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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

----------

FORM 10-Q

Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934


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

For the quarterly period ended September 30, 2002

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 0-30828

PRECISE SOFTWARE SOLUTIONS LTD.
(Exact Name of Registrant as Specified in Its Charter)


Israel Not Applicable
(State or Other Jurisdiction (I.R.S. Employer
of Organization) Identification No.)

10 Hata'asiya Street
P.O. Box 1066, Or-Yehuda, 60408 Israel
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Including Area Code 972-(3)-735-2222

Indicate by check [X] 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 [X] whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes [X] No [ ]

At November 7, 2002, 29,676,667 of the registrant's ordinary shares (par
value, 0.03 NIS per share) were outstanding.
================================================================================


FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002

TABLE OF CONTENTS
PAGE

PART I. FINANCIAL INFORMATION

ITEM 1. Consolidated Financial Statements:

Condensed Consolidated Balance Sheets as of September
30, 2002 (unaudited) and December 31, 2001.........................3-4

Condensed Consolidated Statements of Operations
(unaudited) for the three and nine months
ended September 30, 2002 and 2001....................................5

Condensed Consolidated Statements of Cash Flows
(unaudited) for the nine months ended
September 30, 2002 and 2001........................................6-7

Notes to Condensed Consolidated Financial Statements (unaudited)..8-14

ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................15-19

ITEM 3 Quantitative and Qualitative Disclosures
About Market Risk..............................................19

ITEM 4 Controls and Procedures........................................19

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings..............................................20

ITEM 2. Changes in Securities and Use of Proceeds.......................*

ITEM 3. Defaults Upon Senior Securities.................................*

ITEM 4. Matters Submitted to a Vote of Security Holders.................*

ITEM 5. Other Information...............................................*

ITEM 6. Exhibits and Reports on Form 8-K...............................20


SIGNATURES...................................................................21

CERTIFICATIONS............................................................22-23

*No information provided due to inapplicability of item.

2


PRECISE SOFTWARE SOLUTIONS LTD.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2002

PART I. FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS

PRECISE SOFTWARE SOLUTIONS LTD. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
U.S. dollars in thousands


December 31, September 30,
2001 2002
---------- ----------
Audited Unaudited
---------- ----------
ASSETS

Current assets:
Cash and cash equivalents $ 35,144 $ 23,224
Marketable securities 39,752 71,694
Trade receivables, net of allowance for doubtful
accounts (2001 - $179, 2002 - $273) 12,156 15,208
Other accounts receivable and prepaid expenses 3,168 3,858
---------- ----------

Total current assets 90,220 113,984
---------- ----------

Marketable securities, non current 60,935 46,074
---------- ----------

Severance pay fund 750 904
---------- ----------

Property and equipment, net 5,047 4,821
---------- ----------

Other assets, net 46,231 48,518
---------- ----------

Total assets $ 203,183 $ 214,301
========== ==========


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

3


PRECISE SOFTWARE SOLUTIONS LTD. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
U.S. dollars in thousands

December 31, September 30,
2001 2002
---------- ----------
Audited Unaudited
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Trade payables $ 1,394 $ 1,151
Deferred revenues 6,673 9,536
Employees and payroll accruals 5,161 4,445
Accrued expenses 2,014 2,219
Other current liabilities 973 1,363
---------- ----------

Total current liabilities 16,215 18,714
---------- ----------

Long-term liabilities:
Long-term debt and other liabilities 193 96
Accrued severance pay 1,116 1,252
---------- ----------

Total long-term liabilities 1,309 1,348
---------- ----------

Shareholders' equity:
Ordinary shares and additional paid-in capital 210,436 216,016
Deferred stock compensation (544) (144)
Accumulated other comprehensive income 1,191 1,215
Accumulated deficit (25,424) (22,848)
---------- ----------

Total shareholders' equity 185,659 194,239
---------- ----------

Total liabilities and shareholders' equity $ 203,183 $ 214,301
========== ==========

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

4


PRECISE SOFTWARE SOLUTIONS LTD. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
U.S. dollars in thousands (except per share data)

Three months ended Nine months ended
September 30, September 30,
------------------------ ------------------------
2001 2002 2001 2002
---------- ---------- ---------- ----------
Unaudited
----------------------------------------------------
Revenues:

Software licenses $ 11,300 $ 12,562 $ 30,741 $ 38,161
Services 3,028 6,788 7,804 16,503
---------- ---------- ---------- ----------
Total revenues 14,328 19,350 38,545 54,664
---------- ---------- ---------- ----------

Cost of revenues:
Software licenses 69 237 181 490
Services 766 1,963 2,213 4,362
---------- ---------- ---------- ----------
Total cost of revenues 835 2,200 2,394 4,852
---------- ---------- ---------- ----------

Gross profit 13,493 17,150 36,151 49,812
---------- ---------- ---------- ----------
Operating expenses:
Research and development 2,850 3,199 7,774 9,638
Sales and marketing 8,688 10,738 24,442 31,080
General and administrative 1,887 2,152 5,025 6,505
Amortization of deferred stock compensation 404 72 1,586 335
Amortization of goodwill and intangible assets 833 979 2,125 2,631
---------- ---------- ---------- ----------

