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, 2010

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 x 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 o 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 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 x No

As of September 10, 2010, there were outstanding 3,266,186 shares of the Registrant’s common stock, no par value.

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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,			October 31,
	2010			2009
ASSETS
Current assets:
Cash and cash equivalents	$	25,464		$	27,812
Trade accounts receivable, net of allowance for doubtful accounts of $15 and $36 at July 31, 2010 and October 31, 2009, respectively	1,625			2,251
Deferred income taxes	827			939
Other current assets	363			633
Total current assets	28,279			31,635

Property and equipment, net	647			488
Goodwill	8,589			8,410
Intangible assets, net	572			802
Other assets	38			38
Total assets	$	38,125		$	41,373

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	155		$	154
Accrued liabilities	782			1,215
Deferred revenues	3,182			3,475
Total current liabilities	4,119			4,844

Deferred revenues	69			177
Other long-term liabilities	131			95
Total liabilities	4,319			5,116

Stockholders’ equity:
Common stock, no par value, 7,500,000 shares authorized, 3,272,448 shares issued and outstanding at July 31, 2010, and 3,552,946 shares issued and outstanding at October 31, 2009	93,095			95,730
Accumulated other comprehensive income (loss), net	(115		)	434
Accumulated deficit	(59,174		)	(59,907		)
Total stockholders’ equity	33,806			36,257
Total liabilities and stockholders’ equity	$	38,125		$	41,373

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,
	2010		2009			2010		2009

Revenues:
License	$	1,634	$	2,025		$	5,787	$	7,198
Maintenance	1,757		2,345			5,534		6,617
Professional services	33		63			73		196
Total revenues	3,424		4,433			11,394		14,011

Cost of revenues:
License	60		84			216		206
Amortization of intangible assets	76		96			230		296
Maintenance	342		364			1,098		1,080
Professional services	17		29			48		100
Total cost of revenues	495		573			1,592		1,682

Gross profit	2,929		3,860			9,802		12,329

Operating expenses:
Sales and marketing	1,150		1,049			3,471		3,046
Research and development	824		1,022			2,812		2,996
General and administrative	759		813			2,434		2,817
Restructuring	—		—			39		—
Total operating expenses	2,733		2,884			8,756		8,859

Income from operations	196		976			1,046		3,470
Interest and other income (expenses), net	48		(24		)	141		232
Income before provision for income taxes	244		952			1,187		3,702
Provision for income taxes	114		61			454		473

Net income	$	130	$	891		$	733	$	3,229

Net income per share:
Basic	$	0.04	$	0.25		$	0.21	$	0.89
Diluted	$	0.04	$	0.25		$	0.21	$	0.88

Shares used in per share calculation:
Basic	3,375		3,574			3,468		3,648
Diluted	3,403		3,609			3,504		3,683

See accompanying notes to condensed consolidated financial statements

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VERSANT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Nine Months Ended
	July 31,			July 31,
	2010			2009
Cash flows from operating activities:
Net income	$	733		$	3,229

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	242			274
Amortization of intangible assets	230			296
Share based compensation expense	828			733
Recovery of bad debt allowance	(19		)	(8		)
Reduction of restructuring charges	(19		)	—
Changes in assets and liabilities:
Trade accounts receivable	477			420
Other assets	251			(132		)
Accounts payable	(45		)	(184		)
Accrued liabilities and other long-term liabilities	(258		)	(438		)
Deferred revenues	(176		)	500
Net cash provided by operating activities	2,244			4,690

Cash flows from investing activities:
Acquisition of business	(180		)	(2,383		)
Purchases of property and equipment	(459		)	(163		)
Proceeds from the sale of property and equipment	15			—
Net cash used in investing activities	(624		)	(2,546		)

Cash flows from financing activities:
Proceeds from issuance of common stock	167			251
Repurchases of common stock	(3,630		)	(2,987		)
Principal payments under capital lease obligations	—			(4		)
Net cash used in financing activities	(3,463		)	(2,740		)

Effect of foreign exchange rate changes on cash and cash equivalents	(505		)	117
Net decrease in cash and cash equivalents	(2,348		)	(479		)
Cash and cash equivalents at beginning of period	27,812			27,234
Cash and cash equivalents at end of period	$	25,464		$	26,755

Supplemental disclosures of cash flows information:
Cash paid for:
Interest	$	1		$	—
Income taxes	$	477		$	643

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. GENERAL AND 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, 2009. 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, 2009, filed on January 29, 2010 (File/Film No. 000-28540/10558455). The Company’s operating results for the three and nine months ended July 31, 2010 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, 2010, 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.

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 Financial Accounting Standards Board (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, 2010 (Level 1, 2 and 3 inputs are defined above):

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	Fair Value Measurements Using Input Type
	Level 1		Level 2		Level 3
	(in thousands)
Assets:
Money market funds	$	19,019	$	—	$	—
Time deposits	5,304		—		—
Total	$	24,323	$	—	$	—

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

NOTE 3. 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. Our results of operations include db4o transactions from the acquisition date of December 1, 2008.

The total purchase price of $2.6 million for the db4o assets as of July 31, 2010 consisted of the following:

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

b) Direct transaction costs of $182,000; 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
	$	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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db4o’s results of operations for periods prior to this acquisition were not material to the Company’s condensed consolidated statements of income and, accordingly, pro forma financial information has not been presented.

Goodwill

The following table presents goodwill balances and acquisitions of, and adjustments to, goodwill during the nine months ended July 31, 2010 (in thousands):

	Net Carrying Amount As of October 31, 2009		Goodwill Acquired		Adjustments to Goodwill			Net Carrying Amount As of July 31, 2010
Goodwill:
Versant Europe	$	241	$	—	$	—		$	241
Poet Holdings, Inc.	5,752		—		—			5,752
FastObjects, Inc.	677		—		—			677
JDO Genie (PTY), LTD	50		—		—			50
db4o	1,690		180		(1		)	1,869
Total	$	8,410	$	180	$	(1	)	$	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 2009 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, 2010 and October 31, 2009 are as follows (in thousands):

	As of July 31, 2010						As of October 31, 2009
	Gross				Net		Gross				Net
	Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
	Amount		Amortization		Amount		Amount		Amortization		Amount
Intangible assets:
Poet Holdings, Inc.- Developed Technology & Customer Relationships (Amortized over 7 years)	$	1,919	$	1,785	$	134	$	1,919	$	1,643	$	276
db4o-Developed Technology (Amortized over 5 years)	300		100		200		300		55		245
db4o-Customer Relationships (Amortized over 9 years)	210		38		172		210		21		189
FastObjects, Inc.- Customer Relationships (Amortized over 6 years)	148		148		0		148		137		11
db4o-Trade Name (Amortized over 5 years)	100		34		66		100		19		81
Total	$	2,677	$	2,105	$	572	$	2,677	$	1,875	$	802

Aggregate amortization expense for intangible assets was $76,000 and $230,000, respectively, for the three and nine months ended July 31, 2010, and $96,000 and $296,000, respectively, for the three and nine months ended July 31, 2009.

