--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
F O R M 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR
15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of March 2004
ATTUNITY LTD
(Name of Registrant)
Einstein Building, Tirat Carmel, Haifa, Israel 39101
(Address of Principal Executive Office)
Indicate by check mark whether the registrant files or will file
annual reports under cover of Form 20-F or Form 40-F.
Form 20-F X Form 40-F__
Indicate by check mark if the registrant is submitting the Form
6-K in paper as permitted by Regulation S-T Rule 101(b)(1):__
Indicate by check mark if the registrant is submitting the Form
6-K in paper as permitted by Regulation S-T Rule 101(b)(7):__
Indicate by check mark whether by furnishing the information
contained in this Form, the registrant is also thereby furnishing the
information to the Commission pursuant to Rule 12g3-2(b) under the Securities
Exchange Act of 1934.
Yes__ No X
If "Yes" is marked, indicate below the file number assigned to
the registrant in connection with Rule 12g3-2(b): 82-_______________
This Form 6-K is being incorporated by reference into the Company's Form
F-3 Registration Statements File Nos. 333-11972, 333-12450 and 333-14140.
--------------------------------------------------------------------------------
ATTUNITY LTD
6-K Items
---------
1. Consolidated Financial Statements of Attunity Ltd and Its
Subsidiaries as of December 31, 2003
2. Management's Discussion And Analysis of Operating Results And
Financial Review and Prospects for the year ended December 31.
2003
3. Exhibit 23.1-Consent of Kost Forer Gabbay & Kasierer
4. Exhibit 31.1-Certification of Chief Executive Officer pursuant to
Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act,
as amended
5. Exhibit 31.2-Certification of Chief Financial Officer pursuant to
Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act,
as amended
6. Exhibit 32.1-Certification of Chief Executive Officer pursuant to
18 U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
7. Exhibit 32.2-Certification of Chief Financial Officer pursuant to
18 U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
Item 1
ATTUNITY LTD. AND ITS SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2003
IN U.S. DOLLARS
INDEX
Page
----
Report of Independent Auditors F-2
Consolidated Balance Sheets F-3 - F-4
Consolidated Statements of Operations F-5
Statements of Changes in Shareholders' Equity F-6
Consolidated Statements of Cash Flows F-7 - F-8
Notes to Consolidated Financial Statements F-9 - F-34
- - - - - - - -
F-1
ERNST & YOUNG
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of
ATTUNITY LTD.
We have audited the accompanying consolidated balance sheets of Attunity
Ltd. ("the Company") and its subsidiaries as of December 31, 2003 and 2002, and
the related consolidated statements of operations, changes in shareholders'
equity and cash flows for each of the three years in the period ended December
31, 2003. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
the Company and its subsidiaries as of December 31, 2003 and 2002, and the
consolidated results of their operations and cash flows for each of the three
years in the period ended December 31, 2003, in conformity with accounting
principles generally accepted in United States.
As discussed in Note 2j to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standard No. 142 in 2003.
/s/Kost Forer Gabbay and Kasierer
Tel-Aviv, Israel KOST FORER GABBAY & KASIERER
March 11, 2004 A Member of Ernst & Young Global
F-2
ATTUNITY LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. dollars in thousands
December 31,
-----------------------------
2003 2002
------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,073 $ 2,693
Restricted cash 902 -
Short-term bank deposits 120 88
Marketable securities 200 -
Trade receivables (net of allowance for doubtful
accounts of $ 312 and
$ 33 at December 31, 2003 and 2002, respectively) 2,845 3,377
Other accounts receivable and prepaid expenses (Note 3) 1,006 1,233
------------- -------------
Total current assets 7,146 7,391
----- ------------- -------------
SEVERANCE PAY FUND 1,592 1,189
------------- -------------
PROPERTY AND EQUIPMENT, NET (Note 4) 926 1,145
------------- -------------
SOFTWARE DEVELOPMENT COSTS, NET (Note 5) 4,512 6,075
------------- -------------
GOODWILL (Note 6) 6,036 5,684
------------- -------------
Total assets $ 20,212 $ 21,484
----- ============= =============
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
ATTUNITY LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
U.S. dollars in thousands, except for share data
December 31,
-----------------------------
2003 2002
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term bank credit (Note 7) $ 206 $ 175
Current maturities of long-term debt (Note 9) 102 205
Trade payables 583 645
Deferred revenues 2,090 1,986
Employees and payroll accruals 1,239 1,055
Accrued expenses and other liabilities (Note 8) 3,479 2,658
------------- -------------
Total current liabilities 7,699 6,724
----- ------------- -------------
LONG-TERM LIABILITIES:
Long-term debts (Note 9) 99 55
Accrued severance pay 1,941 1,625
------------- -------------
Total long-term liabilities 2,040 1,680
----- ------------- -------------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 11)
SHAREHOLDERS' EQUITY (Note 12):
Share capital - Authorized: 30,000,000
Ordinary shares of NIS 0.1 par value
at December 31, 2003 and 2002; Issued and outstanding:
14,767,432 shares at December 31, 2003 and 2002 525 525
Additional paid-in capital 86,504 86,504
Accumulated other comprehensive loss (259) (608)
Accumulated deficit (76,297) (73,341)
------------- -------------
Total shareholders' equity 10,473 13,080
----- ------------- -------------
Total liabilities and shareholders' equity $ 20,212 $ 21,484
----- ============= =============
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
ATTUNITY LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
U.S. dollars in thousands, except per share data
Year ended December 31,
-----------------------------------------
2003 2002*) 2001 *)
------------ ------------ -----------
Revenues (Note 15):
Software licenses $ 6,045 $ 6,931 $ 6,355
Maintenance and support 5,832 6,057 4,978
Services 4,740 4,467 5,536
------------ ------------ -----------
16,617 17,455 16,869
------------ ------------ -----------
Cost of revenues:
Software licenses 2,094 1,878 2,547
Maintenance and support 801 715 1,042
Services 4,184 3,782 4,862
------------ ------------ -----------
7,079 6,375 8,451
------------ ------------ -----------
Gross profit 9,538 11,080 8,418
------------ ------------ -----------
Operating expenses:
Research and development, net (Note 16a) 1,491 1,438 3,593
Selling and marketing 5,938 5,369 12,120
General and administrative 2,749 1,938 4,218
Restructuring and other non-recurring charges
(Note 16b) 925 1,708 1,326
Impairment of investment and other assets (Note 16c) 1,543 - 2,658
------------ ------------ -----------
Total operating expenses 12,646 10,453 23,915
----- ------------ ------------ -----------
Operating income (loss) (3,108) 627 (15,497)
Financial income, net (Note 16d) 236 141 48
Income taxes (Note 13) 84 264 402
------------ ------------ -----------
Gain (loss) from continued operations (2,956) 504 (15,851)
------------ ------------ -----------
Discontinued operations:
Gain on disposal of segment, net of income taxes - - 220
------------ ------------ -----------
Net income (loss) $ (2,956) $ 504 $ (15,631)
============ ============ ===========
Basic and diluted net earnings (loss) per share from
continued operations $ (0.20) $ 0.03 $ (1.36)
============ ============ ===========
Basic and diluted net earnings (loss) per share from
discontinued operations, net of income taxes $ - $ - $ 0.02
============ ============ ===========
Basic and diluted net earnings (loss) per share $ (0.20) $ 0.03 $ (1.34)
============ ============ ===========
*) Reclassified.
