##### Table of Contents



UNITED
STATESSECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
 (MARK ONE)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005
 OR
 o
    
    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: 000-31089
 VIRAGE LOGIC CORPORATION
 (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
    
    77-0416232
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
 
 VIRAGE LOGIC CORPORATION
47100 BAYSIDE PARKWAY
FREMONT, CALIFORNIA 94538
(510) 360-8000
 þ o
 þ o




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VIRAGE LOGIC CORPORATION
 FORM 10-Q
 INDEX
  
 PAGEPart I. Financial InformationItem 1. Financial Statements
    
    
    3Unaudited Condensed Consolidated Balance Sheets  June 30, 2005 and September 30, 2004
    
    
    3Unaudited Condensed Consolidated Statements of Operations  Three and Nine Months Ended June 30, 2005 and 2004
    
    
    4Unaudited Condensed Consolidated Statements of Cash Flows  Nine Months Ended June 30, 2005, and 2004
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures about Market Risks
    
    
    33Item 4. Controls and Procedures
    
    
    33Part II. Other InformationItem 1. Legal Proceedings
    
    
    34Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    34Item 3. Defaults upon Senior Securities
    
    
    34Item 4. Submission of Matters to a Vote of Securities Holders
    
    
    34Item 5. Other Information
    
    
    34Item 6. Exhibits
    
    
    35Signatures
    
    
    36Exhibit Index
    
    
    37EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 VIRAGE LOGIC CORPORATION
 
 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
 June 30,
    
    September 30,2005
    
    2004ASSETS:Current assets:Cash and cash equivalents
    
    $
    26,990
    
    
    $
    28,746Short-term investments
    
    
    24,848
    
    
    
    27,144Accounts receivable, net of allowance for doubtful accounts
of $1,195 and $738, respectively
    
    
    17,389
    
    
    
    17,756Costs in excess of related billings on uncompleted contracts
    
    
    1,208
    
    
    
    670Prepaid expenses and other current assets
    
    
    4,882
    
    
    
    4,079Taxes receivable
    
    
    317
    
    
    
    1,302Total current assets
    
    
    75,634
    
    
    
    79,697Property and equipment, net
    
    
    5,516
    
    
    
    4,090Goodwill
    
    
    9,782
    
    
    
    9,782Other intangible assets, net
    
    
    2,472
    
    
    
    2,762Deferred tax assets
    
    
    5,225
    
    
    
    5,225Long-term investments
    
    
    12,376
    
    
    
    7,222Other long-term assets
    
    
    986
    
    
    
    410Total assets
    
    $
    111,991
    
    
    $
    109,188LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    1,312
    
    
    $
    506Accrued expenses
    
    
    4,830
    
    
    
    5,019Deferred revenue
    
    
    6,707
    
    
    
    7,548Income taxes payable
    
    
    1,129
    
    
    
    3,569Total current liabilities
    
    
    13,978
    
    
    
    16,642Deferred tax liabilities
    
    
    1,035
    
    
    
    1,035Total liabilities
    
    
    15,013
    
    
    
    17,677Commitments and contingencies (Note 6)Stockholders equity:Common
stock, $.001 par value; Authorized  150,000,000
shares; issued and outstanding  22,370,113 and 21,580,437
shares at June 30, 2005 and September 30, 2004,
respectively
    
    
    22
    
    
    
    22Additional paid-in capital
    
    
    117,854
    
    
    
    112,457Accumulated other comprehensive income (loss)
    
    
    589
    
    
    
    (28
    )Accumulated deficit
    
    
    (21,487
    )
    
    
    (20,940
    )Total stockholders equity
    
    
    96,978
    
    
    
    91,511Total liabilities and stockholders equity
    
    $
    111,991
    
    
    $
    109,188
  3




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##### Table of Contents



VIRAGE LOGIC CORPORATION
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
 Three Months Ended
    
    Nine Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Revenue:License
    
    $
    9,253
    
    
    $
    11,933
    
    
    $
    32,424
    
    
    
    32,619Royalties
    
    
    2,701
    
    
    
    1,919
    
    
    
    8,173
    
    
    
    5,070Total revenues
    
    
    11,954
    
    
    
    13,852
    
    
    
    40,597
    
    
    
