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2009 Annual Report


Table of Contents Letter to Our Shareholders

8

Management’s Discussion and Analysis

13

Corporate Governance

19

Report on the Consolidated Financial Statements, Consolidated Financial Statements and Notes

33

Report to the General Meeting of Day Software, Financial Statements and Notes

59

Share Data and Other Information

67


In 8 seconds, a business will either win or lose a customer on the Web. Day Software is in the business of making them win.


Times are changing. Fast. 74 percent of businesses recognize the need to change the way they do business online. And they’re making significant investments in technology to achieve success. That’s because their consumers are demanding more. More interaction, more communication, more quickly. Rich media, personalization, and community are now must haves, not nice to haves. The rise of social networks mean businesses must communicate with their customers across more channels, more often. And the emergence of the Cloud has created even more opportunities to respond to these growing consumer demands. The new Web means business.

2

Showing up is not enough anymore. The new Web is where businesses must connect to customers, build their brands, and drive revenue. It’s a new generation where powerful tools and technologies are required. Times like this call for cutting-edge technology, agility, and strong leadership. It’s time for Day, the leading content management software company designed for the new Web.

According to Forrester Research: 74% of Information and Knowledge Management decision-makers plan on increasing their investment in Web content management over the next 12 months. Source: February 2010 Global WCM User Adoption Online Survey


percent


Businesses require agility. Now. 35 days to revenue. That’s how quickly Newsweek was up and running with Day Software. Which means they were also able to deliver value to their customers and revenue to their shareholders in record time. No one in enterprise software has been able to measure time to implementation in days. Until now. Until Day.

Time to Web just isn’t enough anymore. Businesses must now focus on accelerating their time to revenue. And Day delivers with the fastest time to revenue in the enterprise software category.

4

Implementation time for Newsweek’s initial Day Software release project, http://2010.newsweek.com


days


Adobe did it in hi tech. Williams-Sonoma and John Lewis did it in retail. Daimler, Volkswagen, and Audi did it in automotive. And, MTV, The Daily Mail, Time, and Newsweek did it in publishing.

These leading global brands saw that the Web was changing. And fast. They recognized that sea changes in consumer expectations and the rise of Cloud computing were disrupting business as usual. To seize these new opportunities, they turned to Day, accounting for a 45 percent increase in licensing revenue in 2009. 6


percent


Dear shareholders, customers, and partners


A Letter from Day Software Chairman Barry Bycoff

The new Web means business. In earlier generations of the Web, companies focused on broadcasting corporate information as an adjunct channel to their existing corporate communications strategies. The advent of Web 2.0 technologies, the rise of social networking, and new expectations for customer experiences on both the Web and mobile devices has fundamentally changed the way companies must engage and interact with their customers, prospects, and partners.

Letter to Our Shareholders

In the new Web, agility matters. And in 2009, Day again demonstrated that agility by seizing opportunities afforded by a new wave of investment in the Web to position our CQ5 suite as the market-leading platform for Web 2.0.

In the new Web, the online channel is no longer just a means of publishing corporate information. It’s now the primary platform for engaging prospects, capturing new customers and market share, driving new sources of revenues, and providing superior customer service to build customer loyalty and retention. With today’s uncertain economic climate, companies are relying even more on the Web and mobile channels to fuel corporate growth and drive profitability. Business imperatives to drive growth through the online channel are a key force in Day’s success. But they are not the only factor contributing to renewed investments in solutions like CQ5. Businesses today need to fuel their investments in new growth initiatives by driving operational efficiencies as well. Along with the rise of the new Web, Cloud computing is a disruptive technology that is changing the landscape of IT organizations and the nature of the solutions they are evaluating for their Web and mobile initiatives. Today’s IT organization needs to do more with less and meet accelerating timelines for delivering on new business initiatives. The Cloud is the catalyst for IT agility, enabling IT organizations to dramatically lower costs, increase the speed of deployment, and meet critical performance requirements. In 2009, the Cloud became a second driving force behind new investment in the Web. New customer demand coming from CQ5’s unique, Cloud-enabling technology was an exciting area of growth for Day in 2009 and one we see continuing to accelerate in 2010. Day’s executive team moved fast this year to capture these opportunities with exceptional results, with strong customer base growth, revenue, and profitability. Again, in both the new Web and for Day Software, agility matters. 9

Barry Bycoff Chairman of the Board


A Letter from Day Software CEO Erik Hansen

To seize the new Web, companies around the globe are rethinking their legacy Web strategies and investing in new solutions for Web Content Management (WCM). In 2009, Day capitalized on this new wave of investment and achieved break-out results to become the emerging leader of a second generation of the Web and the WCM market. 2009 was a year for Day to make smart investments in sales, marketing, and product to build momentum, gain market share, and seize the new Web. These investments fueled immediate results with major new customer wins, strengthened go-to-market programs, and industry recognition for our marketleading solutions. In 2009 we invested in our sales organization to open new markets and drive growth from existing sales regions. We established new operations in the U.K., France, and Italy and added capacity in North America, Central Europe, and Asia-Pacific. Over the course of the past 12 months, we grew our installed base by 30% globally and leveraged our expanded sales organization to drive renewed investment in Day and CQ5 from our installed base of global brand leaders. In the U.K., we built an exciting installed base of new customers, including Virgin Media, Royal Bank of Scotland (RBS), John Lewis Partnership, MailOnline (The Daily Mail, Metro), and WGSN. In France and Italy, we secured major new wins at Telecom Italia, Louis Vuitton, Accor, LaRedoute, Prenatal, and Esselunga. Customer highlights from our strengthened operations in North America, Central Europe, and Asia-Pacific include Adobe, General Motors (GM), the Department of Defense (Army), Newsweek, MTV, Boehringer Ingelheim, Fraport, Fraunhofer, Starhub, and the Government of Singapore. These customer wins were joined by major new investments in the Web and CQ5 from Day’s installed base of global brand leaders, including Daimler, Audi, Volkswagen, and Nissan.

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Day’s customer traction resulted in a strong operational performance in 2009. For the year, Day grew total revenue to TCHF 36,342, a 31% increase over 2008. This growth was driven by a 45% increase in license revenue to TCHF 16,475, demonstrating increased demand for our CQ5 platform from both new and existing customers. While seizing this new growth, we also focused on operational excellence and profitable execution. For the year, we significantly increased profitability and delivered a strong 11% operating income margin. Our balance sheet is clean, transparent, and has no debt. With strong cash from operations, we ended the year with TCHF 22,034, an overall increase of 72% for 2009.


Letter to Our Shareholders

This strong execution was also the result of significant investment in our go-tomarket programs. As companies invest in the new Web, organizations leverage the industry and solution expertise of leading global interactive agencies and systems integrators. In 2009, Day invested in building new channel relationships and launching new partner programs to develop joint opportunities with leading global interactive agencies and systems integrators. Day secured new wins and customer deployments with agency partners including Sapient, MRM Worldwide, LBi, Razorfish, and Digitas and system integration partners including Logica, T-Systems, Thoughtworks, and Cambridge Technology Partners. In combination with over a dozen new or expanded relationships with leading regional partners, Day also expanded its go-to-market capabilities through the channel, with over 60% of net new wins being jointly developed with partners. Looking ahead to 2010, Day’s investment in building a stronger channel and developing a channel-led sales model will continue to fuel new opportunities as customers engage trusted 3rd party agencies and system integrators to lead their next generation WCM investments. Lastly, in 2009 Day continued to invest in product and technology innovation to fuel the momentum behind our CQ5 WCM platform. This year saw the introduction of new CQ5 modules for Digital Asset Management and Social Collaboration and the release of our standalone CQ5 ECM platform, CRX. These new releases catalyzed renewed investment within our installed based, driving both product upgrades and new license sales. This continued innovation to keep Day at the forefront of new investment in the Web garnered strong industry recognition, with leading industry analyst Gartner Research naming Day as a Visionary in both the Magic Quadrant for WCM and Magic Quadrant for ECM reports. This is a remarkable achievement that validates Day’s emerging leadership position in a fast growing and exciting market. In 2009 Day executed with great agility to build on the momentum of CQ5 and increase market share. 2009 was a year in which agility mattered. With renewed investment in the Web, the unique opportunity afforded by disruptive change in Day’s market, and the strength of Day’s CQ5 platform, we look forward to building on our 2009 successes to create an even stronger 2010.

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Erik Hansen Chief Executive Officer


Management’s Discussion and Analysis

Financial Highlights 2009

2008

Software licenses revenue

16,475

11,347

Product support revenue

11,478

9,680

Services revenue

8,389

6,784

Total revenue

36,342

27,811

Gross profit

27,658

19,056

Operating expenses

23,498

21,377

Income (loss) from continuing operations before taxes

4,160

(2,321)

Provision for income taxes

1,617

1,807

Net income (loss) from continuing operations

2,706

(6,511)

Net loss from discontinued operations, net of tax

(5,491)

Net income (loss)

2,706

(12,002)

Cash

22,034

12,814

Management’s Discussion and Analysis

In thousands CHF

Increased Revenue Growth 2008 vs. 2009

45% Increase in Software Licenses 19% Increase in Product Support 24% Increase in Services

Revenues

Gross Profit

Cash 25000

30000

40000 35000

25000

20000

30000 20000 25000

15000 15000

20000

10000

15000

10000

10000

2009

2008

0

2007

2009

2008

0

2007

2009

2008

0

2007

5000

13

5000

5000


Results of Operations Company Revenue For the years ended December 31

In thousands CHF

Percentage of total revenue

2009

2008

2009

2008

Software licenses revenue

16,475

11,347

45%

41%

Product support revenue

11,478

9,680

32%

35%

8,389

6,784

23%

24%

36,342

27,811

100%

100%

Services revenue Total revenue

Gross Profit & Gross Profit Margin

For the years ended December 31

2009

2008

Gross Profit in thousands CHF

27,658

19,056

Gross Profit Margin%

76%

69%

Operating Expenses

Percentage of total revenue

For the years ended December 31

2009

2008

2009

2008

Research and development (“R&D”)

6,622

6,776

18%

24%

11,452

9,409

32%

34%

5,424

5,192

15%

19%

23,498

21,377

65%

77%

Sales and marketing (“S&M”) General and administrative (“G&A”) Total operating expenses

14

In thousands CHF


Revenues

Day’s revenue base continues to be geographically diverse. The Company expanded its sales team to new geographies during the year including France, Italy and Scandinavia. In 2009, the Company generated total revenues of TCHF 18,799 (52% of total revenues) in Europe and TCHF 17,543 (48% of total revenues) in the Americas and Asia Pacific. In 2008, the Company generated total revenues of TCHF 14,246 (51% of total revenues) in Europe and TCHF 13,565 (49% of total revenues) in the Americas and Asia Pacific. The amount of revenue generated in Asia Pacific was less than 2% for both 2009 and 2008. The functional currencies of the Company’s foreign subsidiaries are their respective local currencies as these are the currencies of the primary economic environment in which the subsidiaries operate. These currencies include the U.S. dollar, British Pound, the Euro and the Singapore Dollar. The financial statements of these foreign subsidiaries are translated into the Swiss Franc, the Company’s reporting currency, to prepare the consolidated financial statements. The resulting foreign currency translation adjustments are included in other comprehensive income (loss). Changes in the exchange rates of these foreign currencies against the Swiss Franc will result in currency translation effects that could have a significant impact on the Company’s consolidated financial statements. The Company does not currently hedge these foreign exchange risks with financial

instruments. The Company will continue to be subject to these foreign currency translation effects as long as it continues to conduct business on a global basis. If the 2009 revenue of the foreign subsidiaries had been translated into the Swiss Franc at the average exchange rates in effect for 2008, consolidated revenue would have been approximately TCHF 842 higher for 2009.

Gross Profit

Management’s Discussion and Analysis

Total revenue increased TCHF 8,531, or 31% to TCHF 36,342 for the year ended December 31, 2009 from TCHF 27,811 in the prior year. Software license revenue increased TCHF 5,128, or 45% to TCHF 16,475 for the year ended December 31, 2009 from TCHF 11,347 in the prior year. The expansion of sales teams to new territories, namely Northern and Southern Europe, resulted in software revenue growth of 74% in these regions during 2009. In addition, the expansion of the US sales force at the end of 2008 resulted in a 22% increase in software licenses revenue during 2009. Product support revenue increased TCHF 1,798, or 19% to TCHF 11,478 for the year ended December 31, 2009 from TCHF 9,680 in the prior year due to the Company’s growing customer base and consistent product support renewals. Services revenue increased TCHF 1,605, or 24% to TCHF 8,389 for the year ended December 31, 2009 from TCHF 6,784 in the prior year due to increase in service contracts as a result of increase in license contracts and growing customer base.

Total gross profit increased TCHF 8,602, or 45% to TCHF 27,658 for the year ended December 31, 2009 from TCHF 19,056 in the prior year. The increase in gross profit and gross profit margin is due to the 31% increase in revenue and the decrease in the write-down of capitalized software costs from TCHF 1,635 in 2008 to TCHF 0 in 2009 as there were no capitalized software costs remaining in 2009. If the 2009 gross profit of the foreign subsidiaries had been translated into the Swiss Franc at the average exchange rates in effect for 2008, consolidated gross profit would have been approximately TCHF 199 higher for 2009.

Operating Expenses Total operating expenses increased TCHF 2,121, or 10% to TCHF 23,498 for the year ended December 31, 2009 from TCHF 21,377 in 2008. R&D expenses decreased TCHF 154, or 2% to TCHF 6,622 in 2009 from TCHF 6,776 in 2008. S&M expenses increased TCHF 2,043, or 22% to TCHF 11,452 in 2009 from TCHF 9,409 in 2008 due to the increase in sales expense relating to the expansion of sales teams to new geographies and the increase of marketing activities, trade shows and customer events. G&A expenses increased TCHF 232, or 4% to TCHF 5,424 in 2009 from TCHF 5,192 in 2008 due to increased expenditure to support the company’s growth. If 2009 operating expenses of the foreign subsidiaries had been translated into the Swiss Franc at the average exchange rates in effect for 2008, consolidated operating expenses would have been approximately TCHF 339 higher for 2009.

