interest and other income (expense), net:
Interest income	$	44		42		$	2		5	%
Foreign exchange gain (loss)	(58		)	98		(156		)	(159	)
Other income	—			1		(1		)	(100	)
Total	$	(14	)	$	141	$	(155	)	(110	)%

Interest and other income (expense), net, consists of interest income earned on our cash and cash equivalents, net of interest expense due to our financing activities, miscellaneous refunds and foreign exchange rate gains or losses as a result of settling transactions denominated in currencies other than our functional currency.

Interest and other income (expense), net, was income of $34,000 (or 1% of total revenues) and $48,000 (or 1% of total revenues) for the three months ended July 31, 2011 and 2010, respectively. Interest and other income (expense), net, was expense of $(14,000) (or 0% of total revenues) and income of $141,000 (or 1% of total revenues) for the nine months ended July 31, 2011 and 2010, respectively. The approximate $14,000 (or 29%) decrease and $155,000 (or 110%) decrease in interest and other income (expense), net for the three and nine months ended July 31, 2011, respectively, are primarily due to the unfavorable change in foreign exchange gains and losses resulting from settling transactions denominated in currencies other than our functional currency.

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Provision for Income Taxes

The following table reflects the Company’s income tax (benefit) expense for the three and nine months ended July 31, 2011 and 2010 (in thousands, except percentages):

	Three Months Ended
	July 31,			July 31,		Change
	2011			2010		Amount			Percentage
	(unaudited)
Provision for income taxes:
Foreign withholding taxes	$	18		$	1	$	17		1,700	%
Provision for income taxes - Europe	38			70		(32		)	(46	)
Federal, state and franchise taxes	(1		)	43		(44		)	(102	)
Total	$	55		$	114	$	(59	)	(52	)%
	Nine Months Ended
	July 31,			July 31,		Change
	2011			2010		Amount			Percentage
	(unaudited)
Provision for income taxes:
Foreign withholding taxes	$	26		$	55	$	(29	)	(53	)%
Provision for income taxes - Europe	68			356		(288		)	(81	)
Federal, state and franchise taxes	(1		)	43		(44		)	(102	)
Total	$	93		$	454	$	(361	)	(80	)%

The Company’s tax provisions were based upon our projected fiscal 2011 and 2010 effective tax rates. Although we have not exhausted our net operating tax loss carry forwards in Germany, the German tax code provides for certain annual statutory limitations related to the use of tax loss carry forward amounts. We recorded income tax expense for our European operations of approximately $38,000 and $70,000, for the three months ended July 31, 2011 and 2010, respectively. We recorded income tax expense for our European operations of approximately $68,000 and $356,000, for the nine months ended July 31, 2011 and 2010, respectively. The $32,000 and $288,000 decreases in the provision for income taxes for the three and nine months ended July 31, 2011 over the comparable periods in fiscal 2010 were primarily attributable to decreased estimated taxable income in Germany related to unrealized foreign currency losses and reduced taxable income. Taxable unrealized foreign currency gains and losses arise as a result of the US dollar strengthening or weakening against the euro, creating gains or losses in the US denominated currencies held by our German operations. As a result of these currency fluctuations, substantial unrealized taxable losses were incurred in the nine months ended July 31, 2011 in the US denominated currencies held by our German operations, while substantial unrealized taxable gains were incurred in our US denominated currencies held in Germany in the nine months ended July 31, 2010.

We incurred foreign withholding taxes of approximately $18,000 and $1,000, respectively, for the three months ended July 31, 2011 and 2010, which we have included in our income tax provision. The increase of approximately $17,000 in foreign withholding taxes for the three months ended July 31, 2011 over the comparable period in fiscal 2010 was primarily attributable to withholding taxes related to a customer in Singapore.