The projected amortization of the Company’s existing intangible assets as of July 31, 2010 is as follows (in thousands):

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	Amortization
Three months ending October 31, 2010	$	73
Fiscal year ending October 31,
2011	190
2012	104
2013	103
2014	30
Thereafter	72
Total	$	572

NOTE 4. LEASE COMMITMENTS

Versant’s principal commitments as of July 31, 2010 consist of obligations under operating leases for facilities and equipment.

Versant leases office space for its U.S. headquarters in Redwood City, California and its offices in Hamburg, Germany under multi-year operating lease agreements.

On July 17, 2009, the Company entered into an office building lease, pursuant to which the Company has leased approximately 10,200 square feet in an office facility located in Hamburg, Germany. The lease has a term of sixty months, which commenced in December 2009. The total rent payable as of July 31, 2010 over the remaining lease term is approximately $679,000.

On September 3, 2009, the Company entered into the First Amendment (the “Amendment”) of an Office Building Lease executed on March 23, 2007. The Amendment extends the term of the Company’s lease of approximately 6,800 square feet in an office facility located in Redwood City, California for an additional term of three years to May 31, 2013. The total rent payable as of July 31, 2010 over the remaining extended lease term is approximately $553,000.

Our minimum commitments under non-cancelable operating leases not recorded on our condensed consolidated balance sheet as of July 31, 2010 are as follows (in thousands):

	Facilities		Equipment
	Leases		Leases		Total

Three months ending October 31, 2010	$	71	$	1	$	72
Fiscal year ending October 31,
2011	351		5		356
2012	359		5		364
2013	278		2		280
2014	160		—		160
Thereafter	13		—		13
Total	$	1,232	$	13	$	1,245

NOTE 5. STOCK REPURCHASE PROGRAM

Fiscal 2010 Stock Repurchase Program. On November 30, 2009 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 2010 on the open market, in block trades or otherwise. This stock repurchase program is currently scheduled to expire upon the earlier of October 31, 2010, 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, 2010, Versant acquired under this program a total of 296,778 common shares on the open market for approximately $3.6 million at an average purchase price of $12.19 per share, leaving approximately $1.4 million in authorized funds available for future repurchases of stock under this program.

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Fiscal 2009 Stock Repurchase Program. On December 1, 2008, Versant’s Board of Directors approved a stock repurchase program authorizing Versant 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. This stock repurchase program expired by its terms on October 31, 2009. Versant acquired a total of 222,688 common shares on the open market and in block trades for approximately $3.2 million at an average purchase price of $14.52 per share under this stock repurchase program.

NOTE 6. NET INCOME PER SHARE

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,
	2010		2009		2010		2009

Net income	$	130	$	891	$	733	$	3,229

Calculation of basic net income per share:
Weighted average - common shares outstanding	3,375		3,574		3,468		3,648

Net income per share, basic	$	0.04	$	0.25	$	0.21	$	0.89

Calculation of diluted net income per share:
Weighted average - common shares outstanding	3,375		3,574		3,468		3,648
Dilutive effect of employee and director stock options	28		35		36		35
Weighted average - common shares outstanding and potentially dilutive common shares	3,403		3,609		3,504		3,683

Net income per share, diluted	$	0.04	$	0.25	$	0.21	$	0.88

The computation of diluted net income per share does not include shares that are anti-dilutive under the treasury stock method. For the three months ended July 31, 2010 and 2009, 416,000 and 188,000 potentially dilutive shares, respectively, were excluded from the computation of diluted net income per share. For the nine months ended July 31, 2010 and 2009, 347,000 and 195,000 potentially dilutive shares, respectively, were excluded from the computation of diluted net income per share.

NOTE 7. 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:

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	Stock Options		ESPP
	Nine Months Ended July 31,		Nine Months Ended July 31,
	2010	2009	2010	2009
Assumptions:
Volatility	53% - 56%	56% - 61%	33% - 42%	48% - 65%
Expected life	3.3 - 3.6 years	2.4 - 3.0 years	6 - 12 months	6 - 12 months
Weighted average risk-free interest rate	1.43% - 1.87%	0.93% - 1.39%	0.15% - 0.35%	0.29% - 2.01%
Dividend yield	—	—	—	—

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,
	2010			2009		2010		2009
Share based compensation expense:
Stock options	$	259		$	249	$	796	$	713
ESPP	(4		)	14		32		20
Total	$	255		$	263	$	828	$	733

Share based compensation recognized in the condensed consolidated statements of income by category of award was as follows (in thousands):

	Three Months Ended				Nine Months Ended
	July 31,		July 31,		July 31,		July 31,
	2010		2009		2010		2009
Share based compensation expense:
Cost of revenues	$	14	$	15	$	59	$	42
Sales and marketing	50		37		171		95
Research and development	52		66		175		166
General and administrative	139		145		423		430
Total	$	255	$	263	$	828	$	733

The following table summarizes stock option activities under the Company’s equity-based compensation plans during the nine months ended July 31, 2010 and 2009:

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	Nine Months Ended July 31,
	2010				2009
	Shares in thousands		Weighted average exercise price		Shares in thousands		Weighted average exercise price
Stock option activity:
Outstanding at the beginning of the period	386		$	18.45	303		$	20.40
Granted	148		18.15		134		13.34
Exercised	(3	)	10.85		(10	)	8.65
Forfeited and expired	(27	)	38.56		(54	)	17.33
Outstanding at the end of the period	504		17.32		373		18.63

Options exercisable at the end of the period	310		$	17.40	212		$	21.02

NOTE 8. RESTRUCTURING

In the fourth quarter of fiscal year 2009, the Company committed to the implementation of a restructuring plan pursuant to which it has closed its research and development facility in Pune, 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 $179,000 as of July 31, 2010. The restructuring was substantially completed during the fiscal quarter ended April 30, 2010.

The following table reflects the type and amount of these restructuring charges included in operating expenses for the three and nine months ended July 31, 2010 (in thousands):

	Three Months Ended		Nine Months Ended
	July 31,		July 31,
	2010		2010
Restructuring:
Severance, retention and related charges	$	—	$	38
Impairment of fixed assets (non-cash charges)	—		2
Impairment to other assets (non-cash charges)	—		(29		)
Contract termination costs	—		8
Other direct costs of closure	—		20
	$	—	$	39

There were no restructuring charges included in accrued liabilities in the condensed consolidated balance sheet as of July 31, 2010 and $32,000 of employee termination costs were included in accrued liabilities as of October 31, 2009.

NOTE 9. OTHER COMPREHENSIVE INCOME

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

Comprehensive income for the three and nine month periods ended July 31, 2010 and July 31, 2009 is as follows (in thousands):

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	Three Months Ended					Nine Months Ended
	July 31,			July 31,		July 31,			July 31,
	2010			2009		2010			2009

Net income, as reported	$	130		$	891	$	733		$	3,229
Foreign currency translation adjustment	(51		)	137		(549		)	69
Comprehensive income	$	79		$	1,028	$	184		$	3,298

NOTE 10. 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 regarding realizability exists. The Company had net deferred tax assets of $827,000 and $939,000 as of July 31, 2010 and October 31, 2009, respectively.