15


Foreign Currency Transaction Losses

Liquidity and Capital Resources

Foreign exchange gains and losses resulting from specific foreign currency transactions are included in the consolidated results of operations. There was a foreign exchange gain of TCHF 102 for the year ended December 31, 2009 compared to a foreign exchange loss of TCHF 2,530 for the year ended December 31, 2008. The foreign exchange losses for 2008 include a TCHF 2,296 non-cash charge resulting from reclassification of foreign exchange losses on intercompany balances accumulated in other comprehensive income (loss) into current year consolidated results of operations as the settlement of these intercompany balances is now planned in the foreseeable future. The foreign exchange losses were due to the declining value of the U.S. dollar, Euro and British Pound against the Swiss Franc during 2008. During 2008, some of these intercompany balances were eliminated by write off. The Company will settle these remaining intercompany balances as soon as the cash is available to minimize future foreign exchange gains and losses related to these balances.

As of December 31, 2009, cash and cash equivalents amounted to TCHF 22,034, an increase of TCHF 9,220 from TCHF 12,814 as of December 31, 2008.

Net Income Net income from continuing operations was TCHF 2,706 for the year ended December 31, 2009 compared to net loss from continuing operations of TCHF 6,511 for the year ended December 31, 2008. Net loss from discontinued operations was TCHF 0 and TCHF 5,491 for the years ended December 31, 2009 and 2008, respectively. On December 31, 2008, the Company sold its wholly owned subsidiary, MarketingNet, a UK company active in the agency services business. This sale was part of the Company’s efforts to refocus its UK operations on its core business and drive UK expansion through a channel-driven model. MarketingNet’s results of operations have been reported as a component of discontinued operations in the consolidated statements of operations and cash flows for the year ended December 31, 2008. Net income was TCHF 2,706 for the year ended December 31, 2009 compared to net loss of TCHF 12,002 for the year ended December 31, 2008.

16

Accounts receivable net, including unbilled receivables, as of December 31, 2009 amounted to TCHF 11,615 compared to TCHF 9,339 at December 31, 2008. Increase in accounts receivable was the result of a 31% increase in sales from December 2009 compared to December 2008. Average days-sales-outstanding, which exclude unbilled receivables, as of December 31, 2009 decreased to 104 days, as compared to 118 days as of December 31, 2008. Total current and non-current deferred tax assets decreased to TCHF 1,543 at December 31, 2009 from TCHF 2,639 as of December 31, 2008 due to utilization of a portion of the deferred tax assets during 2009. Deferred revenue increased to TCHF 7,942 at December 31, 2009, as compared TCHF 5,187 as of December 31, 2008, respectively, due to an increase in maintenance contracts. Accrued liabilities increased to TCHF 4,774 as of December 31, 2009, as compared to TCHF 3,196 as of December 31, 2008 due to an increase in accrued commissions, bonuses, payroll taxes and other employee benefits at the end of December 31, 2009.

Employees As of December 31, 2009, the Company had 134 employees, as compared to 115 employees as of December 31, 2008. Headcount increased in all departments during 2009 to support the growth and infrastructure of the Company. The main increases were sales and global services group (GSG), where headcount increased by 7 employees each per department.


Management’s Discussion and Analysis

140 G&A R&D

120

GSG MKTG 100

Sales

80

60

40

H2 2009

0

H2 2008

20

17


Corporate Governance Group Structure and Shareholdings Group Structure The Company, through its wholly owned subsidiaries, provides a unified suite of Web Content Management, Digital Asset Management, and Social Collaboration software built on a modern, open, standards-based Enterprise Content Management platform. The Company’s flagship product, CQ5, is an open, Web 2.0 platform for business leaders to drive cost-effective marketing campaigns, sales, and self-service initiatives across global markets and output channels, including Web, mobile, email, and print. The Company CRX product is core IT infrastructure for the rapid development and scalable hosting of new

multi-channel Web 2.0 initiatives in the Cloud. The Company products and services are marketed and sold through Europe, the Americas, and Asia Pacific through its direct sales force and channel partners. The Company has no listed subsidiaries. The capitalization of Day as of December 31, 2009 was TCHF 114,540. Capitalization was calculated taking the closing market stock price at December 31, 2009 multiplied by the number of shares outstanding at December 31, 2009.

Subsidiary Domicile

Functional Currency

Share Capital in Thousands

Ownership

Day Management AG

Basel, Switzerland

CHF

250

100%

Day Software AG Day Software GmbH

Basel, Switzerland

CHF

100

100%

Munich, Germany

EUR

25

100%

Day Software, Inc.

United States

USD

420

100%

Day Software Ltd.

United Kingdom

GBP

2,800

100%

Day Interactive Singapore PTE Ltd.

Singapore

SGD

100

100%

Corporate Governance

Non-listed Subsidiaries

Significant Shareholders Shareholders reported the following holdings between January 1, 2009, and December 31, 2009 Name

Publication Date DD/MM

Shares Owned

Options Outstanding

Shares & Options Owned as a % of Commercial Register Shares

Reason for Reporting

Ralf Sievers

13/01

69,560

4.83%

Change of threshold

Erik Hansen

12/03

6,300

55,000

4.26%

Purchase

Ralf Sievers

27/03

73,770

5.01%

Purchase

Michael Moppert

05/09

205,696

13.96%

Sale

Michael Moppert

24/09

221,996

15.07%

Purchase

Roger Mäder

21/10

< 3%

Sale

Michael Moppert

30/10

211,996

14.39%

Sale

Threadneedle Asset Management Holdings Ltd

11/11

46,453

3.15%

Purchase

Schroders Plc

24/11

71,841

4.88%

Sale

FIL Limited (Fidelity Funds)

05/12

45,037

3.06%

Purchase

BlackRock, Inc.

22/12

44,226

3.00%

Purchase

Names of Shareholders owning shares and/or options in excess of 3% based on the commercial register as of December 31, 2009 Shareholding 3% to 5%

Shareholding 5% to 10%

FIL Limited (Fidelity Funds)

David Nüscheler

BlackRock, Inc.

Chase Nominees Ltd.

Schroders Plc

Steinemann (Group/Family)

Balfidor Funds (Switzerland)

Ralf Sievers

Erik Hansen Threadneedle Asset Management Holdings Ltd

Cross-shareholding No cross-shareholdings exist between Day and other public limited companies.

Shareholding 10% to 15% Michael Moppert

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Capital Structure Share Capital

Changes in Capital

As of December 31, 2009, Day’s share capital is CHF 15,426,290 fully paid up and divided into 1,542,629 registered shares of CHF 10.00 nominal value each.

Changes for the last 3 years ended December 31, in thousands of CHF:

As of December 31, 2009, the Company had authorized capital of CHF 7,185,000 divided into 718,500 shares of CHF 10.00 nominal value each. According to the Company’s Articles of Association, the Board of Directors is authorized to increase the share capital at any time until May 14, 2010 by a maximum amount of CHF 7,185,000 by issuing shares not exceeding the amount of 718,500 fully paid up shares with a par value per share of CHF 10.00. Increases by way of fixed sale and increases by partial amounts are permitted. The Board of Directors shall set the issuing price per share, the date of commencement of entitlement to dividends and the type of contributions. The Board of Directors is authorized to exclude the pre-emptive rights of the shareholders for important reasons and assign these to third parties, particularly for a) the acquisition of a business or part of a business by way of share exchange b) for the financing of the acquisition of a business, part of a business, participation or new investments of the Company c) for granting of a participation to employees or (d) for strategic partnerships. As of December 31, 2009, the Company had conditional capital of CHF 6,669,940 divided into 666,994 shares of CHF 10.00 nominal value each. According to the Company’s Articles of Association, the Board of Directors is authorized to increase the share capital by a maximum amount of CHF 7,365,000 by issuing shares not exceeding the amount of 736,500 fully paid up shares with a par value per share of CHF 10.00. Conditional capital may solely be used to issue/create shares in connection with the exercising of options which have been assigned to employees or members of the Board of Directors of the Company according to the Company’s employee stock option plans (see also “Convertible Bonds and Options” within this section). The pre-emptive rights of the shareholders are excluded.

20

2009

2008

2007

Share Capital

15,426

14,731

14,374

Share Premium

143,144

141,388

140,568

17,954

12,653

21,487

Total Equity

Further details can be found in Notes to Consolidated Financial Statements.


Convertible Bonds and Options

As of December 31, 2009, the Company had 1,542,629 ordinary shares at a par value of CHF 10.00 outstanding. All of these shares were paid up. Each registered share entitles the holder to one vote at the Annual General Meeting.

As of December 31, 2009, the Company had no convertible bonds issued or outstanding.

Day does not currently anticipate paying dividends. Earnings are used to develop and grow the business. The Company has no other categories of shares or participation rights.

Limitations on Transferability No restrictions exist regarding the transferability of Day shares. However, only those persons having their shares registered at the Company’s shareholder register at SIX SAG AG, Olten, may exercise their voting rights. The Company’s shareholder register remains closed 10 days prior to the Annual General Meeting and opens again the day after the Annual General Meeting. During this period, no registrations are possible.

The Company has two stock option plans, the Day Interactive Holding AG International Stock Option Plan (the “International Option Plan”) and the Day Interactive Holding AG United States Stock Option Plan (the “United States Option Plan”). Both the International Option Plan and the United States Option Plan are administered by the Board of Directors and the Compensation Committee of the Board, which determine the terms and conditions of the options granted, including exercise price, number of options granted and the vesting period of such options. Substantially all the stock options outstanding vest over a 4 year period and all have an exercise price equal to the market value on date of grant. The maximum term of options granted under the International Option Plan and the United States Option Plan is ten years. There were a total of 330,761 shares of capital stock available for issuance under the two stock options plans as of December 31, 2009.

Corporate Governance

Shares and Participation Certificates

As of December 31, 2009, the Company had 336,233 options outstanding under the International Option Plan and United States Option Plan. See notes to the consolidated financial statements of Day Software Holding AG and subsidiaries for further information regarding the Company’s outstanding options.

21


Board of Directors The Board of Directors is comprised of the following individuals: Barry Bycoff Chairman American Mr Barry Bycoff was appointed Chairman of the Board on August 6, 2009. He is Executive Chairman at Progress Software, a leading supplier of application infrastructure software where he has served on the Board of Directors since March 2007. In his role as Executive Chairman, Mr Bycoff is responsible for directing Progress Software’s corporate strategy and growth initiatives. Prior to his role as Executive Chairman, Mr Bycoff was Venture Partner at Pequot Ventures, where he worked with portfolio companies on their operations and investment decisions and drove the acquisition in 2007 by eBay of StubHub, a leading online marketplace for the resale of event tickets. In 1996, he founded Netegrity and created a new product category for enterprise security software. The company received the “Product of the Year” award from Network World Magazine. At the same time, as Chairman, CEO and President, he engineered the transformation of Netegrity’s predecessor company into a leading developer of enterprise software. Mr Bycoff had directed the company’s growth from publicly held start up to one of the fastest growing software companies in the industry with a dominant market share and revenues when the company was acquired by Computer Associates at the end of November, 2004. Mr Bycoff continues to serves on the Board of Directors for Aveksa Inc. Other than disclosed herein, Mr Barry Bycoff had no activities, official functions or other vested interests in bodies of important Swiss or foreign organizations or interest groups.

Erik Hansen Chief Executive Officer Danish Mr Erik Hansen is responsible for overall company strategy. He is a recognized industry veteran with over 30 years of experience as a senior executive at leading software companies, including Interwoven, Tibco, Siemens and Apple, both in Europe and in the United States. Before joining Day, Mr Hansen was leading the European operations of Interwoven as Senior Vice President and General Manager EMEA. Prior to Interwoven, he was heading the European operations of Netegrity, a leading provider of identity and access management solutions. Before his engagement at Netegrity, Mr Hansen served as President EMEA at Tibco, where he very successfully built the European operations of this global infrastructure software vendor. Before Tibco Mr Hansen was Executive Vice President and General Manager Operations of Siemens Pyramid Inc, a 100% owned subsidiary of Siemens, during which time he was based in San Jose, California. Other than disclosed herein, Mr Erik Hansen had no activities, official functions or other vested interests in bodies of important Swiss or foreign organizations or interest groups.

Michael Moppert Chairman until August 6, 2009 Non Executive Member from August 6, 2009 Swiss Mr Michael Moppert co-founded Day in Basel, Switzerland in 1993. He was Chairman of the Board of Directors until August 2009 and remains a non-executive member of the Board of Directors. He drove the international growth of the Company, opening up the U.S. subsidiary of Day in Los Angeles in 1998. In 1999 subsidiaries in Germany, the UK and Asia/Pacific followed. Mr Moppert led the Company to a successful IPO on the Swiss Stock Exchange in 2000. Prior to Day, Mr Moppert was a journalist for several leading media companies, as well as an independent corporate communications consultant. Mr Moppert holds a Masters degree in History and Sociology from the University of Basel, Switzerland. Mr Moppert is a citizen of Switzerland. Other than disclosed herein, Mr Michael Moppert had no activities, official functions or other vested interests in bodies of important Swiss or foreign organizations or interest groups.

David Nüscheler Chief Technology Officer Swiss

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Mr David Nüscheler is the Chief Technology Officer for Day. He is responsible for technology strategy for the Company and ongoing product development. Mr Nüscheler joined Day in 1994 and was key to the growth of the Company from a small multimedia agency to a leading enterprise content management solution company. He created the basic concept for the original Communiqué and has guided product development to create a truly advanced content unification and presentation platform. He specializes in application and systems programming, as well as Internet programming. Mr Nüscheler studied Computer Science at the Swiss Federal Institute Technology in Zürich, Switzerland. Mr Nüscheler is a citizen of Switzerland. Other than disclosed herein, Mr David Nüscheler had no activities, official functions or other vested interests in bodies of important Swiss or foreign organizations or interest groups.