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
ATTUNITY LTD. AND ITS SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------
U.S. dollars in thousands, except share data
Accumulated
Additional Treasury other Total Total
Share paid-in shares at comprehensive Accumulated comprehensive shareholders'
capital capital cost loss deficit income(loss) equity
------- ---------- --------- ------------- ----------- ------------- -------------
Balance as of January 1, 2001 $ 431 $ 82,472 $ - $ (712) $(58,214) $ 23,977
Issuance of shares and options, net 89 4,577 - - - 4,666
Purchase of treasury shares as result of
Medatech and VisOpt annulment agreement (7) - (485) - - (492)
Issuance of shares and options related
to the acquisition of BFI 7 (492) 485 - - -
Treasury shares - (31) - - (31)
Other comprehensive loss:
Foreign currency translation adjustment - - - (164) - $ (164) (164)
Net loss - - - - (15,631) (15,631) (15,631)
------- ---------- --------- ------------- ----------- ------------- -------------
Total comprehensive loss $ (15,795)
===========
Balance as of December 31, 2001 520 86,557 (31) (876) (73,845) 12,325
Exercise of employees stock options 5 - - - - 5
Issuance expenses related to issuance
of shares in 2001 - (103) - - - (103)
Compensation in respect of warrants
granted to a consultant - 50 - - - 50
Treasury shares in respect of a senior
employee - - 31 - - 31
Other comprehensive income:
Foreign currency translation
adjustments - - - 268 - $ 268 268
Net income - - - - 504 504 504
------- ---------- --------- ------------- ----------- ------------- -------------
Total comprehensive income $ 772
==========
Balance as of December 31, 2002 525 86,504 - (608) (73,341) 13,080
Other comprehensive income:
Foreign currency translation
adjustments - - - 349 - $ 349 349
Net loss - - - - (2,956) (2,956) (2,956)
------- ---------- --------- ------------- ----------- ------------- -------------
Total comprehensive loss $ (2,607)
============
Balance as of December 31, 2003 525 $ 86,504 $ - $ (259) $(76,297) $ 10,473
======= ========== ========= ============= =========== -------------
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
ATTUNITY LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
U.S. dollars in thousands
Year ended December 31,
-----------------------------------------
2003 2002 2001
------------ ------------ -----------
Cash flows from operating activities:
-------------------------------------
Net income (loss) $ (2,956) $ 504 $ (15,631)
Adjustments required to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization 543 679 1,782
Impairment of property and equipment - - 389
Amortization of capitalized software development
costs 1,613 1,590 2,378
Gain from discontinued operations - - (220)
Impairment of investment and other assets 1,543 - 2,658
Decrease (increase) in marketable securities, net (214) 24 866
Decrease (increase) in trade receivables 311 (552) 3,115
Decrease (increase) in other accounts receivable and
prepaid expenses 149 (101) 321
Increase (decrease) in trade payables 99 (691) (864)
Increase (decrease) in deferred revenues 178 (291) (331)
Increase in accrued expenses, employees and other
liabilities 1,199 479 358
Increase (decrease) in accrued severance pay, net (74) (18) 117
Write-off of loan granted to employee - - 90
Compensation in respect of warrants granted to a
consultant - 50 -
Others - (9) (3)
------------ ------------ -----------
Net cash provided by (used in) operating activities 2,391 1,664 (4,975)
------------ ------------ -----------
Cash flows from investing activities:
-------------------------------------
Proceeds from restricted marketable securities - - 205
Investment in restricted marketable securities - - (205)
Capitalization of software development costs (1,593) (1,595) (2,000)
Purchase of property and equipment (238) (199) (400)
Proceeds from sale of property and equipment 6 46 63
Investment in short-term bank deposits, net (32) (88) -
Investment in restricted cash (902) - -
------------ ------------ -----------
Net cash used in investing activities (2,759) (1,836) (2,337)
------------ ------------ -----------
Cash flows from financing activities:
-------------------------------------
Proceeds from exercise of options - 5 -
Proceeds from issuance of shares and options, net - - 4,666
Issuance expenses related to issuance of shares in
2001 - (103) -
Short-term bank credit, net 32 2 108
Proceeds from long-term debt 69 86 33
Principal payment of long-term debt (180) (259) (292)
Proceeds from treasury shares in respect of a senior
employee - 31 -
------------ ------------ -----------
Net cash provided by (used in) financing activities (79) (238) 4,515
------------ ------------ -----------
Effect of exchange rate changes on cash and cash
equivalents (173) 58 (46)
------------ ------------ -----------
Decrease in cash and cash equivalents (620) (352) (2,843)
Cash and cash equivalents at the beginning of the year 2,693 3,045 5,888
------------ ------------ -----------
Cash and cash equivalents at the end of the year $ 2,073 $ 2,693 $ 3,045
============ ============ ===========
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
ATTUNITY LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
U.S. dollars in thousands
Year ended December 31,
-----------------------------------------
2003 2002 2001
------------ ------------ -----------
Supplemental disclosure of cash flow activities:
------------------------------------------------
Cash paid during the year for:
Interest $ 90 $ 60 $ 209
============ ============ ===========
Income taxes $ 25 $ 12 $ 402
============ ============ ===========
Supplemental disclosure of non-cash investing and
financing activities:
---------------------
Capital lease obligation incurred upon the
acquisition of property and equipment $ 50 $ - $ 259
============ ============ ===========
Purchase of treasury shares as result of Medatech and
VisOpt annulment agreement $ - $ - $ 492
============ ============ ===========
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 1:- GENERAL
Attunity Ltd. ("Attunity") and its subsidiaries ("the Company")
develop, market and provide support for computer software integration
tools and application development tools.
The Company's main product is the Attunity Connect. Attunity Connect
is an enterprise information infrastructure product, which is
available on multiple platforms and provides database-independent
access to many databases and file systems. Attunity Connect
standardizes the interaction between data sources and application
programs utilizing various universally accepted standards.
The Company's principal application development tools are CorVision,
an application generator, and APTuser, a database retrieval and
production report generator. The Company also supports through its
Israeli subsidiary, Attunity Software Services Ltd. ("ASS"), "Mancal
2000", a logistics application software package.
As for geographic markets and major customers, see Note 16.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in accordance
with generally accepted accounting principles in the United States
("U.S. GAAP").
a. Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual
results could differ from those estimates.
b. Financial statements in U.S. dollars ("dollars"):
A majority of the revenues of Attunity and certain of its
subsidiaries is generated in dollars. In addition, a substantial
portion of Attunity and certain subsidiaries' costs is
denominated in dollars. The Company's management believes that
the dollar is the primary currency in the economic environment in
which those companies operate. Thus, the functional and reporting
currency of those companies is the dollar.
Accordingly, monetary accounts maintained in currencies other
than the dollar are remeasured into dollars in accordance with
Statement of Financial Accounting Standard No. 52 "Foreign
Currency Translation" ("SFAS No. 52"). All transactions gains and
losses of the remeasurement of monetary balance sheet items are
reflected in the statement of operations as financial income or
expenses, as appropriate.
F-9
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The financial statements of the Israeli and other foreign
subsidiaries whose functional currency is determined to be their
local currency, have been translated into dollars. All balance
sheet accounts have been translated using the exchange rates in
effect at the balance sheet date. Statement of operations amounts
have been translated using the average exchange rate for the
year. The resulting translation adjustments are reported as a
component of shareholders' equity, accumulated other
comprehensive loss.
c. Principles of consolidation:
The consolidated financial statements include the accounts of
Attunity and its wholly-owned subsidiaries. Intercompany balances
and transactions have been eliminated in consolidation.
d. Cash equivalents:
`Cash equivalents are short-term highly liquid investments that
are readily convertible to cash, with maturities of three months
or less at the date acquired.
e. Restricted cash:
Restricted cash is primarily invested in highly liquid deposits,
which are used mainly as a security for the outcome of a lawsuit.
f. Short-term bank deposits:
Short-term bank deposits are deposits with maturities of more
than three months but less than one year. The deposits are in New
Israeli Shekels ("NIS") and bear interest at an average rate of
4.9%. The short-term deposits are presented at their cost,
including accrued interest.
g. Marketable securities:
The Company accounts for its investments in marketable securities
using Statement of Financial Accounting Standard No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS No. 115").
Management determines the appropriate classification of its
investments in debt and marketable equity securities at the time
of purchase and reevaluates such determinations at each balance
sheet date. The securities were classified as trading securities
when the Company holds the securities for resale in anticipation
of short-term market movements. The Company's trading securities
carried at their fair value based upon the quoted market price of
those investments. Net realized and unrealized gains and losses
on these securities are included in financial expenses or income,
as appropriate.
F-10
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
h. Property and equipment:
Property and equipment are stated at cost, net of accumulated
depreciation. Depreciation is calculated using the straight-line
method, over the estimated useful lives of the assets, at the
following annual rates:
%
------------------
Computers and peripheral equipment 20 - 33
Office furniture and equipment 10 - 20
Motor vehicles 15
Over the related lease
Leasehold improvements period
i. Impairment of long-lived assets:
The Company's long-lived assets are reviewed for impairment in
accordance with Statement of Financial Accounting Standard No.
144, "Accounting for the Impairment or Disposal of Long-lived
Assets" ("SFAS No. 144"), whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to
the future undiscounted cash flows expected to be generated by
the assets. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the
assets.
During 2001, the Company recorded impairment expenses amounting
to $ 272 attributed to assembled workforce, according to SFAS No.
121, which were included in "Impairment of investment and other
assets". In 2003 and 2002, no impairment losses were identified.
j. Goodwill:
Goodwill arose from acquisitions prior to July 1, 2001, was
amortized until December 31, 2001, on a straight-line basis over
the estimated useful life, which is 7-10 years.
Statement of financial Accounting Standards "Goodwill and Other
Intangible Assets" ("SFAS No.142") requires goodwill to be tested
for impairment on adoption and at least annually thereafter or
between annual tests in certain circumstances, and written down
when impaired, rather than being amortized as previous accounting
standards required. Goodwill is tested for impairment by
comparing the fair value of the Company's reporting unit with its
carrying value. Fair value was determined using discounted cash
flows, market multiples and comparative analyze. Significant
estimates used in the methodologies included estimates of future
cash flows and estimates of market multiples for the reportable
unit.