We incurred foreign withholding taxes of approximately $26,000 and $55,000, respectively, for the nine months ended July 31, 2011 and 2010, which we have included in our income tax provision. The decrease of approximately $29,000 in foreign withholding taxes for the nine months ended July 31, 2011 over the comparable period in fiscal 2010 was primarily attributable to withholding taxes related to a transaction with one Asia Pacific customer during the first quarter of fiscal 2010 and withholding taxes related to a dividend made by Versant India Private Limited to Versant Corporation during the second quarter of fiscal 2010 which were not repeated in fiscal 2011.

In evaluating our ability to utilize our deferred tax assets, we consider all available positive and negative evidence, including our past operating results in the most recent fiscal years and our assessment of expected future results of operations on a jurisdiction by jurisdiction basis. Significant management judgment is required to determine when, in the future, the realization of our net deferred tax assets will become more likely than not. The Company will continue to assess the realizability of the tax benefit available based on actual and forecast operating results.

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Liquidity and Capital Resources

The following table sets forth certain consolidated balance sheets data as of July 31, 2011 and October 31, 2010 and certain consolidated statements of cash flows data for the nine months ended July 31, 2011 and 2010 (in thousands, except percentages):

	July 31, 2011		October 31, 2010		Percentage Change
	(unaudited)
Working Capital	$	22,460	$	24,889	(10%)
Cash and cash equivalents	$	23,142	$	24,911	(7%)

	Nine Months Ended
	July 31,			July 31,			Percentage
	2011			2010			Change
	(unaudited)
Net cash provided by operating activities	$	2,256		$	2,244		1%
Net cash used in investing activities	(670		)	(624		)	7%
Net cash used in financing activities	$	(3,382	)	$	(3,463	)	(2)%

Cash and Cash Equivalents

We funded our business from cash generated by our operations during the nine months ended July 31, 2011. As of July 31, 2011, we had cash and cash equivalents of approximately $23.1 million, a decrease of $1.8 million from the $24.9 million of cash and cash equivalents we held at October 31, 2010.

As of July 31, 2011, $8.6 million of our $23.1 million in cash and cash equivalents was held in foreign financial institutions, of which $2.7 million was held in foreign currencies.

The following table summarizes our cash balances held in foreign currencies and their equivalent U.S. dollar amounts (in thousands):

	July 31, 2011				October 31, 2010
	Local Currency		U.S. Dollar		Local Currency		U.S. Dollar
	(unaudited)				(unaudited)
Cash in foreign currency:
Euros	€	1,678	$	2,415	€	1,375	$	1,917
British Pound	£	—	—		£	32	52
Indian Rupee	Rs	12,925	288		Rs	13,692	302
Total			$	2,703			$	2,271

We transact business in various foreign currencies and, accordingly, we are subject to exposure from adverse movements in foreign currency exchange rates. The effect of changes in foreign currency exchange rates on our net operating results in the third quarter of fiscal 2011, as compared to the third quarter of fiscal 2010, was comprised of approximately $296,000 of favorable foreign currency fluctuations on our revenues, $35,000 of unfavorable foreign currency fluctuations on our cost of revenues, and $228,000 of unfavorable foreign currency fluctuations on our operating expenses, resulting in a net favorable effect of approximately $33,000 on our income from operations for the three months ended July 31, 2011.

The effect of changes in foreign currency exchange rates on our net operating results in the first nine months of fiscal 2011, as compared to the first nine months of fiscal 2010, was comprised of approximately $226,000 of favorable foreign currency fluctuations on our revenues, $20,000 of unfavorable foreign currency fluctuations on our cost of revenues, and $134,000 of unfavorable foreign currency fluctuations on our operating expenses, resulting in a net favorable effect of approximately $72,000 on our income from operations for the nine months ended July 31, 2011.

Operating expenses incurred by our foreign subsidiaries are denominated primarily in local currencies. We currently do not use financial instruments to hedge these operating expenses. While we intend to assess the need to utilize financial instruments to

29

hedge currency exposures on an ongoing basis, we do not at this time anticipate establishing any hedging during fiscal 2011.