David Arnott Non Executive Member since August 6, 2009 British Mr David Arnott is Member of the Executive Committee and Chief Financial Officer of TEMENOS Group AG, a leading provider of integrated modular core banking systems to over 600 customers in over 120 countries. Since joining Temenos in 2001, Mr Arnott has guided Temenos’ rapid growth to become a global enterprise software leader in the Finance vertical. Prior to joining the Group, Mr Arnott worked as Chief Financial Officer of Société Européenne de Communication in Luxembourg and from 1996 to 1999 held a number of senior finance positions at Anglo-American plc, a mining and precious metals trading company.

Mark Walsh Non Executive Member American Mr Mark Walsh is the Managing Partner of Ruxton Ventures, LLC, a venture capital and private equity firm based in Washington DC that he founded. Prior to that Mr Walsh was the Chief Technology Advisor for the Democratic National Committee of the United States of America. He was the first person to have that job, and was responsible for bringing the party and its tactics into the 21st Century. He has been in the interactive services/internet industry for over 21 years. Previously, Mr Walsh was the Chairman and Chief Strategy Officer of VerticalNet, Inc. Mr Walsh joined VerticalNet in August 1997 as President and Chief Executive Officer, and was appointed to Chairman in July 2000. VerticalNet is an enterprise software and services company that uses the Internet to help companies transact and collaborate. Previously, he was a Senior Vice President and a corporate officer at America Online. He ran AOL Enterprise, the business-to-business division of AOL which he founded. He also was President of General Electric’s interactive services division. Mr Walsh holds an M.B.A. degree from Harvard University and B.A. degree from Union College, Schenectady New York. Mr Walsh is a citizen of the United States.

Corporate Governance

Mr David Arnott had no involvement in the senior management of the Company or its subsidiaries within the three financial years proceeding the fiscal year 2009. He also had no significant business connections with the Company or its subsidiaries. Other than disclosed herein, Mr David Arnott had no activities, official functions or other vested interests in bodies of important Swiss or foreign organizations or interest groups.

Mr Mark Walsh had no involvement in the senior management of the Company or its subsidiaries within the three financial years proceeding the fiscal year 2009. He also had no significant business connections with the Company or its subsidiaries. Other than disclosed herein, Mr Mark Walsh had no activities, official functions or other vested interests in bodies of important Swiss or foreign organizations or interest groups.

Greg Williams Non Executive Member American Mr Greg Williams has been a corporate attorney for over 20 years and specializes in the areas of securities, venture capital, intellectual property, counseling Boards of Directors, and mergers and acquisitions. Mr Williams is currently the principal of his own law firm specializing in providing outside general counsel representation of start-up technology companies in Southern California. During 2005 to 2008, Mr Williams was the in-house General Counsel of Datallegro, Inc., a venture-backed data warehouse software company that was sold to Microsoft Corporation in August 2008. During his career, Mr Williams has also provided outside general counsel services to several other successful companies, including Avamar Technologies, Inc. (sold to EMC), GeoCities, Inc. (sold to Yahoo), and Phase Metrics, Inc. (sold to KLA Tencor). Mr Williams received his B.I.S. from the University of Minnesota, magna cum laude and J.D. from University of Minnesota, cum laude. Mr Williams is a citizen of the United States. Following the resignation of the Company’s prior associate general counsel in the United States, Mr Williams agreed to serve, on an interim basis and under a consulting agreement, as associate general counsel during the first six months of 2009 supporting the Company’s U.S. operations. He had no other significant business connections with the Company or its subsidiaries. Other than disclosed herein, Mr Williams had no activities, official functions or other vested interests in bodies of important Swiss or foreign organizations or interest groups. 23


Elections and Terms of Office The members of the Board of Directors shall be elected at the Annual General Meeting of the Shareholders for a term of three years and are eligible for re-election. The terms of service shall end on the day of the General Meeting of the Shareholders. In the event of by-elections, the new members of the Board of Directors will complete the term of office of their predecessors. There is no limitation to the number of terms of office.

Day-to-day business management, operations and executing the operational plan as approved by the Board of Directors has been delegated to the Chief Executive Officer and the Management Board. Management Board provides business updates and information to the Board of Directors on a monthly basis, or more often and as specifically requested by the Board of Directors at any time.

Board of Directors

Board Committees

Elected Term

Expiry Term

Barry Bycoff

2009

2012

Erik Hansen

2008

2011

Michael Moppert

1999

2012

David Nüscheler

1999

2012

David Arnott

2009

2012

Mark Walsh

2000

2012

Greg Williams

2000

2012

The Board of Directors has two subcommittees, the Compensation Committee and the Audit Committee. The duties and responsibilities are set forth in regulations. Compensation Committee

Audit Committee

David Arnott

Member

Chairman

Barry Bycoff

Member

Michael Moppert

Internal Organizational Structure and Responsibility The Board of Directors holds the ultimate decisionmaking authority for all matters except for those decisions reserved by law for shareholders. The Chairman sets convocation and agendas of the meetings of the Board of Directors. Any member of the Board of Directors may request the inclusion of further items on the agenda or request a meeting. The members receive documents and background information for all agenda items prior to the meetings in order to prepare questions and comments. The Board of Directors usually invites the Management Board, and on a case per case basis, other senior employees to give updates on operational issues within their respective tasks and responsibilities in the Company. The Board of Directors convenes as often as business requires. In 2009 it convened for a total of five ordinary meetings, each one generally between two and three hours, and two workshops, each of them during one and a half days.

24

As outlined above, the Board of Directors is responsible for making all key decisions as well as strategic decisions for the Company including sensitive compensation oriented decisions pertaining to the Management Board and the Board of Directors itself.

Mark Walsh

Member

Chairman

Greg Williams

Member

Compensation Committee The purpose and area of responsibility of the Compensation Committee is to review and approve the Company’s overall compensation policies and material compensation plans and arrangements including the following: base salary ranges bonus arrangements • other compensation arrangements such as stock option and stock purchase plans • sales commission plans • •

The Committee shall also be responsible for reviewing and confirming the Company’s written recommendations regarding the compensation arrangements between the Company and its senior executive officers. The Compensation Committee shall also be responsible for approving the Company’s compensation arrangements between the Company and the Chief Executive Officer. On an as needed basis, the Compensation Committee may seek outside expert advice to support its decisions and recommendations. In 2009 it convened for five meetings.


Information and Control Instruments

The purpose and area of responsibility of the Audit Committee is to monitor the accounting and financial reporting practices of the Company. The Audit Committee’s primary duties and responsibilities include the following:

The Board of Directors uses a variety of information and control instruments to closely monitor the Company’s operations and operational risks. The Board of Directors holds periodic meetings to review the results of operations and to discuss matters that are deemed critical to the Company. The Board of Directors principally relies on the Company’s global accounting system which provides a wide variety of reports including full monthly reports in which the results of operations may be analyzed. The Chief Executive Officer and the Management Board supplements this information as requested by the various members of the Board of Directors. At the end of each financial quarter, Chief Executive Officer and Chief Financial Officer immediately issue interim balances that will be provided to the Board of Directors. Final quarterly results will then be provided and discussed accordingly.

Serve as an independent and objective party to monitor the Company’s accounting practices and financial reporting processes and internal control systems. • Review and appraise the audit efforts of the Company’s independent auditors. • Provide an open avenue of communication among the Company’s independent auditors, management, and the Board of Directors. • Recommend which firm to engage as the Company’s independent auditors. • Review the independent auditors’ compensation, the proposed terms of its engagement, and its independence. • Review the audited financial statements and other results of each external audit, including any qualifications in the independent auditors’ annual financial statements and opinion, any related management letters, and Management’s responses to recommendations made by the independent auditors in connection with the audit. • Consider, in consultation with the independent auditors, the adequacy of the Company’s internal financial controls. Among other things, these controls must be designed to provide reasonable assurance that the Company’s financial statements are presented fairly in conformity with generally accepted accounting principles. • Perform such other functions as specifically delegated by the Board of Directors. •

Corporate Governance

Audit Committee

Every year, budgets are prepared for the Company. The budget is reviewed and approved by the Board of Directors. The Company has established a set of risk management systems incorporating existing operational and financial risk and reporting systems. The goal of the Company’s risk management is to minimize operational risks related to the Company’s core assets and therefore monitor and control all processes that are key and of major financial relevance. The Company undergoes periodic reviews of the internal controls and results are reported back to the Board of Directors.

Meetings of the Audit Committee took place on a regular and on an as needed basis. In 2009 it convened for three meetings. The Company’s auditors were present for the meeting.

25


Management Board The Management Board is comprised of the following individuals: Erik Hansen Chief Executive Officer Danish Mr Erik Hansen is responsible for overall company strategy. He is a recognized industry veteran with over 30 years of experience as a senior executive at leading software companies, including Interwoven, Tibco, Siemens and Apple, both in Europe and in the United States. Before joining Day, Mr Hansen was leading the European operations of Interwoven as Senior Vice President and General Manager EMEA. Prior to Interwoven, he was heading the European operations of Netegrity, a leading provider of identity and access management solutions. Before his engagement at Netegrity, Mr Hansen served as President EMEA at Tibco, where he very successfully built the European operations of this global infrastructure software vendor. Before Tibco Mr Hansen was Executive Vice President and General Manager Operations of Siemens Pyramid Inc, a 100% owned subsidiary of Siemens, during which time he was based in San Jose, California.

David Nüscheler Chief Technology Officer Swiss Mr David Nüscheler is the Chief Technology Officer for Day. He is responsible for technology strategy for the Company and ongoing product development. Mr Nüscheler joined Day in 1994 and was key to the growth of the Company from a small multimedia agency to a leading enterprise content management solution company. He created the basic concept for the original Communiqué and has guided product development to create a truly advanced content unification and presentation platform. He specializes in application and systems programming, as well as Internet programming. Mr Nüscheler studied Computer Science at the Swiss Federal Institute Technology in Zürich, Switzerland.

Richard Francis Chief Financial Officer British Mr Richard Francis has been Chief Financial Officer at Day since September 2008. Mr Francis has experience managing finance, operations, and development, for both public and privately-held technology companies. Previously, Mr Francis served as Chief Financial Officer of Celona Technologies, provider of application data migration platforms. Prior to joining Celona, Mr Francis was Senior Director of Finance, EMEA for Interwoven. He has also held senior finance positions with Novell, Gillette and Duracell, and qualified as a Chartered Accountant with Deloitte and Touche.

Kevin Cochrane Chief Marketing Officer American Mr Kevin Cochrane is Chief Marketing Officer for Day. He is responsible for worldwide corporate and product marketing, along with global customer, partner and OEM programs. A veteran in the content management space, Mr Cochrane was the fourth employee at Interwoven, responsible for the Interwoven TeamSite product line and suite of web content management offerings. Most recently, Mr Cochrane was the twelfth hire at commercial open source pioneer Alfresco, as vice president of product management. Mr Cochrane holds a degree in International Relations from Stanford University.

The Company has not entered into any management contracts with third parties. Other than disclosed herein, the members of the Management Board had no activities, official functions or other vested interests in bodies of important Swiss or foreign organizations or interest groups. 26


Compensation and Shareholdings Method of Determining Compensation The basic principles guiding compensation levels are the economic budget constraints of the Company and the market for individual management talent. Compensation packages can vary greatly between the various roles in the Company.

Available benefits tend to vary significantly based on country or jurisdiction and the local employment market conditions. The Board of Directors determines the compensation of the Board of Directors once per fiscal year. The Compensation Committee determines the compensation of The Management Board.

The basic elements of compensation include base salary, performance bonuses, car allowances, expense allowances and, in certain instances, equity incentives such as stock options. It is also typical for the Company to offer certain employee benefit programs such as medical insurance, life insurance and retirement plans.

Corporate Governance

Director and Management Compensation Compensation paid to Management Board and Board of Directors in 2009 In Thousands of CHF Name & Function(s) Salaries Board Bonus Car & Member Expense Fees Allowance

Retirement & Social Security

Value of Consulting Options Fees (4) Granted (3)

Total

Management Board (1) Erik Hansen, CEO & Member, Board of Directors

360

147

50

105

662

David Nüscheler, CTO & Member, Board of Directors

183

28

32

69

56

368

Richard Francis, CFO

203

52

15

10

280

Kevin Cochrane, CMO

222

35

5

262

Total Management Board

968

262

97

189

56

1,572

Board of Directors (2) Barry Bycoff, Chairman from August 6, 2009

26

75

101

Michael Moppert, Chairman to August 6, 2009

52

37

12

101

David Arnott, Non-executive Member of the Board of Directors since August 6, 2009

20

51

71

Mark Walsh, Non-executive Member

39

12

51

Greg Williams, Non-executive Member

41

97

52

190

Ariel Luedi, Non-executive Member to May 19, 2009

16

16

Total Board of Directors

194

37

247

52

530

(1) Includes Management Board members who also hold seats on the Company’s Board of Directors. (2) Excludes members of the Board of Directors who also hold seats on the Management Board. Executive board members do not get any additional cash compensation for board membership. (3) The value of options granted is calculated by taking the number of options granted during the year multiplied by the grant date fair value of the options calculated using the Black-Scholes option-pricing model as prescribed by SFAS 123R. (4) Consulting Fees paid for legal related consulting services during the year.