The Company has performed adoption test at the beginning of the
year and the annual impairment test during the third fiscal
quarter. As of December 31, 2003, no impairment losses have been
identified.
F-11
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
k. Research and development costs:
Research and development costs incurred in the process of
software development before establishment of technological
feasibility are charged to expenses as incurred. Costs of the
production of a product master incurred subsequent to the
establishment of technological feasibility are capitalized
according to the principles set forth in Statement of Financial
Accounting Standards No.86 "Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed" ("SFAS
No.86").
Based on the Company product development process, technological
feasibility is established upon completion of a detail program
design.
Capitalized software costs are amortized on a product by product
basis commencing with general product release by the amount
computed using the straight-line method over the estimated useful
life of the product (five years), and are included in costs of
revenues.
At each balance sheet date, the Company assesses the
recoverability of this intangible asset by comparing the
unamortized capitalized software costs to the net realizable
value on a product by product basis. Should the amount of the
unamortized capitalized costs of a computer software product
exceeds the net realizable value, these products will be written
down by the excess amount. In the years ended December 31, 2003,
2002 and 2001 the Company recorded $ 1,543, $ 0 and $ 2,386,
respectively, as impairment of capitalized software costs, which
were included in "Impairment of investment and other assets".
l. Income taxes:
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes", ("SFAS No. 109"). This statement prescribes
the use of the liability method whereby deferred tax asset and
liability account balances are determined based on differences
between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to
reverse. The Company provides a valuation allowance, if
necessary, to reduce deferred tax assets to their estimated
realizable value.
m. Advertising expenses:
Advertising expenses are carried to the statement of operations,
as incurred. Advertising expenses for the years ended December
31, 2003, 2002 and 2001 amounted to $ 208, $ 55 and $ 648,
respectively.
F-12
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
n. Revenue recognition:
The Company generates revenues mainly from license fees and
sub-license fees for the right to use its software products,
maintenance, support, consulting and training services. The
Company sells its products primarily through its direct sales
force to customers and indirectly through distributors and Value
Added Resellers ("VARs"). Both the customers and the distributors
or resellers are considered end users. The Company is also
entitled to royalties from some distributors and VARs upon the
sublicensing of the software to end users.
The Company accounts for software sales in accordance with
Statement of Position No. 97-2, "Software Revenue Recognition",
as amended ("SOP No. 97-2"). SOP No. 97-2, generally 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
Statement of Position No. 98-9, "Modification of SOP No. 97-2,
Software Revenue Recognition with Respect to Certain
Transactions" ("SOP No. 98-9"). SOP No. 98-9 requires that
revenue be recognized under the "residual method" when Vendor
Specific Objective Evidence ("VSOE") of fair value exists for all
undelivered elements and no VSOE exists for the delivered
elements and all other four criteria of SOP No. 97-2 are met.
Under the residual method any discount in the arrangement is
allocated to the delivered element. The Company and its
subsidiaries have also adopted Staff Accounting Bulletin ("SAB")
No. 104, "Revenue Recognition" ("SAB No. 104").
Revenue from license fees is recognized when persuasive evidence
of an agreement exists, delivery of the product has occurred, no
significant obligations with regard to implementation remain, the
fee is fixed or determinable and collectibility is probable. The
Company generally does not grant a right of return to its
customers. The Company considers all arrangements with payment
terms extending beyond one year not to be fixed or determinable.
If the fee is not fixed or determinable, revenue is recognized as
payments become due from the customer provided that all other
revenue recognition criteria have been met.
Revenues from royalties are recognized according to quarterly
royalties reports, as received from customers which embedded the
Company's products in their own products and the Company is
entitled to a percentage of the customer revenue from the
combined product.
Maintenance and support revenue included in multiple element
arrangement is deferred and recognized on a straight-line basis
over the term of the maintenance and support agreement.
Arrangements that include consulting and training services are
evaluated to determine whether those services are essential to
the functionality of other elements of the arrangement. To date,
the Company had determined that the services are not considered
essential to the functionality of other elements of the
arrangement, therefore, these revenues are recognized as the
services are performed.
Deferred revenues includes unearned amounts received under
maintenance and support contracts and amounts received from
customers but not recognized as revenues.
F-13
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Professional services are recognized when rendered.
In transactions, where a customer's contractual terms include a
provision for customer acceptance, revenues are recognized either
when such acceptance has been obtained or as the acceptance
provision has lapsed.
o. Concentrations of credit risks:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and
cash equivalents, restricted cash, short-term bank deposits,
marketable securities and trade receivables.
Cash and cash equivalents, restricted cash and short-term bank
deposits are invested in major banks in Israel, Europe and the
United States. Such deposits in the United States may be in
excess of insured limits and are not insured in other
jurisdictions. Management believes that the financial
institutions that hold the Company's investments are financially
sound and, accordingly, minimal credit risk exists.
The Company's trade receivables are mainly derived from sales to
customers located primarily in the United States, Israel, Europe,
Far East and South America. The Company performs ongoing credit
evaluations of its customers and, through December 31, 2002, has
not experienced any material losses. An allowance for doubtful
accounts is determined with respect to those amounts that the
Company has determined to be doubtful of collection.
In 2003, the Company increased its allowance for doubtful
accounts to provide for doubtful receivables, mainly in the Far
East and in Israel.
Adjustments to allowance for doubtful accounts for the years
ended December 31, 2003, 2002 and 2001, were $ 279, $ (30) and $
(151), respectively.
The Company has no significant off-balance-sheet concentration of
credit risk such as foreign exchange contracts, option contracts
or other foreign hedging arrangements.
p. Accounting for stock-based compensation:
The Company has elected to follow Accounting Principles Board
Statement No. 25, "Accounting for Stock Issued to Employees"
("APB No. 25"), and FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation" ("FIN No.
44"), in accounting for its employee stock option plans. Under
APB No. 25, when the exercise price of an employee stock option
is equivalent to or above the market price of the underlying
shares on the date of grant, compensation expense is recognized.
F-14
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
In December 2002, the FASB issued Statement of Financial
Accounting Standard No. 148, "Accounting for Stock Based
Compensation Transmission and Disclosure - an amendment of FASB
Statement No. 123" ("SFAS No. 148"). SFAS No. 148 permits two
additional transition methods for entities that adopt the fair
value based method of accounting for stock-based employee
compensation. The transition guidance and annual disclosure
provisions of SFAS No. 148 are effective for fiscal years ending
after December 15, 2002, with earlier application permitted in
certain circumstances. The interim disclosure provisions are
effective for financial reports containing financial statements
for interim periods beginning after December 15, 2002. As at the
balance sheet date, the Company continues to apply APB No. 25
(see also Note 12).
Pro forma information regarding the Company's net income (loss)
and net earnings (loss) per share is required by Statement of
Financial Accounting Standard No. 123 "Accounting for Stock-Based
Compensation" and has been determined as if the Company had
accounted for its employee stock options under the fair value
method prescribed by SFAS No. 123.
The fair value for options granted in 2003, 2002 and 2001 is
amortized over their vesting period and estimated at the date of
grant using a Black-Scholes options pricing model with the
following weighted average assumptions:
2003 2002 2001
------- ------- -------
Dividend yield 0% 0% 0%
Expected volatility 43.8% 79.5% 130%
Risk-free interest 3.5% 3% 3%
Expected life of up to 6 years 6 years 6 years
F-15
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Pro forma information under SFAS No. 123, is as follows:
Year ended December 31,
-----------------------------------------
2003 2002 2001
------------ ------------ -----------
Net income (loss) from continued
operations $ (2,956) $ 504 $ (15,851)
Net income (loss) from discontinued
operations, net of income tax - - 220
------------ ------------ -----------
Net income (loss) $ (2,956) $ 504 $ (15,631)
============ ============ ===========
Deduct stock-based employee
compensation fair value $ (586) $ (994) $ (1,508)
============ ============ ===========
Pro forma:
Net loss from continued operations $ (3,542) $ (490) $ (17,359)
Net income from discontinued
operations, net of income tax - - 220
------------ ------------ -----------
Net loss $ (3,542) $ (490) $ (17,139)
============ ============ ===========
Net earnings (loss) per share:
Basic and diluted net earnings (loss)
per share from continued operations
as reported $ (0.20) $ 0.03 $ (1.36)
============ ============ ===========
Basic and diluted net earnings per
share from discontinued operations,
net of income tax $ - $ - $ 0.02
============ ============ ===========
Basic and diluted net earnings (loss)
per share $ (0.20) $ 0.03 $ (1.34)
============ ============ ===========
Pro forma basic and diluted net loss
per share from continued operations
as reported $ (0.23) $ (0.03) $ (1.49)
============ ============ ===========
Pro forma basic and diluted net
earnings per share from discontinued
operations, net of income taxes $ - $ - $ 0.02
============ ============ ===========
Pro forma basic and diluted net loss
per share $ (0.23) $ (0.03) $ (1.47)
============ ============ ===========
The Company applies SFAS No. 123 and Emerging Issues Task Force
No. 96-18, "Accounting for Equity Instruments that are Issued to
Other than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services" ("EITF 96-18"), with respect to
options and warrants issued to non-employees. SFAS No. 123
requires the use of option valuation model to measure the fair
value of the warrants at the date of grant.
