10-Q/A

United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q/A

(Amendment No. 2)

(Mark One)

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2004

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.)

6539 Dumbarton Circle, Fremont, California 94555

(Address of principal executive offices) (Zip code)

(510) 789-1500

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 is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes o   No ý

As of September 7, 2004, there were outstanding 34,687,423 shares of the Registrant’s common stock, no par value.

VERSANT CORPORATION
QUARTERLY REPORT ON FORM 10-Q/A (Amendment No. 2)
For the Period Ended July 31, 2004

Table of Contents

Certifications

Part I.  FINANCIAL INFORMATION

Item 4. Controls and Procedures

(a)Evaluation of Disclosure Controls and Procedures.

Securities and Exchange Commission, or SEC, rules define the term “disclosure controls and procedures” to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in its reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

At the time of the original filing on September 14, 2004 of the Company’s report on Form 10-Q for the quarter ended July 31, 2004, which this amendment  amends, officers of Versant Corporation (“Versant” or the “Company”) provided conclusions regarding the effectiveness of the Company’s disclosure controls and procedures that they believed were then accurate.  The officers did not conclude that amendments made to address certain accounting matters in the Company’s Exchange Act filings during the fiscal year ended October 31, 2004 (including Amendment No. 1 filed with respect to the Company’s quarterly report on Form 10-Q for its fiscal quarter ended April 30, 2004) were indicative of material weakness in the Company’s disclosure controls and procedures.  The officers concluded that the circumstances that led to the filing of these amendments resulted primarily from the complexity, under relevant accounting rules, of certain non-ordinary course transactions related to the Company’s acquisition of Poet Holdings, Inc. and from certain past accounting actions that were implemented several years before the Company’s current disclosure controls were designed and implemented.

However, after working closely with the Company’s independent auditors on the audit of the Company’s financial statements for the fiscal year ended October 31, 2004 and receiving and assessing the formal advice regarding the Company’s controls that the Company’s independent auditors provided in the course of that audit process, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were ineffective to ensure that 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.  The reasons for this conclusion are set forth below.

 In the course of conducting its audit of the Company’s financial statements for the fiscal year ended October 31, 2004, in late November 2004 the Company’s registered independent public accounting firm, Grant Thornton LLP, determined that there were certain material weaknesses and significant deficiencies in the Company’s internal controls.  Promptly following this determination, Grant Thornton advised the Company’s management and, on December 13, 2004, the audit committee of the Company’s board of directors, of the following matters that Grant Thornton considered beingmaterial weaknessesin the Company’s internal controls:

•Grant Thornton concluded that the number of year end audit adjustments and a prior amendment to the Company’s reported financial statements relating to an acquisition matter were indicative of a material weakness in controls over closing procedures and the accounting for non-routine transactions.  The Company’s auditors determined that the Company lacked certain procedures, staffing, and required expertise needed to properly account for non-routine transactions (such as acquisitions of other businesses) and prepare certain of its required financial statement disclosures (primarily with respect to non-routine transactions).  Additionally, in connection with its fiscal 2004 year-end audit, Grant Thornton discovered several cut-off errors in the Company’s financial statements (primarily with

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respect to period-end accruals) that should have been identified by the Company prior to the audit (in aggregate these adjustments represented approximately 1% of the Company’s net loss for fiscal 2004).

•The Company’s auditors also identified a material weakness in the Company’s consolidation controls.  During Grant Thornton’s audit, errors were noted in the Company’s consolidation, specifically with respect to eliminating entries.  Such errors are due to the complexity of the consolidation, in addition to a lack of certain formal procedures and expertise necessary to ensure an accurate consolidation.  Primarily due to the Company’s acquisition of Poet Holdings, Inc., which significantly increased the number of the Company’s corporate subsidiaries and the quantity of inter-company transactions, the Company’s consolidation of accounting information has become a complex and time-consuming process (especially as it relates to inter-company eliminations).  The consolidation process was found to be both error-prone and inefficient.