Total operating expenses 14,662 17,140 40,952 50,189
---------- ---------- ---------- ----------

Operating income (loss) (1,169) 10 (4,801) (377)
Financial income and other, net 1,621 1,094 5,492 3,113
---------- ---------- ---------- ----------

Income before income taxes 452 1,104 691 2,736
Income taxes -- 8 -- 160
---------- ---------- ---------- ----------

Net income $ 452 $ 1,096 $ 691 $ 2,576
========== ========== ========== ==========
Net earnings per share:
Basic earnings per share $ 0.02 $ 0.04 $ 0.03 $ 0.09
========== ========== ========== ==========
Diluted earnings per share $ 0.02 $ 0.04 $ 0.02 $ 0.08
========== ========== ========== ==========
Weighted average number of shares used in
computing basic earnings per share 26,942 28,866 26,390 28,590
========== ========== ========== ==========
Weighted average number of shares used in
computing diluted earnings per share 29,757 30,378 29,710 30,707
========== ========== ========== ==========

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

5


PRECISE SOFTWARE SOLUTIONS LTD. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
U.S. dollars in thousands

Nine months ended
September 30,
------------------------
2001 2002
---------- ----------
Unaudited
------------------------
Cash flows from operating activities:

Net income $ 691 $ 2,576
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 923 1,503
Loss on sale of property and equipment -- 40
Amortization of debenture premium (accretion of discount)
on available-for-sale marketable securities (37) 818
Amortization of deferred stock compensation 1,586 335
Amortization of intangible assets, goodwill and in-process research and
development 2,125 2,631
Increase in trade receivables, net (3,562) (2,444)
Decrease (increase) in other accounts receivable and prepaid expenses 701 (667)
Decrease (increase) in other assets (109) 429
Decrease in trade payables (235) (307)
Increase in deferred revenues 953 2,117
Increase (decrease) in employees and payroll accruals 1,462 (830)
Increase in other current liabilities and accrued expenses 186 121
Increase (decrease) in accrued severance pay, net 90 (18)
---------- ----------
Net cash provided by operating activities 4,774 6,304
---------- ----------

Cash flows from investing activities:

Purchase of property and equipment (2,170) (1,180)
Purchase of available-for-sale marketable securities (67,638) (45,716)
Purchase of other assets (1,315) (1,466)
Payment for acquisition of consolidated subsidiaries (1) (2) (20,120) (3,236)
Proceeds from redemption of available-for-sale marketable securities 41,210 26,900
Proceeds from sale of marketable securities 3,785 747
---------- ----------
Net cash used in investing activities $ (46,248) $ (23,951)
========== ==========

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

6


PRECISE SOFTWARE SOLUTIONS LTD. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
U.S. dollars in thousands

Nine months ended
September 30,
------------------------
2001 2002
---------- ----------
Unaudited
------------------------
Cash flows from financing activities:

Proceeds from exercise of options 1,962 4,920
Proceeds from issuance of shares under ESPP 323 725
Repayment of long-term debt (20) (53)
---------- ----------

Net cash provided by financing activities 2,265 5,592
---------- ----------

Effect of exchange rate change on cash and cash equivalents 62 135
---------- ----------

Decrease in cash and cash equivalents (39,147) (11,920)
Cash and cash equivalents at the beginning of the period 82,218 35,144
---------- ----------

Cash and cash equivalents at the end of the period $ 43,071 $ 23,224
========== ==========

(1) The net fair value of the assets acquired in September
2001 were as follows:

Working deficiency, except cash and cash equivalents $ (478)
Fixed assets 475
Long-term loans (93)
Other assets 481
Intangible assets 32,134
In-process research and development 86
----------
32,605
Issuance of shares, net (12,485)
----------
$ 20,120
==========

(2) The net fair value of the assets of the consolidated
subsidiary acquired in June 2002 were as follows:

Working deficiency, except cash and cash equivalents $ (383)
Property and equipment 35
Other assets 3,584
----------
$ 3,236
==========

Supplemental disclosure of cash flows activities:

Cash paid during the period for:
Interest $ 14 $ 18
========== ==========
Income taxes $ -- $ 9
========== ==========

Non cash transactions:
Purchased technology $ -- $ 297
========== ===========
Capital lease obligation $ -- $ 67
========== ==========
Adjustment to Savant Corporation acquisition, net $ 1,426 $ --
========== ==========

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

7


PRECISE SOFTWARE SOLUTIONS LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


NOTE 1: BASIS OF PRESENTATION

a. Company:

Precise Software Solutions Ltd. ("the Company") was established in
Israel on November 15, 1990. The Company is a provider of software
products that assist organizations in performance management,
monitoring and tuning of applications, and related consulting,
training and support services. The Company has operations in the form
of wholly-owned subsidiaries in the United States, the United
Kingdom, France, Germany, Holland, Japan, Malaysia and Australia.

b. Accounting:

The accompanying condensed interim consolidated financial statements
have been prepared by Precise Software Solutions Ltd. in accordance
with generally accepted accounting principles in the United States,
pursuant to the rules and regulations of the Securities and Exchange
Commission and include the accounts of Precise Software Solutions
Ltd. and its wholly-owned subsidiaries collectively. Certain
information and footnote disclosures, normally included in financial
statements prepared in accordance with generally accepted accounting
principles in the United States, have been condensed or omitted
pursuant to such rules and regulations. In the opinion of the
Company, the unaudited financial statements reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a
fair presentation of the financial position at September 30, 2002 and
the operating results for the three and nine months ended September
30, 2002 and 2001 and cash flows for the nine months ended September
30, 2002 and 2001. These financial statements and notes should be
read in conjunction with the Company's audited consolidated financial
statements and notes thereto, included in the Company's annual report
on Form 10-K filed with the Securities and Exchange Commission.

