##### Table of Contents

---

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, 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 September 30, 2003, there were 20,227,515 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 September 30, 2003



Index



|                               |  | Page   
|------------------------------ |  | -------
|Part I  Financial Information |  |        
|                               |  |        
|                               |  | Item 1.
|                               |  |        
|                               |  |        
|                               |  |        
|                               |  |        
|                               |  |        
|                               |  |        
|                               |  |        
|                               |  |        
|                               |  |        
|                               |  | Item 2.
|                               |  |        
|                               |  | Item 3.
|                               |  |        
|                               |  | Item 4.
|                               | 
|Part II  Other Information    |  |        
|                               |  |        
|                               |  | Item 1.
|                               |  |        
|                               |  | Item 2.
|                               |  |        
|                               |  | Item 3.
|                               |  |        
|                               |  | Item 4.
|                               |  |        
|                               |  | Item 5.
|                               |  |        
|                               |  | Item 6.
|                               | 
|Signatures                     |  | 16     
|                               | 
|Certifications                 |  |        



---

##### Table of Contents

PART I  FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements



VERISITY LTD.



CONDENSED
CONSOLIDATED BALANCE SHEETS

(In thousands)



|                                                                                                                                      |  | September 30, 2003 |        |   | December 31, 2002 |  
|------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------ | - | ----------------- | -
|                                                                                                                                      |  | Unaudited          |        |   |                   |  
|ASSETS                                                                                                                                |  |                    |        |   |                   |  
|Current assets:                                                                                                                       |  |                    |        |   |                   |  
|Cash and cash equivalents                                                                                                             |  | $                  | 81,109 |   |                   | $
|Accounts receivable, net of allowance for doubtful accounts of $2 and $4 as of September 30, 2003 and December 31, 2002,
respectively |  |                    | 11,574 |   |                   |  
|Prepaid expenses and other current assets                                                                                             |  |                    | 2,799  |   |                   |  
|                                                                                                                                      |  |                    |        |   |                   |  
|Total current assets                                                                                                                  |  |                    | 95,482 |   |                   |  
|Property and equipment, net                                                                                                           |  |                    | 2,603  |   |                   |  
|Other assets                                                                                                                          |  |                    | 380    |   |                   |  
|                                                                                                                                      |  |                    |        |   |                   |  
|Total assets                                                                                                                          |  | $                  | 98,465 |   |                   | $
|                                                                                                                                      |  |                    |        |   |                   |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                  |  |                    |        |   |                   |  
|Current liabilities:                                                                                                                  |  |                    |        |   |                   |  
|Accounts payable                                                                                                                      |  | $                  | 883    |   |                   | $
|Accrued compensation                                                                                                                  |  |                    | 4,821  |   |                   |  
|Deferred revenues                                                                                                                     |  |                    | 21,008 |   |                   |  
|Other current liabilities                                                                                                             |  |                    | 5,636  |   |                   |  
|                                                                                                                                      |  |                    |        |   |                   |  
|Total current liabilities                                                                                                             |  |                    | 32,348 |   |                   |  
|                                                                                                                                      |  |                   
|Long-term portion of deferred revenues                                                                                                |  |                    | 5,163  |   |                   |  
|Long-term portion of capital lease obligations                                                                                        |  |                    |       |   |                   |  
|Other long-term liabilities                                                                                                           |  |                    | 449    |   |                   |  
|                                                                                                                                      |  |                   
|Shareholders equity:                                                                                                                 |  |                    |        |   |                   |  
|Ordinary shares and additional paid-in capital                                                                                        |  |                    | 58,170 |   |                   |  
|Deferred compensation                                                                                                                 |  |                    | (30    | ) |                   |  
|Retained earnings (Accumulated deficit)                                                                                               |  |                    | 2,365  |   |                   |  
|                                                                                                                                      |  |                    |        |   |                   |  
|Total shareholders equity                                                                                                            |  |                    | 60,505 |   |                   |  
|                                                                                                                                      |  |                    |        |   |                   |  
|Total liabilities and shareholders equity                                                                                            |  | $                  | 98,465 |   |                   | $
|                                                                                                                                      |  |                    |        |   |                   |  