The Company has significant deferred tax assets arising primarily from net operating loss 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 forecasted 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 the 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 forecasted taxable income for its European operations in fiscal 2010. The recent 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 2010.

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 forecasted operating results. Management does not anticipate significant changes to its uncertain tax positions through October 31, 2010.

The provision for income taxes was $114,000 and $61,000 for the three months ended July 31, 2010 and 2009, respectively and $454,000 and $473,000 for the nine months ended July 31, 2010 and 2009, 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, changes in the U.S. valuation allowance 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 2004.

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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 11. 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.

In aggregate, the revenues generated by one significant 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 region in which the contract originates.

The following table reflects revenues for the three and nine months ended July 31, 2010 and July 31, 2009 by each geographic region (in thousands)

	Three Months Ended				Nine Months Ended
	July 31,		July 31,		July 31,		July 31,
	2010		2009		2010		2009

Revenues by Region:
North America	$	1,396	$	1,560	$	4,401	$	5,219
Europe	1,918		2,821		6,365		8,351
Asia	110		52		628		441
	$	3,424	$	4,433	$	11,394	$	14,011

The following table reflects long-lived assets as of July 31, 2010 and October 31, 2009 in each geographic region (in thousands):

	July 31,		October 31,
	2010		2009
Total long-lived assets by region:
North America	$	121	$	164
Europe	524		287
Asia	40		75
	$	685	$	526

NOTE 12. RECENT ACCOUNTING PRONOUNCEMENTS

Recently Adopted Accounting Pronouncements

Subsequent Events

In February 2010, the FASB issued amended guidance on subsequent events. Under this amended guidance, Securities and Exchange Commission (SEC) filers are no longer required to disclose the date through which subsequent events have been evaluated in originally issued and revised financial statements. This guidance was effective immediately and the Company adopted this new guidance in the quarter ended April 30, 2010. The adoption of this amendment has not had a significant impact on the Company’s financial position, results of operations or cash flows.

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Intangibles — Goodwill and Other

In April 2008, the FASB issued authoritative guidance used to determine the useful life of intangible assets. This guidance amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset. This change is intended to improve the consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset. The requirement for determining useful lives must be applied prospectively to intangible assets acquired after the effective date and the disclosure requirements must be applied prospectively to all intangible assets recognized as of, and subsequent to, the effective date. The guidance is effective for fiscal years beginning after December 15, 2008 (November 1, 2009 for the Company) and interim periods within those years, with earlier adoption prohibited. The adoption of this guidance has not had a material impact on the Company’s financial position, results of operations, or cash flows.

Business Combinations

In December 2007, new guidance was issued providing greater consistency in the accounting and financial reporting of business combinations. It requires the acquiring entity in a business combination to recognize all assets acquired and liabilities assumed in the transaction, establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed, and requires the acquirer to disclose the nature and financial effect of the business combination. The guidance is effective for fiscal years beginning after December 15, 2008 (November 1, 2009 for the Company) and interim periods within those years, with earlier adoption prohibited. The adoption of this new guidance had no material impact on the Company’s financial position, results of operations, or cash flows.

In April 2009, additional guidance was issued which requires that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value, if fair value can be determined during the measurement period. This new rule specifies that an asset or liability should be recognized at time of acquisition if the amount of the asset or liability can be reasonably estimated and that it is probable that an asset existed or that a liability had been incurred at the acquisition date. This new rule is effective for all fiscal years beginning after December 15, 2008 (November 1, 2009 for the Company). The adoption of this new guidance had no material impact on the Company’s financial position, results of operations, or cash flows.

Fair Value Measurements

In August 2009, the FASB issued additional guidance regarding fair value measurements. This guidance provides clarification for circumstances in which a quoted price in an active market for the identical liability is not available. In these circumstances, a reporting entity is required to measure fair value using one or more of the following methods: (1) a valuation technique that uses a) the quoted price of the identical liability when traded as an asset or b) quoted prices for similar liabilities or similar liabilities when traded as assets and/or (2) a valuation technique that is consistent with U.S. GAAP (e.g. an income approach or market approach). This guidance also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include inputs relating to the existence of transfer restrictions on that liability. This guidance is effective for fiscal years and fiscal quarters beginning after August 26, 2009 (November 1, 2009 for the Company). The adoption of this standard had no material effect on the Company’s financial statements.

Fair Value Measurement Disclosure

In January 2010, the 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 has not had a material impact on the Company’s consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

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 is

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effective at the start of a company’s first fiscal year beginning after November 15, 2009 (November 1, 2010 for the Company). We do not expect that the adoption of this new guidance will have an impact on our historical consolidated financial position, cash flows and results of operations.

Multiple-Deliverable Revenue Arrangements

In October 2009, new guidance was issued by 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 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. Early adoption is permitted and we are currently evaluating the impact this guidance may have on our results of operations, financial position and cash flows.

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 will include 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 is effective for Versant for revenue arrangements entered into or materially modified beginning on November 1, 2010. Early adoption is permitted and we are currently evaluating the impact this guidance may have on our results of operations, financial position and cash flows.

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 is effective for Versant beginning November 1, 2010. We are currently evaluating the impact this guidance may have on our results of operations, financial position and cash flows.

Receivables Disclosure

In July 2010, the FASB issued guidance which amends ASC 310, Receivables. This 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 is the first quarter of fiscal year 2011. The effective date for disclosures for activity during the reporting period is the second quarter of fiscal year 2011. The adoption will not have a material effect on the Company’s consolidated financial statements.

NOTE 13. CONTINGENCIES

The Company may be subject to various legal proceedings and disputes that arise in the ordinary course of business from time to time. The Company has been notified by a customer of a potential overpayment of license royalties to Versant. Management contests the customer’s claim and currently believes there will be no material adverse effect to the Company. The results of any dispute are inherently uncertain and no estimate can be made at this time of any potential loss.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion and analysis 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, 2009 filed with the SEC on January 29, 2010. 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

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things, statements regarding the Company’s expected future financial performance and trends anticipated for the Company’s business such as:

· our expectations regarding our future net income, revenues, gross profit, expenses and earnings per share;

· our expectations regarding unfavorable economic and market conditions;

· our ability to generate additional revenues from investments in sales and marketing;

· our expectations that our existing stock repurchase program (which can be earlier terminated) will expire in October 2010

· assumptions underlying or related to any of the foregoing.

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, but are not limited to, 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 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, forecasted, 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, 2009. 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, provide compatibility and offer 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 technology providers, telecommunications carriers, government defense agencies, defense contractors, healthcare companies and companies in the financial services and transportation industries, each of which have significant large-scale data management requirements. Our

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FastObjects solution addresses the data management needs of smaller business systems and with our recent acquisition of the db4o assets in December 2008, we further expanded the scope of our solutions in the embedded market.