    37,689Cost and expenses:Cost of revenue, excluding
amortization of deferred
stock compensation of $0,
$7, $0 and $29
respectively
    
    
    3,373
    
    
    
    2,872
    
    
    
    9,512
    
    
    
    8,175Research and development,
excluding amortization of
deferred stock
compensation of $0, $12,
$0 and $49, respectively
    
    
    5,366
    
    
    
    4,645
    
    
    
    15,228
    
    
    
    13,697Sales and marketing,
excluding amortization of
deferred stock
compensation of $0, $9,
$339 and $37, respectively
    
    
    3,794
    
    
    
    3,869
    
    
    
    11,777
    
    
    
    10,831General and
administrative, excluding
amortization of deferred
stock compensation of $0,
$4, $0 and $16,
respectively
    
    
    2,235
    
    
    
    1,759
    
    
    
    6,278
    
    
    
    4,840Stock-based compensation
    
    
    
    
    
    
    32
    
    
    
    339
    
    
    
    131Total cost and expenses
    
    
    14,768
    
    
    
    13,177
    
    
    
    43,134
    
    
    
    37,674Operating income (loss)
    
    
    (2,814
    )
    
    
    675
    
    
    
    (2,537
    )
    
    
    15Interest income and other
expenses, net
    
    
    433
    
    
    
    164
    
    
    
    1,171
    
    
    
    468Income (loss) before
income taxes
    
    
    (2,381
    )
    
    
    839
    
    
    
    (1,366
    )
    
    
    483Income tax provision (benefit)
    
    
    (1,083
    )
    
    
    268
    
    
    
    (819
    )
    
    
    82Net income (loss)
    
    $
    (1,298
    )
    
    $
    571
    
    
    $
    (547
    )
    
    $
    401Net income (loss) per share:Basic
    
    $
    (0.06
    )
    
    $
    0.03
    
    
    $
    (0.02
    )
    
    $
    0.02Diluted
    
    $
    (0.06
    )
    
    $
    0.03
    
    
    $
    (0.02
    )
    
    $
    0.02Weighted average shares used
in computing per share
amounts:Basic
    
    
    22,359
    
    
    
    21,479
    
    
    
    22,097
    
    
    
    21,346Diluted
    
    
    22,359
    
    
    
    21,874
    
    
    
    22,097
    
    
    
    21,996
  4




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VIRAGE LOGIC CORPORATION
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 Nine Months EndedJune 30,2005
    
    2004CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)
    
    $
    (547
    )
    
    $
    401Adjustment to reconcile net income (loss) to net cash (used
in) provided by operating activities:Provision for doubtful accounts
    
    
    457
    
    
    
    30Depreciation and amortization
    
    
    1,879
    
    
    
    2,457Amortization of intangible assets
    
    
    290
    
    
    
    290Stock-based compensation
    
    
    339
    
    
    
    131Changes in operating assets and liabilities:Accounts receivable
    
    
    (90
    )
    
    
    (3,249
    )Costs in excess of related billings on uncompleted contracts
    
    
    (538
    )
    
    
    (124
    )Prepaid expenses and other assets
    
    
    (1,464
    )
    
    
    (16
    )Taxes receivable
    
    
    985
    
    
    
    (1,911
    )Accounts payable and accrued liabilities
    
    
    1,117
    
    
    
    1,567Deferred revenue
    
    
    (841
    )
    
    
    3,291Income tax payable
    
    
    (2,440
    )
    
    
    1,081Net cash (used in) provided by operating activities
    
    
    (853
    )
    
    
    3,948CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of property and equipment
    
    
    (2,575
    )
    
    
    (742
    )Purchase of investments
    
    
    (63,128
    )
    
    
    (17,267
    )Proceeds from maturities of investments
    
    
    60,160
    
    
    
    17,177Payment of merger-related liabilities
    
    
    (500
    )
    
    
    (500
    )Net cash used in investing activities
    
    
    (6,043
    )
    
    
    (1,332
    )CASH FLOWS FROM FINANCING ACTIVITIES:Net proceeds from issuance of common stock
    
    
    5,058
    
    
    
    1,415Net cash provided by financing activities
    
    
    5,058
    
    
    
    1,415Effect of exchange rates on cash
    
    
    82
    
    
    
    Net (decrease) increase in cash and cash equivalents
    
    
    (1,756
    )
    