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 EndedSeptember 30, |        |      | Nine Months EndedSeptember 30,
|--------------------------------------------------------------------------- |  | ------------------------------- | ------ | ---- | ------------------------------
|                                                                            |  | 2003                            |        | 2002 |                               
|                                                                            |  | Unaudited                       |        |      | Unaudited                     
|Revenue:                                                                    |  |                                 |        |      |                               
|License                                                                     |  | $                               | 7,422  |      | $                             
|Maintenance                                                                 |  |                                 | 4,321  |      |                               
|Other services                                                              |  |                                 | 297    |      |                               
|                                                                            |  |                                 |        |      |                               
|Total revenue                                                               |  |                                 | 12,040 |      |                               
|Cost of revenue:                                                            |  |                                 |        |      |                               
|License                                                                     |  |                                 | 24     |      |                               
|Maintenance                                                                 |  |                                 | 510    |      |                               
|Other services (1)                                                          |  |                                 | 116    |      |                               
|                                                                            |  |                                 |        |      |                               
|Total cost of revenue                                                       |  |                                 | 650    |      |                               
|                                                                            |  |                                 |        |      |                               
|Gross profit                                                                |  |                                 | 11,390 |      |                               
|                                                                            |  |                                 |        |      |                               
|Operating expenses:                                                         |  |                                 |        |      |                               
|Research and development                                                    |  |                                 | 2,479  |      |                               
|Sales and marketing                                                         |  |                                 | 5,061  |      |                               
|General and administrative                                                  |  |                                 | 1,448  |      |                               
|Non-cash charges related to equity issuances (1)                            |  |                                 | 128    |      |                               
|                                                                            |  |                                 |        |      |                               
|Total operating expenses                                                    |  |                                 | 9,116  |      |                               
|                                                                            |  |                                 |        |      |                               
|Operating income                                                            |  |                                 | 2,274  |      |                               
|Interest income                                                             |  |                                 | 175    |      |                               
|Other income (expense), net                                                 |  |                                 | 10     |      |                               
|                                                                            |  |                                 |        |      |                               
|Income before income taxes                                                  |  |                                 | 2,459  |      |                               
|Provision for income taxes                                                  |  |                                 | 196    |      |                               
|                                                                            |  |                                 |        |      |                               
|Net income                                                                  |  | $                               | 2,263  |      | $                             
|                                                                            |  |                                 |        |      |                               
|Basic earnings per share:                                                   |  |                                 |        |      |                               
|Basic net income per ordinary share                                         |  | $                               | 0.11   |      | $                             
|                                                                            |  |                                 |        |      |                               
|Number of shares used in per share calculation                              |  |                                 | 19,870 |      |                               
|                                                                            |  |                                 |        |      |                               
|Diluted earnings per share:                                                 |  |                                 |        |      |                               
|Diluted net income per ordinary share                                       |  | $                               | 0.11   |      | $                             
|                                                                            |  |                                 |        |      |                               
|Number of shares used in per share calculation                              |  |                                 | 21,497 |      |                               
|                                                                            |  |                                 |        |      |                               
|(1)    Non-cash charges related to equity issuances include the following :
|                                                                            |  | Three Months EndedSeptember 30, |        |      | Nine Months EndedSeptember 30,
|                                                                            |  | 2003                            |        | 2002 |                               
|Cost of other services revenue                                              |  | $                               | 1      |      | $                             
|                                                                            |  |                                 |        |      |                               
|Research and development                                                    |  | $                               | 5      |      | $                             
|Sales and marketing                                                         |  |                                 | 7      |      |                               
|General and administrative                                                  |  |                                 | 116    |      |                               
|                                                                            |  |                                 |        |      |                               
|Total included in operating expenses                                        |  | $                               | 128    |      | $                             
|                                                                            |  |                                 |        |      |                               



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



-2-



---

##### Table of Contents

VERISITY LTD.



CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



|                                                                                  |  | Nine Months EndedSeptember 30, |       
|--------------------------------------------------------------------------------- |  | ------------------------------ | ------
|                                                                                  |  | 2003                           |       
|                                                                                  |  | Unaudited                      |       
|Cash flows from operating activities:                                             |  |                                |       
|Net income                                                                        |  | $                              | 6,327 
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                                |       
|Depreciation and amortization                                                     |  |                                | 830   
|Non-cash charges related to equity issuances                                      |  |                                | 50    
|Changes in operating assets and liabilities:                                      |  |                                |       
|Accounts receivable                                                               |  |                                | 389   
|Prepaid expenses and other assets                                                 |  |                                | (511  
|Accounts payable                                                                  |  |                                | 195   
|Other liabilities and accrued compensation                                        |  |                                | 395   
|Deferred revenues                                                                 |  |                                | (6,590
|                                                                                  |  |                                |       
|Net cash provided by operating activities                                         |  |                                | 1,085 
|                                                                                  |  |                               
|Cash flows from investing activities:                                             |  |                                |       
|Purchases of property and equipment                                               |  |                                | (1,156
|Other assets                                                                      |  |                                |      
|                                                                                  |  |                                |       
|Net cash used in investing activities                                             |  |                                | (1,156
|                                                                                  |  |                               
|Cash flows from financing activities:                                             |  |                                |       
|Net proceeds from issuance of ordinary shares                                     |  |                                | 1,679 
|Proceeds from repayment of shareholders loan                                     |  |                                |      
|Payments under capital lease obligations                                          |  |                                | (8    
|                                                                                  |  |                                |       
|Net cash provided by financing activities                                         |  |                                | 1,671 
|                                                                                  |  |                               
|Net increase in cash and cash equivalents                                         |  |                                | 1,600 
|Cash and cash equivalents at beginning of the period                              |  |                                | 79,509
|                                                                                  |  |                                |       
|Cash and cash equivalents at end of the period                                    |  | $                              | 81,109
|                                                                                  |  |                                |       



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



-3-



---

##### Table of Contents

VERISITY LTD.



NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



1. Basis of Presentation



The Company



These unaudited interim condensed consolidated financial statements reflect
the Companys position as of September 30, 2003. The statements also show the Companys statements of operations for the three and nine month periods ended September 30, 2003 and 2002, and the statements of cash flow for the nine month
periods ended September 30, 2003 and 2002. These interim condensed consolidated financial statements include all normal recurring adjustments, which the Company believes are necessary to fairly present the Companys financial position. All
material intercompany balances have been eliminated. Because all of the disclosures required by accounting principles generally accepted in the United States are not included, these interim condensed consolidated financial statements should be read
in conjunction with the audited consolidated financial statements for the year ended December 31, 2002, included in the Companys annual report on Form 10-K filed with the Securities and Exchange Commission on March 21, 2003. The December 31,
2002 condensed consolidated balance sheet data was derived from the Companys audited consolidated financial statements and does not include all of the disclosures required by accounting principles generally accepted in the United States. The
statements of operations for the periods presented are not necessarily indicative of results for any future period, nor for the entire year.



Use of Estimates



The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires the Company to base its
estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.



2. Basic and Diluted Net Income Per Share



Basic net income per share is computed based on the weighted average number of ordinary shares outstanding during each period. Diluted net income per
share is computed based on the weighted average number of ordinary shares outstanding during each period, plus potentially dilutive ordinary shares considered outstanding during the period, in accordance with Financial Accounting Standards Board
(FASB) Statement No. 128, Earnings per Share.



