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 March 31, 2003 |
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
| Delaware | 77-0416232 | |
| (State or other jurisdiction of | (IRS Employer Identification No.) | |
| incorporation or organization) |
47100 Bayside 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.
Indicate by a check whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X] No [ ]
As of April 30, 2003 there were 20,968,079 shares of the Registrant’s Common Stock outstanding.
1
VIRAGE LOGIC CORPORATION
FORM 10-Q
INDEX
| Page | |||||
PART
I - Financial Information |
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ITEM 1 - Financial Statements |
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Unaudited Condensed Consolidated Balance Sheets as of
March 31, 2003 and September 30, 2002 |
3 | ||||
Unaudited Condensed Consolidated Statements of Operations for the
three and six months ended March 31, 2003 and 2002 |
4 | ||||
Unaudited Condensed Consolidated Statements of Cash Flows for the
six months ended March 31, 2003 and 2002 |
5 | ||||
Notes to Unaudited Condensed Consolidated Financial Statements |
6 | ||||
ITEM 2 - Management’s Discussion and Analysis of Financial Condition
and Results of Operations |
12 | ||||
ITEM 3 - Quantitative and Qualitative Disclosures about Market Risk |
32 | ||||
ITEM 4 - Controls and Procedures |
32 | ||||
PART II - Other Information |
|||||
ITEM 1 - Legal Proceedings |
34 | ||||
ITEM 2 - Changes in Securities and Use of Proceeds |
34 | ||||
ITEM 3 - Defaults upon Senior Securities |
34 | ||||
ITEM 4 - Submission of Matters to a Vote of Security Holders |
34 | ||||
ITEM 5 - Other Information |
35 | ||||
ITEM 6 - Exhibits and Reports on Form 8-K |
35 | ||||
Signatures |
36 | ||||
Exhibit Index |
41 | ||||
2
PART I - FINANCIAL INFORMATION
VIRAGE LOGIC CORPORATION
| March 31, | September 30, | ||||||||||
| 2003 | 2002 | ||||||||||
ASSETS |
|||||||||||
Current assets: |
|||||||||||
Cash and cash equivalents |
$ | 38,854 | $ | 35,422 | |||||||
Short-term investments |
20,090 | 5,008 | |||||||||
Accounts receivable, net |
11,596 | 15,688 | |||||||||
Costs in excess of related billings on in process
contracts |
608 | 820 | |||||||||
Prepaid expenses and other current assets |
2,515 | 2,512 | |||||||||
Taxes receivable |
148 | — | |||||||||
Total current assets |
73,811 | 59,450 | |||||||||
Long-term investments |
— | 19,029 | |||||||||
Property and equipment, net |
7,185 | 5,708 | |||||||||
Goodwill |
9,782 | 9,782 | |||||||||
Intangible assets, net |
3,341 | 3,533 | |||||||||
Deferred tax assets |
2,442 | 2,442 | |||||||||
Other assets |
413 | 410 | |||||||||
Total assets |
$ | 96,974 | $ | 100,354 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|||||||||||
Current liabilities: |
|||||||||||
Accounts payable |
$ | 318 | $ | 438 | |||||||
Accrued expenses |
4,216 | 4,240 | |||||||||
Deferred revenue |
2,630 | 2,936 | |||||||||
Capital lease obligations, current |
38 | 96 | |||||||||
Income taxes payable |
— | 2,049 | |||||||||
Total current liabilities |
7,202 | 9,759 | |||||||||
Deferred tax liabilities |
1,343 | 1,343 | |||||||||
Other |
500 | 1,000 | |||||||||
Total liabilities |
9,045 | 12,102 | |||||||||
Stockholders’ equity: |
|||||||||||
Common stock, $.001 par value: |
|||||||||||
Authorized shares – 150,000 at December 31, 2002
and September 30, 2002,
|
|||||||||||
Issued and outstanding shares – 20,962 and
20,928 at March 31, 2003 and September 30,
2002, respectively |
21 | 20 | |||||||||
Additional paid-in capital |
109,172 | 110,530 | |||||||||
Accumulated other comprehensive income |
5 | 28 | |||||||||
Deferred stock-based compensation |
(319 | ) | (3,326 | ) | |||||||
Accumulated deficit |
(20,950 | ) | (19,000 | ) | |||||||
Total stockholders’ equity |
87,929 | 88,252 | |||||||||
Total liabilities and stockholders’ equity |
$ | 96,974 | $ | 100,354 | |||||||
See accompanying notes to unaudited condensed consolidated financial statements.