27


Shares owned and options outstanding held by the Management Board and Board of Directors as of December 31, 2009

Name & Function(s)

Shares Owned

Options Outstanding

Options Vested

Exercise Price

Expiration Year

Management Board (1) Erik Hansen, CEO & Member, Board of Directors David Nüscheler, CTO & Member, Board of Directors Richard Francis, CFO Kevin Cochrane, CMO Total Management Board

6,300

55,000

22,812

17.55-31.50

2013

137,100

6,000

180

21.90-26.15

2014

20,000

6,240

26.30

2013

21.10

2018

20,000

5,832

143,400

101,000

35,064

Board of Directors (2) Barry Bycoff, Chairman from August 6, 2009

11,500

1,248

13.20-21.60

2014

181,996

2,848

504

21.60-30.45

2013-2014

David Arnott, Non-executive Member of the Board of Directors since August 6, 2009

5,000

6,500

21.60

2014

Mark Walsh, Non-executive Member

2,250

23,598

20,159

15.05-32.00

2010-2018

650

26,598

15,655

13.20-32.00

2011-2019

189,896

71,044

37,566

Michael Moppert, Chairman to August 6, 2009

Greg Williams, Non-executive Member Total Board of Directors

(1) Includes Management Board members who also hold seats on the Company’s Board of Directors. (2) Excludes members of the Board of Directors who also hold seats on the Management Board.

28


Shareholders’ Participation Rights

Changes of Control and Defense Measures Opting Up/Out & Mandatory Offer

The Annual General Meeting adopts its resolutions and holds its elections by absolute majority of valid votes present at the Annual General Meeting. Specific quorum requirements under the Swiss Code of Obligations apply. From ten days prior until the day following the Annual General Meeting of the Shareholders, no entry into the shareholders’ register shall be made. Only those registered in the shareholders’ register shall be recognized as shareholders vis-à-vis the Company. Shareholders who own shares with a par value of more than TCHF 1,000 may request the Company to add an item on the agenda. Shareholders may be represented at the Annual General Meeting by another registered shareholder or a legally appointed representative. Shareholders may also be represented by a corporate proxy or an independent proxy.

The Federal Act on Stock Exchanges and Securities Trading (“SESTA”) provides that whoever acquires more than 33-1/3% of the shares of a company shall be required to make a mandatory offer for all listed securities of said company. It is in the company’s discretion to increase such threshold from 33-1/3% to 49% (“opting up”) or waive such threshold under certain circumstances (“opting out”). The Company did not adopt any of the above options.

Corporate Governance

Each registered share entitles the holder to one vote. The Company has not adopted any restrictions regarding the transferability of Day shares. However, only those persons having their shares registered at the Company’s shareholder register at SIX SAG AG, Olten, may exercise their voting rights.

In the case of a mandatory offer of the Company’s capital stock, pursuant to Art. 32 of SESTA, the offering price must be at least the market price of the Company’s capital stock. However, pursuant to paragraph 4 of Art. 32 of the SESTA, such price may not be lower than the highest price paid by the offering party for shares of the Company during the preceding twelve months.

Clauses on Changes in Control As more thoroughly described in a prior paragraph, there are outstanding options of 101,000 and 71,044 shares held by the Management Board and Board of Directors respectively, to purchase shares of the Company’s capital stock as of December 31, 2009. Substantially all of these options contain vesting acceleration provisions for unvested shares. These acceleration provisions are generally triggered by a change in control or corporate transaction, as defined, and an involuntary termination following a change in control or corporate transaction. Employment Agreements with the Management Board may have a change of control clause. In case of an involuntary termination following a change in control, agreed sums as payments in lieu may be triggered allowing substantially for ongoing compensation of six or twelve months total compensation.

29


Auditors

Information Policy

Duration of the Mandate and Term of Office of the Auditor in Charge BDO Ltd., located in Zürich Switzerland, serves as the Company’s principal auditor. BDO Ltd. was elected in May 2007 at the General Meeting of the Shareholders and has served as the Company’s principal auditor since their election. Total fees to BDO Ltd. for 2009 audit and tax services amounted to TCHF 165 and TCHF 29, respectively. There were no other fees billed by BDO Ltd. for 2009.

Supervisory and Control Instruments Vis-À-Vis the Auditors The Chief Financial Officer holds regular communications with the external auditors to discuss the results of the Company’s operations and current business strategy. The external auditors engage in formal communications with the Chairman of the Audit Committee and the Chief Executive Office. BDO Ltd. serves as the Company’s principal auditor since May 2007. The Company has also retained the audit firm of BR Wirtschaftsprüfungsgesellschaft mbH who acts as the Company’s second auditor for special purposes. BR Wirtschaftsprüfungsgesellschaft mbH was first elected on June 2, 2003 and has been re-elected each year since this time. Their current mandate commenced in May 2007.

30

The Company provides information to the shareholders on a six-month and annual basis. To the extent that material events or conditions exist in the interim, additional information is provided as necessary. Information is provided in the form of filings with the SIX Swiss Exchange, press releases, downloadable files through the Investor Relations section of Day’s website, www.day. com, and as requested via telephone at the Company’s headquarters in Basel, Switzerland. See the Additional Information section of this Annual Report for further contact information.

Annual Meeting On June 17, 2010 Day will hold its Annual General Meeting in Zürich, Switzerland. This is an opportunity for shareholders to put forward comments and questions to the Board of Directors about the future direction of the Company, in addition to elections.


Corporate Governance

31


Report of the Statutory Auditor on the Consolidated Financial Statements to the General Meeting of Day Software Holding AG, Basel

Phone +41 (0)44 444 35 55 Fax +41 (0)44 444 37 66 www.bdo.ch

BDO Ltd. Fabrikstrasse 50 CH-8031 Zurich

Board of Directors’ Responsibility The Board of Directors is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (US GAAP) and the requirements of Swiss law. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation and fair presentation of consolidated financial statements that are free of material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances. Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards and US Generally Accepted Auditing Standards (US GAAS). Those standards require that we plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements for the year ended December 31, 2009 give a true and fair view of the financial position, the results of operations and the cash flows in accordance with accounting principles generally accepted in the United States of America (US GAAP) and comply with Swiss law.

Report on the Consolidated Financial Statements, Consolidated Financial Statements and Notes

As statutory auditor, we have audited the consolidated financial statements of Day Software Holding AG, which comprise the balance sheets, statements of operations, statements of cash flow, statements of shareholders’ equity and notes on pages 34 to 57 for the year ended December 31, 2009.

Report on Other Legal Requirements We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence. In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of consolidated financial statements according to the instructions of the Board of Directors. We recommend that the consolidated financial statements submitted to you be approved. Zurich, April 20, 2010 BDO Ltd.

33

Andreas Wyss

Denis Tornare

Auditor in Charge Licensed Audit Expert

Licensed Audit Expert

BDO Ltd., a limited company under Swiss law, incorporated in Zurich, forms part of the international BDO Network of independent member firms.


Consolidated Balance Sheets (in thousands CHF, except share information)

ASSETS

December 31, 2009

December 31, 2008

Cash and cash equivalents

22,034

12,814

Accounts receivable, net of allowance of CHF 570 and CHF 211 as of December 31, 2009 and 2008

11,485

9,263

Current assets

Unbilled receivables

130

76

Other receivables

233

157

Prepaid expenses

687

397

Deferred tax assets

466

1,005

35,035

23,712

440

346

1,077

1,634

Total current assets Non–current assets Property and equipment, net Deferred tax assets Other assets

176

105

1,693

2,085

36,728

25,797

Accounts payable

1,172

874

Deferred revenue

7,689

4,568

Other current liabilities

1,885

1,402

Total non-current assets

TOTAL ASSETS LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities

Current income taxes payable Accrued liabilities Total current liabilities Deferred revenue less current portion

382

190

4,774

3,196

15,902

10,230

253

619

2,619

2,295

18,774

13,144

Share capital, CHF 10.00 par value; 1,542,629 shares issued and outstanding, 718,500 additional 15,426 authorized, 666,994 conditional as of December 31, 2009; 1,473,123 shares issued and outstanding, 718,500 additional authorized, 682,810 conditional as of December 31, 2009

14,731

Long-term portion of unfunded pension obligation Total liabilities Shareholders’ equity

Treasury shares

-

(370)

Additional paid-in capital

143,144

141,388

Accumulated deficit

(140,955)

(143,570)

Accumulated other comprehensive income Total shareholders’ equity

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY See accompanying notes to these consolidated financial statements. 34

339

474

17,954

12,653

36,728

25,797


Consolidated Statements of Operations (in thousands CHF, except share and per share information)

Year Ended December 31

2009

2008 11,347

Revenue Software licenses

16,475

Product support

11,478

9,680

Services

8,389

6,784

Total revenue

36,342

27,811

Cost of revenue

Software licenses

Product support and services

Write-down of capitalized software costs

Total cost of revenue

Gross profit

132

271

8,552

6,849

-

1,635

8,684

8,755

27,658

19,056

Operating expenses

Research and development

Sales and marketing

General and administrative

6,622

6,776

11,452

9,409

5,424

5,192

4,160

(2,321)

Interest income

48

168

Interest expense

(11)

(3)

Foreign exchange gain (loss)

102

(2,530)

Income (loss) from continuing operations

Other income (expense)

24

(18)

Income (loss) from continuing operations before income taxes

4,323

(4,704)

Provision for taxes

(1,617)

(1,807)

Net income (loss) from continuing operations

2,706

(6,511)

Net loss from discontinued operations, net of tax

-

(5,491)

2,706

(12,002)

1.82

(4.55)

-

(3.84)

1.82

(8.39)

1.75

(4.55)

-

(3.84)

1.75

(8.39)

Shares used in computing basic net income (loss) per share

1,483,462

1,431,309

Shares used in computing diluted net income (loss) per share

1,547,759

1,431,309

Net income (loss)

Report on the Consolidated Financial Statements, Consolidated Financial Statements and Notes

Basic net income (loss) per share

Continuing operations

Discontinued operations

Net income (loss)

Diluted net income (loss) per share

Continuing operations

Discontinued operations

Net income (loss)

See accompanying notes to these consolidated financial statements.

35


Consolidated Statements of Cash Flows (in thousands CHF)

Year Ended December 31

2009

2008

Net income (loss)

2,706

(12,002)

-

5,491

Net loss - discontinued operations

Adjustments to reconcile net income (loss) to net cash provided by operating activities of continuing operations

Depreciation and amortization of fixed assets

Amortization of capitalized software costs

206

169

-

256

Write-down of capitalized software costs

-

1,635

Net foreign currency exchange losses

(149)

2,530

Share-based compensation

767

732

Changes in operating assets and liabilities

Accounts receivable

(2,270)

(1,411)

Unbilled receivables

(60)

497

Prepaid expenses and other current assets

Deferred tax assets

Other assets

(71)

(11)

Accounts payable

266

(292)

Deferred revenues

2,848

1,310

Accrued liabilities

1,570

803

Other current liabilities

478

299

Current income taxes payable

197

196

Pension liabilities

357

378

7,580

2,286

Net cash provided by operating activities of continuing operations

(373)

179

1,108

1,527

Cash flows from investing activities of continuing operations

Purchases of equipment

Net cash used in investing activities of continuing operations

(300)

(170)

(300)

(170)

Cash flows from financing activities of continuing operations

Proceeds from stock option exercises

1,457

477

Purchase of treasury shares

(1,663)

(1,047)

Proceeds from sale of treasury shares

Net cash provided by financing activities of continuing operations Net cash used - discontinued operations Foreign currency adjustment on cash Net increase in cash and cash equivalents

2,169

913

1,963

343

-

(295)

(23)

(792)

9,220

1,372

Cash and cash equivalents at beginning of period

12,814

11,442

Cash and cash equivalents at end of period

22,034

12,814

Supplemental disclosure of cash flow information

36

Net interest paid

Net taxes paid

Non-cash investing and financing activities - none

See accompanying notes to these consolidated financial statements.

11

3

331

55

-

-


Consolidated Statements of Shareholdersâ&#x20AC;&#x2122; Equity (in thousands CHF, except share information)

Proceeds from exercise of stock options

Share Capital Amount

Treasury Shares

Additional Paid-in Capital

Accumulated Deficit

1,437,433

14,374

(620)

140,568

(131,227)

(1,608)

21,487

35,690

357

-

120

-

-

477

-

-

(1,047)

-

-

Purchase of treasury shares

Accumulated Total Other ComShareholdersâ&#x20AC;&#x2122; prehensive Equity Income (Loss)

-

(1,047)

Proceeds from sale of - - 1,297 (43) (341) - treasury shares

913

Share-based compensation

743

-

-

-

743

-

-

Prior service cost

-

-

-

Net loss

-

-

-

-

-

(197)

(197)

-

(12,002)

-

(12,002)

Foreign currency translation

-

-

-

-

-

-

-

2,279

2,279

-

-

-

-

(9,920)

1,473,123

14,731

(370)

141,388

(143,570)

474

12,653

69,506

695

-

762

-

-

1,457

-

-

(1,663)

-

-

-

(1,663)

Proceeds from sale of - - 2,033 227 (91) - treasury shares

2,169

Comprehensive income (loss)

Total comprehensive income (loss)

Balances December 31, 2008 Proceeds from exercise of stock options Purchase of treasury shares

Share-based compensation

-

-

-

767

-

-

Prior service cost

-

-

-

Net income

-

-

-

Foreign currency translation

-

-

-

-

1,542,629

15,426

767

-

-

(31)

(31)

-

2,706

-

2,706

-

-

-

(104)

(104)

-

-

-

-

2,571

-

143,144

(140,955)

339

17,954

Report on the Consolidated Financial Statements, Consolidated Financial Statements and Notes

Balances January 1, 2008

Share Capital Shares

Comprehensive income (loss)

Total comprehensive loss

Balances December 31, 2009

See accompanying notes to these consolidated financial statements.

37


Notes to Consolidated Financial Statements (in thousands CHF, except share and per share information)

Note 1 — Organization and History Day Software Holding AG (collectively with its subsidiaries, the “Company”) was formed on October 29, 1999 as a stock corporation under the laws of Switzerland. The Company is a leading provider of content management and content infrastructure software and markets and sells its software products and services

through its subsidiaries located throughout Europe, the Americas and Asia Pacific. The Company’s shares are traded on the SIX Swiss Exchange under the symbol DAYN and on the U.S.’s Over-The-Counter market in the form of American Depositary Receipts under the symbol DYIHY.