-4-



---

##### Table of Contents

The following is a reconciliation of the denominator used in basic and diluted net income per share
computations for the third quarters and first nine months of 2003 and 2002 (in thousands, except per share data):



|                                                                     |  | Three Months Ended September 30, |        | Nine Months EndedSeptember 30,
|-------------------------------------------------------------------- |  | -------------------------------- | ------ | ------------------------------
|                                                                     |  | 2003                             |        | 2002                          
|                                                                     |  | Unaudited                        |        | Unaudited                     
|Net income                                                           |  | $                                | 2,263  |                               
|                                                                     |  |                                  |        |                               
|Shares used in computing basic net income per ordinary share         |  |                                  | 19,870 |                               
|                                                                     |  |                                  |        |                               
|Weighted average number of ordinary shares under the treasury method |  |                                  | 1,627  |                               
|Weighted average number of ordinary shares subject to repurchase     |  |                                  |       |                               
|                                                                     |  |                                  |        |                               
|Shares used in computing diluted net income per ordinary share       |  |                                  | 21,497 |                               
|                                                                     |  |                                  |        |                               
|Diluted net income per ordinary share                                |  | $                                | 0.11   |                               
|                                                                     |  |                                  |        |                               



3. Segment, Customers and
Geographic Information



The Company operates in one
industry segment which is focused on the development, marketing and support of software products that provide systems and semiconductor companies with the ability to automate the functional verification of system and integrated circuit designs.
Operations in Israel and in the United States include research and development and sales and marketing. Operations in Europe include sales and marketing.



-5-



---

##### Table of Contents

The following is a summary of operations within geographic areas based on the location of the entity
making the sales and the location of the long-lived assets (in thousands):



|                                              |  | Three Months Ended September 30, |        | Nine Months Ended September 30,
|--------------------------------------------- |  | -------------------------------- | ------ | -------------------------------
|                                              |  | 2003                             |        | 2002                           
|                                              |  | Unaudited                        |        | Unaudited                      
|Revenue from sales to unaffiliated customers: |  |                                  |        |                                
|United States                                 |  | $                                | 9,139  |                                
|Israel                                        |  |                                  | 848    |                                
|Europe                                        |  |                                  | 2,053  |                                
|                                              |  |                                  |        |                                
|                                              |  | $                                | 12,040 |                                
|                                              |  |                                  |        |                                
|                                              |  |                                  |        |                                
|                                              |  |                                  |        |                                
|                                              |  |                                  |        |                                
|Long lived assets :                           |  |                                  |        |                                
|United States                                 |  |                                  |        |                                
|Israel                                        |  |                                  |        |                                
|Europe                                        |  |                                  |        |                                
|                                              |  |                                  |        |                                
|                                              |  |                                  |        |                                
|                                              |  |                                  |        |                                



4. Recently Issued Accounting
Standards



At the November 2002 Emerging Issues Task Force
(EITF) meeting, the Task Force reached a consensus on EITF No. 00-21, Revenue Arrangements with Multiple Deliverables (EITF 00-21). EITF 00-21 provides guidance on how to determine whether an arrangement involves multiple deliverables
and contains more than one unit of accounting. EITF 00-21 was effective for arrangements entered into in periods commencing after June 15, 2003, or it could be adopted retroactively. The Companys adoption of EITF 00-21 did not have a material
impact on its results of operations and financial position.



In
January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46). FIN 46 addresses the consolidation and financial reporting of variable interest entities. FIN No. 46 is effective for financial
statements of interim or annual periods ending after December 15, 2003 for variable interest entities created before February 1, 2003, or immediately for variable interest entities created after January 31, 2003. The adoption of this interpretation
is not expected to have a material effect on the Companys consolidated financial position, results of operations, or cash flows.



5. Accounting for Share-Based Compensation



The Company accounts for employee share option grants in accordance with APB 25 and related interpretations. Under APB 25, when the exercise price of
share options granted to employees equals the market price of the underlying shares on the date of grant, no compensation expense is recognized. The Company has adopted the disclosure only alternative described in Statement of Financial
Accounting Standards (FAS) 123, Accounting for Stock-Based Compensation



For purposes of disclosures pursuant to FAS 123 as amended by FAS 148, the estimated fair value of options is amortized to expense over the options
vesting period.



-6-



---

##### Table of Contents

The following table illustrates the effect on reported net income and net income per share as if we had
applied the fair value recognition provisions of SFAS 123 to share-based compensation:



|                                                                                                    |  | Three Months Ended September 30,      |        |   | Nine Months Ended September 30,      |  
|--------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ------ | - | ------------------------------------ | -
|                                                                                                    |  | 2003                                  |        |   | 2002                                 |  
|                                                                                                    |  | (in thousands, except per share data) |        |   | (in thousands, exceptper share data) |  
|Net income as reported                                                                              |  | $                                     | 2,263  |   |                                      | $
|Stock-based compensation expense included in reported net income, net of tax effect                 |  |                                       | 119    |   |                                      |  
|Total stock based compensation expense determined under fair value based methods, net of tax effect |  |                                       | (2,415 | ) |                                      |  
|                                                                                                    |  |                                       |        |   |                                      |  
|Pro forma net Income (loss)                                                                         |  | $                                     | (33    | ) |                                      | $
|                                                                                                    |  |                                       |        |   |                                      |  
|Basic net income (loss) per share:                                                                  |  |                                       |        |   |                                      |  
|As reported                                                                                         |  | $                                     | 0.11   |   |                                      | $
|                                                                                                    |  |                                       |        |   |                                      |  
|Pro forma                                                                                           |  | $                                     | 0.00   |   |                                      | $
|                                                                                                    |  |                                       |        |   |                                      |  
|Diluted net income (loss) per share:                                                                |  |                                       |        |   |                                      |  
|As reported                                                                                         |  | $                                     | 0.11   |   |                                      | $
|                                                                                                    |  |                                       |        |   |                                      |  
|Pro forma                                                                                           |  | $                                     | 0.00   |   |                                      | $
|                                                                                                    |  |                                       |        |   |                                      |  



The fair value of all
options granted during the three months ended September 30, 2003 and 2002 was estimated as of the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:



|                                               |  | Three Months Ended September 30, |      
|---------------------------------------------- |  | -------------------------------- | -----
|                                               |  | 2003                             |      
|Volatility                                     |  |                                  | 65   
|Weighted-average expected lives                |  |                                  | 4.0  
|Expected dividend yields                       |  |                                  |     
|Weighted-average risk-free interest rates      |  |                                  | 2.60 
|Weighted-average fair value of options granted |  | $                                | 13.21



The weighted average
assumptions used in the first and second quarters of 2003 and 2002, were reported in the Companys quarterly reports on Form 10-Q for the first and second quarters of 2003.