Our exposure to foreign exchange risk is primarily related to the magnitude of foreign net profits and losses denominated in euros, as well as our net position of monetary assets and monetary liabilities in the euro (though in the future the same could be true of other foreign currencies depending on the source of our revenues). This exposure has the potential to produce either gains or losses within our consolidated results. However, in some instances our European operations act as a natural hedge, since both operating expenses as well as revenues are denominated in local currencies. In these instances, although an unfavorable change in the exchange rate of the euro against the U.S. dollar will result in lower revenues when translated into U.S. dollars, our European operating expenditures will be lower as well.

Additionally, we held approximately 88% of our total cash balances at July 31, 2011 in the form of U.S. dollars to assist in minimizing the impact of foreign currency fluctuations.

In relation to our cash balances held overseas, there were no European Union foreign exchange restrictions on repatriating our overseas-held cash to the United States. However, we may be subject to income tax withholding in the source countries and to U.S. federal and state income taxes in the future if the cash payment or transfer from our subsidiaries to the U.S. parent were to be characterized as a dividend. Other payments made by our European overseas subsidiaries in the ordinary course of business (e.g. payment of royalties or interest from the subsidiaries to the U.S. parent) were generally not subject to income tax withholding under existing tax treaties.

Our cash equivalents primarily consist of money market accounts and short term time deposits; accordingly, our interest rate risk is not considered significant.

On November 29, 2010, our Board of Directors approved a new stock repurchase program pursuant to which the Company is authorized to repurchase up to $5.0 million of its common stock in fiscal year 2011. The stock repurchase program is currently scheduled to expire upon the earlier of October 31, 2011, or upon such time as Versant has expended $5.0 million to repurchase outstanding common shares under the program; however the program may be suspended, discontinued, or extended at any time by the Company. Under this stock repurchase program, as of July 31, 2011, Versant had acquired 221,487 common shares on the open market for approximately $2.7 million at an average purchase price of $12.33 per share.

On March 28, 2011, pursuant to a separation agreement with our former CEO, Versant repurchased 62,545 shares of Versant common stock owned by the former CEO at a price of $13.50 per share, reflecting the recent market trading prices of Versant’s common stock as of the date of the separation agreement.

Taking into consideration the contingent cash outflows related to potential common stock repurchases, our current cost structure and our current estimates of revenues and collections in fiscal 2011, we expect to operate with a moderate negative cash flow in fiscal 2011.

Cash Flow provided by Operating Activities

The main source of our operating cash flows is cash collections from customers who have purchased our products and services. Our primary uses of cash in operating activities are for personnel related expenditures and facility costs.

We generated $2.3 million of cash flows from operations in the nine months ended July 31, 2011. This amount resulted from $398,000 in net income adjusted for non-cash charges of $1.2 million and a $611,000 decrease in operating assets net of liabilities during the first nine months of fiscal 2011. The decrease in operating assets net of liabilities was primarily related to an approximate $1.1 million decrease in trade accounts receivable partially offset by an approximate $318,000 increase in other assets principally due to tax prepayments and an approximate $289,000 decrease in accrued liabilities largely due to the payment of separation costs to our former CEO.

We generated $2.2 million of cash flows from operations in the nine months ended July 31, 2010. This amount resulted from $733,000 in net income adjusted for non-cash charges of $1.3 million and a $249,000 decrease in operating assets net of liabilities during the first nine months of fiscal 2010. The decrease in operating assets net of liabilities was primarily related to an approximate $477,000 decrease in accounts receivable.

The timing of payments to our vendors for accounts payable and collections from our customers for accounts receivable will significantly impact cash flows in our operating activities. We typically pay our vendors and service providers in accordance with their invoice terms and conditions. Our standard payment terms for our invoices are usually between 30 and 90 days net.

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We measure the effectiveness of our collection efforts by an analysis of our accounts receivable and our days sales outstanding (DSO). We calculate DSO by taking the ending accounts receivable balances (net of bad debt allowance) divided by the average daily sales amount. Average daily sales amount is calculated by dividing the total quarterly revenue recognized net of changes in deferred revenues by 91.25 days. Our DSOs were 49 days and 51 days for the three months ended July 31, 2011 and 2010, respectively. Collections of accounts receivable and related DSO could fluctuate in future periods due to the timing and amount of our revenues and the effectiveness of our collection efforts.