Note 2 — Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“US GAAP”).

to the employee pension plan and income taxes. Actual results could differ from those estimates.

On December 31, 2008, the Company sold its wholly owned subsidiary, MarketingNet, a UK company active in the agency services business. This sale was part of the Company’s efforts to refocus its UK operations on its core business and drive UK expansion through a channeldriven model. MarketingNet’s results of operations have been reported as a component of discontinued operations in the consolidated statements of operations and cash flows for the year ended December 31, 2008.

Accounts Receivable

Principles of Consolidation The accompanying consolidated financial statements include the accounts of Day Software Holding AG and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

38

The preparation of consolidated financial statements, in conformity with US GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Changes in regional and industry economic conditions in which the Company and/or its customers participate can impact the estimates made by management. Significant items subject to such estimates and judgments include the recoverability of the carrying value of long-lived assets, the valuation allowance on net deferred tax assets, the collectability of accounts receivable, the fair value of share-based payment awards, obligations related

The Company provides credit in the normal course of business to customers. The Company does not obtain collateral with which to secure its accounts receivable. The Company maintains valuation allowances for potential credit losses based on the expected collectability of accounts receivable. Management’s estimates are based on historical losses, existing economic conditions and the facts and circumstances for specific receivables. The Company continually monitors past due accounts and pursues collection through various means. To date, the Company has not had significant write-offs of its receivables.

Risks, Uncertainties and Concentrations of Credit Risk The Company’s operations are subject to new innovations in product design and functionality. Significant technological changes can have an adverse effect on product lives. Design and development of new products are important elements to achieving profitability in this industry segment. The Company, at times, maintains cash balances at financial institutions in excess of amounts insured by government agencies. During the year ended December 31, 2009, the Company generated 33% of its revenue from 16 customers and had no customers accounting for more than 4% of total revenues in 2009. During the year ended December 31, 2008, the Company generated 42% of its revenue from 13 customers and had no customers accounting for more than 6% of total revenues in 2008.


Revenue Recognition The Company recognizes revenue in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 605, Revenue Recognition. The Company derives revenues from software licenses, product support and services. Revenue from software licenses is recognized when persuasive evidence of an arrangement exists, delivery of the product has occurred, the fee is fixed or determinable and collectability is probable. Product support, consisting of the rights to unspecified software updates and technical support over the contractual support period, generally one year, is always sold with initial software arrangements. Customers have the right to renew product support based on the renewal terms stated in the initial software license contract. For multiple-element contracts, which include both the sale of software licenses and product support, the entire fee must be allocated to the elements in the contract based on vendor-specific objective evidence (“VSOE”) of fair value the elements regardless of any separately stated prices in the contract for the elements. VSOE of fair value is the price charged for the elements when sold separately. The Company has established VSOE of fair value for the product support element of these contracts based on the product support renewal rate contracted in these multiple-element arrangements.

The renewal rate 1) represents the price charged for product support when sold separately, 2) is substantive, 3) is based on a standard price list, and 4) is a similar rate for all customers with variations based only on the level of product support to be provided. For allocation of the arrangement fee to the elements of the contract, the Company uses the “residual method”, the prescribed method when VSOE of fair value does not exist for one or more of the delivered elements but does exist for all of the undelivered elements. Under the residual method, the arrangement fee for the delivered elements (software license) is based on the difference between the total arrangement fee and the VSOE of fair value of the undelivered elements (product support). The value allocated to the undelivered elements is deferred and subsequently recognized ratably over the contractual product support period typically one year. Service revenue primarily consists of fees from software integration and training. The Company generally bills professional services on a time and materials basis and recognizes revenue as the services are performed. Services sold within a multiple-element arrangement are accounted for separately from the other elements in the arrangement as the service element is not essential to the functionality of the other elements of the arrangement. The Company defers revenue for software arrangements when cash has been received from the customer or when a customer has a contractual obligation to pay and the arrangement does not qualify for revenue recognition under FASB ASC Topic 605 Revenue Recognition. These amounts are reflected as deferred revenue on the accompanying consolidated balance sheets. The Company will record an unbilled receivable for software arrangements when the arrangement qualifies for revenue recognition but the customer has not yet been billed.

Report on the Consolidated Financial Statements, Consolidated Financial Statements and Notes

The Company derives most of its revenue from software licenses, product support and services sold to customers in the United States, Switzerland, Germany and the United Kingdom. The Company’s future revenue and results of operations may be significantly and adversely affected by the economic conditions in these countries. Further, a significant portion of the Company’s business is conducted in currencies other than the Swiss Franc. The Company does not currently utilize any derivative financial instruments to hedge its foreign currency exchange risks. In order to manage foreign currency exchange risks, the Company attempts to match cash inflows and outflows (revenues with cost of revenues and operating costs) in the same currency to the extent possible. The Company continually monitors its exposure to foreign currency exchange risk. However, fluctuations in foreign currency exchange rates, especially the value of the U.S. dollar, British pound and Euro, could significantly impact the Company’s financial position and reported results of operations.

Fair Value of Financial Instruments The Company has financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, which are carried at cost and approximate fair values due to the short-term nature of these instruments.

Cash and Cash Equivalents 39

The Company considers all highly liquid instruments purchased with an original maturity of less than three months to be cash equivalents. Cash and cash equivalents consist of cash on deposit with banks.


Property and Equipment Property and equipment are stated at cost, less accumulated depreciation, and depreciated using the straight-line method over their estimated useful lives ranging from two to five years. Leasehold improvements are amortized over the shorter of the useful life of the asset or the related lease. Maintenance and repairs are expensed as incurred. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in operations.

Computer Software Development Costs FASB ASC Topic 985, Software, requires development costs incurred in the research, design and development of new software products to be sold, licensed or marketed to be expensed as incurred until technological feasibility in the form of a working model has been established at which time such costs are capitalized until the software products are available for sale and then amortized. During 2009 and 2008, there were no significant costs incurred between the date of establishing technological feasibility and the date the products were available for sale. Therefore, there were no capitalized software development costs in these years. All costs related to research, design, and development of computer software, principally comprised of payroll and related costs, were charged to research and development expense as incurred during 2009 and 2008. Unamortized capitalized software costs are reported at net realizable value, which is determined on a productby-product basis and is based on estimated future gross revenues. Management estimated the net realizable value of unamortized capitalized software costs to be zero as of December 31, 2008 as the products related to the capitalized software development costs were no longer being sold based on their original code due to a major architectural redesign during 2008. Write down of capitalized software costs charged to cost of revenues was TCHF 1,635 during the year ended December 31, 2008.

Impairment of Long-lived Assets 40

In accordance with FASB ASC Topic 360, Property, Plant and Equipment, long-lived assets and certain identifiable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. When undiscounted future cash flows of the asset are less than

its carrying value, the carrying amount is reduced to fair value and an impairment loss is recognized. There were no impairments of long-lived assets during 2009 or 2008.

Foreign Currency The Company operates in multiple countries and therefore is exposed to movements in foreign currencies. The functional currencies of the Companyâ&#x20AC;&#x2122;s foreign subsidiaries are their respective local currencies as these are the currencies of the primary economic environment in which the subsidiaries operate. These currencies include the U.S. dollar, British Pound, the Euro and the Singapore Dollar. The financial statements of these foreign subsidiaries are translated into the Swiss Franc, the Companyâ&#x20AC;&#x2122;s reporting currency, to prepare the consolidated financial statements, using the period-end exchange rate for assets and liabilities and the monthly average for revenues and expenses. In accordance with FASB ASC Topic 830, Foreign Currency Matters, the resulting foreign currency translation adjustments are included in other comprehensive income (loss). Changes in the exchange rates of these foreign currencies against the Swiss Franc will result in currency translation effects that could have a significant impact on the Companyâ&#x20AC;&#x2122;s other comprehensive income (loss). The effect of exchange rate fluctuations on intercompany balances where settlement is not planned or anticipated in the foreseeable future is included as a component of other comprehensive income (loss). During 2008, most of these loan balances were eliminated by either reclassifying to investment in subsidiary or by writing off. These intercompany accounts are eliminated during consolidation. The amount of local currency paid or received for transactions (including intercompany transactions where settlement is planned or anticipated in the foreseeable future) denominated in foreign currencies may vary due to changes in exchange rates from date of transaction to date of settlement. The resulting foreign exchange gains and losses from specific foreign currency transactions are included in the consolidated results of operations. Foreign exchange gains and (losses) were TCHF 102 and TCHF (2,530) for the years ended December 31, 2009 and 2008, respectively. The foreign exchange losses for 2008 include a TCHF 2,296 non-cash charge resulting from reclassification of foreign exchange losses on intercompany balances


In addition, FASB ASC Topic 740 prescribes a two-step recognition and measurement approach to uncertain tax positions taken in an income tax return that has been or will be filed and affecting the measurement of current or deferred income tax assets and liabilities in the consolidated financial statements. Management must first evaluate if it is more likely than not if a tax position would be sustained upon examination by tax authorities. If the tax position meets the recognition criteria, then management must determine the amount to recognize in the financial statements.

Advertising Costs

Net Income Per Share

Advertising costs are expensed as incurred. Advertising expense was TCHF 1,451 and TCHF 1,349 for the years ended December 31, 2009 and 2008, respectively and is included in sales and marketing expense in the accompanying consolidated financial statements.

The Company calculates net income (loss) per share in accordance with FASB ASC Topic 260, Earnings Per Share. Basic net income (loss) per share is computed by dividing net income (loss) available to shareholders by the weighted average number of shares outstanding during the period. Diluted net income per share is computed by dividing net income available to shareholders by the weighted average number of shares outstanding plus the effect of potentially dilutive common shares outstanding during the period using the treasury stock method. Potentially dilutive common shares include outstanding stock options. Diluted net loss per share is the same as basic loss per share as the effect of the assumed exercise of common stock equivalents is anti-dilutive due to the Companyâ&#x20AC;&#x2122;s net losses.

Retirement and Pension Plans The Company accounts for its defined benefit pension plan in accordance with FASB ASC Topic 715, Compensation â&#x20AC;&#x201C; Retirement Benefits, which requires employers to recognize the net underfunded or net overfunded status of a defined benefit pension plan as an asset or liability in its balance sheet. The funded status is measured as the difference between the fair value of the plan assets and the projected benefit obligation. Transactions and events affecting the funded status are recognized in the year in which they occur in other comprehensive income.

Income Taxes In accordance with FASB ASC Topic 740, Income Taxes, the Company accounts for its income taxes under an asset and liability method whereby deferred tax assets and liabilities are determined based on temporary differences between the basis used for financial reporting and income tax reporting purposes. Deferred income tax assets and liabilities are recognized based on the enacted tax rates that are in effect at the time such temporary differences are expected to reverse. A valuation allowance is provided for certain deferred tax assets if management determines that it is more likely than not that the Company will not realize all or a portion of these tax assets.

Report on the Consolidated Financial Statements, Consolidated Financial Statements and Notes

accumulated in other comprehensive income (loss) into current year consolidated results of operations as the settlement of these intercompany balances is now planned in the foreseeable future. The foreign exchange losses were due to the declining value of the U.S. dollar, Euro and British Pound against the Swiss Franc during 2008. During 2008, some of these intercompany balances were eliminated by write off. The Company will settle these remaining intercompany balances as soon as the cash is available to minimize future foreign exchange gains and losses related to these balances.

Share-Based Compensation Expense FASB ASC Topic 718, Compensation-Stock Compensation, prescribes how to measure and recognize costs resulting from share-based payment awards to employees and directors. For share-based payment awards granted on or after January 1, 2006, the fair value of these awards on the date of grant is calculated using the Black-Scholes option valuation model. The fair value is recognized on a straight-line basis as compensation expense over the service period of the award which is generally equal to the vesting term of the award. For share-based payment awards granted prior to but not vested as of January 1, 2006, the grant date fair value of the unvested awards is recognized on a straightline basis as compensation expense over the remaining vesting term of the award.

41


Comprehensive Income (Loss) Comprehensive income (loss) includes the changes in equity from transactions and other events and circumstances from nonowner sources. The components of comprehensive income (loss) include net income (loss) and other comprehensive income (loss) and are included in the consolidated statements of shareholders’ equity. The components of other comprehensive income (loss) include foreign currency translation adjustment resulting from translation of financial statements of subsidiaries with functional currencies other than the Swiss Franc and defined pension benefit plan actuarial net gains or losses.

New Accounting Standards Adopted Effective January 1, 2009, the Company adopted the requirement for enhanced disclosures about an entity’s derivative and hedging activities in accordance with FASB ASC Topic 815, Derivatives and Hedging. The adoption did not have a material impact on the consolidated financial statements. Effective January 1, 2009, the Company adopted the changes required in FASB ASC Topic 820, Fair Value Measurement and Disclosures, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements with respect to an entity’s financial and non-financial assets and liabilities. The adoption did not have material impact on the consolidated financial statements.

42

On July 1, 2009 the FASB released the Accounting Standards Codification (the “Codification”), which became the single source of authoritative nongovernmental US GAAP. The Codification was a major restructuring of accounting and reporting standards designed to simplify user access to all authoritative US GAAP by providing authoritative literature in a topically organized structure. The Codification is effective for interim and annual periods ending after September 15, 2009. The adoption of the Codification did not have an impact on the consolidated financial statements but did change the accounting and reporting guidance referencing to broad FASB ASC topics using plain English within the footnote disclosures. In May 2009, the FASB issued ASC Topic 855-10-50, Subsequent Events, which provides rules on recognition and disclosure for events and transactions occurring after the balance sheet date but before the financial statements are issued or available to be issued. In addition, the guidance requires a reporting entity to disclose the date through which subsequent events have been evaluated, as well as whether that date is the date the financial statements are issued or available to be issued. The adoption of ASC Topic 855-10-50 did not have a significant impact on the consolidated financial statements.