At the time it advised the Company’s audit committee of its above conclusions, Grant Thornton also advised the audit committee of the following significant deficiencies in the Company’s internal controls:

•Monitoring controls over the recording and analysis of revenue transactions (particularly multiple element transactions) are in need of improvement. There are currently no established or documented policies and procedures that require review of revenue entries and related analysis performed by accounting personnel.  The need for additional training of personnel dealing with the recording and review of revenue transactions was also identified as an area for improvement.

•Inadequate segregation of duties was noted with respect to the revenues, expenditure and payroll processes as numerous incompatible tasks are performed by the same accounting personnel.  The Company needs to review current policies and procedures to ensure that one individual does not perform incompatible duties or that there are specific compensating controls if incompatible duties cannot be avoided.

The material weaknesses and significant deficiencies in internal controls described above still exist; however the Company has taken certain actions to improve the Company’s disclosure controls and procedures and the Company’s internal control over financial reporting as described in part (b) of this Item 4.

(b)Changes in Internal Control Over Financial Reporting.

SEC rules define the term “internal control over financial reporting” as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

•Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

•Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

•Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

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There was no change in our internal control over financial reporting during the third quarter of fiscal 2004 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Subsequent Events

The following information describes certain changes in our internal control over financial reporting taken subsequent to the close of our third quarter of fiscal 2004 that have materially effected or are reasonably likely to materially effect, our internal control over financial reporting.

During the fiscal quarter ended October 31, 2004, we made the following changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting:

•We simplified our subsidiary structure in Europe and reduced the number of subsidiaries we will need to consolidate in fiscal 2005.

•We made changes in our accounting personnel and launched a search for a new Director of Finance / Corporate Controller.

•We re-organized responsibilities within our accounting organization to provide a stronger focus on our SEC reporting and to increase the total internal person-hours dedicated to the SEC reporting process.

•We increased employee training on SEC reporting requirements and subscribed to an accounting research service in an effort to keep more current with accounting pronouncements and financial reporting matters.

During the quarter ended January 31, 2005, the Company took the following actions that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting:

•The Company recently hired a new Director of Finance and Corporate Controller to expand its internal finance and accounting staff and increase its internal accounting expertise.

•The Company has established a formal disclosure committee comprised of one audit committee member and senior management to assist the Company on resolving issues regarding proper disclosure over financial reporting.

•The Company revised its quarter-end closing process to strengthen its close cycle and to improve its quarter-end cut off as well as its accrual process. The Company will implement these new procedures in its fiscal quarter ended April 30, 2005.

•The Company revised its consolidation process for the three months ended January 31, 2005 and will implement a standard closing and reporting package for all of its subsidiaries during the quarter ending April 30, 2005.

•The Company plans to review both its domestic and international revenue recognition process during the quarter ending April 30, 2005.

•The Company has also added an SEC analyst to its staff and plans to add an additional staff with strong technical accounting skills by the end of the current fiscal year to be able to support the Company’s Sarbanes-Oxley Section 404 implementation.

•The Company has subscribed to an accounting research service and currently conducts reviews and research on all new and relevant existing accounting and SEC pronouncements.

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•The Company is in the process of reorganizing its accounting and finance operation and has put more emphasis on proper disclosures and improving its internal controls.

The following tasks represent what the Company currently believes to be the most significant remaining actions necessary to address existing material weaknesses in the Company’s controls, as well as actions it has taken to date to pursue these actions:

•Creation of a standard reporting package for all the Company’s consolidated entities to ensure that the information necessary for a complete and accurate consolidation is prepared at the individual entity level, and the creation of procedures to facilitate consistent and complete inter-company eliminations.  To address this task the Company revised its consolidation process for the elimination of inter-company transactions for the quarter ended January 31, 2005 and will implement a standard closing and reporting package for all of its subsidiaries during the quarter ended April 30, 2005.

•Development of formal policies and procedures, including enhanced closing procedures, procedures for the proactive review of revenue transactions and procedures for identifying, addressing and resolving the accounting and related disclosure for significant and complex transactions.  To address this objective the Company has established a formal disclosure committee comprised of one audit committee member and senior management to assist the Company on resolving issues regarding proper disclosure over financial reporting. The Company is in the process of developing a review procedure for revenue transactions and expects to complete development of such procedures during the quarter ended July 31, 2005.