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations



The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated
financial statements and the related notes included elsewhere in this quarterly report on Form 10-Q. Some of the statements contained in this Form 10-Q are forward looking statements, including but not limited to those specifically identified as
such, that involve risks and uncertainties. The statements contained in this Form 10-Q that are not purely historical are



-7-



---

##### Table of Contents

forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act) and Section 21E of
the Exchange Act of 1934, as amended (the Exchange Act), including, without limitation, statements regarding our expectations, beliefs, intentions or strategies regarding the future. All forward-looking statements included in this Form
10-Q are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors, which may cause our
actual results to differ materially from those implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as may, will, should, expects,
plans, anticipates, believes, estimates, predicts, potential, or continue, or the negative of these terms or other comparable terminology. Although we believe that
the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Important factors that may cause actual results to differ from expectations include
those discussed in Risk Factors in our annual report on Form 10-K for the year ended December 31, 2002 filed with the Securities and Exchange Commission and elsewhere in this quarterly report on Form 10-Q.



Description of Business



We provide software products that automate the process of detecting flaws in the designs of electronic systems and
integrated circuits and enable our customers to deliver higher quality electronic products, accelerate time-to-market and reduce overall product development costs. We were founded in September 1995 and commenced operations in January 1996. In
November 1999, we acquired SureFire Verification, Inc. by merging it into our wholly-owned subsidiary, Verisity Design, Inc., a California corporation.



In 1996, we released our original Specman functional verification software product. In the second quarter of 1998, SureFire released our SureCov software
product. In the fourth quarter of 1998, we released Specman Elite, an enhanced version of our original Specman product. In the fourth quarter of 1999, we released our SureLint software product. In the second quarter of 2002 we introduced a major
upgrade to our Specman Elite product. Throughout 2003, we have introduced several new products, support programs and methodologies which enhance the use of our products and other industry products with functional verification process automation.



We currently derive substantially all of our revenue from the
sale of licenses for a small number of software products and related maintenance and other services. Sales of our Specman Elite and other functional verification class of products accounted for 100% of our license revenue in the past. We expect that
substantially all of our revenue in 2003 will continue to be generated from sales of licenses of our functional verification products and related maintenance and other services.



Throughout 2002 and to date in 2003 our customers have faced a difficult and unpredictable economic environment with respect
to the end markets for their products and their overall financial health. The year 2002 marked the third consecutive year of such a protracted downturn in the economic environment for the electronics industry in which our customers compete. This
uncertainty has continued through the first nine months of 2003 with only modest perceptible improvement. The result of this prolonged uncertainty has caused most customers, particularly the financially weakest, to scrutinize more heavily their
R&D investments with spending decisions being delayed as long as possible and in some cases, additional development programs being further rationalized or discontinued and many smaller companies going out of business.



The rate at which new orders were received slowed in the latter half of 2002
and the first quarter of 2003 and did not keep pace with the growth in reported revenue, due primarily to the economic environment. As a result revenue in the first quarter of 2003 declined sequentially from the fourth quarter of 2002. The rate of
new orders in the second and third quarters of 2003 increased sequentially, respectively, over the previous quarter and exceeded reported revenue in the period, increasing backlog at the end of the third quarter of 2003. Revenue in the second
quarter of 2003 grew approximately 7% over



-8-



---

##### Table of Contents

the first quarter revenue and revenue in the third quarter of 2003 declined approximately 4% from second quarter revenue. While orders increased in the
second and third quarters of 2003, the timing of placement of orders or the timing of deployment by our customers of the underlying products did not lead to a corresponding increase in revenue in the third quarter of 2003. We cannot predict with any
certainty if orders and future revenue will continue to increase or that an increase in orders will generate an increase in revenue within the same fiscal period. Please see the risk factor (in our annual report on Form 10-K for the year ended
December 31, 2002) for the effect on our revenue if our products are not adopted.



We sell our products and related maintenance and other services directly through our sales force and through indirect channels that include international distributors and sales representatives. Revenue from sales
outside North America accounted for 33.6% of our total revenue in the third quarter of 2003 and 31.9% of our total revenue in the third quarter of 2002. We believe that international markets represent a significant growth opportunity for our
business and we anticipate that international revenue will increase as a percent of total revenue in the future.



In order to increase market share in international locations and better serve our global customers, we plan to further expand our international
operations. We expect that this expansion will require a substantial investment in personnel, facilities and operations, which tend to be more costly than similar investments in domestic operations. As a result of these investments in our
international operations, we may experience an increase in cost of sales and other operating expenses disproportionate to revenue from those operations.



We license our software products to customers under either perpetual or time-based licenses. Further, with respect to these time-based license
arrangements, we allocate the revenue based on our standard price list, which has resulted in approximately 70% being allocated to license revenue and 30% being allocated to maintenance revenue. The term for our time-based licenses is typically one
year. Our software products do not require customization or modification for our customers to install and use them. Customers purchasing maintenance receive Internet-based technical support, telephone support and unspecified product updates when we
choose to make updates available. Our perpetual and time-based licenses are always sold with maintenance. Maintenance for perpetual licenses may then be separately renewed. We believe these product updates, which our customers have the right to use
for the remaining term of their license, are the primary reason that a majority of our customers renew maintenance every year. Our services include training in the use of our products and consulting services.