The results of operations for the three and nine month periods ended
September 30, 2002 are not necessarily indicative of results that may
be expected for any other interim period or for the full fiscal year
ending December 31, 2002.


NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Cash and cash equivalents:

Cash equivalents are short-term highly liquid investments that are
readily convertible to cash with original maturities of three months
or less.

b. Marketable securities:

The Company accounts for investments in debt and equity securities in
accordance with SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." Management determines the proper
classification of investments with fixed maturities and marketable
equity securities at the time of purchase and reevaluates such
designations as of each balance sheet date. At September 30, 2002,
all securities covered by SFAS No. 115 were designated as
available-for-sale. Accordingly, these securities are stated at fair
value, with unrealized gains and losses reported in a separate
component of shareholders' equity, accumulated other comprehensive
income. Amortization of premium and accretion of discounts are
included in financial income and other, net. Realized gains and
losses on all sales of investments, as determined on a specific
identification basis, are included in the consolidated statement of
operations, financial income and other, net.

8


c. Other assets:

Acquired technology, acquired trademark and customer relationships,
acquired patents, acquired website, acquired courses and book
royalties, internet site capitalization costs and goodwill are stated
at amortized cost. Amortization is calculated using the straight-line
method over the estimated useful lives, which are three to ten years.

d. Revenue recognition:

The Company and its subsidiaries generate revenues mainly from
licensing the rights to use their software products and services. The
Company and its subsidiaries sell products primarily through a direct
sales force, resellers and Original Equipment Manufacturers ("OEMs").

The Company has implemented Statement of Position (SOP) 97-2,
"Software Revenue Recognition," as amended. Revenues from software
arrangements are recognized upon delivery of the product when no
future obligation exists, when collection is probable, the product
fee is either fixed or determinable and persuasive evidence of an
arrangement exists. SOP 97-2 requires revenue earned on software
arrangements involving multiple elements to be allocated to each
element based on the relative fair value of the elements. The Company
has also adopted SOP 98-9, "Modification of SOP 97-2, Software
Revenue Recognition with Respect to Certain Transactions," for all
transactions entered into after January 1, 2000. The Company's Vendor
Specific Objective Evidence ("VSOE") used to allocate the sales price
to maintenance and support and professional services are based on
renewal ratio or the price charged when these elements will be sold
separately. SOP 98-9 requires that revenue be recognized under the
"residual method" when (1) VSOE of fair value exists for all
undelivered elements, and (2) all revenue recognition criteria of SOP
97-2, as amended, are satisfied. Under the residual method any
discount in the arrangement is allocated to the delivered elements.

The Company is entitled to fees from its OEMs upon the sublicensing
of the Company's products to end-users. Generally, the fees due from
the OEMs are recognized when such fees are reported to the Company
upon the sublicensing of the products by the OEMs.

The Company and its subsidiaries generally do not grant a right of
return to their customers, except for time-limited warranty
provisions. Historically, the Company has seen negligible returns.

Service revenues are comprised of revenues from maintenance and
support arrangements, consulting fees, and training, none of which
are considered essential to the functionality of the software
license. Revenues from maintenance and support arrangements are
deferred and recognized on a straight-line basis as service revenues
over the life of the related agreement. Consulting fees and training
revenues are recognized after the services are rendered.

Deferred revenue includes unearned amounts received under maintenance
and support contracts and professional services engagements, and
amounts received from customers, but not yet recognized as revenues.

9


e. Impact of recently issued accounting standards:

In July 2001, the Financial Accounting Standards Board ("FASB"),
issued Statement of Financial Accounting Standard No. 142 "Goodwill
and Other Intangible Assets" ("SFAS No. 142"). SFAS No. 142 prohibits
the amortization of goodwill and intangible assets with indefinite
useful lives and instead requires that these assets be reviewed for
impairment on a periodic basis. Intangible assets with finite lives
will continue to be amortized over their estimated useful lives.
Additionally, SFAS No. 142 requires that goodwill included in the
carrying value of equity method investments no longer be amortized.
In addition, an impairment test must be completed and any impairments
identified must be treated as a cumulative effect of a change in
accounting policies.

The Company adopted SFAS No. 142, and in accordance with its
guidelines the Company is currently in the process of performing the
goodwill impairment test. The Company has completed the transitional
impairment test, which did not result in an impairment charge. The
Company completed its reassessment of previously recognized
intangible assets and ceased amortization of identified intangible
assets with indefinite lives.