•Enhancement of the Company’s closing procedures to provide for more rigorous review of all account reconciliations; and enhanced procedures for ensuring proper expense cut-off.   To address this goal, the Company is in the process of revising its quarter end closing process to strengthen its close cycle and to improve its quarter-end cut off as well as its accrual process. The Company plans to begin to substantially implement the new close procedures substantially for the quarter ended April 30, 2005. The Company is also in the process of reorganizing its accounting and finance operation and has put emphasis on proper disclosures and improving its internal controls. The Company has also revised its quarter end cut off and accrual process and will first implement the new procedures for the quarter ended April 30, 2005.

•Review of the Company’s current policies and procedures to develop processes so that incompatible duties are not performed by one individual or that there are specific compensating controls if incompatible duties cannot be avoided.  For this action item, the Company has segregated certain critical functions, such as bank reconciliation and check signing functions for the quarter ended April 30, 2005 and will continue to pursue necessary processes to achieve this objective.

 The certifications of Versant’s chief executive officer and chief financial officer attached as Exhibits 31.01 and 31.02 to this Amendment No. 2 to Quarterly Report on Form 10-Q include, in paragraph 4 of such certifications, information concerning Versant’s disclosure controls and procedures and internal control over financial reporting.  Such certifications should be read in conjunction with the information contained in this Item 4 for a more complete understanding of the matters covered by such certifications.  The certifying officers worked to design, or caused to be designed, disclosure controls and procedures, for the purpose of ensuring that material information relating to the Company, including its consolidated subsidiaries, is made known to them by other personnel of the Company on a timely basis.  These disclosure controls and procedures were designed and adopted in good faith for this purpose, but it is recognized that these procedures must be continually evaluated and can always merit further improvement.

Versant believes that the material weaknesses and significant deficiencies in the Company’s internal controls identified by the Company’s independent auditors and described above do not materially affect the fairness or accuracy of the presentation of the Company’s financial condition and results of operation in the Company’s historical financial statements as set forth in the Company’s reports previously filed with the SEC under the Securities Exchange Act of 1934.  This belief is based on the fact that, despite the material weaknesses subsequently

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noted by our auditor, the Company believes that it applied appropriate amount of reviews and analysis by management to reasonably determine the accuracy and fairness of the Company’s financial reports.  Although it has subsequently appeared that the Company’s controls and procedures have certain material weaknesses, these certifying officers and the Company have been and continue to be engaged in efforts to promptly change and improve the Company’s disclosure controls and procedures as described in this Item 4. The Company expects that these efforts will, over time, positively address the weaknesses noted by the Company’s independent auditors.

SIGNATURE

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

	VERSANT CORPORATION
Dated: May 12, 2005	/s/ Lee McGrath
	Lee McGrath
	Vice President Finance and Administration. Chief Financial Officer, Treasurer and Secretary (Duly Authorized Officer and Principal Financial and Accounting Officer)

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EXHIBIT INDEX

Exhibit Number	Exhibit Description	Filed Herewith
31.01	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	ý
31.02	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	ý

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EX-31.01

EXHIBIT 31.01

Certification of Chief Executive Officer Pursuant To Exchange Act Rule 13a-14(a) / 15d-14(a)
As Adopted Pursuant To Section 302 of The Sarbanes-Oxley Act of 2002

I, Nick Ordon, President and Chief Executive Officer of Versant Corporation, certify that:

1.I have reviewed this Amendment Number 2 to quarterly report on Form 10-Q of Versant Corporation (the “registrant”);

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 12, 2005
By	/s/ Nick Ordon
	Nick Ordon
	Chief Executive Officer

EX-31.02

EXHIBIT 31.02

Certification of Chief Financial Officer Pursuant To Exchange Act Rule 13a-14(a) / 15d-14(a)
As Adopted Pursuant To Section 302 of The Sarbanes-Oxley Act of 2002

I, Lee McGrath, Vice President, Finance and Administration and Chief Financial Officer of Versant Corporation, certify that:

1.I have reviewed this Amendment Number 2 to quarterly report on Form 10-Q of Versant Corporation (the “registrant”);

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 12, 2005
By	/s/ Lee McGrath
	Lee McGrath
	Chief Financial Officer