Our customers’ data management needs can involve many business functions, ranging from management of the use and sharing of a company’s internal enterprise data to the processing of externally originated information such as customer enrollment, billing and payment transaction data. Our solutions have also been used to solve complex data management issues such as fraud detection, risk analysis and yield management 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 our 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.

Continued Adverse Global Economic Conditions Are Negatively Impacting Our Business

The national and global economies and financial markets have experienced a prolonged downturn stemming from a multitude of factors, including adverse credit conditions, slower economic activity, more recent crises relating to concerns about the debt and financial stability of certain European countries, concerns about failures or the instability of major financial institutions and other businesses, inflation and deflation, high rates of unemployment, reduced corporate profits and capital spending, adverse business conditions, liquidity concerns and other factors. The severity of these economic and financial market conditions and the length of time they may persist are 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 2010, our selling environment remained very challenging, causing customers to delay or reduce technology purchases or to make smaller investments in our solutions. 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. The 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 downturn in our customers’ industries has contributed to the substantial reduction in both license and maintenance revenues and could continue to harm our business, operating results and financial condition.

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

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derive from that information. Although we believe our estimates to be reasonable under the circumstances, there can be no assurances that such estimates will be accurate given that the application of these accounting policies necessarily involves the exercise of subjective judgment and the making of assumptions regarding many future variables and uncertainties. We consider “critical” those accounting policies that require our most difficult, subjective or complex judgments, and that are the most important to the portrayal of our financial condition and results of operations. These critical accounting policies relate to revenue recognition, goodwill and acquired intangible assets, and income taxes.

During the first nine months of fiscal 2010, 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, 2009, filed with the SEC on January 29, 2010 (File/Film No. 000-28540/10558455) for a more complete discussion of our critical accounting policies and estimates.

Results of Operations

The following table sets forth, for the periods indicated, the percentage relationship of certain items from our condensed consolidated statement of income to total revenues:

	Three Months Ended				Nine Months Ended
	July 31,		July 31,		July 31,		July 31,
	2010		2009		2010		2009

Revenues:
License	48	%	46	%	51	%	52	%
Maintenance	51		53		48		47
Professional services	1		1		1		1
Total revenues	100		100		100		100

Cost of revenues:
License	2		2		2		1
Amortization of intangible assets	2		2		2		2
Maintenance	10		8		10		8
Professional services	—		1		—		1
Total cost of revenues	14		13		14		12

Gross profit	86		87		86		88

Operating expenses:
Sales and marketing	34		24		31		22
Research and development	24		23		25		21
General and administrative	22		18		21		20
Restructuring	—		—		—		—
Total operating expenses	80		65		77		63

Income from operations	6		22		9		25
Interest and other income (expense), net	1		(1	)	1		1
Income before provision for income taxes	7		21		10		26
Provision for income taxes	3		1		4		3

Net income	4	%	20	%	6	%	23	%

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Revenues

The following table summarizes license, maintenance and professional services revenues for the three and nine months ended July 31, 2010 and July 31, 2009 (in thousands, except percentages):

	Three Months Ended
	July 31,		July 31,		Change
	2010		2009		Amount			Percentage
	(unaudited)
Revenues:
License revenues	$	1,634	$	2,025	$	(391	)	(19	)%
Maintenance revenues	1,757		2,345		(588		)	(25	)
Professional services revenues	33		63		(30		)	(48	)
Total	$	3,424	$	4,433	$	(1,009	)	(23	)%

	Nine Months Ended
	July 31,		July 31,		Change
	2010		2009		Amount			Percentage
	(unaudited)
Revenues:
License revenues	$	5,787	$	7,198	$	(1,411	)	(20	)%
Maintenance revenues	5,534		6,617		(1,083		)	(16	)
Professional services revenues	73		196		(123		)	(63	)
Total	$	11,394	$	14,011	$	(2,617	)	(19	)%

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, the timing of license and support transactions, 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 2010, our revenues have been negatively impacted by the weakened global economy.

Our total revenues decreased by $1.0 million (or 23%) for the three months ended July 31, 2010 compared to the corresponding period in fiscal 2009. This decrease resulted primarily from an approximate $588,000 (or 25%) decrease in maintenance revenues and an approximate $391,000 (or 19%) decrease in license revenues. Professional services revenues also decreased $30,000 (or 48%) for the three months ended July 31, 2010 over the corresponding period in fiscal 2009. Total revenues for the three months ended July 31, 2010 also included approximately $189,000 of unfavorable foreign currency exchange rate fluctuations comprising 19% of the total decrease in revenues.

Our total revenues decreased by $2.6 million (or 19%) for the nine months ended July 31, 2010 compared to the corresponding period in fiscal 2009. This decrease resulted primarily from an approximate $1.4 million (or 20%) decrease in license revenues and an approximate $1.1 million (or 16%) decrease in maintenance revenues. Professional services revenues decreased $123,000 (or 63%) for the nine months ended July 31, 2010 over the corresponding period in fiscal 2009. Total revenues for the nine months ended July 31, 2010 also included approximately $166,000 of favorable foreign currency exchange rate fluctuations. One significant telecommunications customer accounted for 15% of our total revenues for the three months ended July 31, 2010 and 13% of our total revenues for 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 recessionary economic environment. In terms of license revenues, we are still experiencing lengthy sales cycles and customers’ preference for licensing our software on an “as needed” basis, versus the historical practice of prepaying license fees in advance of usage, a factor which can adversely affect the amount of our license revenues. In addition, the deterioration 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 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. These economic circumstances have to date adversely

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affected our license and maintenance revenues in fiscal 2010 and accordingly, on May 6, 2010 we publicly revised our guidance for fiscal 2010 to reflect reduced expectations for total revenue and income from operations for this fiscal year.

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

License revenues were $1.6 million for the three months ended July 31, 2010, a decrease of $391,000 (or 19%) from $2.0 million reported for the comparable period in fiscal 2009. The decrease in license revenues for the three months ended July 31, 2010 compared to the same three month period in 2009 resulted primarily from fewer larger license transactions and included an approximate $100,000 decrease in license revenues resulting from unfavorable foreign currency exchange rate fluctuations.

License revenues were $5.8 million for the nine months ended July 31, 2010, a decrease of $1.4 million (or 20%) from $7.2 million reported for the comparable period in fiscal 2009. The decrease in license revenues for the nine months ended July 31, 2010 compared to the same nine month period in 2009 also resulted primarily from fewer larger license transactions, and was partially offset by an approximate $112,000 increase in license revenues 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 internet and telephone access to our support personnel and software upgrades, as well as dedicated technical assistance and emergency response support options.