    
    4,031Cash and cash equivalents at beginning of period
    
    
    28,746
    
    
    
    38,930Cash and cash equivalents at end of period
    
    $
    26,990
    
    
    $
    42,961
  5




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VIRAGE LOGIC CORPORATION
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1
 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Description of Business
  Basis of Presentation and Principles of Consolidation
   Foreign Currency Translation
  Use of Estimates
  Revenue Recognition
 Software Revenue Recognition Accounting for Performance of Construction-Type
and Certain Production-Type Contracts
  6




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VIRAGE
LOGIC CORPORATION
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
       Stock-based compensation
 Accounting for Stock Issued to Employees Accounting for
Stock-Based Compensation Accounting for Stock-based Compensation Transition and Disclosure, an Amendment of FASB
123
 7




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##### Table of Contents



VIRAGE LOGIC CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  Three Months Ended
    
    Nine Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Net income (loss) as reported
    
    $
    (1,298
    )
    
    $
    571
    
    
    $
    (547
    )
    
    $
    401Add: Stock-based
compensation expense
included in reported net
income (loss) above, net of
taxes
    
    
    
    
    
    
    21
    
    
    
    207
    
    
    
    86Less: Fair value of
stock-based compensation
expense for all awards, net
of taxes
    
    
    (775
    )
    
    
    (1,472
    )
    
    
    (3,380
    )
    
    
    (4,254
    )Proforma net income (loss)
    
    
    (2,073
    )
    
    
    (880
    )
    
    
    (3,720
    )
    
    
    (3,767
    )Basic and diluted net income
(loss) per share:As reported
    
    $
    (0.06
    )
    
    $
    0.03
    
    
    $
    (0.02
    )
    
    $
    0.02Proforma
    
    $
    (0.09
    )
    
    $
    (0.04
    )
    
    $
    (0.17
    )
    
    
    (0.18
    )Weighted average shares used
in computing per share
amounts:Basic & Diluted
    
    
    22,359
    
    
    
    21,479
    
    
    
    22,097
    
    
    
    21,346
  Three Months Ended
    
    Nine Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Volatility
    
    
    75
    %
    
    
    100
    %
    
    
    74% - 79
    %
    
    
    100
    %Risk-free interest rate
    
    
    4.0
    %
    
    
    2.4
    %
    
    
    3% - 4
    %
    
    
    2.4
    %Dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Expected option lives
    
    3  4 years
    
    4  5 years
    
    3  5 years
    
    4  5 years
  NOTE 2  NET INCOME (LOSS) PER SHARE
 Earnings Per Share
 8




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VIRAGE
LOGIC CORPORATION
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  Three Months Ended
    
    Nine Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Weighted average
common shares
outstanding
    
    
    22,359
    
    
    
    21,482
    
    
    
    22,097
    
    
    
    21,381Less: Weighted
average common
shares subject to
repurchase
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (35
    )Shares used in
computing basic net
income (loss) per
share
    
    
    22,359
    
    
    
    21,479
    
    
    
    22,097
    
    
    
    21,346Add:Weighted
average common
share equivalents
from stock options
    
    
    
    
    
    
    395
    
    
    
    
    
    
    
    650Shares used in
computing diluted
net income (loss)
per share
    
    
    22,359
    
    
    
    21,874
    
    
    
    22,097
    
    
    
    21,996
   NOTE 3  COMPREHENSIVE INCOME (LOSS)
 Reporting Comprehensive Income
  Three Months Ended
    
    Nine Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Net income (loss)
    
    $
    (1,298
    )
    
    $
    571
    
    
    $
    (547
    )
    
    $
    401Foreign currency
translation adjustments,
net of taxes
    
    
    61
    
    
    
    
    
    
    
    443
    
    
    
    Changes in unrealized gain
(loss) on investments, net
of taxes
    
    
    40
    
    
    
    (50
    )
    
    
    (67
    )
    
    
    (51
    )Comprehensive income (loss)
    
    $
    (1,197
    )
    
    $
    521
    
    
    $
    (171
    )
    
    $
    350
 NOTE 4  SEGMENT INFORMATION
  9




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VIRAGE
LOGIC CORPORATION
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    Three Months Ended
    