Three and Nine Months Ended September 30, 2003 Compared to Three and Nine Months Ended
September 30, 2002



Total Revenue



Our revenue consists of license revenue, maintenance revenue and other
services revenue. License revenue consists of fees paid by our customers to license our software products. Maintenance revenue consists of fees for technical support and product updates. Other services revenue consists of training and consulting
fees. Our total revenue was $12.0 million for the three months ended September 30, 2003, and $14.0 million for the comparable quarter of 2002, representing a decrease of $2.0 million, or 13.7%, and was $36.2 million for the nine months ended
September 30, 2003, and $37.9 million for the comparable period of 2002, representing a decrease of $1.7 million, or 4.4%. Approximately $2.7 million and $3.7 million of the decrease in revenue for the three and nine months ended September 30, 2003,
respectively, was attributable to lower sales to existing customers offset by increased revenue of $0.7 million and $2.0 million, respectively, from sales to new customers.



-9-



---

##### Table of Contents

License revenue. Our license revenue was $7.4 million for the three months ended September 30,
2003, and $8.9 million for the comparable quarter of 2002, representing a decrease of $1.5 million, or 17.0%, and was $22.0 million for the nine months ended September 30, 2003, and $23.6 million for the comparable period of 2002, representing a
decrease of $1.6 million, or 6.9%. These decreases resulted from decreases in revenue from perpetual licenses of $0.6 million and $2.1 million in the three and nine months ending September 30, 2003, respectively and a decrease in revenue from
time-based license revenue for the three month period ending September 30, 2003. The decline due to lower perpetual license revenue in the nine month period ending September 30, 2003 was partially offset by an increase in revenue from time-based
licenses of approximately $0.5 million. This reflects a further shift in customers demand towards time-based licenses from perpetual licenses.



Maintenance revenue. Our maintenance revenue was $4.3 million for the three months ended September 30, 2003, and $4.7 million for the comparable
quarter of 2002, representing a decrease of $343,000, or 7.4%, and was $13.4 million for the nine months ended September 30, 2003, and $13.0 million for the comparable period of 2002, representing an increase of $376,000, or 2.9%. These changes were
primarily attributable to the recognition of revenue from maintenance services that we sold in connection with the sale of licenses, particularly in respect to time-based licenses.



Other services revenue. Our other services revenue was $297,000 for the three months ended September 30, 2003, and
$351,000 for the comparable quarter of 2002, representing a decrease of $54,000, or 15.4%, and was $0.8 million for the nine months ended September 30, 2003, and $1.2 million for the comparable period of 2002, representing a decrease of $0.4
million, or 33.9%. These decreases were primarily attributable to lower consulting services revenue.



Cost of Revenue



Cost of revenue consists of costs associated with generating license, maintenance and other services revenue. Cost of revenue was $650,000 for the three months ended September 30, 2003, and $754,000 for the comparable quarter of 2002,
representing a decrease of $104,000, or 13.8%, and was $2.1 million for the nine months ended September 30, 2003, and $2.2 million for the comparable period of 2002, representing a decrease of $0.1 million, or 4.1%. Cost of revenue as a percentage
of total revenue was 5.4% for the three months ended September 30, 2003, and 5.4% for the comparable quarter of 2002, and was 5.8% for the nine months ended September 30, 2003, and 5.8% for the comparable period of 2002.



Cost of license revenue. Cost of license revenue was $24,000 for the
three months ended September 30, 2003, and $45,000 for the comparable quarter of 2002, representing a decrease of $21,000, or 46.7%, and was $97,000 for the nine months ended September 30, 2003, and $118,000 for the comparable period of 2002,
representing a decrease of $21,000, or 17.8%. As a percent of license revenue, the cost of license revenue decreased from 0.5% for the three months ended September 30, 2002, to 0.3% for the comparable quarter of 2003, and decreased from 0.5% for the
nine months ended September 30, 2002, to 0.4% for the comparable period of 2003.



Cost of maintenance revenue. Cost of maintenance revenue was $510,000 for the three months ended September 30, 2003, and $514,000 for the comparable quarter of 2002, and was $1.6 million for the nine months
ended September 30, 2003, and $1.5 million for the comparable period of 2002, representing an increase of $0.1 million, or 6.2%. As a percent of maintenance revenue, the cost of maintenance revenue increased from 11.0% for the three months ended
September 30, 2002, to 11.8% for the comparable quarter of 2003, and from 11.6% for the nine months ended September 30, 2002, to 12.0% for the comparable period of 2003. These increases were primarily a result of increased resources required to
support the larger volume of licenses in our installed customer base and partially offset by continued improvements in product quality. These improvements related primarily to the introduction of upgraded versions of our software products that
improved functionality and ease of use. These improvements contributed to the overall operating efficiency of our software and our customer support personnel.



-10-



---

##### Table of Contents

Cost of other services revenue. Cost of other services revenue consists primarily of internal and
contracted personnel and other expenses related to providing training and consulting services to our customers. Cost of other services revenue was $116,000 for the three months ended September 30, 2003, and $195,000 for the comparable quarter of
2002, representing a decrease of $79,000, or 40.5%, and was $401,000 for the nine months ended September 30, 2003, and $564,000 for the comparable period of 2002, representing a decrease of $163,000, or 28.9%. These decreases were primarily
attributable to the decrease in externally contracted training services. As a percent of other services revenue, the cost of other services revenue decreased from 55.6% for the three months ended September 30, 2002, to 39.1% for the comparable
quarter of 2003, and increased from 45.2% for the nine months ended September 30, 2002, to 48.6% for the comparable period of 2003.