Maintenance revenues were $1.8 million for the three months ended July 31, 2010, a decrease of $588,000 from $2.3 million reported for the comparable period in fiscal 2009. The decrease in maintenance revenues was primarily due to an approximate decrease of $195,000 attributable to certain customers electing less expensive support and maintenance options, an approximate decrease of $175,000 reflecting the absence of back maintenance revenues in the current quarter as compared to the corresponding period in fiscal 2009 and an approximate decrease of $87,000 resulting from unfavorable foreign currency exchange rate fluctuations for the quarter ended July 31, 2010.

Maintenance revenues were $5.5 million for the nine months ended July 31, 2010, a decrease of $1.1 million from $6.6 million reported for the comparable period in fiscal 2009. The decrease in maintenance revenues for the nine months ended July 31, 2010 resulted from the absence of back maintenance revenues in the nine months ended July 31, 2010 compared to the same period in fiscal 2009 when approximately $502,000 of back maintenance revenue was recognized, and an approximate decrease of $410,000 resulting from certain customers electing less expensive support and maintenance options. These decreases were partially offset by an increase of approximately $56,000 resulting from favorable foreign currency exchange rate fluctuations during the nine months ended July 31, 2010 compared to the corresponding period in fiscal 2009.

Given recent lower levels of license revenue and the current economic environment, we may in the future obtain fewer new maintenance agreements, may experience lower rates of renewal of our maintenance contracts and our customers may choose to discontinue premium support options and renew maintenance contracts at standard rates.

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 $33,000 and $73,000, respectively, for the three and nine months ended July 31, 2010, a decrease of $30,000 (or 48%) from $63,000 reported for the three months ended July 31, 2009 and a decrease of $123,000 (or 63%) from $196,000 reported for the nine months ended July 31, 2009. These decreases were a result of fewer consulting services performed in our United States and European operations, including $62,000 of consulting revenue from one customer we recognized in the nine months ended July 31, 2009 that was not repeated in fiscal 2010.

International Revenues. The following table summarizes our revenues by geographic area for the three and nine months ended July 31, 2010 and July 31, 2009 (in thousands, except percentages):

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	Three Months Ended July 31,
			Percentage				Percentage		Change
	2010		of revenues		2009		of revenues		Amount			Percentage
	(unaudited)

Revenues by Region:
North America	$	1,396	41	%	$	1,560	35	%	$	(164	)	(11	)%
Europe	1,918		56		2,821		64		(903		)	(32	)
Asia	110		3		52		1		58			112
	$	3,424	100	%	$	4,433	100	%	$	(1,009	)	(23	)%

	Nine Months Ended July 31,
			Percentage				Percentage		Change
	2010		of revenues		2009		of revenues		Amount			Percentage
	(unaudited)

Revenues by Region:
North America	$	4,401	39	%	$	5,219	37	%	$	(818	)	(16	)%
Europe	6,365		56		8,351		60		(1,986		)	(24	)
Asia	628		5		441		3		187			42
	$	11,394	100	%	$	14,011	100	%	$	(2,617	)	(19	)%

Total revenues decreased $1.0 million (or 23%) in the three months ended July 31, 2010 compared to the comparable period of fiscal 2009. The decrease in revenues in absolute dollars was due to revenue decreases of $903,000 in Europe and $164,000 in North America and was partially offset by an increase in revenues of $58,000 in Asia. The decrease in total revenues generally occurred across geographic regions as the global economy remained weak. Total revenues for the three months ended July 31, 2010 also included approximately $189,000 of unfavorable foreign currency exchange rate fluctuations, which are primarily connected with our European operations.

Total revenues decreased $2.6 million (or 19%) in the nine months ended July 31, 2010 compared to the corresponding period of fiscal 2009. The decrease in total revenues generally occurred across geographic regions as the global economy remained weak. The decrease in revenues in absolute dollars was due to revenue decreases of $818,000 in North America and approximately $2.0 million in Europe and included an approximate increase of $166,000 in favorable foreign currency fluctuations. These decreases were partially offset by an increase in revenues of $187,000 in Asia which was primarily a result of an increase in revenues from Japan.

International revenues (revenues from the European and Asian regions) represented approximately 59% of our total revenues for the three months ended July 31, 2010, as compared to 65% for the comparable period in fiscal 2009. The decrease in international revenues as a percentage of total revenues in the quarter ended July 31, 2010 is due to a decrease of $903,000 in revenues from Europe while North American and Asian revenues as a percentage of total revenues increased slightly. International revenues (revenues from the European and Asian regions) represented approximately 61% of our total revenues for the nine months ended July 31, 2010 remaining relatively stable as compared to 63% of our total revenues for the nine months ended July 31, 2009.

Revenues from North America: The $164,000 (or 11%) revenue decrease from North America was primarily due to reduced license revenues from one North American customer that totaled $148,000 in the three months ended July 31, 2010, compared to $301,000 of license revenues from the same customer in the three months ended July 31, 2009.

The $818,000 (or 16%) revenue decrease from North America in the nine months ended July 31, 2010 compared to the corresponding period of 2009 was primarily due to fewer larger license transactions including an approximate decrease of $567,000 in license revenues from three significant North American customers and an approximate decrease of $260,000 in maintenance revenues related to certain customers electing less expensive support options or only partial renewal of maintenance

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	Three Months Ended
	July 31,		July 31,		Change
	2010		2009		Amount			Percentage
	(unaudited)
Cost of revenues:
License	$	60	$	84	$	(24	)	(29	)%
Amortization of intangible assets	76		96		(20		)	(21	)
Maintenance	342		364		(22		)	(6	)
Professional services	17		29		(12		)	(41	)
Total	$	495	$	573	$	(78	)	(14	)%

	Nine Months Ended
	July 31,		July 31,		Change
	2010		2009		Amount			Percentage
	(unaudited)
Cost of revenues:
License	$	216	$	206	$	10		5	%
Amortization of intangible assets	230		296		(66		)	(22	)
Maintenance	1,098		1,080		18			2
Professional services	48		100		(52		)	(52	)
Total	$	1,592	$	1,682	$	(90	)	(5	)%

Total Cost of Revenues. Total cost of revenues was $495,000 (or 14% of revenues) and $1.6 million (or 14% of revenues) for the three and nine months ended July 31, 2010, respectively, slightly lower in absolute dollars when compared to $573,000 (or 13% of revenues) and $1.7 million (or 12% of revenues) for the comparable periods in fiscal 2009.

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 $60,000 (or 4% of license revenues) for the three months ended July 31, 2010, a decrease of $24,000 (or 29%) from $84,000 (or 4% of license revenues) reported for the comparable period in fiscal 2009. This decrease was primarily related to a major release of FastObjects in fiscal year 2009 which generated additional printing and other production costs that were not repeated in the three months ended July 31, 2010.

Cost of license revenues was $216,000 (or 4% of license revenues) for the nine months ended July 31, 2010, an increase of $10,000 (or 5%) from $206,000 (or 3% of license revenues) reported for the comparable period in fiscal 2009. The small increase in absolute dollars reflects an increase of $4,000 due to unfavorable foreign currency fluctuations and an increase of $8,000 due to the extended absence of one employee in the second quarter of our fiscal 2009 which was not repeated in fiscal 2010.