F-16
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands, except share data
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
q. Basic and diluted net earnings (loss) per share:
Basic net earnings (loss) per share are computed based on the
weighted average number of Ordinary shares outstanding during
each year. Diluted net earnings per share are computed based on
the weighted average number of Ordinary shares outstanding during
each year, plus dilutive potential Ordinary shares considered
outstanding during the year, in accordance with Statement of
Financial Accounting Standard No. 128, "Earnings Per Share"
("SFAS No. 128").
Certain outstanding stock options and warrants have been excluded
from the calculation of the diluted net earnings (loss) per
Ordinary share because the securities are antidilutive for all
periods presented. The total weighted average number of shares
related to the outstanding stock options and warrants excluded
from the calculations of diluted net earnings (loss) per share
were 6,963,321, 6,367,656 and 6,950,161 for the years ended
December 31, 2003, 2002 and 2001, respectively.
r. Severance pay:
The Company's liability for severance pay is calculated pursuant
to Israeli severance pay law based on the most recent salary of
the employees multiplied by the number of years of employment, as
of the balance sheet date for all employees in Israel. Employees
are entitled to one month's salary for each year of employment or
a portion thereof. The Company's liability for all of its
employees is fully provided by monthly deposits with severance
pay fund, insurance policies and by an accrual. The value of
these policies is recorded as an asset in the Company's balance
sheet.
The deposited funds include profits accumulated up to the balance
sheet date. The deposited funds may be withdrawn only upon the
fulfillment of the obligation pursuant to Israeli severance pay
law or labor agreements. The value of these policies is recorded
as an asset in the Company's balance sheet.
Severance pay expenses for the years ended December 31, 2003,
2002 and 2001 were $ 498, $ 576 and $ 1,375, respectively.
s. Fair value of financial instruments:
The estimated fair value of financial instruments has been
determined by the Company using available market information and
valuation methodologies. Considerable judgment is required in
estimating fair values. Accordingly, the estimates may not be
indicative of the amounts the Company could realize in a current
market exchange.
The carrying amounts of cash and cash equivalents, restricted
cash, short-term bank deposits, trade receivables, short-term
bank credits trade payables deferred revenues, employees and
payroll accruals accrued expenses and other liabilities
approximate their fair values due to the short-term maturity of
these instruments.
The fair value for marketable securities is based on quoted
market prices and does not significantly differ from the carrying
amount.
F-17
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The fair value of long-term liabilities was estimated by
discounting the future cash flow using rate currently available
for long-term liabilities of similar terms and maturity. The
carrying amount of the Company's long-term liabilities
approximates their fair value.
t. Impact of recently issued accounting standards:
In January 2003, the FASB issued Interpretation No. 46,
"Consolidation of Variable Interest Entities" ("FIN 46"). The
objective of FIN 46 is to improve financial reporting by
companies involved with variable interest entities. A variable
interest entity is a corporation, partnership, trust, or any
other legal structure used for business purposes that either (a)
does not have equity investors with voting rights or (b) has
equity investors that do not provide sufficient financial
resources for the entity to support its activities. FIN 46
requires a variable interest entity to be consolidated by a
company if that company is subject to a majority of the risk of
loss from the variable interest entity's activities or entitled
to receive a majority of the entity's residual returns or both.
FIN 46 also requires disclosures about variable interest entities
that the company is not required to consolidate but in which it
has a significant variable interest. The consolidation
requirements of FIN 46 apply immediately to variable interest
entities created after January 31, 2003. The consolidation
requirements apply to older entities in the first fiscal year or
interim period end after December 31, 2003. Certain of the
disclosure requirements apply in all financial statements issued
after January 31, 2003, regardless of when the variable interest
entity was established. As of December 31, 2003, the Company does
not expect the adoption of FIN 46 to have a material impact on
its consolidated financial statements.
In April 2003, the FASB issued SFAS No. 149 ("SFAS 149"),
"Amendment of Statement 133 on Derivative Instruments and Hedging
Activities." SFAS 149 amends and clarifies (1) the accounting
guidance on derivative instruments (including certain derivative
instruments embedded in other contracts) and (2) hedging
activities that fall within the scope of FASB Statement No. 133
("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities." SFAS 149 amends SFAS 133 to reflect decisions made
(1) as part of the Derivatives Implementation Group ("DIG")
process that effectively required amendments to SFAS 133, (2) in
connection with other projects dealing with financial
instruments, and (3) regarding implementation issues related to
the application of the definition of a derivative. SFAS 149 is
effective (1) for contracts entered into or modified after June
30, 2003, with certain exceptions, and (2) for hedging
relationships designated after June 30, 2003. The guidance is to
be applied prospectively.
Generally, SFAS 149 improves financial reporting by (1) requiring
that contracts with comparable characteristics be accounted for
similarly and (2) clarifying when a derivative contains a
financing component that warrants special reporting in the
statement of cash flows. SFAS 149 is not expected to have a
material impact on the Company's financial statements.
u. Reclassification:
Certain amounts from prior years referring to expenses and
property and equipment have been reclassified to conform with
current year presentation. The reclassification had no effect on
previously reported net loss, shareholders' equity or cash flows.
F-18
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 3:- OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES
December 31,
------------------------------
2003 2002
------------- -------------
Prepaid expenses $ 338 $ 460
Government authorities 485 370
Employees 64 166
Other 119 237
------------- -------------
$1,006 $1,233
============= =============
NOTE 4:- PROPERTY AND EQUIPMENT, NET
Cost:
Computers and peripheral equipment $3,559 $3,184
Office furniture and equipment 622 827
Motor vehicles 629 572
Leasehold improvements 1,182 1,110
------------- -------------
5,992 5,693
------------- -------------
Accumulated depreciation:
Computers and peripheral equipment 3,247 2,760
Office furniture and equipment 412 581
Motor vehicles 377 316
Leasehold improvements 1,030 891
------------- -------------
5,066 4,548
------------- -------------
Depreciated cost $ 926 $1,145
============= =============
Depreciation expenses for the years ended December 31, 2003, 2002
and 2001 are $ 543, $ 679 and $ 808, respectively.
As for charges on the Company's property and equipment, see Note
10.
F-19
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
U.S. dollars in thousands, except per share data
NOTE 5:- SOFTWARE DEVELOPMENT COSTS, NET
December 31,
------------------------------
2003 2002
------------- -------------
Software development costs $ 15,347 $ 15,297
Less - accumulated amortization 10,835 9,222
------------- -------------
Amortized cost $ 4,512 $ 6,075
============= =============
Amortization expenses for the years ended December 31, 2003, 2002 and
2001 are $ 1,613, $ 1,590 and $ 2,378, respectively.
The Company recorded impairment expenses amounting to $ 1,543, $ 0 and
$ 2,386, attributed to capitalized software costs in 2003, 2002 and
2001, respectively.
Estimated amortization expenses for the years ended:
December 31,
-------------
2004 $1,874
2005 1,077
2006 756
2007 494
2008 311
-------------
$4,512
=============
NOTE 6:- GOODWILL
a. The results of operations presented below for the three years
ended December 31, 2003, 2002 and 2001, reflect the operations
had the Company adopted the non-amortization provisions of SFAS
No. 142 effective January 1, 2001:
Year ended December 31,
---------------------------------------
2003 2002 2001
------------ ----------- ------------
Reported net income (loss) $ (2,956) $ 504 $ (15,631)
Goodwill amortization - - 974
------------ ----------- ------------
Adjusted net income (loss) $ (2,956) $ 504 $ (14,657)
============ =========== ============
Basic and diluted net earnings
(loss) per share:
Reported net income (loss) $ (0.20) $ 0.03 $ (1.34)
Goodwill amortization - - 0.08
------------ ----------- ------------
Adjusted net income (loss) $ (0.20) $ 0.03 $ (1.26)
============ =========== ============
b. The change in the carrying amount of goodwill for the year ended
December 31, 2003, is due to translation adjustments.