This Page is Intentionally Blank

Report on the Consolidated Financial Statements, Consolidated Financial Statements and Notes

43


Note 3 — Net Income (Loss) Per Share Net income (loss) per share calculations for the years ended December 31 In thousands of CHF, except per share information

2009

2008

Net income (loss) from continuing operations

2,706

(6,511)

Net loss from discontinued operations, net of tax

(5,491)

Net income (loss)

2,706

(12,002)

Weighted average shares - basic

1,483,462

1,431,309

Potentially dilutive shares

64,297

Weighted average shares - dilutive

1,547,759

1,431,309

Basic net income (loss) per share

Continuing operations Discontinued operations Net income (loss)

1.82 – 1.82

(4.55) (3.84) (8.39)

Diluted net income (loss) per share

Continuing operations Discontinued operations Net income (loss)

1.75 – 1.75

(4.55) (3.84) (8.39)

Common stock equivalents totaling 157,955 were excluded from the weighted average number of shares outstanding used in the diluted income per share calculation for the year ended December 31, 2009 because their exercise price was greater than the Company’s average stock price during the period, therefore making their inclusion anti-dilutive.

Common stock equivalents totaling 404,296 were excluded from the weighted average number of shares outstanding used in the diluted loss per share calculation for the year ended December 31, 2008 as the effect of the assumed exercise of common stock equivalents is anti-dilutive due to the Company’s net loss in this period.

Note 4 — Property and Equipment Property and equipment as of December 31 In thousands CHF

2009

2008

Computer equipment and software

2,966

2,737

Furniture and fixtures

986

937

Leasehold Improvements

2,991

2,991

6,943

6,665

Less Accumulated depreciation and amortization

(6,503)

(6,319)

Property and equipment, net

440

346

For the years ended December 31, 2009 and 2008, depreciation expense totaled TCHF 206 and TCHF 169, respectively. 44


Note 5 — Commitments and Contingencies Employment Contracts

The Company has several noncancelable operating leases for its office facilities and a capital lease for computer equipment. These facilities hold all of the Company’s operations and these leases expire at various dates ranging from one to three years.

The Company has entered into employment contracts with certain officers and employees of the Company. The employment contracts expire at various dates. Under the provisions of the employment contracts, the Company may terminate all of these contracts for cash payments totaling TCHF 901.

Property and equipment included equipment under capital leases was TCHF 76 as of December 31, 2009 and 2008, respectively. Accumulated depreciation and amortization included amortization of equipment under capital leases totaling TCHF 65 and TCHF 40 as of December 31, 2009 and 2008, respectively. Minimum rent payments under operating leases are recognized on a straight-line basis over the term of the lease including any periods of free rent. Total rent expense for the years ended December 31, 2009 and 2008 was TCHF 1,390 and TCHF 984, respectively. The rent expense for 2009 includes a TCHF 240 charge representing estimated lease payments for 2010 associated with the portion of an office space not being used and terminating in 2010. This TCHF 240 charge has been deducted from future annual minimum lease payments for 2010 in the preceding table.

Indemnification Clauses in Software License Agreements The Company’s standard software license agreement includes an indemnification clause that indemnifies the licensee against liability and damages arising out of or in connection with an assertion that the software infringes any United States trademark or copyright. To date, the Company has had no material claims or costs related to these indemnification clauses and therefore, has no liability recorded related to these indemnification clauses as of December 31, 2009 and 2008.

The Company’s future annual minimum lease payments to be made as of December 31, 2009 In thousands CHF

Capital Lease

Operating Leases

2010

12

656

2011

118

2012

93

2013

6

Thereafter

12

873

Total Less interest

(1)

Present value of minimum lease payments

11

Report on the Consolidated Financial Statements, Consolidated Financial Statements and Notes

Leases

45


Note 6 — Shareholders’ Equity Description of Share Capital

Treasury Shares

The Company’s share capital is comprised of ordinary capital, authorized capital and conditional capital. Authorized capital can be issued at the discretion of the Board of Directors of the Company, provided that any issuances of authorized capital are within a period not exceeding two years following approval by the shareholders (currently before May 14, 2010). Any increases to authorized or conditional capital are subject to the approval of the shareholders.

The Company purchases and sells its own shares of common stock and accounts for these transactions under the cost method of accounting for treasury shares. Treasury shares are included in the Consolidated Balance Sheets as a reduction in Shareholders’ Equity. Purchases of the Company’s own shares are reported at cost as an increase in treasury shares. Sales of the Company’s own shares are reported as a reduction in Treasury Shares based on the First in First Out (“FIFO”) method. If the shares are sold at a price in excess of the original cost using the FIFO method (gain on sale), paid-in capital is increased for the gain on sale. If the shares are sold at a price less than the original cost using the FIFO method (loss on sale), paid-in capital is first decreased by an amount not to exceed the paid-in capital amount from previous treasury share transactions. Any remaining loss on sale is recorded as a decrease to accumulated deficit.

As of December 31, 2009 and 2008, the Company had 718,500 shares of authorized capital, subject to certain limitations and restrictions. Authorized capital can be used for acquisitions, new investments, participation of employees and strategic alliances and partnerships. As of December 31, 2009 and 2008, the Company had 666,994 and 682,810 shares of conditional capital, respectively, subject to certain limitations and restrictions. Conditional capital will only be issued in connection with the exercise of the Company’s stock options granted to employees. Dividends may be paid only if the Company has sufficient distributable profits from previous fiscal years, or if reserves are sufficient to allow for the distribution of a dividend based on the results of statutory financial statements of Day Software Holding AG. The Company is required to retain at least 5% of the annual net profits as a general reserve until such time that the reserves are at least 20% of the Company’s nominal share capital. Dividends are subject to the approval of the shareholders. To date, no dividends have been declared.

46

There were 0 and 17,756 shares of capital stock in the treasury as of December 31, 2009 and 2008, respectively. During 2009, the Company acquired 46,689 treasury shares for at total price of TCHF 1,663 at an average price of CHF 35.63 per share and sold 64,445 treasury shares for a total price of TCHF 2,168 at an average price of CHF 33.63 per share. The sale of treasury shares sold during 2009 resulted in a TCHF 227 increase in paid-in capital and a TCHF 91 increase in accumulated deficit. During 2008, the Company acquired 37,316 treasury shares for at total price of TCHF 1,047 at an average price of CHF 28.05 per share and sold 33,276 treasury shares for a total price of TCHF 924 at an average price of CHF 27.76 per share. The sale of treasury shares sold during 2008 resulted in a TCHF 43 decrease in paid-in capital and a TCHF 341 increase in accumulated deficit.


Share-based Compensation the vesting period of such options. Substantially all the stock options outstanding vest over a 4 year period and all have an exercise price equal to the market value on date of grant. The maximum term of options granted under the International Option Plan and the United States Option Plan is ten years. There were a total of 330,761 shares of capital stock available for issuance under the two stock option plans as of December 31, 2009.

Share-based compensation expense included in the consolidated statements of operations for the years ended December 31 In thousands CHF

2009

2008

Cost of revenue – product support and services

78

54

Research and development

79

89

Sales and marketing

214

204

General and administrative

396

385

Total share-based compensation

767

732

For the years ended December 31, 2009 and 2008, the Company calculated the fair value of each option grant on the date of grant using the Black-Scholes option-pricing model and assumptions in the following table. The risk-free interest rate is based on the Swiss Confederation bond yield during the option grant period.

The expected life is calculated taking an average between the option vesting term and the contractual term. The expected volatility is based on historical volatility. The forfeiture rates have been estimated to be zero as the historical forfeitures have not been significant.

Report on the Consolidated Financial Statements, Consolidated Financial Statements and Notes

The Company has two stock option plans, the Day Interactive Holding AG International Stock Option Plan (the “International Option Plan”) and the Day Interactive Holding AG United Stated Stock Option Plan (the “United States Option Plan”). Both the International Option Plan and the United States Option Plan are administered by the Board of Directors, which determines the terms and conditions of the options granted, including exercise price, number of options granted and

Assumptions for calculation of the grant date fair value of options using the Black Scholes option-pricing model under both stock option plans for the years ended December 31

2009

2008

0.70-1.54%

1.92-2.86%

Expected life (years) under International Option Plan

3.75

3.75

Expected life (years) under United States Option Plan

3.75

6.25

Risk-free interest rate under both Plans

Expected volatility under both Plans

42.98- 49.89%

43.2- 45.3%

Forfeiture rate under both Plans

Dividend yield under both Plans

47


Stock option activity under the both plans for the years ended December 31

Number of Options

Weighted Average Exercise Price per Share

2009

2008

2009

2008

Outstanding, beginning of year

404,296

270,884

23.97

21.24

Granted

101,250

177,292

23.46

25.64

Exercised

(69,506)

(35,690)

20.97

13.36

Forfeited, expired or cancelled

(99,807)

(8,190)

25.68

15.96

Outstanding, end of year

336,233

404,296

23.93

23.97

Exercisable, end of year

141,782

231,809

23.28

22.63

Aggregate intrinsic value of options under both plans for the years ended December 31 In thousands CHF

2009

2008

Aggregate intrinsic value of options outstanding

16,918

7

Aggregate intrinsic value of options exercisable

7,226

7

Aggregate intrinsic value of options exercised

1,750

288

The total aggregate intrinsic value of options outstanding was calculated as the difference in the Company’s closing stock price on the last trading day in the period and the exercise price of options outstanding on the last day in the period multiplied by the number of options outstanding on the last day of the period. The total aggregate intrinsic value of options exercisable was calculated as the difference in the Company’s closing stock price on the last trading day in the period and

48

the exercise price of options exercisable (vested and outstanding) on the last day in the period multiplied by the number of options exercisable (vested and outstanding) on the last day of the period. The total aggregate intrinsic value of options exercised was calculated as the difference in the Company’s stock price on the day of exercise and the exercise price of options exercised multiplied by the number of options exercised.


Stock option activity for nonvested shares under both stock option plans for the years ended December 31 Number of Options

Weighted Average Grant Date Fair Value

2009

2008

2009

2008

Nonvested, beginning of year

172,492

56,602

12.65

11.80

Granted

101,250

177,292

8.86

12.81

Vested

(54,570)

(60,858)

12.26

12.35

Forfeited, expired or cancelled

(24,721)

(549)

12.20

10.03

Nonvested, end of year

194,451

172,487

10.84

12.65

Summary of capital share options outstanding as of December 31, 2009

Options Outstanding

Range of Exercise Prices

Number of Options

Weighted Average Remaining Contractual Life (Years)

10.00 – 14.00

27,920

5.67

13.33

7,414

13.12

15.05 – 19.00

78,200

3.73

17.54

36,856

17.23

20.10 – 29.00

153,309

5.81

23.52

66,831

22.67

30.00 – 38.00

72,304

5.04

34.02

28,692

33.24

42.45 – 62.50

4,500

2.99

51.59

1,989

50.30

Options Exercisable Weighted Average Exercise Price

336,233

As of December 31, 2009, total share-based compensation cost not yet recognized related to nonvested share-based arrangements was TCHF 2,108.

Number of Options

Weighted Average Exercise Price

141,782

Report on the Consolidated Financial Statements, Consolidated Financial Statements and Notes

It is estimated that this cost will be recognized over a weighted average period of 2.89 years.

49


Note 7 — Retirement and Pension Plans United States In the United States, the Company sponsors a 401(k) retirement plan that is considered a defined contribution discretionary plan under which eligible participants may contribute up to a maximum of 80% of their pre-tax earnings subject to certain statutory limitations. The Company made no discretionary contributions to the 401(k) retirement plan during 2009 and 2008.

Switzerland For all employees residing in Switzerland, the Company sponsors a defined benefit pension plan (the “Plan”) covering employees earning more than TCHF 25 per year. In 2005, the Plan was amended and changed from a defined contribution pension plan to a defined benefit pension plan due to changes in the laws governing pension plans in Switzerland. The Plan provides benefits in the event of retirement, death or disability and the benefits are based on age, years of service and salary. The Plan in financed by contributions by both the employer and employee.

The employee contributions are based on a percentage of the employee’s salary ranging from 8% to 19% of the employee’s salary and are dependent on age and gender. The Plan assets are invested primarily in qualified insurance policies with AXA and cash. The insurance policies guarantee a fixed rate of return. For Plan assets related to the mandatory pension benefits, this return is based on the minimum interest rated decided by the government of Switzerland. For the remaining Plan assets, the investment return is decided by AXA. The Plan’s assets and pension benefit obligation are measured at December 31, 2009. The Company estimates that it will make TCHF 554 in contributions to the Plan during 2010.

Net periodic benefit cost recognized for the years ended December 31 In thousands CHF

2009

2008

Service cost

803

845

Interest cost

229

188

Expected return on Plan assets

(204)

(175)

Amortization of net transition obligation

72

72

Net periodic benefit cost recognized during the year

900

930

Changes in projected benefit obligation for the years ended December 31

50

In thousands CHF

2009

2008

Projected benefit obligation, beginning of year

7,822

6,156

Service cost

803

845

Interest cost

229

188

Employee contributions

397

372

Actuarial (gains) loss

(30)

52

Benefits paid to (received from) employees

(353)

209

Projected benefit obligation, end of year

8,868

7,822


Accumulated benefit obligation for the Plan at December 31 In thousands CHF

2009

2008

Accumulated benefit obligation, end of year

7,994

6,582

In thousands CHF

2009

2008

Fair value of Plan assets, beginning of year

5,527

4,436

Actual return on assets

135

(42)

Company contributions

543

552

Employee contributions

397

372

Benefits paid to (received from) employees

(353)

209

Fair value of Plan assets, end of year

6,249

5,527

In thousands CHF

2009

2008

Projected benefit obligation, end of year

8,868

7,822

Changes in the fair value of Plan assets for the years ended December 31

Less: Fair value of Plan assets, end of year

6,249

5,527

Unfunded pension obligation â&#x20AC;&#x201C; long-term, end of year

(2,619)

(2,295)

2009

2008

Accumulated other comprehensive loss, beginning of year

(1,023)

(826)

Transition obligation

72

72

Net actuarial loss

(103)

(269)

Accumulated other comprehensive loss, end of year

(1,054)

(1,023)

Changes to accumulated other comprehensive income (loss) related to the Plan

Report on the Consolidated Financial Statements, Consolidated Financial Statements and Notes

Reconciliation of Plan funded status at December 31

Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31

2009

2008

Discount rate

3.00%

3.00%

Expected long-term rate of return on plan assets

3.50%

3.50%

Rate of compensation increase

2.00%

1.50%

Projected benefit payments over the next ten years In thousands CHF 2010

433

2011

462

2012

487

2013

508

2014

527

2015 to 2019

3,103

51


Note 8 — Income Taxes A substantial portion of the Company’s operations is outside of Switzerland and in various countries with different tax laws and rates. As a result the weighted-average statutory tax rate will vary from

year to year according to each country’s pretax income or loss. The weighted average statutory rate is calculated using the pretax income of each country multiplied by the respective country’s tax rate.

