UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
(Mark One)
| [X] |
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the period ending June 30, 2002 |
OR
| [ ] |
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission file number 000-31089
VIRAGE LOGIC CORPORATION
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) |
77-0416232 (IRS Employer Identification No.) |
46501 Landing Parkway
Fremont, California 94538
(Address of principal executive offices)
(510) 360-8000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
As of July 31, 2002 there were 20,873,727 shares of the Registrant’s Common Stock outstanding.
1
VIRAGE LOGIC CORPORATION
FORM 10-Q
INDEX
| Page | |||||
PART I — Financial Information |
|||||
ITEM 1 — Financial Statements |
|||||
Unaudited Condensed Consolidated Balance Sheets as of
June 30, 2002 and September 30, 2001 |
3 | ||||
Unaudited Condensed Consolidated Statements of Operations
for the three and nine months ended June 30, 2002 and 2001 |
4 | ||||
Unaudited Condensed Consolidated Statements of Cash Flows
for the nine months ended June 30, 2002 and 2001 |
5 | ||||
Notes to Unaudited Condensed Consolidated Financial Statements |
6 | ||||
ITEM 2 — Management’s Discussion and Analysis of Financial Condition
and Results of Operations |
11 | ||||
ITEM 3 — Quantitative and Qualitative Disclosures about Market Risk |
30 | ||||
PART II — Other Information |
|||||
ITEM 1 — Legal Proceedings |
31 | ||||
ITEM 2 — Changes in Securities and Use of Proceeds |
31 | ||||
ITEM 3 — Defaults upon Senior Securities |
31 | ||||
ITEM 4 — Submission of Matters to a Vote of Security Holders |
31 | ||||
ITEM 5 — Other Information |
31 | ||||
ITEM 6 — Exhibits and Reports on Form 8-K |
31 | ||||
Signatures |
33 | ||||
2
VIRAGE LOGIC CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
| June 30, | September 30, | ||||||||||
| 2002 | 2001 | ||||||||||
| (1) | |||||||||||
ASSETS |
|||||||||||
Current assets: |
|||||||||||
Cash and cash equivalents |
$ | 51,910 | $ | 27,868 | |||||||
Short-term investments |
3,001 | 24,800 | |||||||||
Accounts receivable, net |
13,911 | 9,874 | |||||||||
Costs in excess of related billings on uncompleted contracts |
546 | 572 | |||||||||
Prepaid expenses and other |
1,773 | 1,579 | |||||||||
Taxes receivable |
710 | 1,582 | |||||||||
Total current assets |
71,851 | 66,275 | |||||||||
Property, equipment and leasehold improvements, net |
5,531 | 4,810 | |||||||||
Intangible assets, net |
3,630 | 270 | |||||||||
Goodwill |
9,782 | — | |||||||||
Deferred tax assets |
831 | 790 | |||||||||
Long-term investments |
— | 5,284 | |||||||||
Other long-term assets |
427 | 370 | |||||||||
Total assets |
$ | 92,052 | $ | 77,799 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|||||||||||
Current liabilities: |
|||||||||||
Accounts payable |
$ | 703 | $ | 399 | |||||||
Accrued payroll and related expenses |
2,715 | 1,595 | |||||||||
Accrued expenses |
1,496 | 1,194 | |||||||||
Note payable to shareholder |
1,500 | — | |||||||||
Deferred revenue |
3,044 | 1,046 | |||||||||
Current portion of capital lease obligations |
131 | 240 | |||||||||
Income taxes payable |
311 | 3 | |||||||||
Total current liabilities |
9,900 | 4,477 | |||||||||
Long-term portion of capital lease obligations |
— | 5 | |||||||||
Deferred tax liabilities |
1,365 | — | |||||||||
Other liabilities |
1,000 | — | |||||||||
Total liabilities |
12,265 | 4,482 | |||||||||
Stockholders’ equity: |
|||||||||||
Common stock, $.001 par value: |
|||||||||||
Authorized
shares — 150,000,000 at June 30, 2002
and September 30, 2001, respectively |
|||||||||||
Issued and outstanding shares — 20,862,140 and
20,061,095 at June 30, 2002 and September 30,
2001, respectively |
20 | 20 | |||||||||
Additional paid-in capital |
109,024 | 96,855 | |||||||||
Accumulated other comprehensive income |
(8 | ) | 109 | ||||||||
Notes receivable from stockholders |
(94 | ) | (1,044 | ) | |||||||
Deferred stock-based compensation |
(4,770 | ) | (3,398 | ) | |||||||
Accumulated deficit |
(24,385 | ) | (19,225 | ) | |||||||
Total stockholders’ equity |
79,787 | 73,317 | |||||||||
Total liabilities and stockholders’ equity |
$ | 92,052 | $ | 77,799 | |||||||
(1) Derived from audited financial statements
See accompanying notes to unaudited condensed consolidated financial statements.