Amortization of Intangible Assets. Amortization of intangible assets consists of amortization of the intangible assets acquired in our fiscal 2009 acquisition of db4o and our fiscal 2004 acquisitions of Poet Holdings, Inc. and FastObjects, Inc.

Amortization of intangible assets was $76,000 for the three months ended July 31, 2010, a decrease of $20,000 (or 21%) from $96,000 reported for the three months ended July 31, 2009. Intangible assets related to JDO Genie Technology were fully amortized in the third quarter of fiscal 2009, causing a decrease of $18,000 in amortization of intangible assets in the three months ended July 31, 2010 compared to the three months ended July 31, 2009.

Amortization of intangible assets was $230,000 for the nine months ended July 31, 2010, representing a decrease of $66,000 (or 22%) from $296,000 reported for the nine months ended July 31, 2009. This decrease included a $73,000 decrease due to intangible assets related to JDO Genie Technology being fully amortized in the third quarter of fiscal 2009, and was partially offset by a $9,000 increase in amortization of intangible assets recorded from our acquisition of the db4o business in the first quarter of fiscal 2009.

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	Three Months Ended
	July 31,		July 31,		Change
	2010		2009		Amount			Percentage
	(unaudited)
Operating expenses:
Sales and marketing	$	1,150	$	1,049	$	101		10	%
Research and development	824		1,022		(198		)	(19	)
General and administrative	759		813		(54		)	(7	)
Restructuring	—		—		—
Total	$	2,733	$	2,884	$	(151	)	(5	)%

	Nine Months Ended
	July 31,		July 31,		Change
	2010		2009		Amount			Percentage
	(unaudited)
Operating expenses:
Sales and marketing	$	3,471	$	3,046	$	425		14	%
Research and development	2,812		2,996		(184		)	(6	)
General and administrative	2,434		2,817		(383		)	(14	)
Restructuring	39		—		39			100
Total	$	8,756	$	8,859	$	(103	)	(1	)%

Total Operating Expenses. Total operating expenses were $2.7 million (or 80% of revenues) for the three months ended July 31, 2010 and $2.9 million (or 65% of revenues) for the comparable period in fiscal 2009. The $151,000 (or 5%) decrease in total operating expenses for the three months ended July 31, 2010 resulted primarily from a decrease of approximately $126,000 in our research and development costs related to the consolidation of engineering activities into one location and the reduced use of outside consultants, and an approximate decrease of $128,000 due to favorable foreign currency exchange rate fluctuations. These reductions were partially offset by an approximate increase of $140,000 related to a planned expansion of our marketing programs in both the United States and in our European operations.

Total operating expenses were $8.8 million (or 77% of revenues) for the nine months ended July 31, 2010 and $8.9 million (or 63% of revenues) for the comparable period in fiscal 2009. The $103,000 (or 1%) decrease in total operating expenses for the nine months ended July 31, 2010 resulted primarily from an approximate decrease of $329,000 in our general and administrative expenses which was largely attributable to a reduction in outside services and regulatory compliance costs, a decrease of approximately $297,000 related to the termination of our former Executive VP of Field Operations in December 2009 and a decrease of approximately $190,000 in our research and development costs, primarily due to the consolidation of our engineering activities into one location. These reductions were partially offset by an increase of approximately $378,000 related to the planned expansion of our sales force and an approximate increase of $290,000 due to the expansion of our marketing efforts in the United States and in our European operations and an increase of approximately $84,000 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, distributor costs, expenses associated with trade shows, travel and other marketing communication costs, such as advertising and other marketing programs.

Sales and marketing expenses were $1.2 million (or 34% of revenues) for the three months ended July 31, 2010 and $1.0 million (or 24% of revenues) for the comparable period in fiscal 2009. The $101,000 increase (or 10%) in sales and marketing expenses for the three months ended July 31, 2010 related primarily to an approximate increase of $64,000 due to the realignment of our marketing efforts, including the addition of a new marketing manager and our VP Marketing and Strategic Product Development, an approximate $76,000 increase in marketing programs including an e-marketing campaign and tradeshow participation, partially offset by a decrease of approximately $40,000 due to favorable foreign currency exchange rate fluctuations

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Sales and marketing expenses were $3.5 million (or 31% of revenues) for the nine months ended July 31, 2010 and $3.0 million (or 22% of revenues) for the comparable period in fiscal 2009. The $425,000 (or 14%) increase in sales and marketing expenses for the nine months ended July 31, 2010 related primarily to an approximate increase of $378,000 in connection with the expansion of our U.S. sales operations, including increased salary and related costs, facilities, travel costs and our VP of Sales North America (hired in March of 2009), an approximate $290,000 increase in global marketing programs including the addition of a new marketing manager and our VP Marketing and Strategic Product Development, and an approximate increase of $18,000 due to unfavorable foreign currency exchange rate fluctuations. These increases were partially offset by an approximate decrease of $297,000 related to expenses associated with the termination of our former Executive VP of Field Operations in December 2009 which were not repeated in the nine months ended July 31, 2010.

For the remainder of fiscal 2010, we expect our sales and marketing expenses to continue to increase at a somewhat reduced rate as we invest in efforts to expand our customer base. We expect these expenses to continue to represent a considerable percentage of our total operating expenditures in the foreseeable future.

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 $824,000 (or 24% of revenues) for the three months ended July 31, 2010 and $1.0 million (or 23% of revenues) for the comparable period in fiscal 2009. The $198,000 decrease (or 19%) for the three months ended July 31, 2010 included an approximate decrease of $158,000 related to the wind-down of our Indian operations, an approximate decrease of $56,000 due to reduced use of outside consultants, an approximate decrease of $39,000 due to reduced use of outside consultants for db4o, and an approximate decrease of $71,000 due to favorable foreign currency exchange rate fluctuations. These increases were partially offset by an increase of $127,000 in salary and related costs for six personnel additions in our European engineering operations.

Research and development expenses were $2.8 million (or 25% of revenues) for the nine months ended July 31, 2010 and $3.0 million (or 21% of revenues) for the comparable period in fiscal 2009. The $184,000 decrease (or 6%) for the nine months ended July 31, 2010 included an approximate decrease of $331,000 related to the wind-down of our Indian operations, a decrease of $84,000 in reduced outside consulting services and an approximate decrease of $71,000 related to reduced outside consultants for db4o. These decreases were partially offset by an approximate increase of $254,000 in salary and related costs for personnel additions in our European operations and an approximate increase of $51,000 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 2010.

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

General and administrative expenses were $759,000 (or 22% of revenues) for the three months ended July 31, 2010 and $813,000 (or 18% of revenues) for the comparable period in fiscal 2009. The approximate $54,000 (or 7%) decrease in general and administrative expense for the three months ended July 31, 2010 was due to an approximate $18,000 decrease in professional services costs, a $16,000 decrease in Directors’ share based compensation due to the lower average exercise price of the vesting stock options and an approximate decrease of $17,000 due to favorable foreign currency exchange fluctuations.