In accordance with SFAS No. 142, prior period amounts were not
restated. The unaudited pro forma reconciliation of previously
reported net income and earnings per share for the three and nine
month periods ended September 30, 2002 and 2001, to the amounts
adjusted for the elimination of goodwill amortization, are as
follows:


Three months ended Nine months ended
September 30, September 30,
------------------------ ------------------------
2001 2002 2001 2002
---------- ---------- ---------- ----------
Unaudited
----------------------------------------------------

Reported net income $ 452 $ 1,096 $ 691 $ 2,576
Add: Goodwill amortization 297 -- 937 --
------------------------ ------------------------
Adjusted net income $ 749 $ 1,096 $ 1,628 $ 2,576

Reported basic earnings per share $ 0.02 $ 0.04 $ 0.03 $ 0.09
Add: Goodwill amortization 0.01 -- 0.03 --
------------------------ ------------------------
Adjusted basic earnings per share $ 0.03 $ 0.04 $ 0.06 $ 0.09
======================== ========================
Reported diluted earnings per share $ 0.02 $ 0.04 $ 0.02 $ 0.08
Add: Goodwill amortization 0.01 -- 0.03 --
------------------------ ------------------------
Adjusted diluted earnings per share $ 0.03 $ 0.04 $ 0.05 $ 0.08
======================== ========================


In October 2001, the FASB recently issued SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets," that is
applicable to financial statements issued for fiscal years beginning
after December 15, 2001. FASB's new rules on the asset impairment
supersede SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," and portions of
APB Opinion No. 30, "Reporting the Results of Operations." SFAS No.
144 provides a single accounting model for long-lived assets to be
disposed of and significantly changes the criteria that must be met
to classify an asset as "held-for-sale." Classification as
"held-for-sale" is an important distinction since such assets are not
depreciated and are stated at the lower of fair value and carrying
amount. SFAS No. 144 also requires expected future operating losses
from discontinued operations to be displayed in the period(s) in
which the losses are incurred, rather than as of the measurement date
as presently required. This pronouncement is not expected to have a
material effect on the Company's financial position or operating
results.

10


f. Reclassification:

Certain prior period amounts have been reclassified to conform to
current period presentation.

NOTE 3: ACQUISITIONS

a. Acquisition of the Middleware Company ("Middleware")

In June 2002, the Company acquired all the outstanding shares of
Middleware , a United States based services company, for
consideration of approximately $6.0 million. Middleware provides
consulting, training courses and other related services. The purchase
price consisted of approximately $4.0 million paid in cash. In
addition, the stockholders are entitled to up to an additional $2.0
million of the Company's ordinary shares to be issued in the fourth
quarter of 2002. The consideration includes $150,000 in estimated
transaction costs. The stockholders also have the right to receive
additional contingent consideration including consideration of 20% of
revenue for achieving a set revenue minimum and consideration equal
to the amount by which revenues exceed another set minimum revenue
target up to a set maximum relating to the one year period subsequent
to the closing.

The acquisition was accounted for under the purchase method, and
accordingly the purchase price has been allocated to the assets
acquired and liabilities assumed based on their estimated fair value
at the date of acquisition. The excess of the purchase price over the
estimated fair value of the net assets acquired has been recorded as
goodwill.

According to SFAS No. 142, "Goodwill and Other Intangible Assets",
this goodwill will not be amortized, but will be subject to annual
impairment tests in accordance with the statement. The allocation of
the purchase price for this acquisition is preliminary and the
information was arranged before the allocation was finalized.

The Company acquired tangible assets of approximately $500,000. Other
intangible assets acquired had an estimated fair value of $3.6
million. Based upon the preliminary valuation of tangible and
intangible assets acquired, the Company has allocated the total cost
of the acquisition assets as follows:

September 30,
2002
------------
Unaudited
------------
Intangible assets $ 1,964
Goodwill 1,620
------------
$ 3,584
============

The operations are included in the Company's consolidated statements
of operations from June 18, 2002.

11


b. Acquisition of the W.Quinn Associates, Inc ("W. Quinn").

In September 2001, the Company acquired all the outstanding ordinary
shares of W. Quinn, a United States based company, for consideration
of approximately $34.1 million. W. Quinn develops and markets storage
resource and performance management solutions. The total purchase
price consisted of $21.6 million paid in cash and $12.5 million paid
by the issuance of 774,413 ordinary shares. The consideration
included $1.5 million of transaction costs.

The W. Quinn acquisition provided the W. Quinn shareholders with a
right to receive additional ordinary shares based on achievement of
certain post-acquisition revenue and performance targets during a
twelve month period spanning five quarters, beginning the third
quarter of 2001 and ending in the third quarter of 2002. The
consideration was paid in the form of 675,509 ordinary shares issued
in the fourth quarter of 2002. The associated goodwill and share
issuance will be reflected in the Company's year end financial
statements.


NOTE 4: SHAREHOLDERS' EQUITY

Stock options plans:

The following table summarizes information about stock options
outstanding as of September 30, 2002:

Weighted
Number of average
options exercise price
------------ ------------

Outstanding at December 31, 2001 7,038,372 $ 11.18
Granted 604,100 11.26
Exercised (918,154) 4.65
Forfeited (379,679) 14.32
------------ ------------

Outstanding at September 30, 2002 (unaudited) 6,344,639 $ 11.96
============ ============







12


NOTE 5: EARNINGS PER SHARE

Basic earnings per share is computed based on the weighted average
number of ordinary shares outstanding during each period. Diluted
earnings per share is computed based on the weighted average number
of ordinary shares outstanding during each period, plus dilutive
potential ordinary shares considered outstanding during the period,
in accordance with SFAS No. 128, "Earnings per Share".