    Nine Months EndedJune 30,
    
    June 30,Total Revenue by Geography
    
    2005
    
    2004
    
    2005
    
    2004United States
    
    $
    4,432
    
    
    $
    6,019
    
    
    $
    13,229
    
    
    $
    13,049Canada
    
    
    225
    
    
    
    711
    
    
    
    1,502
    
    
    
    1,812Japan
    
    
    820
    
    
    
    892
    
    
    
    3,616
    
    
    
    3,597Taiwan
    
    
    3,457
    
    
    
    1,392
    
    
    
    9,052
    
    
    
    4,681Europe, Middle East and
Africa (EMEA)
    
    
    2,116
    
    
    
    2,916
    
    
    
    7,253
    
    
    
    8,803Other Asia (China,
Malaysia, Korea and
Singapore)
    
    
    904
    
    
    
    1,922
    
    
    
    5,945
    
    
    
    5,747Total
    
    $
    11,954
    
    
    $
    13,852
    
    
    $
    40,597
    
    
    $
    37,689
  Three Months Ended
    
    Nine Months EndedJune 30,
    
    June 30,Total License Revenue by Geometry
    
    2005
    
    2004
    
    2005
    
    20040.18 micron technology
    
    
    12
    %
    
    
    17
    %
    
    
    12
    %
    
    
    13
    %0.13 micron technology
    
    
    28
    
    
    
    45
    
    
    
    42
    
    
    
    4890-nanometer technology
    
    
    44
    
    
    
    31
    
    
    
    33
    
    
    
    3165-nanometer technology
    
    
    8
    
    
    
    
    
    
    
    6
    
    
    
    Other
    
    
    8
    
    
    
    7
    
    
    
    7
    
    
    
    8Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  NOTE 5  RECENT ACCOUNTING PRONOUNCEMENTS
 Accounting and Disclosure Guidance for the Foreign Earnings
Repatriation Provision within the American Jobs Creation Act of 2004
 10




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VIRAGE
LOGIC CORPORATION
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Exchanges of Nonmonetary Assets, an
amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions
 Accounting Changes and Error Corrections  a replacement of APB
Opinion No. 20 and FASB Statement No. 3
 Implicit Variable Interests under FASB
Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities
 Share-Based Payments
  NOTE 6
 COMMITMENTS AND CONTINGENCIES
 Indemnifications
 Warranties
 11




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Overview
 Business Environment
     12




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Sources of Revenues
  
    
    embedded memory, logic and I/O elements;
    
    standard and custom memory compilers;
    
    memory test processor and fuse box components for embedded test and repair of defective memory cells.
      13




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Critical Accounting Policies
   
    
    revenue recognition
 
    
    valuation of accounts receivable
 
    
    valuation of long-lived assets and investments
 
    
    valuation of purchased intangibles, including goodwill
 
    
    accounting for stock options
 
    
    income taxes.
 Revenue Recognition
 Software Revenue Recognition Accounting for
Performance of ConstructionType and
Certain ProductionType Contracts
   14




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Valuation of Accounts Receivable
  Valuation of Long-Lived Assets and Investments
  15




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Valuation of Purchased Intangibles, Including Goodwill
  Accounting for Stock-Based Compensation
 Accounting for Stock Issued to Employees Certain Transactions Involving Stock Compensation Accounting for Stock-Based Compensation Accounting for
Stock-based Compensation Transition and Disclosure, an Amendment of FASB 123
 Share-Based Payments
 Accounting for Equity Instruments with
Variable Terms that are Issued for Consideration Other Than Employee Services under SFAS 123
  Income taxes
   16




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RESULTS OF OPERATIONS
 Three Months Ended
    
    Nine Months EndedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Revenue:License
    
    
    77.4
    %
    
    
    86.1
    %
    
    
    79.9
    %
    
    
    86.5
    %Royalties
    
    
    22.6
    
    
    
    13.9
    
    
    
    20.1
    
    
    
    13.5Total revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Cost and expenses:Cost of revenues
    
    
    28.2
    
    
    
    20.7
    
    
    
    23.4
    
    
    
    21.7Research and development
    
    
    44.9
    
    
    
    33.6
    
    
    
    37.5
    
    
    
    36.3Sales and marketing
    
    
    31.7
    
    
    
    27.9
    
    
    
    29.0
    
    
    
    28.8General and administrative
    
    
    18.7
    
    
    