3
VIRAGE LOGIC CORPORATION
| Three Months Ended | Six Months Ended | |||||||||||||||||||
| March 31, | March 31, | |||||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||||
Revenue: |
||||||||||||||||||||
License |
$ | 9,046 | $ | 10,239 | $ | 20,096 | $ | 19,533 | ||||||||||||
Royalties |
579 | 408 | 1,094 | 761 | ||||||||||||||||
Revenues |
9,625 | 10,647 | 21,190 | 20,294 | ||||||||||||||||
Cost
and expenses: |
||||||||||||||||||||
Cost of revenues (exclusive of amortization of
deferred stock compensation of $86, $172,
$218 and $367, respectively) |
2,239 | 2,175 | 4,890 | 4,099 | ||||||||||||||||
Research and development (exclusive of
amortization of deferred stock compensation
of $193, $239, $423 and $526, respectively) |
5,021 | 3,028 | 9,650 | 5,868 | ||||||||||||||||
Sales and marketing (exclusive of
amortization of deferred stock compensation
of $112, $214, $266 and $468, respectively) |
2,930 | 2,716 | 6,013 | 5,225 | ||||||||||||||||
General and administrative (exclusive of
amortization of deferred stock compensation
of $50, $87, $109 and $191, respectively) |
1,309 | 1,105 | 2,494 | 2,130 | ||||||||||||||||
Stock-based compensation |
441 | 712 | 1,016 | 1,552 | ||||||||||||||||
Total
cost and expenses |
11,940 | 9,736 | 24,063 | 18,874 | ||||||||||||||||
Operating income (loss) |
(2,315 | ) | 911 | (2,873 | ) | 1,420 | ||||||||||||||
Interest income and other expense, net |
139 | 260 | 388 | 698 | ||||||||||||||||
Income (loss) before taxes |
(2,176 | ) | 1,171 | (2,485 | ) | 2,118 | ||||||||||||||
Income tax provision (benefit) |
(611 | ) | 659 | (535 | ) | 1,274 | ||||||||||||||
Net income (loss) |
$ | (1,565 | ) | $ | 512 | $ | (1,950 | ) | $ | 844 | ||||||||||
Basic net income (loss) per share |
$ | (0.08 | ) | $ | 0.03 | $ | (0.09 | ) | $ | 0.04 | ||||||||||
Diluted net income (loss) per share |
$ | (0.08 | ) | $ | 0.02 | $ | (0.09 | ) | $ | 0.04 | ||||||||||
Shares used in computing per share amounts: |
||||||||||||||||||||
Basic |
20,729 | 19,624 | 20,649 | 19,475 | ||||||||||||||||
Diluted |
20,729 | 21,194 | 20,649 | 20,872 | ||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
4
VIRAGE LOGIC CORPORATION
| Six Months Ended | ||||||||||||
| March 31, | ||||||||||||
| 2003 | 2002 | |||||||||||
Operating activities |
||||||||||||
Net income (loss) |
$ | (1,950 | ) | $ | 844 | |||||||
Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |
||||||||||||
Provision for doubtful accounts |
29 | 139 | ||||||||||
Depreciation and amortization |
1,677 | 1,685 | ||||||||||
Amortization of intangible assets |
192 | 108 | ||||||||||
Consulting expense related to options granted |
— | 34 | ||||||||||
Amortization of stock-based compensation |
1,016 | 1,552 | ||||||||||
Changes in operating assets and liabilities: |
||||||||||||
Accounts receivable |
4,063 | (3,432 | ) | |||||||||
Costs in excess of related billings on in process contracts |
212 | (1 | ) | |||||||||
Prepaid
expenses and other current assets |
(3 | ) | 265 | |||||||||
Taxes receivable |
(148 | ) | 872 | |||||||||
Deferred tax assets |
— | (87 | ) | |||||||||
Other assets |
(3 | ) | (58 | ) | ||||||||
Accounts payable |
(120 | ) | 135 | |||||||||
Accrued expenses |
(24 | ) | 260 | |||||||||
Deferred revenue |
(306 | ) | 850 | |||||||||
Income taxes payable |
(2,049 | ) | 2 | |||||||||
Net cash provided by operating activities |
2,586 | 3,168 | ||||||||||
Investing activities |
||||||||||||
Purchase of property and equipment |
(3,154 | ) | (2,656 | ) | ||||||||
Purchase of investments |
(24,023 | ) | (17,222 | ) | ||||||||
Proceeds from maturities of investments |
27,947 | 24,950 | ||||||||||
Payment of merger related obligation |
(500 | ) | — | |||||||||
Net cash provided by investing activities |
270 | 5,072 | ||||||||||
Financing activities |
||||||||||||
Net proceeds from issuance of common stock |
634 | 870 | ||||||||||
Repayment of stockholder notes |
— | 950 | ||||||||||
Principal payments on capital lease obligations |
(58 | ) | (90 | ) | ||||||||
Net cash provided by financing activities |
576 | 1,730 | ||||||||||
Net increase in cash and cash equivalents |
3,432 | 9,970 | ||||||||||
Cash and cash equivalents at beginning of period |
35,422 | 27,868 | ||||||||||
Cash and cash equivalents at end of the period |
$ | 38,854 | $ | 37,838 | ||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
5
VIRAGE LOGIC CORPORATION
Note 1. Organization and Summary of Significant Policies
Description of Business
Virage Logic Corporation (the Company) was incorporated in California in November 1995 and subsequently reincorporated in Delaware in July 2000. The Company provides application-optimized semiconductor intellectual property (semiconductor IP) platforms based on memory, logic, I/Os (input/output interface components) and IP development tools that are silicon proven and production ready. These various forms of intellectual property are utilized by the Company’s customers to design and manufacture system-on-a-chip (SOC) integrated circuits for high-speed communications, computer and consumer products, such as cellular and digital phones, pagers, digital cameras, DVD players, switches and modems.