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VIRAGE LOGIC CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
| Three Months Ended | Nine Months Ended | |||||||||||||||||||
| June 30, | June 30, | |||||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||||
Revenue: |
||||||||||||||||||||
License |
$ | 11,798 | $ | 8,319 | $ | 31,331 | $ | 21,817 | ||||||||||||
Royalties |
435 | 164 | 1,196 | 861 | ||||||||||||||||
Revenues |
12,233 | 8,483 | 32,527 | 22,678 | ||||||||||||||||
Cost of revenues (exclusive of amortization of
deferred stock compensation of $287, $284,
$654 and $1,148, respectively) |
2,463 | 1,698 | 6,562 | 4,588 | ||||||||||||||||
Gross profit |
9,770 | 6,785 | 25,965 | 18,090 | ||||||||||||||||
Operating expenses: |
||||||||||||||||||||
Research and development (exclusive of
amortization of deferred stock compensation
of $416, $408, $942 and $1,753,
respectively) |
3,575 | 2,440 | 9,443 | 6,969 | ||||||||||||||||
Sales and marketing (exclusive of
amortization of deferred stock compensation
of $363, $388, $831 and $1,389,
respectively) |
3,115 | 2,320 | 8,340 | 5,775 | ||||||||||||||||
General and administrative (exclusive of
amortization of deferred stock compensation
of $141, $192, $332 and $815, respectively) |
1,206 | 1,148 | 3,336 | 3,289 | ||||||||||||||||
Stock-based compensation |
1,207 | 1,272 | 2,759 | 5,105 | ||||||||||||||||
In-process research and development |
1,100 | — | 1,100 | — | ||||||||||||||||
Total operating expenses |
10,203 | 7,180 | 24,978 | 21,138 | ||||||||||||||||
Operating income (loss) |
(433 | ) | (395 | ) | 987 | (3,048 | ) | |||||||||||||
Interest income and other expense, net |
250 | 678 | 948 | 2,469 | ||||||||||||||||
Impairment of investment |
(5,284 | ) | — | (5,284 | ) | — | ||||||||||||||
Income (loss) before taxes |
(5,467 | ) | 283 | (3,349 | ) | (579 | ) | |||||||||||||
Income tax provision |
537 | 586 | 1,811 | 1,709 | ||||||||||||||||
Net loss |
$ | (6,004 | ) | $ | (303 | ) | $ | (5,160 | ) | $ | (2,288 | ) | ||||||||
Basic and diluted net loss per share |
$ | (0.30 | ) | $ | (0.02 | ) | $ | (0.27 | ) | $ | (0.12 | ) | ||||||||
Shares used in computing per share amounts: |
||||||||||||||||||||
Basic and diluted |
20,039 | 18,954 | 19,355 | 18,726 | ||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
4
VIRAGE LOGIC CORPORATION
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
| Nine Months Ended | ||||||||||||
| June 30, | ||||||||||||
| 2002 | 2001 | |||||||||||
Operating activities |
||||||||||||
Net loss |
$ | (5,160 | ) | $ | (2,288 | ) | ||||||
Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |
||||||||||||
Provision for doubtful accounts |
130 | — | ||||||||||
Depreciation and amortization |
2,896 | 1,931 | ||||||||||
Amortization of intangible asset |
140 | 162 | ||||||||||
Consulting expense related to options granted |
136 | — | ||||||||||
Impairment of investment |
5,284 | — | ||||||||||
Amortization of stock-based compensation |
2,759 | 5,105 | ||||||||||
Changes in operating assets and liabilities: |
||||||||||||
Accounts receivable |
(3,547 | ) | (3,125 | ) | ||||||||
Costs in excess of related billings on uncompleted contracts |
26 | (333 | ) | |||||||||
Prepaid expenses and other |
132 | (2,272 | ) | |||||||||
Taxes receivable |
872 | (321 | ) | |||||||||
Deferred tax assets |
(41 | ) | (560 | ) | ||||||||
Other assets |
(42 | ) | 97 | |||||||||
Accounts payable |
7 | 381 | ||||||||||
Accrued payroll and related expenses |
1,119 | 424 | ||||||||||
Accrued expenses |
(83 | ) | 216 | |||||||||
Deferred revenue |
1,998 | 851 | ||||||||||
Income taxes payable |
234 | — | ||||||||||
Net cash provided by operating activities |
6,860 | 268 | ||||||||||
Investing activities |
||||||||||||
Purchase of property, plant and equipment |
(3,483 | ) | (2,839 | ) | ||||||||
Purchase of investments |
(20,268 | ) | (24,341 | ) | ||||||||
Proceeds from maturities of investments |
41,950 | — | ||||||||||
Acquisition of business, net of cash acquired |
(2,919 | ) | — | |||||||||
Net cash provided by (used) in investing activities |
15,280 | (27,180 | ) | |||||||||
Financing activities |
||||||||||||
Net proceeds from issuance of common stock |