    12.7
    
    
    
    15.5
    
    
    
    12.8Stock-based compensation
    
    
    0.0
    
    
    
    0.2
    
    
    
    0.8
    
    
    
    0.4Total cost and expenses
    
    
    123.5
    
    
    
    95.1
    
    
    
    106.2
    
    
    
    100.0Operating income (loss)
    
    
    (23.5
    )
    
    
    4.9
    
    
    
    (6.2
    )
    
    
    0.0Interest income and other expenses, net
    
    
    3.6
    
    
    
    1.2
    
    
    
    2.9
    
    
    
    1.3Income tax provision (benefit)
    
    
    (9.1
    )
    
    
    1.9
    
    
    
    (2.0
    )
    
    
    0.2Net income (loss)
    
    
    (10.9
    )%
    
    
    4.2
    
    
    
    (1.3
    )
    
    
    1.1
 Revenues
   Three Months Ended
    
    Nine Months EndedJune 30,
    
    June 30,Total License Revenue by Geometry
    
    2005
    
    2004
    
    2005
    
    20040.18 micron technology
    
    
    12
    %
    
    
    17
    %
    
    
    12
    %
    
    
    13
    %0.13 micron technology
    
    
    28
    
    
    
    45
    
    
    
    42
    
    
    
    4890-nanometer technology
    
    
    44
    
    
    
    31
    
    
    
    33
    
    
    
    3165-nanometer technology
    
    
    8
    
    
    
    
    
    
    
    6
    
    
    
    Other
    
    
    8
    
    
    
    7
    
    
    
    7
    
    
    
    8Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
   17




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Three Months Ended
    
    Nine Months EndedJune 30,
    
    June 30,Total Revenue by Geography
    
    2005
    
    2004
    
    2005
    
    2004United States
    
    $
    4,432
    
    
    $
    6,019
    
    
    $
    13,229
    
    
    $
    13,049Canada
    
    
    225
    
    
    
    711
    
    
    
    1,502
    
    
    
    1,812Japan
    
    
    820
    
    
    
    892
    
    
    
    3,616
    
    
    
    3,597Taiwan
    
    
    3,457
    
    
    
    1,392
    
    
    
    9,052
    
    
    
    4,681Europe, Middle East and
Africa (EMEA)
    
    
    2,116
    
    
    
    2,916
    
    
    
    7,253
    
    
    
    8,803Other Asia (China,
Malaysia, Korea and
Singapore)
    
    
    904
    
    
    
    1,922
    
    
    
    5,945
    
    
    
    5,747Total
    
    $
    11,954
    
    
    $
    13,852
    
    
    $
    40,597
    
    
    $
    37,689
  Cost of Revenues
  Research and Development Expenses
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Research and Development Expenses
    Sales and Marketing Expenses
     General and Administrative Expenses
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Stock-Based Compensation Expenses
   Interest Income and Other Expenses, net
  Income Tax Provision
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LIQUIDITY AND CAPITAL RESOURCES
        CONTRACTUAL OBLIGATIONS AND COMMITMENTS
 
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RISK FACTORS
 Risks Related to Our Business
 Inability or delayed execution on our strategy to be a leading provider of
semiconductor IP platforms could adversely affect our revenues and
profitability.
  
    
    difficulty convincing customers of our memory products to purchase other products from us;
    
    competition resulting in minority market share;
    
    inability to migrate technologies to manufacturing processes at new foundries due to less design experience;
    
    limited experience in sales and marketing of the platform strategy and limited knowledge of the market; and
    
    difficulties and delays in expanding our logic and I/O product offerings.
 Our quarterly operating results may fluctuate significantly and any failure to
meet financial expectations for any fiscal quarter may cause our stock price to
decline.
  