F-20
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 7:- SHORT-TERM BANK CREDIT
Interest rate December 31,
--------------------- ------------------------------
2003 2002 2003 2002
--------- --------- ------------- -------------
%
---------------------
Short-term bank loans:
In NIS 8.0 11.7 $ 206 $ 149
Short-term bank credit:
In NIS 8.9 13.4 - 26
------------- -------------
$ 206 $ 175
============= =============
(1) Total authorized credit lines approximate $ 250
=============
(2) Unutilized credit lines approximate $ 250
=============
(3) Weighted average interest rates at the end of
the year 3.5% 12.2%
============= =============
NOTE 8:- ACCRUED EXPENSES AND OTHER LIABILITIES
Government authorities $ 498 $ 599
SSF Lawsuit (see also Note 16b) 1,000 810
Accrued expenses 425 687
Burlington lease lawsuit (see also Note 16b) 850 290
Royalties to Government authorities 642 270
Others 64 2
------------- -------------
$ 3,479 $ 2,658
============= =============
NOTE 9:- LONG-TERM DEBTS
Capital lease obligations, linked to the U.S. dollar
and bears interest of 9.1% $ 108 $ 174
Other loans, linked to the Israeli Consumer Price
Index and bears interest of 5% to 6.7% 93 86
------------- -------------
201 260
Less - current maturities:
Capital lease obligations 61 135
Other loans 41 70
------------- -------------
$ 99 $ 55
============= =============
F-21
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 9:- LONG-TERM DEBTS (Cont.)
As of December 31, 2003, the aggregate annual maturities of long-term
debts are as follows:
December 31,
------------------------------
2003 2002
------------- -------------
First year (current maturities) $ 102 $ 205
Second year 49 41
Third year 42 14
Fourth year 8 -
------------- -------------
$ 201 $ 260
============= =============
See also Note 10.
NOTE 10:- CHARGES (ASSETS PLEDGED)
As collateral for certain liabilities of the Company to banks and
others, fixed charges have been recorded on certain property and
equipment of the Company.
NOTE 11:- COMMITMENTS AND CONTINGENT LIABILITIES
a. Lease commitments:
The Company leases its operating facilities under non-cancelable
operating lease agreements, which expire in various dates. Future
minimum commitments under these leases as of December 31, 2003, are as
follows:
Operating
Year ended December 31, leases
----------------------- ---------
2004 $ 590
2005 442
2006 and thereafter 517
---------
$1,549
=========
Operating lease obligation does not include $ 2,005 for which the
Company has entered into a settlement agreement in March 2004 (see
also Note 16b).
Rent expenses under operating leases for the years ended December 31,
2003, 2002 and 2001 were $ 580, $ 704 and $ 1,298, respectively.
F-22
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands, except share and per share data
NOTE 11:- COMMITMENTS AND CONTINGENT LIABILITIES (Cont.)
b. Royalties:
The Company participates in programs sponsored by the Israeli
Government for the support of research and development
activities. As of December 31, 2003, the Company had obtained
grants from the Office of the Chief Scientist of the Israeli
Ministry of Industry and Trade ("the OCS") in the aggregate
amount of $ 2,418 for certain of the Company's research and
development projects. The Company is obligated to pay royalties
to the OCS, amounting to 2%-5% of the sales of the products and
other related revenues generated from such projects, up to
100%-150% of the grants received, linked to the U.S. dollar.
The obligation to pay these royalties is contingent on actual
sales of the products and in the absence of such sales no payment
is required.
Through December 31, 2003, the Company has paid or accrued
royalties to the OCS in the amount of $ 1,547. As of December 31,
2003, the aggregate contingent liability to the OCS amounted to $
871.
c. Litigation:
1. In November 2002, the four Special Situations Funds ("SSF")
that invested in the Company's October 2001 private
placement filed a complaint against the Company alleging
that the Company had breached the Registration Rights
Agreement related to their investment in the Company.
As such, SSF sought to collect liquidation damages of
approximately $ 603 plus unspecified actual damages
allegedly due as a result of delay in having Registration
Statement covering the shares purchased by SSF declared
effective at a later date. On March 28, 2003, the court
ruled against the Company, in favor of SSF. The judge
awarded SSF liquidation damages in the amount of $ 603, plus
interest from the date on which the complaint was filed.
The Company has appealed on the decision and, in January
2004, the upper court affirmed the decision against the
Company. In 2002, the Company recorded a one-time charge in
the amount of $ 810, and an addition $ 365 in 2003 related
to the outcome of the lawsuit and its related expenses. The
charge was included in restructuring and other non-recurring
charges in the statement of operations.
2. During 2002, the company's subsidiary in the United States
ceased the use of its former leased facilities before the
end of the agreement term, which will expire in September
2005.
In 2003, the landlord sued the company for non-payment of
the lease fees for 2003. Subsequent to the balance sheet
date, the company and the landlord settled the dispute where
the Company has agreed to pay $ 825 and will be released
from the lease agreement.
F-23
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands, except share and per share data
NOTE 12:- SHAREHOLDERS' EQUITY
a. The Ordinary shares of the Company are quoted on NASDAQ stock
market. The Ordinary shares confer upon the holders the right to
receive notice to participate and vote in general meetings of the
Company, and the right to receive dividends, if declared.
b. In October 2001, the Company issued 3,846,156 Ordinary shares to
private investors in net consideration of approximately $ 4,666.
In addition, the Company granted the investors and agents
warrants to purchase 4,150,387 of the Company's Ordinary shares
at an exercise price of $ 1.56 -$ 2.25. The agreement provides
that if the Company's stock price reaches $3 and $4 for certain
period of time, the warrants must be exercised or otherwise
forfeited. These warrants will expire in October 2005 (see also
Note 17).
c. Stock Option Plans:
Under the Company's 1992, 1994, 1998 and 2001 Stock Option Plans
(the "Plans"), the Company has granted options to purchase
Ordinary Shares to key employees, directors and officers as an
incentive to attract and retain qualified personnel. The exercise
price of options granted under the Plans may not be less than
100% (110% in the case of a 10% shareholder) of the fair market
value of the Company's Ordinary shares on the date of grant for
ISO options and 75% of the fair market for non-qualified options.
Under the terms of these four plans, options generally become
exercisable ratably over three to five years of employment,
commencing with the date of grant. The options generally expire
no later than 10 years from the date of the grant, and are
non-transferable, except under the laws of succession.
Under the Plans, 4,500,000 Ordinary shares of the Company were
reserved for issuance. Any options, which are canceled or
forfeited before expiration become available for future grants.
As of December 31, 2003, under the plans there are 639,186
options available for future grants.
The following is a summary of the Company's stock options granted
among the various plans:
Year ended December 31,
---------------------------------------------------------------
2003 2002 2001
-------------------- --------------------- --------------------
Weighted Weighted Weighted
Number average Number average Number average
of exercise of exercise of exercise
options price options price options price
---------- --------- ----------- --------- ---------- ---------
Outstanding at
beginning of year 1,604 $ 3.71 2,238 $ 3.87 1,226 $ 8.61
Granted 2,137 $ 1.57 143 $ 1.09 1,710 $ 1.26
Exercised - $ - (187) $ 0.02 (20) $ 0.02
Canceled or
forfeited (197) $ 7.83 (590) $ 4.85 (678) $ 5.57
---------- ----------- ----------
Outstanding at end
of year 3,544 $ 1.78 1,604 $ 3.71 2,238 $ 3.87
========== ========= =========== ========= ========== =========
Exercisable at end
of year 1,072 $ 3.78 990 $ 5.18 1,218 $ 5.74
========== ========= =========== ========= ========== =========
F-24
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands, except share and per share data
NOTE 12:- SHAREHOLDERS' EQUITY (Cont.)
The options outstanding as of December 31, 2003, have been
separated into ranges of exercise price as follows:
Weighted
Options Weighted Options average
outstanding average Weighted exercisable exercise
Range of as of remaining average as of price of
exercise December 31, contractual exercise December 31, options
price 2003 life price 2003 exercisable
----------------- ------------- ------------ ----------- -------------- -----------
$ In thousands Years $ In thousands $
----------------- ------------- ------------ ----------- -------------- -----------
$ 0.02 6 2 $ 0.02 6 $ 0.02
$ 0.8 - 0.91 230 6.75 $ 0.82 10 $ 0.82
$ 1.05 - 1.42 1,712 3.98 $ 1.20 560 $ 1.21
$ 1.5 - 2.25 1,146 5.31 $ 1.89 87 $ 1.89
$ 2.88 - 3.0 26 2.21 $ 2.94 20 $ 2.94
$ 4.5 - 6.5 49 2.91 $ 5.41 50 $ 5.41
$ 6.88 - 9.75 327 2.42 $ 7.86 291 $ 7.87
$ 10 - 13.25 35 2.35 $ 10.78 35 $ 10.78
$ 16 13 2 $ 16 13 $ 16
------------- -----------
3,544 $ 2.23 1,072 $ 3.78
============= =========== =========== ===========
Weighted average fair values and weighted average exercise prices
of options whose exercise prices is equal to, lower than or
exceeds market price of the shares at date of grant are as
follows:
Year ended December 31,
--------------------------------------------------------------------
2003 2002 2001
--------------------- ------------------- ----------------------
Weighted Weighted Weighted Weighted Weighted Weighted
average average average average average average
fair exercise fair exercise fair exercise
value price value price value price
--------- --------- --------- --------- --------- ----------
Equals market
price at
date of grant $ 0.70 $ 1.55 $ 0.84 $ 1.22 $ 0.98 $ 1.32
========= ========== ========= ========= ========= ==========
Exceeds market
price at
date of grant $ 0.24 $ 2.17 $ - $ - $ 1.30 $ 1.83
========= ========== ========= ========= ========= ==========
Lower than
market price
at date of
grant $ - $ - $ 1.29 $ 0.02 $ 1.77 $ 0.02
========= ========== ========= ========= ========= ==========
F-25
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands, except share and per share data
NOTE 12:- SHAREHOLDERS' EQUITY (Cont.)
