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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

 

x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

For the quarterly period ended June 30, 2003

 

OR

 

¨   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

for the transition period from              to             

 

Commission File Number: 000-32417

 

 

VERISITY LTD.

(Exact name of registrant as specified in its charter)

 

Israel   Not Applicable

(State or other Jurisdiction of

Incorporation or Organization)

  

(I.R.S. Employer

Identification No.)

2041 Landings Drive, Mountain View, California   94043
(Address of principal US executive offices)   (Zip Code)

 

(650) 934-6800

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   x  No  ¨

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes  x  No  ¨

 

As of June 30, 2003, there were 20,099,745 of registrant’s ordinary shares, par value NIS 0.01 per share, outstanding.

 

Table of Contents

VERISITY LTD.

 

Quarterly Report on Form 10-Q

For the Quarter Ended June 30, 2003

 

Index

 

               Page

Part I—Financial Information

     
     Item 1.   

Condensed Consolidated Financial Statements (Unaudited):

     
         

Balance Sheets

    1
         

Statements of Operations

    2
         

Statements of Cash Flows

    3
         

Notes to Condensed Consolidated Financial Statements

    4-7
     Item 2.   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

    7-13
     Item 3.   

Quantitative and Qualitative Disclosures About Market Risk

    13-14
     Item 4.   

Controls and Procedures

   14

Part II—Other Information

     
     Item 1.   

Legal Proceedings

    14
     Item 2.   

Changes in Securities and Use of Proceeds

    14
     Item 3.   

Defaults Upon Senior Securities

    14
     Item 4.   

Submission of Matters to a Vote of Security Holders

    14-16
     Item 5.   

Other Information

    17
     Item 6.   

Exhibits and Reports on Form 8-K

    17

Signature

   18

Certifications

     

 

Table of Contents

PART I—FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements

 

VERISITY LTD.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

 

    

June 30,

2003

     December 31,
2002
  
     Unaudited        
ASSETS                 

Current assets:

                 

Cash and cash equivalents

    $ 80,673     $ 79,509  

Accounts receivable, net of allowance for doubtful accounts of $3 and $4 as of June 30, 2003 and December 31, 2002, respectively

      7,720       11,963  

Prepaid expenses and other current assets

      2,982       2,173  
    
 

Total current assets

      91,375       93,645  

Property and equipment, net

      2,612       2,277  

Other assets

      419       495  
    
 

Total assets

    $ 94,406     $ 96,417  
    
 
LIABILITIES AND SHAREHOLDERS’ EQUITY                 

Current liabilities:

                 

Accounts payable

    $ 764     $ 688  

Accrued compensation

      4,425       4,651  

Deferred revenues

      21,716       26,861  

Other current liabilities

      5,478       5,335  
    
 

Total current liabilities

      32,383       37,535  

Long-term portion of deferred revenues

      3,926       5,900  

Long-term portion of capital lease obligations

      —         3  

Other long-term liabilities

      427       530  

Shareholders’ equity:

                 

Ordinary shares and additional paid-in capital

      57,624       56,550  

Deferred compensation

      (56 )     (139 )

Retained earnings (Accumulated deficit)

      102       (3,962 )
    
 

Total shareholders’ equity

      57,670       52,449  
    
 

Total liabilities and shareholders’ equity

    $ 94,406     $ 96,417  
    
 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

1

Table of Contents

VERISITY LTD.

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
     2003
     2002
     2003
     2002
     Unaudited     Unaudited

Revenue:

                               

License

    $ 7,605     $ 8,005     $ 14,571     $ 14,690

Maintenance

      4,597       4,168       9,101       8,382

Other services

      301       318       528       898
    
 
 
 

Total revenue

      12,503       12,491       24,200       23,970

Cost of revenue:

                               

License

      38       40       73       73

Maintenance

      554       500       1,099       1,001

Other services (1)

      167       135       285       369
    
 
 
 

Total cost of revenue

      759       675       1,457       1,443
    
 
 
 

Gross profit

      11,744       11,816       22,743       22,527
    
 
 
 

Operating expenses:

                               

Research and development

      2,626       2,145       5,225       4,433

Sales and marketing

      5,400       4,689       10,572       9,408

General and administrative

      1,458       1,462       2,848       2,681

Non-cash charges related to equity issuances (1)

      66       60       32       209
    
 
 
 

Total operating expenses

      9,550       8,356       18,677       16,731
    
 
 
 

Operating income

      2,194       3,460       4,066       5,796

Interest income

      208       206       415       400

Other income (expense), net

      (25 )     —         (65 )     14
    
 
 
 

Income before income taxes

      2,377       3,666       4,416       6,210

Provision for income taxes

      190       440       352       745
    
 
 
 

Net income

    $ 2,187     $ 3,226     $ 4,064     $ 5,465
    
 
 
 

Basic earnings per share:

                               

Basic net income per ordinary share

    $ 0.11     $ 0.17     $ 0.21     $ 0.29
    
 
 
 

Number of shares used in per share calculation

      19,740       18,825       19,680       18,702
    
 
 
 

Diluted earnings per share:

                               

Diluted net income per ordinary share

    $ 0.10     $ 0.15     $ 0.19     $ 0.26
    
 
 
 

Number of shares used in per share calculation

      21,348       21,253       21,188       21,236
    
 
 
 

(1)    Non-cash charges related to equity issuances include the following:

                               
     Three Months Ended
June 30,
     Six Months Ended
June 30,
     2003
     2002
     2003
     2002

Cost of other services revenue

    $ 1     $ 2     $ 2     $ 4
    
 
 
 

Research and development, net

    $ 7     $ 18     $ 17     $ 40

Sales and marketing

      41       (3 )     (26 )     72

General and administrative

      18       45       41       97
    
 
 
 

Total included in operating expenses

    $ 66     $ 60     $ 32     $ 209
    
 
 
 

 

The accompanying notes are integral part of these condensed consolidated financial statements.

 

2

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VERISITY LTD.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

    

Six Months Ended

June 30,

  
     2003
     2002
  
     Unaudited  

Cash flows from operating activities:

                 

Net income

    $ 4,064     $ 5,465  

Adjustments to reconcile net income to net cash provided by operating activities:

                 

Depreciation and amortization

      527