The following table presents the calculation of unaudited basic and
diluted earnings per share (in thousands, except per share amounts):


Three months ended Nine months ended
September 30, September 30,
------------------------ ------------------------
2001 2002 2001 2002
---------- ---------- ---------- ----------
Unaudited
----------------------------------------------------

Net Income $ 452 $ 1,096 $ 691 $ 2,576
------------------------ ------------------------

Shares used in computing basic
earnings per share 26,942 28,866 26,390 28,590
Effect of dilutive stock options 2,815 1,512 3,320 2,117
------------------------ ------------------------
Shares used in computing diluted
earnings per share 29,757 30,378 29,710 30,707

Basic earnings per share $ 0.02 $ 0.04 $ 0.03 $ 0.09
======================== ========================
Diluted earnings per share $ 0.02 $ 0.04 $ 0.02 $ 0.08
======================== ========================


NOTE 6: COMPREHENSIVE INCOME

The components of comprehensive income are as follows (in thousands):

Three months ended Nine months ended
September 30, September 30,
------------------------ ------------------------
2001 2002 2001 2002
---------- ---------- ---------- ----------
Unaudited
----------------------------------------------------
Net income $ 452 $ 1,096 $ 691 $ 2,576
------------------------ ------------------------
Other comprehensive income:
Change in net unrealized gains
on investments 808 98 1,115 (170)
Change in exchange rate differences 104 (35) 62 194
------------------------ ------------------------
$ 1,364 $ 1,159 $ 1,868 $ 2,600
======================== ========================


13


NOTE 7: GEOGRAPHIC INFORMATION

a. Summary information about geographical areas (in thousands):

The Company and its subsidiaries operate in one industry segment, the
development and marketing of performance management software
products. See Note 1 for a brief description of the Company's
business. The following data is presented in accordance with SFAS No.
131, "Disclosure About Segments of an Enterprise and Related
Information." The following is a summary of operations within
geographic areas based on customer's location.

Three months ended Nine months ended
September 30, September 30,
------------------------ ------------------------
2001 2002 2001 2002
---------- ---------- ---------- ---------- ----
Unaudited
----------------------------------------------------
Revenues from sales to unaffiliated customers:

United States $ 7,795 $ 13,238 $ 22,417 $ 35,229
North and South America (except the United
States) 876 697 2,290 2,345
Asia 748 1,231 3,259 4,155
United Kingdom 659 493 4,132 3,682
Europe and others 4,250 3,691 6,447 9,253
---------- ---------- ---------- ----------
$ 14,328 $ 19,350 $ 38,545 $ 54,664
========== ========== ========== ==========

b. Summary information about geographical areas (in thousands):

December 31, September 30,
2001 2002
---------- ----------
Unaudited
------------------------
Long-lived assets, by geographic region:
Israel $ 3,956 $ 3,384
United States 45,635 48,014
Europe and others 1,687 1,941
---------- ----------
$ 51,278 $ 53,339
========== ==========


14


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

This Form 10-Q contains certain statements of a forward-looking nature
relating to future events or the future financial performance of Precise
Software Solutions Ltd. ("Precise"). Precise's actual future results may differ
significantly from these statements. In evaluating these statements, the various
factors identified in the caption "Factors Affecting Future Operating Results"
should be considered.

OVERVIEW

Precise is a provider of software that assists organizations in monitoring
and optimizing the performance of their complex Information Technology
infrastructure. We were incorporated in November 1990. Initially, we focused on
developing and marketing performance management software for mainframe computer
systems. In 1995, we shifted our focus to Application Performance Management
software for Oracle database environments. In 1996, we released the initial
version of our Precise/SQL software, now called Precise/Indepth for Oracle, for
database monitoring. Since 1998, we have released or acquired new products and
continually updated our product suite making the following products generally
available:

RELEASE PRODUCT
------- -------
1998 Precise/Pulse!, Precise/Presto for EMC, Precise/Interpoint

2000 Precise/Insight, Precise/Savant

2001 Precise/Foresight, Precise/Indepth for J2EE, Precise/Savvy
for Oracle, Web, J2EE, SAP R/3, BEA Tuxedo, and Siebel,
Precise/Indepth for DB2 UDB, Precise/Crosspoint,
Precise/Storage Central SRM, Precise i3 Suite

2002 Precise/SiteStor SRM, Precise/Luminate, Precise/Indepth for
Transactions, Precise/Lightpoint, Precise/Indepth for SQL
Server, Precise/Sharkpoint

We derive our revenues from the sale of software licenses and from
services. Our products are sold worldwide through a combination of our direct
sales force and indirect sales channels, including Original Equipment
Manufacturers, or OEMs, and resellers. Our services revenues consist primarily
of fees derived from annual maintenance and support agreements and consulting
and training, none of which are considered essential to the functionality of the
software license.