General and administrative expenses were $2.4 million (or 21% of revenues) for the nine months ended July 31, 2010 and $2.8 million (or 20% of revenues) for the comparable period in fiscal 2009. The $383,000 (or 14%) decrease in general and administrative expense for the nine months ended July 31, 2010 was due to an approximate $210,000 decrease in regulatory compliance costs and other professional services costs, a $45,000 decrease in executive bonus, profit sharing and Directors’ share based compensation costs, a decrease of $26,000 in executive and Directors travel costs, a decrease of $45,000 in allocated facilities costs and a $14,000 decrease in bad debt expense, partially offset by an approximate increase of $11,000 due to unfavorable foreign currency exchange fluctuations.

We expect our general and administrative expenses to generally remain at current levels for the remainder of fiscal 2010.

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Restructuring. On September 22, 2009, the Company committed to the implementation of a restructuring pursuant to which it has closed its research and development facility in Pune, India. The restructuring plan was undertaken to consolidate our research and development efforts into one location in Germany in order to streamline operations, create management efficiencies and increase productivity. The restructuring plan was substantially completed in the fiscal quarter ended April 30, 2010.

No restructuring charges were recorded during the three months ended July 31, 2010. Restructuring charges were $39,000 for the nine months ended July 31, 2010, which included $38,000 of severance and retention costs and $28,000 of contract termination and other direct costs of closure, partially offset by a $29,000 decrease related to the collection of monies due for certain current assets for which an allowance had previously been established. There were no restructuring charges during the three and nine months ended July 31, 2009.

Interest and Other Income (Expenses), Net

The following table summarizes our interest and other income (expenses), net for the three and nine months ended July 31, 2010 and July 31, 2009 (in thousands, except percentages):

	Three Months Ended
	July 31,		July 31,			Change
	2010		2009			Amount			Percentage
	(unaudited)
Interest and other income (expenses), net:
Interest income	$	15	$	43		$	(28	)	(65	)%
Foreign exchange gain (loss)	33		(67		)	100			149
Other income	—		—			—			—
Total	$	48	$	(24	)	$	72		300	%

	Nine Months Ended
	July 31,		July 31,			Change
	2010		2009			Amount			Percentage
	(unaudited)
Interest and other income (expenses), net:
Interest income	$	42	$	247		$	(205	)	(83	)%
Foreign exchange gain (loss)	98		(15		)	113			753
Other income	1		—			1			100
Total	$	141	$	232		$	(91	)	(39	)%

Interest and other income (expenses), 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 and losses as a result of settling transactions denominated in currencies other than our functional currency.

Interest and other income (expenses), net, was income of $48,000 (or 1% of total revenues) and expense of $24,000 (or 1% of total revenues) for the three months ended July 31, 2010 and 2009, respectively. The increase in absolute dollars of $72,000 (or 300%) for the three months ended July 31, 2010 when compared to July 31, 2009 was largely due to a favorable change of $100,000 in foreign exchange gains and losses resulting from settling transactions denominated in currencies other than our functional currency, and was partially offset by a decrease in interest income of $28,000 as a result of the lower general level of interest rates.

Interest and other income (expenses), net, was $141,000 (or 1% of total revenues) and $232,000 (or 1% of total revenues) for the nine months ended July 31, 2010 and 2009, respectively. The decrease of $91,000 (or 39%) was largely due to a decrease in interest income of $205,000 as a result of the lower general level of interest rates, partially offset by an approximate increase of $113,000 of foreign exchange gains 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 provision for income taxes for the three and nine months ended July 31, 2010 and July 31, 2009 (in thousands, except percentages):

	Three Months Ended
	July 31,		July 31,		Change
	2010		2009		Amount			Percentage
	(unaudited)
Provision for income taxes:
Foreign withholding taxes	$	1	$	4	$	(3	)	(75	)%
Provision for income taxes - Europe	70		47		23			49
Provision for income taxes - India	—		—		—			—
Federal, state and franchise taxes	43		10		33			330
Total	$	114	$	61	$	53		87	%

	Nine Months Ended
	July 31,		July 31,		Change
	2010		2009		Amount			Percentage
	(unaudited)
Provision for income taxes:
Foreign withholding taxes	$	55	$	51	$	4		8	%
Provision for income taxes - Europe	356		352		4			1
Provision for income taxes - India	—		1		(1		)	(100	)
Federal, state and franchise taxes	43		69		(26		)	(38	)
Total	$	454	$	473	$	(19	)	(4	)%

The Company’s tax provisions were based upon our projected fiscal 2010 and fiscal 2009 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. In addition, during the nine months ended July 31, 2010, the strengthening of the US dollar against the euro created taxable gains from US denominated currencies held by our German operations. Consequently, we accrued income taxes for our European operations of approximately $70,000 and $356,000, for the three and nine months ended July 31, 2010, respectively, and approximately $47,000 and $352,000 for the three and nine months ended July 31, 2009, respectively. The $53,000 increase in the provision for income taxes for the three months ended July 31, 2010 compared to the three months ended July 31, 2009 was primarily attributable to California franchise taxes resulting from the temporary suspension of tax loss carryforwards and taxable foreign currency gains in our European operations. The $19,000 decrease in the provision for income taxes for the nine months ended July 31, 2010 over the comparable period in fiscal 2009 was primarily attributable to decreased net income and was partially offset by an approximate $14,000 increase due to unfavorable foreign currency exchange fluctuations.

We incurred foreign withholding taxes of approximately $1,000 and $4,000, respectively, for the three months ended July 31, 2010 and 2009, and approximately $55,000 and $51,000, respectively, for the nine months ended July 31, 2010 and 2009, which we have included in our income tax provision.

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 forecasted operating results. See Note 10 to the Notes to Condensed Consolidated Financial Statements included in this report for additional information regarding the treatment of taxes in our financial statements.

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LIQUIDITY AND CAPITAL RESOURCES

The following table sets forth certain consolidated balance sheets data as of July 31, 2010 and October 31, 2009 and certain consolidated statements of cash flows data for the nine months ended July 31, 2010 and 2009 (in thousands, except percentages):

	July 31,		October 31,		Percentage
	2010		2009		Change
	(unaudited)

Working Capital	$	24,160	$	26,791	(10	)%
Cash and cash equivalents	$	25,464	$	27,812	(8	)%

	Nine Months Ended
	July 31,			July 31,			Percentage
	2010			2009			Change
	(unaudited)

Net cash provided by operating activities	$	2,244		$	4,690		(52	)%
Net cash used in investing activities	(624		)	(2,546		)	75
Net cash used in financing activities	$	(3,463	)	$	(2,740	)	(26	)%

Cash and Cash Equivalents

We funded our operating activities from cash generated by our operations during the nine months ended July 31, 2010. As of July 31, 2010, we had cash and cash equivalents of approximately $25.5 million, a decrease of $2.3 million from the $27.8 million of cash and cash equivalents we held at October 31, 2009. The decrease in cash and cash equivalents during the nine months ended July 31, 2010 was primarily attributable to our repurchase of 296,778 common shares of Company stock for approximately $3.6 million.