Operating Expenses



Research and development. Research and development expenses consist primarily of costs related to research and development personnel, including
salaries and other personnel-related expenses, sub-contracting fees, facilities and computer equipment used in our product and technology development. Research and development expenses were $2.5 million for the three months ended September 30, 2003,
and $2.3 million for the comparable quarter of 2002, representing an increase of $0.2 million, or 8.2%, and were $7.7 million for the nine months ended September 30, 2003, and $6.7 million for the comparable period of 2002, representing an increase
of $1.0 million, or 14.6%. The increases were primarily related to the increase in the number of software developers employed in the continuing enhancement of our software products. Research and development expenses as a percentage of total revenues
were 20.6% for the three months ended September 30, 2003, and 16.4% for the comparable quarter of 2002 and were 21.3% for the nine months ended September 30, 2003, and 17.7% for the comparable period of 2002. We believe that significant investment
in research and development has been and will continue to be required to develop new products and enhance existing products to allow us to further penetrate our target markets. We anticipate that the absolute dollar amount of research and
development expenses will increase in the future.



Sales and
marketing. Sales and marketing expenses consist primarily of salaries, commissions, travel and promotional and advertising costs. Sales and marketing expenses were $5.1 million for the three months ended September 30, 2003, and $5.3 million for
the comparable quarter of 2002, representing a decrease of $0.2 million, or 4.1%, and were $15.6 million for the nine months ended September 30, 2003, and $14.7 million for the comparable period of 2002, representing an increase of $0.9 million, or
6.5%. These changes were primarily attributable to the hiring of additional sales and marketing personnel, including related travel and office expenses, for an increase of approximately $0.3 million and $1.4 million in the three and nine months
periods, respectively. The balances of the changes were primarily due to lower commission expenses resulting from lower revenue levels. Sales and marketing expenses as a percentage of total revenues were 42.0% for the three months ended September
30, 2003, and 37.8% for the comparable period of 2002, and were 43.1% for the nine months ended September 30, 2003, and 38.7% for the comparable period of 2002. We expect sales and marketing expenses to increase as we expand our geographic reach,
hire additional personnel and expand our strategic programs.



General and administrative. General and administrative expenses consist primarily of salaries and other personnel-related expenses for our administrative, legal, human resources, investor relations and finance personnel, facilities,
insurance and professional services fees. General and administrative expenses were $1.4 million for the three months ended September 30, 2003, and $1.5 million for the comparable quarter of 2002, representing a decrease of $39,000, or 2.6%, and were
$4.3 million for the nine months ended September 30, 2003, and $4.2 million for the comparable period of 2002, representing an increase of $0.1 million, or 3.1%. These changes were primarily attributable to the increased personnel and increased
insurance premium expenses, partially offset by all other expenses. General and administrative expenses as a percentage of total revenue were 12.0% for the three months ended September 30, 2003, and 10.7% for the comparable quarter in 2002, and were
11.9% for the nine months ended September 30, 2003, and 11.0% for the comparable period of 2002. We expect general and administrative expenses to increase for the foreseeable future as we expand our administrative staff and incur expenses associated
with being a public company, including the costs of annual and periodic reporting, investor relations programs, insurance and additional compliance reporting requirements.



-11-



---

##### Table of Contents

Non-cash charges related to equity issuances. Non-cash charges related to equity issuances reflect
the amortization of the deferred share-based compensation, representing the difference between the fair value of the ordinary shares for financial reporting purposes and the exercise price of the underlying options at the date of grant and the
measurement of the fair value of the non-employee share options. Our share-based compensation expenses, reported in operating expenses, were $128,000 for the three months ended September 30, 2003, and $34,000 for the comparable quarter of 2002, and
were $160,000 for the nine months ended September 30, 2003, and $243,000 for the comparable period of 2002. In addition, $1,000 was reported in cost of other services for the three months ended September 30, 2003, and $3,000 for the nine months
ended September 30, 2003. The deferred share-based compensation is amortized over the vesting schedule of the underlying options, generally four years.



Interest Income, Interest Expenses and Other Income, Net



Interest income, interest expenses and other income, net consists of interest income on our cash and cash equivalents, net of interest expense on our
obligations under capital lease and other miscellaneous expenses. Our interest income, interest expenses and other income, net decreased from $274,000 for the three months ended September 30, 2002, to $185,000 for the comparable quarter of 2003, and
from $688,000 for the nine months ended September 30, 2002, to $535,000 for the comparable period of 2003. These decreases were primarily due to lower interest rates received on cash and cash equivalents balances. As a percent of total revenue,
interest income, interest expenses and other income, net decreased from 2.0% for the three months ended September 30, 2002, to 1.5% for the comparable quarter of 2003, and from 1.8% for the nine months ended September 30, 2002, to 1.5% for the
comparable period of 2003.



Income Taxes



We recorded provisions for income taxes of $196,000 in the three months
ended September 30, 2003, and $527,000 for the comparable quarter of 2002, and $548,000 in the nine months ended September 30, 2003, and $1.3 million for the comparable period of 2002. The provisions for income taxes in these periods are primarily
due to income taxes in jurisdictions other than Israel and various withholding taxes. Our effective tax rate was 8% for the three and nine months ended September 30, 2003, and was 12% for the comparable periods of 2002. The effective tax rate for
each of these periods differs from the Israeli statutory rate primarily due to the utilization of net operating losses incurred in Israel.



We have not recognized any benefit from the future use of loss carryforwards for these periods or for any other period since inception because of
uncertainty surrounding their realization. The amount of net operating losses that we can utilize may be limited under tax regulations in some circumstances, including acquisition activities.



Liquidity and Capital Resources



Since our inception, we have financed our operations primarily through the
private sale of convertible preferred shares and the public offering of ordinary shares. We have also financed our operations through the sale of ordinary shares, pursuant to our equity incentive plans, equipment financing and cash generated from
the sale of our products and services. As of September 30, 2003, we had cash and cash equivalents of $81.1 million, retained earnings of $2.4 million and working capital of $63.1 million.



On March 26, 2001, we completed our initial public offering (IPO) of ordinary shares in which we sold 3,335,000
shares at a price of $7.00 per share. In April 2001 our underwriters exercised their over-allotment option for an additional 500,250 ordinary shares at the same price set in the IPO. Total net proceeds, including the exercise of the over-allotment
option, less underwriting discounts, were approximately $25.0 million.