d. Stock warrants:
The Company has issued warrants, as follows:
Outstanding Exercisable
as of as of
December 31, Exercise December 31, Exercisable
Issuance date 2003 price 2003 through
------------------- -------------- -------------- --------------- ------------------
June 2000 (1) 425,000 $12.3 - $15.50 425,000 March 31, 2005
October 2000 (2) 72,000 $7.65 72,000 October 31, 2005
June 2001 (3) 180,000 $2.5 180,000 December 31, 2004
October 2001 (4) 4,115,387 $1.56 - $2.25 4,115,387 October 16, 2005
--------- ---------
4,792,387 4,792,387
========= ==========
(1) Issued to investors and placement agents of 2000 private
placement.
(2) Issued to consultants and placement agents of 2000 private
placement.
(3) Issued to a consultant for public relations services.
(4) Issued to investors and placement agents of the October 2001
private placement.
The Company had accounted for its warrants to consultants under
the fair value method of SFAS No. 123 and EITF No. 96-18. The
fair value for these warrants was estimated using Black-Scholes
option-pricing model with the following weighted-average
assumptions for 2003, 2002 and 2001: risk-free interest rates of
2.5% for 2003, 2.5% for 2002 and 3% for 2001, dividend yields of
0% for each year, volatility factors of the expected market price
of the Company's Ordinary shares of 0.438, 0.795 and 1.3,
respectively and a weighted-average contractual life of
approximately 2 years for each year.
e. Dividends:
In the event that cash dividends are declared in the future, such
dividends will be paid in New Israeli Shekels ("NIS"). The
Company does not intend to pay cash dividends in the foreseeable
future.
NOTE 13:- INCOME TAXES
a. Tax benefits under the Law for the Encouragement of Capital
Investments, 1959 ("the Law"):
The production facilities of Attunity and its subsidiary Attunity
Software Services Ltd. ("ASS") have been granted "Approved
Enterprise" status under the Investment Law.
In June 2000, Attunity Ltd. filed an application for a fourth
investment program which has not yet been approved, the other
three investment programs, which were approved in February 1998,
April 1998 and November 2001, will expire in April 2006, November
2008 and December 2011, respectively.
F-26
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 13:- INCOME TAXES (Cont.)
As of December 31, 2003, the investments under June 2000
investment program remain in progress and has not been completed.
According to the provisions of the Law, Attunity Ltd. has elected
to enjoy "alternative benefits" - waiver of grants in return for
tax exemption - and, accordingly, income derived from the
"Approved Enterprise" will be tax-exempt for a period of two
years commencing with the year it first earns taxable income, and
will be taxed at 10% to 25%, based upon the percentage of foreign
investment in Attunity for an additional period of five-eight
years. The period of tax benefits, detailed above, is subject to
limits of the earlier of 12 years from the commencement of
production, or 14 years from the date of approval.
ASS has been granted status as an "Approved Enterprise" for two
separate investment programs from 1991 and 1993 whereby it has
elected to receive Government grants and to enjoy the benefit of
a reduced tax rate of 25% during a period of seven years
commencing with the year it first earns taxable income. The
period of tax benefits, detailed above, is subject to limits of
the earlier of 12 years from the commencement of production, or
14 years from the date of approval. In 1993, ASS received
approval for an expansion of the aforementioned programs whereby
it has elected to enjoy "alternative benefits" - waiver of grants
in return for tax exemption - and, accordingly, its income from
the "Approved Enterprise" will be tax-exempt for a period of ten
years commencing with the year it first earns taxable income.
As of December 2003, ASS has not yet received final approvals for
such programs.
If these retained tax-exempt profits are distributed in a manner
other than in the complete liquidation of the Company they would
be taxed at the corporate tax rate applicable to such profits as
if the Company had not elected the alternative system of
benefits, currently between 15%-20% for an "Approved Enterprise".
As of December 31, 2003, the accumulated deficit of the Company
does not include tax-exempt profits earned by the Company's
"Approved Enterprise".
The Company's decision is not to distribute dividends, other than
upon the liquidation of the Company.
As Attunity currently has no taxable income, the benefits have
not yet commenced for all programs.
The entitlement to the above benefits is conditional upon the
Company's fulfilling the conditions stipulated by the above law,
regulations published hereunder and the instruments of approval
for the specific investments in "Approved Enterprises". In the
event of failure to comply with these conditions, the benefits
may be canceled and the Company may be required to refund the
amount of the benefits, in whole or in part, including interest.
Should Attunity or ASS derive income from sources other than the
"Approved Enterprise" during the periods of benefits, such income
shall be taxable at the regular corporate tax rate of 36%.
F-27
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 13:- INCOME TAXES (Cont.)
b. Measurement of taxable income under the Income Tax (Inflationary
Adjustments) Law, 1985:
Results of Attunity and its Israeli subsidiaries for tax purposes
are measured and reflected in real terms of earnings in NIS after
certain adjustments for increases in the Consumer Price Index. As
explained in Note 2b, the financial statements are presented in
U.S. dollars. The difference between the annual change in the
Israeli Consumer Price Index and in the NIS/dollar exchange rate
causes a difference between taxable income or loss and the income
or loss before taxes shown in the financial statements. In
accordance with paragraph 9(f) of SFAS No. 109, the Company has
not provided deferred income taxes on this difference between the
reporting currency and the tax bases of assets and liabilities.
c. Tax benefits under the Law for the Encouragement of Industry
(Taxation),1969:
Attunity and ASS are "industrial companies" under the above law
and as such are entitled to certain tax benefits, mainly
accelerated depreciation of machinery and equipment. It may also
be entitled to deduct over three year period expenses incurred in
connection with a public share offering and to amortize know-how
acquired from third party.
d. On July 24, 2002, Amendment 132 to the Israeli Income Tax
Ordinance ("the Amendment") was approved by the Israeli
parliament and came into effect on January 1, 2003. The principal
objectives of the Amendment were to broaden the categories of
taxable income and to reduce the tax rates imposed on employees
income.
The material consequences of the Amendment applicable to the
Company include, among others, imposing tax upon all income of
Israel residents, individuals and corporations, regardless of the
territorial source of income and certain modifications in the
qualified taxation tracks of employee stock options.
e. Tax loss carryforward:
Net operating loss carryforward as of December 31, 2003 are as
follows:
Israel $ 34,633
United States *) 5,541
UK 2,589
Hong Kong 1,612
France 783
------------
$ 45,158
============
Net operating losses in Israel, UK and Hong Kong may be carried
forward indefinitely. Net operating losses in the U.S. are
available through 2023 and in France through 2006.
*) Utilization of U.S. net operating losses may be subject to
substantial annual limitation due to the "change in
ownership" provisions of the Internal Revenue Code of 1986
and similar state provisions. The annual limitation may
result in the expiration of net operating losses before
utilization.
F-28
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 13:- INCOME TAXES (Cont.)
f. Deferred taxes:
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used
for income tax purposes. Significant components of the Company's
deferred tax liabilities and assets are as follows:
December 31,
----------------------------
2003 2002
------------ ------------
Net operating loss carryforward $ 11,428 $ 10,255
Other 890 1,211
------------ ------------
Total deferred tax asset before
valuation allowance 12,318 11,466
Less - valuation allowance (12,318) (11,466)
------------ ------------
Net deferred tax assets $ - $ -
============ ============
The Company has provided valuation allowances in respect of
deferred tax assets resulting from tax loss carryforward and
other temporary differences. Management currently believes that
since the Company has a history of losses it is more likely than
not that the deferred tax regarding the loss carryforward and
other temporary differences will not be realized in the
foreseeable future.
During fiscal year 2003, the Company increased the valuation
allowance by $ 852 to $ 12,318.