The components of income (loss) from continuing operations before income taxes for the years ended December 31 In thousands CHF

2009

2008

Switzerland

2,234

(8,681)

Other countries

2,089

3,977

Income (loss) from continuing operations before income taxes

4,323

(4,704)

2009

2008

The components of the provision for taxes for the years ended December 31 In thousands CHF Current Switzerland

51

33

Other countries

474

341

Total current

525

374

Deferred Switzerland

412

Other countries

680

1,433

Total deferred

1,092

1,433

Total provision for income taxes

1,617

1,807

Reconciliation of the weighted average statutory tax rate and the effective income tax rate for the years ended December 31

52

2009

2008

Expected tax at weighted average statutory tax rates

31.2%

(9.8%)

Change in valuation allowances

4.2%

47.0%

Prior year and capital taxes

2.0%

1.2%

Effective tax rate

37.4%

38.4%


The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31 2009

2008

Deferred tax assets Accrued pension cost

650

429

Other accrued expenses

393

Share-based compensation expense

150

Net operating loss carryforwards

13,676

21,372

Total deferred tax assets

14,869

21,801

Less valuation allowance Net deferred tax assets

(13,326)

(19,162)

1,543

2,639

Less current deferred tax assets

466

1,005

Non-current deferred tax assets

1,077

1,634

Management reevaluates the Company’s ability to realize its deferred tax assets based on historical income and estimated projected discounted future taxable income for each country on a regular basis. If management determines that it is more likely than not that some portion or all of the deferred tax assets will not be realized based on the evaluation, a valuation allowance against the deferred assets will be recorded. As of December 31, 2009, the Company had net operating loss carryforwards amounting to approximately TCHF 16,421, in a jurisdiction of Switzerland, which expire beginning 2010 through 2016. The effective total income tax rate in the Canton of Basel, Switzerland, the jurisdiction of the Company’s primary income generating activity, is approximately 24.8%. Day Software Holding AG does not pay any cantonal taxes, only federal taxes at 7.8%. As of December 31, 2009, the Company had United States federal net operating loss carryforwards amounting to approximately TCHF 27,208. These federal net operating loss carryforwards expire beginning 2020 through 2028. Section 382 of the United States Internal Revenue Code includes provisions that may limit the net operating loss carryforwards available for use in any given year if certain events occur, including significant changes in stock ownership.

In addition, the Company has certain net operating loss carryforwards in Germany, the United Kingdom and Singapore and amounting to approximately TCHF 12,278 as of December 31, 2009 which will be carried forward until they are used to offset taxable income.

Report on the Consolidated Financial Statements, Consolidated Financial Statements and Notes

In thousands CHF

Management has determined that it is more likely than not that tax positions taken in income tax returns that have been or will be filed and that affect measurement of current or deferred income tax assets and liabilities in the consolidated financial statements would be sustained upon examination by tax authorities. Tax positions for the Company and its subsidiaries are subject to income tax audits by various tax jurisdictions throughout the world. In Switzerland, the Company’s tax return for tax year 2009 remains open to examination. In the United States, the Company’s tax returns for tax years 2006 to 2009 for federal and 2005 to 2009 for state remain open to examination. In other major jurisdictions where the Company operates, including Germany and the United Kingdom, the Company’s tax return for tax year 2009 remains open to examination in Germany and the Company’s tax return for tax years 2008 and 2009 remains open to examination in the United Kingdom. 53


Note 9 — Discontinued Operations On December 31, 2008, the Company sold its wholly owned subsidiary, MarketingNet, a UK company active in the agency services business. This sale was part of the

Company’s efforts to refocus its UK operations on its core business and drive UK expansion through a channeldriven model.

Discontinued operations related to the sales of MarketingNet for the years ended December 31, 2008 In thousands CHF Results from operations Loss from operations

513

Amortization of acquired intangible assets

187

Total loss on operations

700

Loss on sale Write-off of goodwill and intangible assets, net

2,764

Foreign exchange loss on write-off of intercompany loans to MarketingNet

992

Closing expenses

302

Tax accrual

653

MarketingNet’s net assets

80

Total loss on sale

4,791

Total loss included in discontinued operations

5,491

Note 10 — Segment and Other Information The Company operates predominantly in a single industry segment as a provider of enterprise software and related services. The Company’s reportable operating segments are based on geographic location, which are Europe and the Americas. The Company’s Asia Pacific operating segment have been combined with the Americas as the operations are not significant. The

54

accounting policies of the segments are the same as those described in the summary of significant accounting policies. Intergeographic revenues primarily represent intercompany revenues which are accounted for based on established sales prices between the related companies and are eliminated in consolidation. Geographical revenue information is based on the origin of the sales.


Segments by geographic area of origin for the years ended December 31 2009

2008

Revenue Europe

18,799

14,246

Americas

17,543

13,565

Total revenue

36,342

27,811

Software license revenue Europe

8,928

5,136

Americas

7,547

6,211

16,475

11,347

Total software license revenue

Product support revenue Europe

6,086

5,410

Americas

5,392

4,270

11,478

9,680

Total product support revenue

Services revenue Europe

3,785

3,700

Americas

4,604

3,084

Total services revenue

8,389

6,784

Net income (loss) Europe

1,558

(9,730)

Americas

1,148

(2,272)

Total net income (loss)

2,706

(12,002)

Report on the Consolidated Financial Statements, Consolidated Financial Statements and Notes

In thousands CHF

Assets Europe Americas Total assets

30,321

19,574

6,407

6,223

36,728

25,797

Expenditures for long-lived assets Europe

168

148

Americas

132

22

Total expenditures for long-lived assets

300

170

Interest income Europe Americas Total interest income

47

166

1

2

48

168

Depreciation of fixed assets Europe Americas Total depreciation of fixed assets

156

122

50

47

206

169

55


Note 11 — Accumulated other comprehensive income (loss) Components of accumulated other comprehensive income (loss) at December 31 In thousands CHF

2009

2008

Pension liability adjustments Transition obligation

(501)

(572)

Net actuarial loss

(825)

(723)

Deferred tax asset

272

272

1,393

1,497

339

474

Foreign currency translation Total

Note 12 — Subsequent Events The 2009 consolidated financial statements of Day Software Holding AG were approved by the Board of Directors on April 20, 2010.

Note 13 — Risk Management General and Financial Risks Organizational and process measures have been designed to identify and mitigate risks throughout the Company. The Board of Directors of Day has the overall responsibility, on behalf of the Company, to monitor financial and operational risks and risk assessment processes and the appropriate responses to those risks. Operationally, risk assessment is allocated to the Company’s senior management, principally its Chief Executive Officer, Chief Financial Officer, General Counsel, Chief Technical Officer and Corporate Controller. These individuals are responsible for coordinating the Company’s overall risk assessment, management, and any necessary remediation steps. On a regular basis, these senior managers are responsible for identifying risks and reporting to the Board, and, in certain circumstances, the Audit Committee of the Board, on identified risks and management’s reactions to those risks. Where risks are identified, these senior managers, and their staff, are responsible for taking appropriate remediation actions to address those risks. 56

The Company is exposed to a number financial risks arising from its international operations. The Company’s financial risk exposures are predominantly related to liquidity risks, changes in foreign exchange rates, and the creditworthiness of its customers. Financial risk management within the Company is dealt with in the

same way overall risk assessment and management is done. Financial risk assessment is allocated to the Company’s senior financial management, principally its Chief Financial Officer and Corporate Controller. These individuals are responsible for coordinating the Company’s overall financial risk assessment, management, and any necessary remediation steps. On a regular basis, these senior managers are responsible for identifying risks and reporting to the Board, and the Audit Committee of the Board, on identified financial risks and management’s reactions to those risks.

Liquidity Risk Liquidity risk arises if a surplus of financial obligations over available financial assets are due at any point in time. The Company’s approach to liquidity risk is to maintain sufficient cash flow and cash to meet its liquidity requirements at any point in time. At December 31, 2009, the Company had TCHF 22,034 of cash and TCHF 11,485 of accounts receivable to meet its liquidity requirements. The Company has no loan facility in place at this time.


Foreign Exchange Risk

1) The functional currencies of the Company’s foreign subsidiaries are their respective local currencies as these are the currencies of the primary economic environment in which the subsidiaries operate. These currencies include the U.S. dollar, British Pound, the Euro and the Singapore Dollar. The financial statements of these foreign subsidiaries are translated into the Swiss Franc, the Company’s reporting currency, to prepare the consolidated financial statements. The resulting foreign currency translation adjustments are included in other comprehensive income (loss). Changes in the exchange rates of these foreign currencies against the Swiss Franc will result in currency translation effects that could have a significant impact on the Company’s consolidated financial statements. The Company does not currently hedge these foreign exchange risks with financial instruments. The Company will continue to be subject to these foreign currency translation effects as long as it continues to conduct business on a global basis. 2) The effect of exchange rate fluctuations on intercompany balances (resulting from foreign currency loans) where settlement is not planned or anticipated in the foreseeable future is included as a component of other comprehensive income (loss). During 2008, most of these loan balances were eliminated by either reclassifying to investment in subsidiary or by writing off. These intercompany transactions were then eliminated during consolidation. The Company does not currently hedge these foreign exchange risks with financial instruments. The Company will have minimal foreign exchange risk associated with the remaining intercompany balances due to the significant reduction in the balances. 3) The amount of local currency paid or received for transactions (including intercompany transactions where settlement is planned or anticipated in the foreseeable future) denominated in foreign currencies may vary due to changes in exchange rates from date of transaction to date of settlement. The resulting foreign exchange gains and losses from specific foreign currency transactions are included in the consolidated results of operations. Foreign exchange gains/(losses) were TCHF 102 and TCHF (2,530) for the years ended December 31, 2009 and 2008, respectively. The foreign exchange losses for 2008 include a TCHF 2,296 non-cash charge resulting from reclassification

of foreign exchange losses on intercompany balances accumulated in other comprehensive income (loss) into current year consolidated results of operations as the settlement of these intercompany balances is now planned in the foreseeable future. The foreign exchange losses were due to the declining value of the U.S. dollar, Euro and British Pound against the Swiss Franc during 2009 and 2008. The Company does not currently hedge these foreign exchange risks with financial instruments. During 2008, some of these intercompany balances were eliminated by write off. The Company will settle these remaining intercompany balances as soon as the cash is available to minimize future foreign exchange gains and losses related to these balances.

Credit Risk Credit risk arises from the possibility that the Company’s customers may default on their payment obligations to the Company causing financial losses. Historically, the Company has not experienced material losses due to customer defaults, but given the current economic climate, like other companies, it may be exposed to such losses in the future. To mitigate this type of risk, the Company, when appropriate, attempts to actively monitor the financial position of potential customers at the time it is entering into agreements with those customers and to actively monitor its account receivable collections. At December 31, 2009, the Company’s account’s receivable balance was TCHF 11,485.

Report on the Consolidated Financial Statements, Consolidated Financial Statements and Notes

The Company operates internationally and therefore is exposed to movements in foreign currencies. Foreign exchange risk arises because of the following transactions

Note 14 — Related Party Transactions The spouse of Michael Moppert, a director of the Company, received compensation of TCHF 12 and TCHF 6 in 2009 and 2008, respectively, for consulting services performed for the Company. Greg Williams, a director of the Company, received compensation of TCHF 52 during 2009 for legal related consulting services performed for the Company. In 2009, the Company purchased software for TCHF 83 from a company who’s Chief Executive Officer, Ariel Luedi, was a director of the Company during 2009. The Company also sold software for TCHF 83 to this company during 2009. There were no other related party transactions in 2009 and 2008.

57


Report of the Statutory Auditor to the General Meeting of Day Software Holding AG, Basel

Phone +41 (0)44 444 35 55 Fax +41 (0)44 444 37 66 www.bdo.ch

BDO Ltd. Fabrikstrasse 50 CH-8031 Zurich

As statutory auditor, we have audited the financial statements of Day Software Holding AG, which comprise the balance sheet, profit and loss statements and notes on pages 60 to 65 for the year ended December 31, 2009.

Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity’s preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements for the year ended December 31, 2009 comply with Swiss law and the company’s articles of incorporation.

Report to the General Meeting of Day Software, Financial Statements and Notes

Board of Directors’ Responsibility The Board of Directors is responsible for the preparation of the financial statements in accordance with the requirements of Swiss law and the company’s articles of incorporation. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation of financial statements that are free of material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances.

Report on Other Legal Requirements We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence. In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of financial statements according to the instructions of the Board of Directors. We further confirm that the proposed appropriation of available earnings complies with Swiss law and the company’s articles of incorporation. We recommend that the financial statements submitted to you be approved. Zurich, April 20, 2010 BDO Ltd.

59

Andreas Wyss

Denis Tornare

Auditor in Charge Licensed Audit Expert

Licensed Audit Expert

BDO Ltd., a limited company under Swiss law, incorporated in Zurich, forms part of the international BDO Network of independent member firms.