1,066 | 614 | ||||||||||
Repayment from stockholders |
950 | 519 | ||||||||||
Principal payments on capital lease obligations |
(114 | ) | (252 | ) | ||||||||
Net cash provided by financing activities |
1,902 | 881 | ||||||||||
Net increase in cash and cash equivalents |
24,042 | (26,031 | ) | |||||||||
Cash and cash equivalents at beginning of period |
27,868 | 58,596 | ||||||||||
Cash and cash equivalents at end of the period |
$ | 51,910 | $ | 32,565 | ||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
5
VIRAGE LOGIC CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The preparation of financial statements and related disclosures requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from these estimates. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ending September 30, 2002. For further information refer to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Item 2 below.
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements of Virage Logic Corporation (the “Company”) for the year ended September 30, 2001, which are included in the Company’s Form 10-K filed with the Securities and Exchange Commission, Registration No. 000-31089.
The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Virage Logic International and In-Chip Systems, Inc. Intercompany balances and transactions have been eliminated.
Note 2. Net Income (Loss) Per Share
Basic and diluted net income (loss) per share is presented in conformity with Statement of Financial Accounting Standards No. 128, “Earnings Per Share” (SFAS 128).
Basic income (loss) per share has been computed using the weighted average number of shares of common stock outstanding during the period, less weighted average shares outstanding that are subject to repurchase by the Company.
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Diluted income per share is computed using the weighted average number of outstanding shares of common stock and, when dilutive, potential common shares from options and warrants to purchase common stock subject to repurchase using the treasury stock method.
The following table presents the computation of basic and diluted net loss per share applicable to common stockholders (in thousands, except per share amounts):
| Three Months Ended | Nine Months Ended | ||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||
Net loss |
$ | (6,004 | ) | $ | (303 | ) | $ | (5,160 | ) | $ | (2,288 | ) | |||||
Basic: |
|||||||||||||||||
Weighted average shares of common stock
outstanding |
20,524 | 19,973 | 20,281 | 19,929 | |||||||||||||
Less weighted average shares subject to
repurchase |
(485 | ) | (1,019 | ) | (926 | ) | (1,203 | ) | |||||||||
Shares used in computing basic and
diluted net loss per share |
20,039 | 18,954 | 19,355 | 18,726 | |||||||||||||
Basic and diluted net loss per share |
$ | (0.30 | ) | $ | (0.02 | ) | $ | (0.27 | ) | $ | (0.12 | ) | |||||
The number of potential common shares that were anti-dilutive was 1,249,000 and 1,727,000 shares for the three and nine months ended June 30, 2002, respectively, and 2,106,000 and 2,331,000 shares for the three and nine months ended June 30, 2001, respectively.
Note 3. Comprehensive Income (Loss)
In June 1997, the Financial Accounting Standards Board released Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income” (SFAS 130). SFAS 130 established standards for the reporting and display of comprehensive income (loss) and its components. Total comprehensive income (loss), related primarily to the change in unrealized gains and losses on investments, was not materially different from net income (loss) incurred for the three and nine month periods ended June 30, 2002 and 2001.
Note 4. Segment Information
The Company operates in one business segment, the sale of semiconductor intellectual property for the silicon infrastructure containing memory and logic elements of systems-on-a-chip, which it sells to fabless semiconductor companies as well as integrated device manufacturers.
Segment selection is based upon the internal organization structure, the manner in which these operations are managed and their performance evaluated by management, the availability of sepa