Precise recognizes revenue in accordance with Staff Accounting Bulletin No.
101 (SAB 101), which summarizes the views of the staff of the U.S. Securities
and Exchange Commission in applying generally accepted accounting principles to
revenue recognition. Generally revenues from our OEMs are recognized when we
receive reports of fees due upon the sublicensing of our products by the OEMs.
Software license revenues on sales to resellers and end users are recognized
when:

persuasive evidence of an agreement exists;

the product has been delivered;

all license payments are due within one year;

vendor-specific objective evidence exists;

the license fee is fixed or determinable; and

collection of the fee is probable.

15


Maintenance-related service revenues are recognized ratably over the term
of the maintenance agreement, which is typically one year. Consulting and
training revenues are recognized after the services are rendered.

RESULTS OF OPERATIONS

The following table presents certain condensed consolidated statement of
operations data as a percentage of total revenues for the periods indicated:

Three months ended Nine months ended
September 30, September 30,

Percent of Total Revenues: 2001 2002 2001 2002
---- ---- ---- ----
Revenues:
Software licenses 79% 65% 80% 70%
Services 21 35 20 30
---- ---- ---- ----
Total revenues 100 100 100 100
Cost of revenues:
Software licenses 1 1 1 1
Services 5 10 5 8
---- ---- ---- ----
Total cost of revenues 6 11 6 9
---- ---- ---- ----
Gross profit 94 89 94 91
Operating expenses:
Research and development 20 17 20 17
Sales and marketing 60 55 63 57
General and administrative 13 11 13 12
Amortization of deferred stock
compensation 3 1 4 1
Amortization of goodwill and
intangible assets 6 5 6 5
---- ---- ---- ----
Total operating expenses 102 89 106 92
---- ---- ---- ----
Operating income (loss) (8) 0 (12) (1)
Financial income and other, net 11 6 14 6
---- ---- ---- ----
Income before income taxes 3 6 2 5
Income taxes -- -- -- --
---- ---- ---- ----
Net income 3% 6% 2% 5%
---- ---- ---- ----


REVENUES

We derive our revenues from the sale of software licenses and from services
consisting primarily of maintenance fees, and, to a lesser extent, professional
services. Total revenues were $19.3 million for the three months ended September
30, 2002 and $14.3 million for the comparable quarter of 2001, representing an
increase of $5.0 million, or 35%, and were $54.7 million for the nine months
ended September 30, 2002 and $38.5 million for the comparable period of 2001,
representing an increase of $16.2 million, or 42%.

Revenues from sales of software licenses were $12.6 million for the three
months ended September 30, 2002 and $11.3 million for the comparable quarter of
2001, representing an increase of $1.3 million, or 11%, and were $38.2 million
for the nine months ended September 30, 2002 and $30.7 million for the
comparable period in 2001, representing an increase of $7.5 million, or 24%. The
increase in software license revenues during the three and nine month periods is
attributable to the expansion of our direct sales force, increased recurring
sales to our installed customer base, the addition and acquisition of new
products, and an increased average deal size, partially offset by a decrease in
revenues from our strategic partner channel.

Revenues from services were $6.8 million for the three months ended
September 30, 2002 and $3.0 million for the comparable quarter of 2001,
representing an increase of $3.8 million, or 124%, and were $16.5 million for
the nine months ended September 30, 2002 and $7.8 million for the comparable
period of 2001, representing an increase of $8.7 million, or 111%. The increase
in services revenue during the three and nine month periods ended September 30,
2002 over the comparable periods in 2001 is attributable to additional
maintenance agreements resulting from new sales of software licenses, renewals
of annual maintenance agreements with existing customers, and additional
professional services revenue, in part due to the acquisition of the Middleware
Company in June 2002.

16


COST OF REVENUES

Cost of revenues consists of costs associated with generating software
license and service revenues. Cost of revenues was $2.2 million for the three
months ended September 30, 2002 and $835,000 for the comparable quarter of 2001,
representing an increase of $1.4 million, or 163%, and were $4.9 million for the
nine months ended September 30, 2002 and $2.4 million for the comparable period
of 2001, representing an increase of $2.5 million, or 103%.

Cost of software license revenues in 2002 consists primarily of production
costs and third party software royalties and in the comparable periods of 2001,
cost of software license revenues consists primarily of royalties to the
government of Israel as consideration for research and development grants
received in previous years, production costs and third party software royalties.
Cost of software license revenues was $237,000 for the three months ended
September 30, 2002 and $69,000 for the comparable quarter of 2001, representing
an increase of $168,000, and were $490,000 for the nine months ended September
30, 2002 and $181,000 for the comparable period in 2001, representing an
increase of $309,000.

Cost of service revenues consists primarily of costs related to personnel
providing customer support and professional services. Cost of service revenues
was $2.0 million for the three months ended September 30, 2002 and $766,000 for
the comparable quarter of 2001, representing an increase of $1.2 million, or
156%, and were $4.4 million for the nine months ended September 30, 2002 and
$2.2 million for the comparable period of 2001, representing an increase of $2.2
million, or 97%. The increase is due to an increase in the number of customer
support and professional services personnel.