Cash Flow used in Investing Activities

For the nine months ended July 31, 2011, $670,000 of cash was used by investing activities for the purchases of property and equipment, including new hardware for testing environments and website design costs.

For the nine months ended July 31, 2010, $624,000 of cash was used by investing activities primarily consisting of $459,000 for the purchases of property and equipment including replacing outdated servers and $180,000 for the acquisition of db4o. (See Note 4 - Acquisitions, Goodwill and Intangible Assets of the Notes to Condensed Consolidated Financial Statements under Item 1 of Part I, of this Report for information related to the acquisition of db4o.)

Cash Flow used in Financing Activities

On November 30, 2009 and November 29, 2010, our Board of Directors approved stock repurchase programs. Under each program, the Company was authorized to repurchase up to $5.0 million worth of its outstanding common shares from time to time on the open market, in block trades or otherwise. The stock repurchase program approved on November 30, 2009 expired pursuant to its own terms on October 31, 2010.

The primary source of cash flows from financing activities is proceeds from the sale of common stock under our Equity Incentive Plan, Directors’ Plan and Employee Stock Purchase Plan.

For the nine months ended July 31, 2011, $3.4 million of cash was used by financing activities, consisting of $3.6 million of cash used to repurchase our common stock partially offset by cash inflows of $202,000 from the issuance of common stock under our Equity Incentive and Employee Stock Purchase Plans.

For the nine months ended July 31, 2010, $3.5 million of cash was used by financing activities, consisting of $3.6 million of cash used to repurchase our common stock, which was partially offset by cash inflows of $167,000 from the issuance of common stock under our Equity Incentive and Employee Stock Purchase Plans.

Our future liquidity and capital resources could be impacted by our stock repurchase program as described above, and by the exercise of outstanding common stock options and the cash proceeds we receive upon exercise of these securities. As of July 31, 2011, we had approximately 30,000 shares available to issue under our Employee Stock Purchase Plan, approximately 350,000 shares available to issue under our current Equity Incentive Plan and our Directors' Stock Option Plan and approximately 647,000 shares in outstanding option grants under our equity plans. At our 2011 annual shareholder meeting, held on April 18, 2011, our shareholders approved an increase of 300,000 shares and 20,000 shares in the numbers of shares reserved under our Equity Incentive Plan and Directors' Stock Option Plan, respectively. The timing of the issuance, the duration of vesting provisions and the grant price will all impact the timing of any proceeds. Accordingly, we cannot estimate the amount of such proceeds at this time.

Commitments and Contingencies

Our principal commitments as of July 31, 2011 consist of obligations under operating leases for facilities and equipment. As reported in Note 5, Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements under Item 1 of Part I, of this Report, the Company leases office space for its U.S. headquarters in Redwood City, California and also leases field office space in Hamburg and Munich, Germany under multi-year operating lease agreements.

The Company enters into indemnification agreements in the ordinary course of business. The Company's license agreements with customers generally require it to indemnify the customer against claims that its software infringes third party patent, copyright, trademark or other proprietary rights. Such indemnification obligations are generally limited in a variety of industry-standard respects. If a liability associated with any of the Company's indemnifications becomes probable and the amount of the liability is reasonably estimable or the minimum amount of a range of loss is reasonably estimable, then an appropriate liability will be established. The estimated fair value of these indemnification clauses is minimal, though the Company recently received correspondence from a customer asserting that the Company has a potential indemnification obligation to such

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customer. Based on currently available information, the Company disputes this assertion.

On November 29, 2010, our Board of Directors approved a new stock repurchase program pursuant to which the Company is authorized to repurchase up to $5.0 million of its common stock in fiscal 2011. The stock repurchase program is currently scheduled to expire upon the earlier of October 31, 2011, or upon such time as Versant has expended $5.0 million to repurchase outstanding common shares under the program; however the program may be earlier suspended, discontinued, or extended at any time by the Company.