F-29
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 13:- INCOME TAXES (Cont.)
g. Reconciliation:
A reconciliation of the theoretical tax expense, assuming all
income is taxed at the statutory rate applicable to the income of
the Company and the actual tax expense, is as follows:
Year ended December 31,
-----------------------------------------
2003 2002 2001
------------ ------------ -----------
Income (loss) from continued operations
before income taxes, as reported in
the consolidated statements of
operations $ (2,872) $ 768 $(15,449)
============ ============ ===========
Theoretical tax expense (income tax
benefit) computed at the rate
applicable to the Company (1) $ (1,034) $ 276 $ (5,562)
Tax adjustments in respect of inflation
in Israel and effect of different tax
rates for foreign subsidiaries - (471) (13)
Losses for which valuation allowance
was provided - - 3,965
Utilization of operating carryforward
tax losses (1,462) (227) -
Nondeductible expenses including
goodwill amortization, investment
impairment and others 2,496 422 1,626
Tax withholding 84 264 386
------------ ------------ -----------
Income taxes $ 84 $ 264 $ 402
============ ============ ===========
(1) Statutory rate applicable to the
Company 36% 36% 36%
============ ============ ===========
h. Pre-tax income (loss):
Domestic $ (2,489) $ (1,753) $(13,548)
Foreign (383) 2,521 (1,901)
------------ ------------ -----------
$ (2,872) $ 768 $(15,449)
============ ============ ===========
F-30
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands, except share and per share data
NOTE 14:- EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted
net earnings (loss) per share:
a. Numerator:
Year ended December 31,
-----------------------------------------
2003 2002 2001
------------ ------------ -----------
Net income (loss) from continued
operations $ (2,956) $ 504 $(15,851)
Net income from discontinued
operations, net of income tax - - 220
------------ ------------ -----------
Net income (loss) $ (2,956) $ 504 $(15,631)
============ ============ ===========
Numerator for basic and diluted net
earnings (loss) per share
from continued operations -
income available to shareholders
of Ordinary shares $ (2,956) $ 504 $(15,851)
============ ============ ===========
Numerator for basic and diluted net
earnings per share from discontinued
operations - income available to
shareholders of Ordinary shares $ - $ - $ 220
============ ============ ===========
Numerator for basic and diluted net
earnings (loss) per share - income
available to shareholders of Ordinary
shares $ (2,956) $ 504 $(15,631)
============ ============ ===========
b. Denominator:
Denominator for basic net earnings
per share - weighted average
number of Ordinary shares 14,767 14,697 11,666
Effect of dilutive securities:
Employee stock options *) - 28 *) -
------------ ----------- -----------
Denominator for diluted net
earnings (loss) per share -
adjusted weighted average number
of Ordinary shares,
assumed exercise of options 14,767 14,725 11,666
============ =========== ===========
*) The effect of the inclusion of the options and warrants in
2001 and 2003 would have been antidilutive
F-31
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 15:- GEOGRAPHIC AND MAJOR CUSTOMERS INFORMATION
The Company manages its business on a basis of one reportable segment:
computer software integration tools and application development tools.
Total revenues are attributed to geographic areas based on the
location of the end customers. This data is presented in accordance
with Statement of Financial Accounting Standard No. 131, "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS No.
131").
Revenues from sales to unaffiliated customers:
Year ended December 31,
-----------------------------------------
2003 2002 2001
------------ ------------ -----------
Israel $ 2,952 $ 2,576 $ 2,761
United States 6,528 7,025 7,589
Europe 5,411 4,950 4,012
Far East 908 1,064 1,212
South America 369 1,500 1,066
Other 449 340 229
------------ ------------ -----------
$ 16,617 $ 17,455 $ 16,869
============ ============ ===========
The Company's long-lived assets are as follows:
December 31,
------------------------------
2003 2002
------------- -------------
Israel $ 11,144 $ 12,467
United States 180 274
Other 150 163
------------- -------------
$ 11,474 $ 12,904
============= =============
In 2003, the Company had a customer that accounted for 10.3% of
revenues; in 2002, a different customer accounted for 10.3%; and in
2001, no customer accounted for more than 10% of revenues.
F-32
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
U.S. dollars in thousands, except share and per share data
NOTE 16:- SELECTED STATEMENTS OF OPERATIONS DATA
a. Research and development costs, net:
Year ended December 31,
-----------------------------------------
2003 2002 2001
------------ ------------ -----------
Total costs $ 3,084 $ 3,033 $ 5,382
Capitalized software development costs (1,593) (1,595) (1,789)
------------ ------------ -----------
$ 1,491 $ 1,438 $ 3,593
============ ============ ===========
b. Restructuring and other non-recurring
charges:
Restructuring charges (1) $ - $ - $ 1,326
SSF lawsuit (2) 365 810 -
Burlington lease lawsuit (3) 560 290 -
Employment termination benefits (4) - 467 -
Others - 141 -
------------ ------------ -----------
$ 925 $ 1,708 $ 1,326
============ ============ ===========
(1) In September 2001, after sustaining substantial losses, the
Company implemented a restructuring plan. The plan consisted
of the involuntary termination of 30 employees and write-off
of leasehold improvements that have no useful use as a
result of the dismissal of employees. The Company recorded
restructuring changes in accordance with Emerging Issues
Task Force No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an
Activity (Including Certain costs in a restructuring) " and
Staff Accounting Bulletin No. 100, "Restructuring and
Impairment Changes".
(2) See Note 11c.
(3) In 2002, the Company's subsidiary in the United States
ceased the use of its former lease facilities before the end
of the agreement term, which will expire in September 2005.
The Company early adopted Statement of Financial Accounting
Standard No. 146, "Accounting for Costs Associated with Exit
Disposal Activities" ("SFAS No. 146"), which addresses the
recognition, measurement, and reporting of costs associated
with exit and disposal activities, including restructuring
activities.
According to SFAS No. 146, the Company recognized a one-time
charge, in a total amount of $290, related to the costs that
will continue to be incurred under the agreement for its
remaining time, without economic benefit to the Company.
The one-time charge was measured at its fair value at the
cease-of-use date, based on the future remaining lease
payments, reduced by estimated sublease rentals that could
be reasonably obtained for those facilities.
In 2003 the landlord sued the Company for non-payment of the
lease fees for 2003. In March 2004, the Company and the
landlord settled the dispute where the Company has agreed to
pay $825 and be released from the lease agreement.
F-33
ATTUNITY LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
U.S. dollars in thousands
NOTE 16:- SELECTED STATEMENTS OF OPERATIONS DATA (Cont.)
(4) One time charge related to employment termination of the
then chief executive officer of the Company and other
employees during 2002.
c. Impairment of investment and other assets:
Year ended December 31,
-----------------------------------------
2003 2002 2001
------------ ------------ -----------
Impairment of capitalized software
costs $ 1,543 $ - $ 2,386
Impairment of assembled workforce - - 272
------------ ------------ -----------
$ 1,543 $ - $ 2,658
============ ============ ===========
d. Financial income, net:
Financial income:
Gain on trading marketable securities $ 3 $ - $ -
Interest and other income 90 69 142
Foreign currency translation
differences 588 141 515
------------ ----------- -----------
681 210 657
------------ ----------- -----------
Financial expenses:
Interest (100) (69) (304)
Foreign currency translation
differences (345) - (305)
------------ ----------- -----------
(445) (69) (609)
------------ ----------- -----------
$ 236 $ 141 $ 48
============ =========== ===========
NOTE 17:- SUBSEQUENT EVENTS
In March 2004, the Company signed an agreement with a group of
investors ("the Group") that owns 2,043,146 shares and warrants to
purchase 2,208,489 shares at an exercise price of $ 1.75 and 736,162
shares at an exercise price of $ 2.25, according to which the Group
will invest, subject to a shareholders approval, an additional $ 2
million in the Company as a five-year convertible debenture at $ 1.75
per share, and warrants to purchase 480,000 Ordinary shares at an
exercise price of $ 1.75 per share.
- - - - - - - - - - - -
F:\W2000\2235\M\03\E$12.DOC
F-34
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATING RESULTS AND FINANCIAL REVIEW AND PROSPECTS
----------------------------------------------------
A. Operating Results
The following discussion and analysis should be read in conjunction with
our Financial Statements and notes thereto included elsewhere in this Report.
Overview
We are a leading provider of standards-based integration middleware for
accessing mainframe, enterprise data sources and legacy applications. Founded in
1988 and traded on the Nasdaq Stock Market, our worldwide operations support
over 1,000 end-users including many of the Fortune 1000. Through distribution
and OEM agreements with global-class partners such as Oracle and HP,
Attunity-based solutions are deployed on thousands of systems worldwide. Our
products are sold through direct sales and support offices in the United States,
the United Kingdom, France, Israel, the People's Republic of China, and
Australia, as well as distributors in Japan, S.E. Asia, Europe and Latin
America.
General
We maintain our books and records in Israeli currency in compliance with
statutory requirements and in United States dollars, or dollars. Approximately
83%(47% in dollars) of our revenues in 2003 and approximately 85% (49% in
dollars) of our revenues in 2002 were derived outside of Israel and received in
currencies other than the New Israeli Shekel, or NIS. In addition. a substantial
portion of Attunity and certain subsidiaries' costs is denominated in dollars.