As of July 31, 2010, $6.2 million of our $25.5 million in cash and cash equivalents at that date was held in foreign financial institutions, of which $2.1 million was held in foreign currencies.

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

	July 31, 2010					October 31, 2009
	Local Currency			U.S. Dollar		Local Currency			U.S. Dollar
	(unaudited)					(unaudited)
Cash in foreign currency:
Euros	€	1,354		$	1,766	€	2,936		$	4,347
British Pound	£	25		40		£	15		24
Indian Rupee	Rs.		13,994	301		Rs.		18,069	383
Total				$	2,107				$	4,754

We transact business in various foreign currencies and, accordingly, we are subject to exposure from adverse movements in foreign currency exchange rates. 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 2010.

The effect of changes in foreign currency exchange rates on our net operating results in the third quarter of fiscal 2010, as compared to the third quarter of fiscal 2009, was comprised of approximately $189,000 of unfavorable foreign currency fluctuations on our revenues, $19,000 of favorable foreign currency fluctuations on our cost of revenues, and $128,000 of favorable foreign currency fluctuations on our operating expenses, resulting in a net unfavorable effect of approximately $42,000 on our operating income for the three months ended July 31, 2010.

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The effect of changes in foreign currency exchange rates on our net operating results for the nine months ended July 31, 2010, compared to the corresponding period in fiscal 2009, was comprised of approximately $166,000 of favorable foreign currency fluctuations on our revenues, $13,000 of unfavorable foreign currency fluctuations on our cost of revenues, and $84,000 of unfavorable foreign currency fluctuations on our operating expenses, resulting in a net favorable effect of approximately $69,000 on our operating income.

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 fluctuations 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 92% of our total cash balances at July 31, 2010 in 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 30, 2009 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 2010. This stock repurchase program is currently scheduled to expire upon the earlier of October 31, 2010, or 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. As of July 31, 2010, pursuant to this stock repurchase program, Versant had acquired 296,778 common shares in block trades and on the open market for approximately $3.6 million at an average purchase price of $12.19 per share, leaving approximately $1.4 million in authorized funds available for future repurchases of stock under this program.

Taking into consideration the contingent cash outflows related to potential common stock repurchases, we believe that with our current cost structure and based on our current estimates of revenues and collections in fiscal 2010, we expect to operate with a moderate negative cash flow in fiscal 2010.

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.

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 60 days net.

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 51 days and 55 days for the three months ended July 31, 2010 and 2009, respectively. Collections of accounts receivable and related DSO could fluctuate in future periods due to the timing and amount of our revenues, customer actions and the effectiveness of our collection efforts.

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Cash Flow used in Investing Activities

The change in cash flows from investing activities primarily relates to purchases of property and equipment (including replacement of outdated servers) of $459,000 for our new offices in Hamburg, Germany and $180,000 of contingent payments to Servo Software related to our acquisition of the db4o assets.

For the nine months ended July 31, 2010 and 2009, $180,000 and $2.4 million of cash was used for the acquisition of the db4o assets, respectively.

Cash Flow used in Financing Activities

On December 1, 2008 and November 30, 2009, 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 that was approved on December 1, 2008 expired pursuant to its own terms on October 31, 2009.

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

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.

For the nine months ended July 31, 2009, $2.7 million of cash was used by financing activities, consisting of $3.0 million of cash used to repurchase our common stock, which was partially offset by cash inflows of $251,000 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 purchase of shares under the ESPP and the cash proceeds we receive upon exercise and purchase of these securities. As of July 31, 2010, we had approximately 48,000 shares available to issue under our Employee Stock Purchase Plan, approximately 185,000 shares available to issue under our current Equity Incentive Plan and our Director Stock Option Plan and 504,000 shares in outstanding stock option grants under our current Equity Incentive Plan and our Director Stock Option Plan. 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, 2010 consist of obligations under operating leases for facilities and equipment. In September 2009, the Company entered into an amended lease agreement to extend the office facilities lease for its U.S. headquarters and in July 2009, the Company entered into a new lease agreement for its European headquarters.

In December 2008, we committed $2.6 million in cash to acquire the assets of the database software business of privately-held Servo Software, Inc. (formerly db4objects, Inc.). The final contingent payment of $90,000 was paid on May 28, 2010.

The Company has been notified by a customer of a potential overpayment of license royalties to Versant. Management contests the customer’s claim and currently believes there will be no material adverse effect to the Company. The results of any dispute are inherently uncertain and no estimate can be made at this time of any potential loss.

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

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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 12, Recent Accounting Pronouncements of Notes to Condensed Consolidated Financial Statements under Item 1 of Part I of this Report.

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, 2009, filed with the SEC on January 29, 2009 (File/Film No. 000-28540/10558455).

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. 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 2010.

Our exposure to foreign currency exchange rate 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 fluctuations 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 92% of our total cash balance at July 31, 2010 in U.S. dollars to assist in minimizing the impact of foreign currency fluctuations.

We did not own any derivative financial instruments as of July 31, 2010.

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.

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ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures.

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 by the company 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 that it files or submits 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.

Our disclosure controls and procedures 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 during the three and nine months ended July 31, 2010 that has materially affected, or is reasonably likely to materially affect, our 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.

Our Chief Executive Officer and Chief Financial Officer have concluded that there have not been any changes in our internal control over financial reporting during the three and nine months ended July 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

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

Table of Contents

The stock repurchase activity under this stock repurchase program during the three and nine months ended July 31, 2010 is summarized as follows:

	Total Number of Shares Purchased	Average Price Paid Per Share(1)		Total Number of Shares Purchased as Part of Publicly Announced Program	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
Period:
May 1 - May 31, 2010	37,230	$	11.89	37,230	$	3,429,559
June 1 - June 30, 2010	172,005	$	11.15	172,005	$	1,511,678
July 1 - July 31, 2010	11,484	$	11.30	11,484	$	1,381,956

Three months ended July 31, 2010	220,719	$	11.28	220,719

November 30, 2009 - April 30, 2010	76,059	$	14.83	76,059

Nine months ended July 31, 2010	296,778	$	12.19	296,778

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

ITEM 6. EXHIBITS

(a) Exhibits

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

Exhibit

Incorporated by Reference

Filed
with
this

Number

Exhibit Description

Form

File Number

Exhibit

File Date

10-Q

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

* 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.

		VERSANT CORPORATION

Dated: September 14, 2010		/s/ Jerry Wong
		Jerry Wong
		Vice President, Finance
		Chief Financial Officer
		(Duly Authorized Officer, Principal
		Financial and Accounting Officer)


		/s/Jochen Witte
		Jochen Witte
		President and Chief Executive Officer (Duly Authorized Officer and Principal Executive Officer)