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 $3.2 million for the three months ended September 30,
2002 and $2.9 million for the comparable period of 2001, representing an
increase of $0.3 million, or 12%, and were $9.6 million for the nine months
ended September 30, 2002 and $7.8 million for the comparable period of 2001,
representing an increase of $1.8 million, or 24%. The increases for these
periods were primarily related to the increase in the number of software
developers and quality assurance personnel engaged in the continuing enhancement
of our software suite, which included the release of six new products in the
nine month period ended September 30, 2002.

SALES AND MARKETING

Sales and marketing expenses consist primarily of salaries and other
personnel-related expenses, commissions and other costs associated with our
sales and marketing efforts. Sales and marketing expenses were $10.7 million for
the three months ended September 30, 2002 and $8.7 million for the comparable
quarter of 2001, representing an increase of $2.0 million, or 24%, and were
$31.1 million for the nine months ended September 30, 2002 and $24.4 million for
the comparable period in 2001, representing an increase of $6.7 million, or 27%.
The increase is due primarily to an increase in payroll and related expenses
attributable to the increase in the number of people comprising our direct sales
force and increased commission expenses associated with the increase in revenue.

GENERAL AND ADMINISTRATIVE

General and administrative expenses consist primarily of salaries and other
personnel-related expenses from our administrative and finance personnel,
facilities, computer equipment and professional services fees. General and
administrative expenses were $2.2 million for the three months ended September
30, 2002 and $1.9 million for the comparable quarter of 2001, representing an
increase of $0.3 million, or 14%, and were $6.5 million for the nine months
ended September 30, 2002 and $5.0 million for the comparable period in 2001,
representing an increase of $1.5 million, or 29%. The increase is attributable
to an increased number of employees in our administrative and finance
departments to support our growing organization.

17


AMORTIZATION OF STOCK-BASED COMPENSATION

Deferred stock-based compensation represents compensation costs related to
the grant of options to purchase ordinary shares at less than fair market value.
Our stock-based compensation expenses decreased to $72,000 for the three months
ended September 30, 2002 from $404,000 for the comparable period in 2001,
representing a decrease of $332,000, or 82%, and decreased to $335,000 for the
nine months ended September 30, 2002 from $1.6 million for the comparable period
of 2001, representing a decrease of $1.3 million, or 79%. The deferred
compensation is amortized over the vesting period of the underlying options,
generally three to four years. The decrease for these periods is due to a
portion of the deferred compensation balance being fully amortized at September
30, 2002. We had a $144,000 deferred compensation balance at September 30, 2002.

AMORTIZATION OF GOODWILL AND INTANGIBLE ASSETS

The goodwill and intangible asset amortization consists primarily of
charges to expense reducing the goodwill and intangible assets associated with
acquisitions and purchased technology. Amortization expense was $1.0 million for
the three months ended September 30, 2002 and $800,000 for the comparable
quarter of 2001, representing an increase of $200,000, or 18%, and were $2.6
million for the nine months ended September 30, 2002 and $2.1 million for the
comparable period in 2001, representing an increase of $500,000, or 24%. The
increase is primarily related to acquisitions and purchased technology,
partially offset by the elimination of goodwill amortization as a result of our
adoption of SFAS No. 142.

FINANCIAL INCOME AND OTHER, NET

Financial income and other, net was $1.1 million for the three months ended
September 30, 2002 and $1.6 million for the comparable quarter of 2001,
representing a decrease of $0.5 million, or 33%, and was $3.1 million for the
nine months ended September 30, 2002 and $5.5 million for the comparable period
in 2001, representing a decrease of $2.4 million, or 43%. The decrease is
attributable to less interest earned on our investments due to a general decline
in interest rates.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2002, our principal source of liquidity was $141 million
of cash and cash equivalents and marketable securities compared to $136 million
at December 31, 2001. As of September 30, 2002, we had $96,000 of long-term debt
outstanding relating to obligations under capital leases and an obligation for
severance pay to Israeli employees of $1.3 million that is fully provided for by
monthly deposits with severance pay funds, insurance policies and by an accrual.
As of September 30, 2002, our accumulated deficit was $22.8 million.

Net cash provided by operating activities was $6.3 million and $4.8 million
for the nine month periods ended September 30, 2002 and 2001, respectively. Net
cash provided by operating activities for the nine months ended September 30,
2002 was primarily the result of net income for the period, the amortization of
deferred stock compensation, amortization of intangible assets, depreciation and
an increase in deferred revenue for the period. These additive cash items were
offset primarily by increases in other accounts receivable and prepaid expenses
and trade receivables, as well as a decrease in trade payables and employees and
payroll accruals, which reduced the cash provided by operations for the period.
Net cash provided by operating activities for the nine months ended September
30, 2001 was primarily the result of decreases in other accounts receivable and
prepaid expenses, an increase in deferred revenues, an increase in employees and
payroll accrual, an increase in accrued expenses, amortization of deferred
stock-based compensation, amortization of goodwill and intangible assets, and
depreciation, offset by an increase in trade receivables and a decrease in other
accounts payable for the period.