After taking into account potential common stock repurchases under our current stock repurchase program, we believe that our existing cash and cash equivalents and cash to be generated from operations will be sufficient to finance our operations during the next twelve months. However, if we fail to generate adequate cash flows from operations in the future, due to an unexpected decline in our revenues, difficulties or delays in collection of revenues or due to a sustained increase in cash expenditures in excess of the revenues generated, then our cash balances may not be sufficient to fund our continuing operations without obtaining additional debt or equity financing. Additional cash may also be needed to acquire or invest in complementary businesses or products or to obtain the right to use complementary technologies, and we expect that, in the event of such an acquisition or investment that is significant, it will be necessary for us to seek additional debt or equity financing.

Recent Accounting Pronouncements

For recent accounting pronouncements see Note 1, Basis of Presentation and Recent Accounting Pronouncements of Notes to Condensed Consolidated Financial Statements under Part I, Item 1 of this Report.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Foreign currency hedging instruments

We transact business in various foreign currencies and, accordingly, we are subject to exposure from adverse movements in foreign currency exchange rates. The effect of changes in foreign currency exchange rates on our net operating results in the third quarter of fiscal 2011, as compared to the third quarter of fiscal 2010, was comprised of approximately $296,000 of favorable foreign currency fluctuations on our revenues, $35,000 of unfavorable foreign currency fluctuations on our cost of revenues, and $228,000 of unfavorable foreign currency fluctuations on our operating expenses, resulting in a net favorable effect of approximately $33,000 on our income from operations for the three months ended July 31, 2011.

The effect of changes in foreign currency exchange rates on our net operating results in the first nine months of fiscal 2011, as compared to the first nine months of fiscal 2010, was comprised of approximately $226,000 of favorable foreign currency fluctuations on our revenues, $20,000 of unfavorable foreign currency fluctuations on our cost of revenues, and $134,000 of unfavorable foreign currency fluctuations on our operating expenses, resulting in a net favorable effect of approximately $72,000 on our income from operations for the nine months ended July 31, 2011.

Operating expenses incurred by our foreign subsidiaries are denominated primarily in local currencies. We currently do not use financial instruments to hedge these operating expenses. While we intend to assess the need to utilize financial instruments to hedge currency exposures on an ongoing basis, we do not at this time anticipate establishing any hedging during fiscal 2011.

Our exposure to the risk of changes in foreign currency exchange rates is primarily related to the magnitude of foreign net profits and losses denominated in euros, as well as our net position of monetary assets and monetary liabilities in the euro (though in the future the same could be true of other foreign currencies depending on the source of our revenues). This exposure has the potential to produce either gains or losses within our consolidated results. However, in some instances our European operations act as a natural hedge, since both operating expenses as well as revenues are denominated in local currencies. In these instances, although an unfavorable change in the exchange rate of the euro against the U.S. dollar will result in lower revenues when translated into U.S. dollars, our European operating expenditures will be lower as well.

Additionally, we held approximately 88% of our total cash balance at July 31, 2011 in the form of U.S. dollars to assist in minimizing the impact of foreign currency fluctuations.

We do not own any derivative financial instruments as of July 31, 2011.

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Interest rate risk

Our cash equivalents primarily consist of money market accounts and short term time deposits; therefore, we do not believe that our interest rate risk is significant at this time.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934), include components of our internal control over financial reporting. Management’s assessment of the effectiveness of our internal control over financial reporting is expressed at the level of reasonable assurance because a control system, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that the control system’s objectives will be met.

Based on the evaluation of the effectiveness of our disclosure controls and procedures by our management, with the participation of our chief executive officer and chief financial officer, as of the end of the period covered by this report our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective to provide reasonable assurance that (i) information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms and (ii) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting  (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act) during the three months ended July 31, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II.  OTHER INFORMATION

Item 1. Legal Proceedings.

The information set forth in Note 5. Commitments and Contingencies of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Report is incorporated herein by reference.