Use of Estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Principles of Consolidation and Basis of Presentation
The accompanying condensed consolidated financial statements as of March 31, 2003 and September 30, 2002, and for the three and six months ended March 31, 2003 and 2002, are unaudited. The unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly our financial position, as of March 31, 2003, our results of operations for the three and six months ended March 31, 2003 and 2002, and cash flows for the six months ended March 31, 2003 and 2002, respectively. These condensed consolidated financial statements and related notes should be read in conjunction with our audited consolidated financial statements and related notes included in our 2002 Annual Report on Form 10-K as filed with the Securities and Exchange Commission. Our balance sheet as of September 30, 2002, was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles. Our results for the three and six months ended March 31, 2003 are not necessarily indicative of the expected results for any other interim period or the year ending September 30, 2003. The accompanying condensed consolidated financial statements include the accounts of Virage Logic Corporation and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Certain reclassifications have been made to conform with current period presentation.
Note 2. Net Income (Loss) Per Share
6
Basic net income per share is computed by dividing the net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common and potential common shares outstanding during the period. Potential common shares, comprised of unvested, restricted common stock and incremental common shares issuable upon the exercise of stock options and warrants, are included in diluted net income (loss) per share to the extent such shares are dilutive.
The following table sets forth the computation of basic and diluted net income (loss) per share applicable to common stockholders for the periods indicated (in thousands, except per share amounts):
| Three Months Ended | Six Months Ended | |||||||||||||||||
| March 31, | March 31, | |||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||
Net income (loss) |
$ | (1,565 | ) | $ | 512 | $ | (1,950 | ) | $ | 844 | ||||||||
Basic: |
||||||||||||||||||
Weighted average shares of common stock
outstanding |
20,965 | 20,228 | 20,915 | 20,158 | ||||||||||||||
Less weighted average shares subject to
repurchase |
(236 | ) | (604 | ) | (266 | ) | (683 | ) | ||||||||||
Shares used in computing basic net
income (loss) per share |
20,729 | 19,624 | 20,649 | 19,475 | ||||||||||||||
Diluted: |
||||||||||||||||||
Employee stock options and unvested
common
stock outstanding |
— | 1,520 | — | 1,345 | ||||||||||||||
Unexercised warrants |
— | 38 | — | 36 | ||||||||||||||
Employee stock purchase plan |
— | 12 | — | 16 | ||||||||||||||
Shares used in computing diluted net
income per share |
20,729 | 21,194 | 20,649 | 20,872 | ||||||||||||||
Net income (loss) per share: |
||||||||||||||||||
Basic |
$ | (0.08 | ) | $ | 0.03 | $ | (0.09 | ) | $ | 0.04 | ||||||||
Diluted |
$ | (0.08 | ) | $ | 0.02 | $ | (0.09 | ) | $ | 0.04 | ||||||||
The weighted average diluted potential shares that were anti-dilutive and excluded from the calculation of diluted net income per share are approximately 209,000 and 448,000 shares for the three and six months ended March 31, 2003, respectively.
Note 3. Comprehensive Income (Loss)
The Financial Accounting Standards Board’s (FASB) Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income” (SFAS 130) established standards for the reporting and display of comprehensive income (loss) and its related components. Total comprehensive income (loss) related primarily to the change in unrealized gains and losses on investments made by the Company. Total comprehensive income (loss) did not differ materially from net income (loss) reported for the three and six months ended March 31, 2003 and 2002.
Note 4. Segment Information
7
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or group, in deciding how to allocate resources and in assessing performance.
The Company’s chief operating decision maker, the chief executive officer, reviews financial information presented on a consolidated basis, accompanied by disaggregated information about revenues by geographic region for purposes of making operating decisions and assessing financial performance. Accordingly, the Company considers itself to be in a single industry segment, specifically the sale of application-optimized semiconductor intellectual property platforms based on memory, logic and IP development tools.
Information regarding revenues for the three and six months ended March 31, 2003 and 2002 are as follows (in thousands):
| & |