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 September 30, 2004 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.) |
| 331 E. Evelyn Ave, Mountain View, California | 94041 | |
| (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 September 30, 2004, there were 23,811,202 of registrant’s ordinary shares, par value NIS 0.01 per share, outstanding.
VERISITY LTD.
Quarterly Report on Form 10-Q
For the Quarter Ended September 30, 2004
| Page | ||||
| Part I – Financial Information |
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| Item 1. |
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| 1 | ||||
| 2 | ||||
| 3 | ||||
| 4-12 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
12-19 | ||
| Item 3. |
19-20 | |||
| Item 4. |
20 | |||
| Part II – Other Information |
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| Item 1. |
20 | |||
| Item 2. |
20 | |||
| Item 3. |
21 | |||
| Item 4. |
21 | |||
| Item 5. |
21 | |||
| Item 6. |
21 | |||
| 22 | ||||
| Exhibit Index |
23 | |||
PART I – FINANCIAL INFORMATION
| Item 1. | Condensed Consolidated Financial Statements |
VERISITY LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
| September 30, 2004 |
December 31, 2003 |
|||||||
| Unaudited | ||||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 56,048 | $ | 91,004 | ||||
| Accounts receivable, net of allowance for doubtful accounts of $2 and $2 as of September 30, 2004 and December 31, 2003, respectively |
12,084 | 11,444 | ||||||
| Inventory |
2,989 | — | ||||||
| Prepaid expenses and other current assets |
7,892 | 4,412 | ||||||
| Total current assets |
79,013 | 106,860 | ||||||
| Property and equipment, net |
5,199 | 3,298 | ||||||
| Other assets |
647 | 386 | ||||||
| Unbilled receivables |
3,769 | — | ||||||
| Deferred compensation, net |
2,402 | — | ||||||
| Intangible assets, net |
17,244 | — | ||||||
| Goodwill |
53,069 | — | ||||||
| Total assets |
$ | 161,343 | $ | 110,544 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 1,230 | $ | 1,177 | ||||
| Accrued compensation |
7,470 | 4,827 | ||||||
| Deferred taxes, net |
1,196 | — | ||||||
| Deferred revenues |
33,724 | 27,791 | ||||||
| Other current liabilities |
9,300 | 6,851 | ||||||
| Total current liabilities |
52,920 | 40,646 | ||||||
| Long-term portion of deferred revenues |
3,260 | 5,601 | ||||||
| Other long-term liabilities |
468 | 481 | ||||||
| Shareholders’ equity: |
||||||||
| Ordinary shares and additional paid-in capital |
111,492 | 59,122 | ||||||
| Deferred compensation |
(3,556 | ) | (14 | ) | ||||
| Retained earnings (Accumulated deficit) |
(3,241 | ) | 4,708 | |||||
| Total shareholders’ equity |
104,695 | 63,816 | ||||||
| Total liabilities and shareholders’ equity |
$ | 161,343 | $ | 110,544 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
-1-
VERISITY LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
| Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
||||||||||||
| Unaudited | Unaudited | ||||||||||||||
| Revenue: |
|||||||||||||||
| License |
$ | 8,579 | $ | 7,422 | $ | 22,280 | $ | 21,993 | |||||||
| Maintenance |
6,717 | 4,321 | 17,355 | 13,422 | |||||||||||
| Other services |
223 | 297 | 627 | 825 | |||||||||||
| Total revenue |
15,519 | 12,040 | 40,262 | 36,240 | |||||||||||
| Cost of revenue: |
|||||||||||||||
| License |
935 | 24 | 1,816 | 97 | |||||||||||
| Maintenance |
630 | 510 | 1,771 | 1,609 | |||||||||||
| Other services |
135 | 116 | 381 | 401 | |||||||||||
| Total cost of revenue |
1,700 | 650 | 3,968 | 2,107 | |||||||||||
| Gross profit |
13,819 | 11,390 | 36,294 | 34,133 | |||||||||||
| Operating expenses: |
|||||||||||||||
| Research and development |
4,205 | 2,479 | 11,899 | 7,704 | |||||||||||
| Sales and marketing |
7,261 | 5,061 | 20,954 | 15,633 | |||||||||||
| General and administrative |
2,380 | 1,448 | 6,334 | 4,296 | |||||||||||
| Non-cash charges related to equity issuances |
2,286 | 128 | 4,271 | 160 | |||||||||||
| Amortization of deferred compensation |
2,113 | — | 3,536 | — | |||||||||||
| Amortization of intangible assets |
1,041 | — | 2,776 | — | |||||||||||
| Total operating expenses |
19,286 | 9,116 | 49,770 | 27,793 | |||||||||||
| Operating income (loss) |
(5,467 | ) | 2,274 | (13,476 | ) | 6,340 | |||||||||
| Interest income |
140 | 175 | 385 | 590 | |||||||||||
| Other income (expense), net |
(233 | ) | 10 | (260 | ) | (55 | ) | ||||||||
| Net income (loss) before income taxes |
(5,560 | ) | 2,459 | (13,351 | ) | 6,875 | |||||||||
| Income taxes provision (benefit) |
(2,273 | ) | 196 | (5,402 | ) | 548 | |||||||||
| Net income (loss) |
$ | (3,287 | ) | $ | 2,263 | $ | (7,949 | ) | $ | 6,327 | |||||
| Basic earnings (loss) per share: |
|||||||||||||||
| Basic net income (loss) per ordinary share |
$ | (0.14 | ) | $ | 0.11 | $ | (0.35 | ) | $ | 0.32 | |||||
| Number of shares used in per share calculation |
23,461 | 19,870 | 22,888 | 19,744 | |||||||||||
| Diluted earnings (loss) per share: |
|||||||||||||||
| Diluted net income (loss) per ordinary share |
$ | (0.14 | ) | $ | 0.11 | $ | (0.35 | ) | $ | 0.30 | |||||
| Number of shares used in per share calculation |
23,461 | 21,497 | 22,888 | 21,291 | |||||||||||
The accompanying notes are integral part of these condensed consolidated financial statements.
-2-
VERISITY LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| Nine Months Ended September 30, |
||||||||
| 2004 |
2003 |
|||||||
| Unaudited | ||||||||
| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ | (7,949 | ) | $ | 6,327 | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
1,429 | 830 | ||||||
| Non-cash charges related to equity issuances |
4,271 | 50 | ||||||
| Amortization of deferred compensation |
3,536 | — | ||||||
| Amortization of intangible assets |
2,776 | — | ||||||
| Amortization of inventory step up |
275 | — | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
6,801 | 389 | ||||||
| Prepaid expenses and other assets |
(1,933 | ) | (511 | ) | ||||
| Inventory |
499 | — | ||||||
| Accounts payable |
(371 | ) | 195 | |||||
| Other liabilities and accrued compensation |
1,251 | 395 | ||||||
| Deferred revenues |
(2,485 | ) | (6,590 | ) | ||||
| Deferred taxes |
(5,798 | ) | — | |||||
| Net cash provided by operating activities |
2,302 | 1,085 | ||||||
| Cash flows from investing activities: |
||||||||
| Purchases of property and equipment |
(1,948 | ) | (1,156 | ) | ||||
| Other assets |
39 | — | ||||||
| Cash paid in conjunction with the acquisition of Axis, net |
(37,022 | ) | — | |||||
| Net cash used in investing activities |
(38,931 | ) | (1,156 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Net proceeds from issuance of ordinary shares |
1,490 | |||||||