Item 1A. Risk Factors.

Our business faces many risks and uncertainties. When evaluating our business and prospects you should, in addition to other information contained in this report and our other filings with the SEC, particularly consider the risk factors set forth in Part I, Item 1A (“Risk Factors”) of the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2010, filed with the SEC on January 31, 2011 (File/Film No. 000-28540/11559912).

Possible Impairment of Goodwill. As required by ASC 350, Intangibles - Goodwill and Other, the Company evaluates its goodwill for impairment on an annual basis and will perform its annual evaluation of the Company's goodwill in October 2011.

The Company uses the market approach to assess the fair value of its assets which is indicated by its market capitalization. The continued economic and debt crises have created significant volatility in the stock markets and in the Company's stock price. Further persistent declines in Versant's stock price could result in a goodwill impairment charge that could have a material adverse impact on the Company's financial condition and results of operations. While impairment charges reduce reported results under GAAP, such charges do not affect liquidity, cash flows, or future operations.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c) Purchase of Equity Securities by the Issuer and Affiliated Purchasers

On November 29, 2010 Versant’s Board of Directors approved a new stock repurchase program pursuant to which Versant is authorized to repurchase up to $5.0 million of its common stock in fiscal year 2011. This stock repurchase program is currently scheduled to expire upon the earlier of October 31, 2011, or at such time as Versant has expended $5.0 million to repurchase outstanding common shares under the program; however the program may be suspended, discontinued or extended at any earlier time by the Company.

The stock repurchase activity during the three and nine months ended July 31, 2011 is summarized as follows:

Issuer Purchases of Equity Securities
	Total Number of Shares Purchased (2)	Average Price Paid Per Share (1)		Total Number of Shares Purchased as Part of Publicly Announced Plan or Program (3)	Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plan or Program
Period:
May 1 - May 31, 2011	13,442	$	12.86	13,442	$	3,935,082
June 1 - June 30, 2011	134,833	12.17		134,833	$	2,293,861
July 1 - July 31, 2011	2,061	11.83		2,061	$	2,269,470
Three months ended July 31, 2011	150,336	12.23		150,336
November 30, 2010 - April 30, 2011	133,696	12.99		71,151
Nine months ended July 31, 2011	284,032	$	12.59	221,487

1. Average price paid per share is calculated on a settlement basis and excludes commission.

2. On March 28, 2011, the Company repurchased 62,545 shares of its common stock at $13.50 pursuant to the Separation Agreement with its Former CEO.

3. Except as noted in footnote 2, all repurchases reflected in the above table were made pursuant to the Company's fiscal 2011 stock repurchase program, which authorizes the repurchase of up to $5,000,000 of common stock. This repurchase program was announced on November 29, 2010 and is currently scheduled to expire on October 31, 2011, but can be suspended, discontinued or extended at any time by the Company.

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Item 6.  Exhibits

(a)  Exhibits

The following exhibits are filed with this Quarterly Report on Form 10-Q:

Exhibit  Number	Exhibit Description
31.01	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.02	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.01*	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.02*	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.ins†	XBRL Instance Document
101.sch†	XBRL Schema Document
101.cal†	XBRL Calculation Linkbase Document
101.pre†	XBRL Presentation Linkbase Document
101.lab†	XBRL Label Linkbase Document
101.def†	XBRL Definition Linkbase Document

 ___________________________________________________

*This exhibit is being furnished rather than filed, and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K.

†    In accordance with Rule 406T of Regulation S-T, the information in these exhibits is furnished and deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Exchange Act of 1934, and otherwise is not subject to liability under these sections.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		VERSANT CORPORATION
Dated:	September 14, 2011	/s/ Jerry Wong
		Jerry Wong
		Vice President, Finance, Chief Financial Officer (Duly Authorized Officer, Principal Financial Officer and Chief Accounting Officer)
		/s/ Bernhard Woebker
		Bernhard Woebker
		Chief Executive Officer (Duly Authorized Officer and Principal Executive Officer) and Director

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