    
    large orders unevenly spaced over time and timing of our sales cycle;
    
    establishment or loss of strategic relationships with third-party semiconductor foundries;
    
    pace of adoption of new technologies by customers;
    
    timing of new technologies and technology enhancements by us and our competitors;
    
    fluctuations in the demand for products that incorporate our IP;
    
    constrained or deferred spending decisions by customers;
    
    inability to collect trade receivables;
    
    the timing and completion of milestones under customer agreements;
    
    operational issues in fulfilling existing orders;
    
    the impact of competition on license revenues or royalty rates;
    
    the cyclical nature of the semiconductor industry and the general economic environment;
    
    difficulties in forecasting royalty revenues because of factors out of our control, such
as the timing of manufacturing of semiconductors subject to royalty obligations, the
number of such semiconductors actually manufactured and the timing and results of audits
of royalty reports received from our customers;
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
    
    changes in development schedules, research and development expenditure levels and product
support by us and our customers;
    
    recording a significant portion of our quarterly revenues in the last month of a quarter.
This is the result of closing more product orders, and therefore, a higher percentage of
product shipments, in the last month of a quarter than in the first months of a quarter.
Some customers believe they can enhance their bargaining power by waiting until the end
of the quarter to finalize negotiations; and
    
    costs associated with merger and acquisition plans that are not pursued.
  If we are unable to continue establishing relationships on favorable
contractual terms with semiconductor companies to license our IP, our business
will be harmed.
   
    
    the lengthy and expensive process of building a relationship with a potential licensee;
    
    competition with the customers internal design teams and other providers of
semiconductor IP, as our customers may evaluate these alternatives for each design;
and
    
    the need to persuade potential licensees to rely on us for critical technology.
  If we are unable to maintain existing relationships and/or develop new
relationships with third-party semiconductor manufacturers, or foundries, we
will be unable to verify our technologies on their processes and license our IP
to them or their customers.
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If we are unsuccessful in increasing our royalty revenues, our revenues and
profitability may not be as large as we anticipate.
  It is difficult for us to verify royalty amounts owed to us under our licensing
arrangements, and this may cause us to lose revenues or inaccurately report
revenues.
  Products that do not meet customer specifications or contain defects that harm
our customers could damage our reputation and cause us to lose customers and
revenue.
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Our international operations may be adversely affected by instability in the countries in which we operate.
  
    
    changes in the political or economic conditions in Armenia and India
and the surrounding region, such as fluctuations in exchange rates,
changes in laws protecting IP, the imposition of currency transfer
restrictions or limitations, or the adoption of burdensome trade or
tax policies, procedures, rules, regulations or tariffs, could
adversely affect our ability to develop new products, to take
advantage of the cost savings associated with operations in Armenia
and India, and to otherwise conduct business effectively in Armenia
and India;
    
    our ability to continue conducting business in Israel and other
countries in the normal course may be adversely affected by increased
risk of social and political instability and our employees working and
visiting in Israel may be affected by terrorist attacks;
    
    our Israeli customers demand for our products may be adversely
affected because of negative economic consequences associated with
reduced levels of safety and security in Israel.
 Problems associated with international business operations could affect our ability to license our IP.
  
    
    managing foreign distributors and sales partners and sharing revenues with such third parties;
    
    staffing and managing foreign branch offices and subsidiaries;
    
    political and economic instability;
    
    international conflicts or other crises;
    
    greater difficulty in collecting account receivables resulting in longer collection periods;
    
    foreign currency exchange fluctuations;
    
    changes in tax laws and tariffs;
    
    compliance with, and unexpected changes in, a wide variety of foreign laws and regulatory
environments with which we are not familiar;
    
    timing and availability of export licenses;
    
    inadequate protection of IP rights in some countries; and
    
    obtaining governmental approvals for certain technologies.
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We have a long and unpredictable sales cycle, which can result in uncertainty
and delays in generating additional revenues.
  We rely on a small number of customers for a substantial portion of our
revenues and our accounts receivables are concentrated among a small number of
customers.
  We may have difficulty sustaining profitability and may experience additional losses in the future.
  We may be unable to deliver our customized memory, logic and I/O products in
the time-frame demanded by our customers, which could damage our reputation and
future sales.
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We may be unable to attract and retain key personnel who are critical to the success of our business.
   We may need additional capital that may not be available to us and, if raised,
may dilute our stockholders ownership interest in us.
  If we are unable to effectively manage our growth, our business may be harmed.
   Any acquisitions we make may not provide us the expected benefits and could
disrupt our business and harm our financial condition.
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Risks Related to Our Industry
 If demand for products incorporating complex semiconductors and semiconductor
IP platforms does not increase, our business may be harmed.
   The market for semiconductor IP platforms is highly competitive, and we may
lose market share to larger competitors with greater resources and to companies
that develop their semiconductor IP platforms using internal design teams.
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The technology used in the semiconductor industry is rapidly changing and if we
are unable to develop new technologies and adapt our existing IP to new
processes, we will be unable to attract or retain customers.
   