Net cash used in investing activities was $24.0 million and $46.2 million
for the nine-month periods ended September 30, 2002 and 2001, respectively.
Investing activities for both the nine months ended September 30, 2002 and 2001
consisted of purchases of available-for-sale marketable securities, purchases of
other assets, acquisitions and capital expenditures, offset by proceeds from the
sale and redemption of marketable securities. The majority of our capital
investments were for computers, peripheral equipment and software.

18


Net cash provided by financing activities was $5.6 million and $2.3 million
for the nine-month periods ended September 30, 2002 and 2001, respectively. Net
cash provided by financing activities for both the nine-months ended September
30, 2002 and 2001 were primarily from the proceeds from the exercise of options
and issuance of shares.

We believe that our existing cash equivalents and marketable securities
will be sufficient to meet our anticipated cash needs for working capital and
capital expenditures for at least the next 12 months. Thereafter, if we do not
have available sufficient cash to finance our operations, we may be required to
obtain additional debt or equity financing. We cannot be certain that we will be
able to obtain, if required, additional financing on acceptable terms, or at
all.

FACTORS AFFECTING FUTURE OPERATING RESULTS

This Form 10-Q contains forward-looking statements that involve risks and
uncertainties. These forward-looking statements include the ability to attract
customers for Precise's products, ability to execute as designed, acceptance of
Precise's products in the market place, ability to manage existing and future
strategic relationships, ability to successfully integrate the operations of
acquired companies, as well as statements regarding the financial performance,
strategy and plans of Precise. Precise's actual experience may differ materially
from those discussed in the forward-looking statements. Factors that might cause
such a difference include the size of the market; timing and acceptance of
Precise's products in the market place; the future growth and acceptance of
Precise's products in the market place; Precise's ability to predict and respond
to market developments; the development, expansion and training of Precise's
sales force; risks associated with management of growth; risks associated with
existing and future strategic relationships and acquisitions; Precise being held
liable for defects or errors in its products; political, economic and business
fluctuations in the United States, Israel and Precise's international markets;
as well as risks of downturns in economic conditions generally or as a result of
recent events, and in the information technology and software industries
specifically; and risks associated with competition, and competitive pricing
pressures. For a more detailed description of the risk factors associated with
Precise, please refer to Precise's Annual Report on Form 10-K filed with the
Securities and Exchange Commission.

ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK

We own financial instruments as part of our investment portfolio that are
sensitive to market risks. The investment portfolio is used to preserve our
capital until it is required to fund operations, including research and
development activities. None of these market-risk sensitive instruments are held
for trading purposes. We do not own derivative financial instruments in our
investment portfolio. The investment portfolio contains instruments that are
subject to the risk of a decline in interest rates. Our investment portfolio
includes debt instruments that are United States government obligations. These
investments are subject to interest rate risk, and could decline in value if
interest rates fluctuate.

We do not engage in currency hedging activities and hold no foreign
currency related derivative instruments that would subject our financial
condition or results of operations to risks associated with foreign currency
exchange rate fluctuations. We do, however, incur a portion of our expenditures
in foreign currencies, such as NIS, Euro and British pound sterling, that could
cause our results of operations to fluctuate.

ITEM 4. CONTROLS AND PROCEDURES

Within the 90 days prior to the date of this report, the Company carried out
an evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Rule 13a-14 under the Securities
Exchange Act of 1934, as amended. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company required to be included in the
Company's periodic SEC filings. There have been no significant changes in the
Company's internal controls or in other factors that could significantly affect
these controls subsequent to the date of that evaluation and no corrective
actions with regard to the significant deficiencies and material weaknesses.

19


PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Precise is not a party to any material pending legal proceedings, other
than ordinary routine litigation incidental to its business.


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

a) Exhibits:

10.1 Employment Agreement between Precise Software Solutions, Inc.
and Aki Ratner dated August 1, 2002
10.2 Employment Agreement between Precise Software Solutions LTD
and Aki Ratner dated August 1, 2002
10.3 Employment Agreement between Precise Software Solutions, Inc.
and Marc J. Venator dated September 3, 2002
99.1 Certification of Principal Executive Officer
99.2 Certification of Principal Financial Officer

b) Precise did not file any current reports on Form 8-K during the three
month period ended September 30, 2002.






20


SIGNATURES

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


PRECISE SOFTWARE SOLUTIONS LTD.


Date 11/14/02 By /S/ Shimon Alon
--------------------------------------------
Shimon Alon, Chief Executive Officer

Date 11/14/02 By /S/ Marc J. Venator
--------------------------------------------
Marc J. Venator, Chief Financial Officer

Date 11/14/02 By /S/ Richard L. Forcier
--------------------------------------------
Richard L. Forcier, Chief Accounting Officer

















21


CERTIFICATIONS

I, Shimon Alon, certify that:

1. I have reviewed this quarterly report on Form 10-Q of September 30, 2002;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;

(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and

(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.


/S/ Shimon Alon Date: November 14, 2002
- -----------------------------
Shimon Alon,
Chief Executive Officer

22


CERTIFICATIONS

I, Marc Venator, certify that:

1. I have reviewed this quarterly report on Form 10-Q of September 30, 2002;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;

(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and

(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.


/S/ Marc J. Venator Date: November 14, 2002
- ---------------------------
Marc J. Venator,
Chief Financial Officer

23