-12-



---

##### Table of Contents

Net cash provided by operating activities was $1.1 million for the nine months ended September 30, 2003,
and $11.5 million for the comparable period of 2002. Cash provided by operating activities for each period resulted primarily from the net income and net changes in balance sheet accounts deferred revenues and accounts receivable.



Net cash used in investing activities was $1.2 million for the nine months
ended September 30, 2003, and $724,000 for the comparable period of 2002. Investing activities in the nine months ended September 30, 2003 and 2002 consisted primarily of capital expenditures.



Net cash provided by financing activities was $1.7 million for the nine
months ended September 30, 2003, and $1.9 million for the comparable period of 2002. Net cash provided by financing activities for both periods resulted primarily from exercise of share options by employees and the purchase of shares under our
equity incentives plans.



We believe that the cash flow from
operations together with our current cash and cash equivalents balances and current credit facilities will be sufficient to meet our operating requirements for at least the next twelve months, including increased operating expenses and purchases of
capital equipment.



Although we currently have no commitments
or agreements with respect to any acquisitions or investments, it is possible that we may decide to undertake those activities during the next twelve months to an extent that could require additional resources. In that case, we may be required to
raise additional financing through public or private financings, strategic relationships or other arrangements. However, we cannot be certain that this funding, if needed, will be available on terms attractive to us, or at all. Furthermore, any
additional equity financing may be dilutive to shareholders, and debt financing, if available, may involve restrictive covenants.



Item 3. Quantitative and Qualitative Disclosure about Market Risk



We develop products primarily in Israel, and also in North America, and sell those products primarily in North America, Israel, Europe and Eastern Asia.
As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. As substantially all of our sales are currently made in United States dollars, a
strengthening of the United States dollar could make our products less competitive in foreign markets.



We incur expenses denominated in local currencies in Israel and Europe. As exchange rates vary, these expenses, when translated into United States
dollars, may vary from expectations and adversely affect overall profitability.



Our exposure to market risk for changes in interest rates relates primarily to our cash and cash equivalents. We maintain a conservative investment policy, which intends to ensure the safety and preservation of our
invested funds by limiting default risk, market risk and reinvestment risk. Our cash and cash equivalents as of September 30, 2003, consist primarily of short-term U.S. government securities, demand deposits and money market funds held by
institutions in the United States.



Managements intent and current
practice is to invest funds in excess of current operating requirements in:



| |  | U.S. Treasury Securities
| | - | ------------------------



| |  | Federal Agency Securities (GSEs)
| | - | ---------------------------------



| |  | Commercial Paper
| | - | ----------------



| |  | Corporate Notes/Bonds
| | - | ---------------------



| |  | Certificates of Deposit
| | - | -----------------------



| |  | Time Deposits
| | - | -------------



-13-



---

##### Table of Contents

| |  | Municipal Obligations
| | - | ---------------------



| |  | Money-Market Auction Rate Debt
| | - | ------------------------------



| |  | Money-Market Funds
| | - | ------------------



According to our investment policy the obligor must be rated in the rating category as indicated below by at least two of the Nationally Recognized Statistical Rating Organizations (NRSROs).



|                  |  | S & P |  | Moodys |  | Fitch IBCA
|----------------- |  | ----- |  | ------- |  | ----------
|Short Term Rating |  | A-1   |  | P-1     |  | F-1       
|Long Term Rating  |  | A     |  | A       |  | A         



These investments,
included in our cash and cash equivalents, are exposed to short-term fluctuations in interest rates. Should interest rates fall, our cash equivalents may produce less income than expected. Our long-term liabilities, largely composed of deferred
revenues, are not subject to interest rate risk. Given the liquid nature of our cash and cash equivalents and the non-exposed nature of our long-term liabilities, we have concluded that we do not have material market risk exposure due to changes in
interest rates.



Item 4. Controls and Procedures



Under the supervision and with the participation of the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer, the Company has evaluated the effectiveness of the design and operation of
its disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act, as of the end of the period covered by this report, and, based on their evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that these disclosure controls and procedures are effective.



PART II. OTHER INFORMATION



Item 1. Legal Proceedings



None.



Item 2. Changes In Securities and Use of Proceeds



During the three months ended September 30, 2003, we issued an additional 127,770 ordinary shares as a result of the exercise of share option grants. The aggregate net consideration received by the Company for the
issuance of the ordinary shares was $395,000. Certain of the ordinary shares were issued pursuant to compensatory plans registered by registration statements, filed with the SEC, on Form S-8. Other ordinary shares were issued pursuant to
compensatory plans of the Company that are compliant with Rule 701 promulgated under the Securities Act and in reliance on the exemption from the registration requirements of the Securities Act provided by such rule.



Item 3. Default Upon Senior Securities



None.



-14-



---

##### Table of Contents

Item 4. Submission of Matters to a Vote of Security Holders



None.



Item 5. Other Information



None.



Item 6. Exhibits and Reports on Form 8-K



| | (a) | See Exhibit Index on Page 17.
| | --- | -----------------------------



| | (b) | On July 21, 2003, we filed a current report on Form 8-K to disclose the results of operations and financial information for the quarter ended June 30, 2003 and forward-looking
statements relating to 2003 and the third quarter of 2003 as presented in a press release of July 21, 2003.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



-15-



---

##### Table of Contents

SIGNATURES



Pursuant to the requirements of the
Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                       |  |  |  | VERISITY LTD.                                                           
|---------------------- |  |  |  | ------------------------------------------------------------------------
|                       |  |  |  | (Registrant)                                                            
|                       |  | 
|Date: November 7, 2003 |  |  |  | By: /s/ Charles G. Alvarez                                              
|                       |  |  |  | Charles G. Alvarez                                                      
|                       |  |  |  | Vice President of Finance and                                           
|                       |  |  |  | Administration and Chief Financial Officer(Principal Accounting Officer)