    
    our ability to anticipate and respond in a timely manner to changes in
the requirements of semiconductor companies;
    
    the emergence of new semiconductor manufacturing processes and our
ability to enter into strategic relationships with third-party
semiconductor foundries to develop and test technologies for these new
processes and provide customer referrals;
    
    the significant research and development investment that we may be
required to make before market acceptance, if any, of a particular
technology;
    
    the possibility that the industry may not accept a new technology or
may delay use of a new technology after we have invested a significant
amount of resources to develop it; and
    
    new technologies introduced by our competitors.
  General economic conditions and future terrorist attacks may reduce our revenues and harm our business.
  Risk Related to Our Intellectual Property Rights
 If we are not able to protect our IP adequately, we will have less proprietary
technology to license, which will reduce our revenues and profits.
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Third parties may claim we are infringing or assisting others to infringe their
IP rights, and we could suffer significant litigation or licensing expenses or
be prevented from licensing our technology.
   Risks Related to Our Stock
 Our stock price may be volatile and could decline substantially.
  
    
    variations between our operating results and the published expectations of securities analysts;
    
    changes in financial estimates or investment recommendations by securities analysts following
our business;
    
    announcements by us or our competitors of significant contracts, new products or services,
acquisitions, or other significant transactions;
    
    sale of our common stock or other securities in the future;
    
    the inclusion or exclusion of our stock in various indices or investment categories,
especially as compared to the investment profiles of our stockholders at a given time;
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
    
    changes in economic and capital market conditions;
    
    changes in business regulatory conditions; and
    
    the trading volume of our common stock.
 Compliance with Internal Control Attestation
  Recording compensation expense in connection with stock option grants may cause our profitability
to be reduced significantly.
  Changes to accounting standards and rules could either delay our recognition of
revenues or reduce the amount of revenues that we may recognize at a specific
time, and thus defer or reduce our profitability. These effects on our reported
results could cause our stock price to be lower than it otherwise might have
been.
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Our certificate of incorporation and bylaws as well as Delaware law contain
provisions that could discourage transactions resulting in a change in control,
which may negatively affect the market price of our common stock.
  
    
    our board of directors is authorized, without prior stockholder approval, to create and issue preferred
stock, commonly referred to as blank check preferred stock, with rights senior to those of common
stock;
    
    our board of directors is staggered into 3 classes, only one of which is elected at each annual meeting;
    
    stockholder action by written consent is prohibited;
    
    nominations for election to our board of directors and the submission of matters to be acted upon by
stockholders at a meeting are subject to advance notice requirements;
    
    certain provisions in our bylaws and certificate may only be amended with the approval of stockholders
holding 80% of our outstanding voting stock;
    
    the ability of our stockholders to call special meetings of stockholders is prohibited; and
    
    our board of directors is expressly authorized to make, alter or repeal our bylaws.
  Compliance with changing regulation of corporate governance and public
disclosure may result in additional expenses.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
    
 ITEM 4. CONTROLS AND PROCEDURES
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PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
  
 ITEM 5. OTHER INFORMATION
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ITEM 6. EXHIBITS
 Exhibit No.
    
    Exhibits31.1
    
    Certification Pursuant to Rule 15d-14 of the Securities and
Exchange Act as amended, as Pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certification Pursuant to Rule 15d-14 of the Securities and
Exchange Act as amended, as Pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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SIGNATURES
  Date: August 5, 2005
    VIRAGE LOGIC CORPORATION/s/ Adam A. KablanianADAM A. KABLANIANPresident and Chief Executive Officer /s/ Michael E. SeifertMICHAEL E. SEIFERTVice President, Finance and Chief Financial Officer
(Principal Financial and Accounting Officer) 36




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EXHIBIT INDEX
 31.1
    
    Certification Pursuant to Rule 15d-14 of the Securities and Exchange
Act as amended, as Pursuant to Section 302 of the Sarbanes-Oxley Act
of 200231.2
    
    Certification Pursuant to Rule 15d-14 of the Securities and Exchange
Act as amended, as Pursuant to Section 302 of the Sarbanes-Oxley Act
of 200232.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
 37