Day Software Holding AG Balance Sheets (in thousands CHF)

ASSETS

December 31, 2009

December 31, 2008

8,472

5,658

Current assets Cash and cash equivalents Prepaid expenses

42

-

Other receivables

6

5

Treasury shares

-

244

8,520

5,907

11

36

Long-term investments and loans in subsidiaries, net

18,106

9,588

Total non-current assets

18,117

9,624

26,637

15,531

Trade payables due to third parties

81

35

Short-term debt due to subsidiaries

193

5,424

Total current assets

Non-current assets Property and equipment, net

TOTAL ASSETS

LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities

Capital lease obligation

11

36

Accrued liabilities

1,003

1,094

Total liabilities

1,288

6,589

15,426

14,731

3,295

1,903

Shareholders’ Equity Share capital Legal reserves

General reserve

Reserve for treasury shares

Accumulated earnings (deficit) Total shareholders’ equity

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 60

See accompanying notes to these financial statements.

-

370

6,628

(8,062)

25,349

8,942

26,637

15,531


Day Software Holding AG Profit and Loss Statements (in thousands CHF)

Year Ended December 31

2008

384

107

Income

Interest income

Reversal of impairment charge on loans in subsidiaries

Increase in value of treasury shares

Foreign exchange gain

Equipment rental income

Total income

15,675

-

-

-

25

-

112

111

16,196

218

Expenses

Consultancy fees

(304)

(426)

Loan impairment on loans from subsidiary

(821)

(1,500)

Loan forgiveness on loans from subsidiary

-

(2,706)

Loss on disposition of subsidiary

-

(3,511)

Expenses on disposition of subsidiary

-

(909)

Other expense

(163)

(133)

Decrease in value of treasury shares

-

(338)

Directorâ&#x20AC;&#x2122;s fees

(112)

-

Depreciation expense

(25)

(25)

Bank charges

Profit (loss) before taxes

Taxes Net profit (loss)

(10)

(8)

14,761

(9,338)

(71)

(11)

14,690

(9,349)

Report to the General Meeting of Day Software, Financial Statements and Notes

2009

See accompanying notes to these financial statements.

61


Notes to the Financial Statements (in thousands CHF except share and per share information)

Note 1 — Treasury shares In February 2000, the Company acquired 17,066 treasury shares during the second private equity placement at the issuance price of CHF 110.00 per share. During the initial public offering, the Company acquired an additional 45 shares at the issuance price of CHF 440.00 per share. Since acquiring these shares, the Company has issued them from time-to-time, primarily in connection with employment and consulting contracts. During 2009, the Company acquired 46,689 treasury shares for at total price of TCHF 1,663 at an average price of CHF 35.63 per share and sold 64,445 treasury shares for a total price of TCHF 2,168 at an average

price of CHF 33.63 per share. The sale of treasury shares sold during 2009 resulted in a TCHF 227 increase in paid-in capital and a TCHF 91 increase in accumulated deficit. During 2008, the Company acquired 37,316 treasury shares for at total price of TCHF 1,047 at an average price of CHF 28.05 per share and sold 33,276 treasury shares for a total price of TCHF 924 at an average price of CHF 27.76 per share. The sale of treasury shares sold during 2008 resulted in a TCHF 43 decrease in paid-in capital and a TCHF 341 increase in accumulated deficit. There were 0 and 17,756 shares of capital stock in the treasury as of December 31, 2009 and 2008, respectively.

Note 2 — Authorized and conditional share capital at December 31 In thousands of CHF

2009

2008

Unissued authorized share capital

7,185

7,185

Unissued conditional share capital

6,669

6,828

Note 3 — Investments in subsidiaries as of December 31, 2009 Subsidiary and Domicile Functional Currency

62

Share Capital in thousands

Ownership % 100%

Day Management AG, Basel, Switzerland

CHF

250

Day Software AG, Basel, Switzerland

CHF

100

100%

Day Software GmbH, Munich, Germany

EUR

25

100%

Day Software, Ltd., London, United Kingdom

GBP

2,800

100%

Day Software, Inc.,Boston, United States

USD

420

100%

Day Interactive Singapore PTE Ltd., Singapore

SGD

100

100%


Note 4 — Significant Shareholders Shareholders reported the following holdings between January 1, 2009, and December 31, 2009 Name

Publication Date DD/MM

Shares Owned

Shares & Options Owned as a % of Commercial Register Shares

Reason for Reporting

Ralf Sievers

13/01

Erik Hansen

12/03

69,560

4.83%

Change of threshold

6,300

55,000

4.26%

Purchase

Ralf Sievers

27/03

73,770

5.01%

Purchase

Michael Moppert

05/09

205,696

13.96%

Sale

Michael Moppert

24/09

221,996

15.07%

Purchase

Roger Mäder

21/10

< 3%

Sale

Michael Moppert

30/10

211,996

14.39%

Sale

Threadneedle Asset Management Holdings Ltd

11/11

46,453

3.15%

Purchase

Schroders Plc

24/11

71,841

4.88%

Sale

FIL Limited (Fidelity Funds)

05/12

45,037

3.06%

Purchase

BlackRock, Inc.

22/12

44,226

3.00%

Purchase

Note 5 — Commitments and Contingencies Leases The Company has several noncancelable operating leases and a capital lease for certain office equipment in Europe. These leases expire at various dates ranging from two to three years.

Minimum rent payments under operating leases are recognized on a straight-line basis over the term of the lease including any periods of free rent. Total rent expense for the years ended December 31, 2009 and 2008 was TCHF 61 and TCHF 146, respectively.

Report to the General Meeting of Day Software, Financial Statements and Notes

Options Outstanding

Property and equipment under capital leases was TCHF 11 and TCHF 36 as of December 31, 2009 and 2008, respectively. Accumulated amortization of equipment under capital leases was TCHF 65 and TCHF 40 as of December 31, 2009 and 2008, respectively.

The Company’s future annual minimum lease payments to be made as of December 31, 2009 In thousands CHF

Capital Lease

Operating Leases

2010

12

Thereafter

Total

12

Less interest

(1)

Present value of minimum lease payments

11

Note 6 — Value Added Tax (VAT)

Note 7 — Risk Management

The Company is a member of a VAT Group and is therefore jointly liable for all VAT liabilities of the Group due to the Swiss tax authorities.

The risk management discussed in Note 13 to the Consolidated Financial Statements also covers the specific risks related to Day Software Holding AG, the parent company of the Day Group.

63


Note 8 — Compensation, Investments and Loans to the Board of Directors and the Executive Management Board - Disclosures as Required by Swiss Law Compensation paid to Management Board and Board of Directors in 2009 In Thousands of CHF Name & Function(s) Salaries Board Bonus Car & Member Expense Fees Allowance

Retirement & Social Security

Value of Consulting Options Fees (4) Granted (3)

Total

Management Board (1) Erik Hansen, CEO & Member, Board of Directors

360

147

50

105

662

David Nüscheler, CTO & Member, Board of Directors

183

28

32

69

56

368

Richard Francis, CFO

203

52

15

10

280

Kevin Cochrane, CMO

222

35

5

262

Total Management Board

968

262

97

189

56

1,572

Board of Directors (2) Barry Bycoff, Chairman from August 6, 2009

26

75

101

Michael Moppert, Chairman to August 6, 2009

52

37

12

101

David Arnott, Non-executive Member of the Board of Directors since August 6, 2009

20

51

71

Mark Walsh, Non-executive Member

39

12

51

Greg Williams, Non-executive Member

41

97

52

190

Ariel Luedi, Non-executive Member to May 19, 2009

16

16

Total Board of Directors

194

37

247

52

530

(1) Includes Management Board members who also hold seats on the Company’s Board of Directors. (2) Excludes members of the Board of Directors who also hold seats on the Management Board. Executive board members do not get any additional cash compensation for board membership. (3) The value of options granted is calculated by taking the number of options granted during the year multiplied by the grant date fair value of the options calculated using the Black-Scholes option-pricing model as prescribed by SFAS 123R. (4) Consulting Fees paid for legal related consulting services during the year.

Loans to Members of the Board of Directors and the Management Board

Greg Williams, a director of the Company, received compensation of TCHF 52 during 2009 for legal related consulting services performed for the Company.

There are no outstanding loans.

64

Compensation and Loans to Related Parties The spouse of Michael Moppert, a director of the Company, received compensation of TCHF 12 and TCHF 6 in 2009 and 2008, respectively, for consulting services performed for the Company.

In 2009, the Company purchased software for TCHF 83 from a company who’s Chief Executive Officer, Ariel Luedi, was a director of the Company during 2009. The Company also sold software for TCHF 83 to this company during 2009. There were no other related party transactions in 2009 and 2008.


Shares and Option Rights by Members of the Board of Directors and the Management Board of Day Software Holding AG and Subsidiaries

In Thousands of CHF Name & Function(s)

Shares Owned

Options Outstanding

Options Vested

Exercise Price

Expiration Year

Management Board (1) Erik Hansen, CEO & Member, Board of Directors

6,300

55,000

22,812

17.55-31.50

2013

137,100

6,000

180

21.90-26.15

2014

Richard Francis, CFO

20,000

6,240

26.30

2013

Kevin Cochrane, CMO

20,000

5,832

21.10

2018

143,400

101,000

35,064

David Nüscheler, CTO & Member, Board of Directors

Total Management Board

Board of Directors (2) Barry Bycoff, Chairman beginning August 6, 2009 Michael Moppert, Chairman to August 6, 2009

11,500

1,248

13.20-21.60

2014

181,996

2,848

504

21.60-30.45

2013-2014

David Arnott, Non-executive Member of the Board of Directors since August 6, 2009

5,000

6,500

21.60

2014

Mark Walsh, Non-executive Member

2,250

23,598

20,159

15.05-32.00

2010-2018

650

26,598

15,655

13.20-32.00

2011-2019

189,896

71,044

37,566

Greg Williams, Non-executive Member Total Board of Directors

Report to the General Meeting of Day Software, Financial Statements and Notes

Shares owned and options outstanding held by the Management Board and Board of Directors as of December 31, 2009

(1) Includes Management Board members who also hold seats on the Company’s Board of Directors. (2) Excludes members of the Board of Directors who also hold seats on the Management Board.

Proposed Appropriation of Annual Results The Board of Directors recommends that the available earnings for the year ended December 31, 2009 be carried forward.

65


Share Data and Other Information

SIX Swiss Exchange

Company

Day Software Holding AG Barfüsserplatz 6 4001 Basel Switzerland

Formerly

Day Interactive Holding AG

Founded

October 29, 1999

Listed At

SIX Stock Exchange

First Listing Date

April 3, 2000

Security Number

1047421

ISIN Number

CH0010474218

Symbol

DAYN

Share Data and Other Information

Stock exchange

Also Listed At

US Over The Counter (OTC)

Security Type

American Depositary Receipt (ADR)

Security Number

CUSIP 23954P102

Symbol

DYIHY

The shareholder meeting of Day Software Holding AG will take place on June 17, 2010 in Zürich, Switzerland.

About Day

A warning regarding forwardlooking statements

Day Software is the ECM pioneer that leading global enterprises rely on for their Web 2.0 content application and content infrastructure needs. Day’s Content Repository Extreme (CRX) is the industry’s leading Java Content Repository (JCR) that provides unique virtualization services to consolidate legacy repositories and unique cloud computing services to lower IT operational costs. Day’s CQ5 platform provides industry-leading Web Content Management, Digital Asset Management, and Social Collaboration in a single, unified suite and won the 2009 InfoWorld Technology of the Year Award for “Best Web CMS”.

This report may contain forward-looking statements regarding future events or the future performance of Day Software Holding AG and its subsidiaries (the “Company”). Actual events or results, of course, could differ materially. We refer you to the “Risk Factors” section of the Company’s Offering Circular, which can be downloaded from the “Investor Relations” section of the Company’s website at www.day.com. The Company’s Offering Circular contains and identifies important factors that could cause actual results to differ materially from those contained in any forward-looking statements. Among the important factors which could cause the Company’s actual results to differ materially from such forward-looking statements are its limited operating history, its need to stay on the forefront of technological development within its industry, and its ability to expand into new geographic markets. There is currently no public trading market in the United States for the Company’s stock, and the Company does not make filings (e.g., Forms 10-K and 10-Q) with the Securities and Exchange Commission under the Securities Exchange Act of 1934.

Day is an international company with headquarters in Basel, Switzerland and Boston, Massachusetts, traded since April 2000 on the SIX Swiss Exchange, and “Over the Counter” (OTC) as American Depositary Receipts (OTCQX:DYIHY). Day’s customers are worldwide leading global enterprises, including: Adobe, Audi, Volkswagen, Daimler, General Motors, Nissan, Newsweek, MTV Networks, Virgin Media, University of Phoenix, InterContinental Hotels Group, and McDonald’s.

67


Contact Investor Relations Peter Nachbur T +41 61 226 98 98 F +41 61 226 98 97 E-Mail: peter.nachbur@day.com

Shareholder Register SIX SAG AG P.O. Box, 4601 Olten, Switzerland T +41 62 205 36 95 F +41 62 205 39 66

The English text of this 2009 Day Annual Report represents the binding version.

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Copyright Š 1993-2010 Day Management AG, Switzerland. All rights reserved. DAY, the DAY logo, CommuniquÊ, ContentBus and CRX Content Repository Extreme are registered trademarks and service marks, or are trademarks and service marks, of Day Management AG, in various countries around the world. All other product names and company logos mentioned in the information, documents or other items provided or available herein may be the trademarks of their respective owners.


Corporate Headquarters Day Software Holding AG Barf端sserplatz 6, 4001 Basel Switzerland http://www.day.com

Day Software ­ Annual Report 2009  

Day Software is the ECM pioneer that leading global enterprises rely on for their Web 2.0 content application and content infrastructure nee...

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