-16-



---

##### Table of Contents

EXHIBIT INDEX



|Number  |  | Description                                                                                                                                                                                                                                                      
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        | 
|3.3*    |  | Form of Amended and Restated Articles of Association.                                                                                                                                                                                                            
|        | 
|3.4*    |  | Memorandum of Association, as amended.                                                                                                                                                                                                                           
|        | 
|4.1*    |  | Form of Share Certificate.                                                                                                                                                                                                                                       
|        | 
|4.3*    |  | Warrant to Purchase up to an aggregate of 45,618 Series D Preferred Shares.                                                                                                                                                                                      
|        | 
|10.3*   |  | Unconditional Guaranty (Verisity Ltd.) dated as of December 31, 1998.                                                                                                                                                                                            
|        | 
|10.4*   |  | Lease Agreement dated as of July 29, 1997 by and between Mifalei Locky, 1Bniya Ltd. and Verisity Ltd.                                                                                                                                                           
|        | 
|10.5*   |  | Rental Agreement by and between Verisity Design, EURL and IOM Business Center GmbH, dated as of October 1, 1999.                                                                                                                                                 
|        | 
|10.6*   |  | Rental Agreement by and between Verisity Design, EURL and IOM Business Center GmbH, dated May 8, 2000.                                                                                                                                                           
|        | 
|10.7*   |  | License by and between Chancery Court Business Center Ltd. And Verisity Design, EURL, effective as of August 1, 2000.                                                                                                                                            
|        | 
|10.8*   |  | Office Services Agreement by and between Verisity Design, EURL and Vantas, effective as of November 1, 1999.                                                                                                                                                     
|        | 
|10.9*   |  | Domiciliation Agreement by and between Verisity Design, EURL and BURO Club, dated May 11, 1999.                                                                                                                                                                
|        | 
|10.10*  |  | Landmark Office Center Lease by and between Landmark Investments Limited and Verisity Design, Inc., dated August 10, 1998.                                                                                                                                       
|        | 
|10.11*  |  | Landmark Office Center Lease by and between Landmark Investments Limited and Verisity Design, Inc., dated August 10, 1998.                                                                                                                                       
|        | 
|10.12** |  | Lease Agreement dated as of November 28, 2000, by and between W9/TIB Real Estate Limited Partnership and Verisity Design, Inc.                                                                                                                                   
|        | 
|10.13*  |  | Office Service Agreement effective as of October 1, 2000 by and between Austin Mopac d/b/a/ Vantos and Verisity Design, Inc.                                                                                                                                     
|        | 
|10.14*  |  | Office Service Agreement dated as of November 8, 1999 by and between Plano Executive Suite, Inc. d/b/a HQ Plano, Managing Partner and Verisity Design, Inc.                                                                                                      
|        | 
|10.15*  |  | Letter Distributor Agreement dated as of December 1, 1998 by and between Verisity Design, Inc. and Integrated Systems Scandinavia AB.                                                                                                                            
|        | 
|10.16*  |  | International Distributor Agreement by and between Verisity Design, Inc. and Cybertec Yugen Kaisha, effective as of January 1, 1999.                                                                                                                             
|        | 
|10.17*  |  | International Distributor Agreement by and between Verisity Design, Inc. and Davan Tech Company, Ltd., dated as of November 10, 1999.                                                                                                                            
|        | 
|10.18*  |  | Employment Agreement effective as of October 26, 1999 by and between Verisity Design, Inc. and Michael McNamara.                                                                                                                                                 
|        | 
|10.19*  |  | Employment Agreement effective as of March 23, 1998 by and among Verisity Ltd., Verisity Design, Inc. and Moshe Gavrielov.                                                                                                                                       
|        | 
|10.21*  |  | Form Software License Agreement.                                                                                                                                                                                                                                 
|        | 
|10.24*  |  | Stock Option Agreement effective as of December 1, 1999 by and between Verisity Ltd. and Moshe Gavrielov.                                                                                                                                                        
|        | 
|10.25*  |  | Amended and Restated Verisity Ltd. 2000 U.S. Share Incentive Plan, form of Option Agreement for Amended and Restated 2000 U.S. Share Incentive Plan and form of Option Agreement
for outside directors under Amended and Restated 2000 U.S. Share Incentive Plan.
|        | 
|10.26*  |  | Verisity Ltd. 1999 Israeli Share Option Plan and form of Option Agreement for 1999 Israeli Share Option Plan.                                                                                                                                                    



-17-



---

##### Table of Contents

|          | 
|--------- | 
|10.27*    | 
|          | 
|10.28*    | 
|          | 
|10.29*    | 
|          | 
|10.30*    | 
|          | 
|10.31*    | 
|          | 
|10.32*    | 
|          | 
|10.33*    | 
|          | 
|10.34*    | 
|          | 
|10.35*    | 
|          | 
|10.36*    | 
|          | 
|10.37*    | 
|          | 
|10.38*    | 
|          | 
|10.39*    | 
|          | 
|10.40*    | 
|          | 
|10.41*    | 
|          | 
|10.42*    | 
|          | 
|10.43**   | 
|          | 
|10.44***  | 
|          | 
|10.45***  | 
|          | 
|10.46**** | 
|          | 
|10.47     | 
|          | 
|31.1      | 
|          | 
|31.2      | 
|          | 
|32.1      | 
|          | 
|32.2      | 

---

|* | Incorporated by reference from the like-numbered exhibit filed with the Registrants registration statement on Form S-1 (No. 333-45440) filed on September 8, 2000, as
subsequently amended.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|** | Incorporated by reference from the like-numbered exhibit filed with the annual report on Form 10-K (No. 000-32417) filed on March 26, 2002.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------

|*** | Incorporated by reference from the like-numbered exhibit filed with the annual report on Form 10-K (No. 000-32417) filed on March 21, 2003.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------

|**** | Incorporated by reference from the like-numbered exhibit filed with the quarterly report on Form 10-Q (No. 000-32417) filed on May 13, 2003.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------



-18-