Our management believes that the dollar is the primary currency in the economic
environment in which those companies operate. Thus, the functional and reporting
currency of those companies is the dollar.
Accordingly, monetary accounts maintained in currencies other than the dollar
are remeasured into dollars in accordance with Statement of Financial Accounting
Standard No. 52 "Foreign Currency Translation" ("SFAS No. 52"). All transactions
gains and losses of the remeasurement of monetary balance sheet items are
reflected in the statement of operations as financial income or expenses, as
appropriate.
The financial statements of the Israeli and other foreign subsidiaries, whose
functional currency is determined to be their local currency, have been
translated into dollars. All balance sheet accounts have been translated using
the exchange rates in effect at the balance sheet date. Statements of operations
amounts have been translated using the average exchange rate for the year. The
resulting translation adjustments are reported as a component of shareholders'
equity, accumulated other comprehensive loss.
Critical Accounting Policies
The preparation of financial statements requires us to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period.
On an on-going basis, we evaluate our estimates and judgments, including, but
not limited to those related to revenue recognition, bad debts and intangible
assets. We base our estimates and judgments on historical experience and on
various other factors 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. Under different assumptions or conditions, actual results may
differ from these estimates.
The following critical accounting policies, among others described in
note 2 to our financial statements, are the basis for our more significant
judgments and estimates used in the preparation of our consolidated financial
statements.
Bad debt allowance. An allowance for doubtful accounts is determined
with respect to those specific amounts that our management has determined to be
doubtful accounts. We perform ongoing credit evaluations of our customers. An
allowance for a doubtful account is determined with respect to those amounts
that we have determined to be doubtful of collection. Any changes in our
assumptions relating to the collectability of our accounts receivable, may
affect our financial position and results of operations.
Goodwill. Goodwill that resulted from transactions before July 1, 2001
was amortized using the straight-line method over the estimated useful life,
which is 7 to 10 years until December 31, 2001. SFAS No.142, "Goodwill and Other
Intangible Assets", requires goodwill to be tested for impairment on adoption
and at least annually thereafter or between annual tests in certain
circumstances, and written down when impaired, rather than being amortized as
previous accounting standards required. Goodwill is tested for impairment by
comparing the fair value of our company reporting unit with its carrying value.
Fair value was determined using discounted cash flows, market multiples and
comparative analysis. Significant estimates used in the methodologies include
estimates of future cash flows and estimates of market multiples for the
reportable unit. The use of different assumptions with respect to the expected
cash flows from our assets and other economic variables, primarily the discount
rate, may lead to different conclusions regarding the recoverability of our
assets' carrying values and to the potential need to record an impairment loss
for our intangible assets.
Research and Development Expenses, Net. Research and development costs,
are charged to income as incurred before technological feasibility is
established. Based on our product development process, technological feasibility
is established upon completion of a detailed program design. Costs that are
incurred between completion of a detailed program design and the point at which
the product is ready for general release
2
are capitalized according to the principles set forth in SFAS No. 86 "Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed."
Capitalized software costs are amortized on a product-by-product basis
commencing with general product release by the amount computed using the
straight-line method over the estimated useful life of the product (five years),
and are included in costs of revenues. At each balance sheet date, we assess the
recoverability of this intangible asset by comparing the unamortized capitalized
software costs to the net realizable value on a product-by-product basis. Under
different assumptions with respect to the recoverability of our intangible
assets, our determination may be different, which may negatively affect our
financial position and results of operations. In 2003, we recorded an impairment
charge of $1.5 million with respect to a product that is no longer being sold.
Contingencies. We are, from time to time, subject to proceedings and
other claims related to employees, an alleged lease agreement and other matters.
We are required to assess the likelihood of any outcomes to these matters as
well as potential ranges of probable losses. A determination of the amount of
reserves required, if any, for these contingencies is made after careful
analysis of each individual issue. The required reserves may change in the
future due to new developments in each matter or changes in approach such as a
change in settlement strategy in dealing with these matters.
Deferred Taxes. We record a valuation allowance to reduce our deferred
tax assets to an amount that is more likely than not to be realized. While we
have considered future taxable income and ongoing prudent and feasible tax
planning strategies in assessing the need for the valuation allowance, in the
event we were to determine that we would be able to realize our deferred tax
assets in the future in excess of our net recorded amount, an adjustment to the
deferred tax asset would increase income in the period such determination was
made. Likewise, should we determine that we would not be able to realize all or
part of our net deferred tax asset in the future, an adjustment to the deferred
tax asset would be charged to income in the period such determination was made.
Recent Accounting Pronouncements
In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities" ("FIN 46"). The objective of FIN 46 is to improve
financial reporting by companies involved with variable interest entities. A
variable interest entity is a corporation, partnership, trust, or any other
legal structure used for business purposes that either (a) does not have equity
investors with voting rights or (b) has equity investors that do not provide
sufficient financial resources for the entity to support its activities. FIN 46
requires a variable interest entity to be consolidated by a company if that
company is subject to a majority of the risk of loss from the variable interest
entity's activities or entitled to receive a majority of the entity's residual
returns or both. FIN 46 also requires disclosures about variable interest
entities that the company is not required to consolidate but in which it has a
significant variable interest. The consolidation requirements of FIN 46 apply
immediately to variable interest entities created after January 31, 2003. The
consolidation requirements apply to older entities in the first fiscal year or
interim period end after December 31, 2003. Certain of the disclosure
requirements apply in all financial statements issued after January 31, 2003,
regardless of
3
when the variable interest entity was established. As of December 31, 2003, the
Company does not expect the adoption of FIN 46 to have a material impact on its
consolidated financial statements.
In April 2003, the FASB issued SFAS No. 149 ("SFAS 149"), "Amendment
of Statement 133 on Derivative Instruments and Hedging Activities." SFAS 149
amends and clarifies (1) the accounting guidance on derivative instruments
(including certain derivative instruments embedded in other contracts) and (2)
hedging activities that fall within the scope of FASB Statement No. 133 ("SFAS
133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS 149
amends SFAS 133 to reflect decisions made (1) as part of the Derivatives
Implementation Group ("DIG") process that effectively required amendments to
SFAS 133, (2) in connection with other projects dealing with financial
instruments, and (3) regarding implementation issues related to the application
of the definition of a derivative. SFAS 149 is effective (1) for contracts
entered into or modified after June 30, 2003, with certain exceptions, and (2)
for hedging relationships designated after June 30, 2003. The guidance is to be
applied prospectively.
Generally, SFAS 149 improves financial reporting by (1) requiring
that contracts with comparable characteristics be accounted for similarly and
(2) clarifying when a derivative contains a financing component that warrants
special reporting in the statement of cash flows. SFAS 149 is not expected to
have a material impact on the Company's financial statements.
Results of Operations
The following discussion of our results of operations for the years
ended December 31, 2001, 2002 and 2003, including the following table, which
presents selected financial information as a percentage of total revenues, is
based upon our statements of operations contained in our financial statements
for those periods, and the related notes, included in this annual report.
2003 2002 2001
---- ---- ----
Revenues:
Software licenses.................... 36% 40% 38%
Maintenance and support.............. 35 34 29
Services............................. 29 26 33
Total revenues.................. 100 100 100
Cost of revenues:
Software licenses.................... 13 11 15
Maintenance and support.............. 5 4 6
Services............................. 25 22 29
Total cost of revenues.......... 43 37 50
Gross profit............................ 57 63 50
Research and development, net........ 9 8 21
Selling and marketing................ 36 31 72
4
General and administrative........... 16 11 25
Restructuring and other
non-recurring charges.............. 6 10 8
Impairment of software development
costs.............................. 9 - 16
Total operating expenses 76 60 142
Operating profit (loss)................ (19) 3 (92)
Financial income, net.................. 1 0 0
Taxes on income (tax benefit).......... 0 1 2
Profit (loss) from continuing
operations, net of taxes.............. (18) 2 (94)
Earnings from discontinued
operations of a segment, net of
taxes............................. - - 1
Gain (loss) on disposal of segment..... - - 1
------- ------- ----
Gain (loss) from discontinued - - -
operations.............................. ------- ------ ----
Net profit (loss)...................... (18)% 2% (93)%
======== == =====
Year Ended December 31, 2003 Compared with Year Ended December 31, 2002
Revenues. Our revenues are derived primarily from software licenses,
maintenance and support and professional services. Total revenues decreased 4.8%
to $16.7 million in 2003 from $17.5 million in 2002. This decrease is mainly
attributable to a 12.8% decrease in license revenues, which decreased to $6
million in 2003 from $6.9 million in 2002. We expect that our license revenue
will increase in 2004 based on our current license pipeline and that our
revenues from maintenance, support and professional services will remain at the
same level in 2004.
Cost of Revenues. Cost of license revenues consists primarily of
production costs including media, packaging, freight and documentation,
amortization of capitalized software development costs and certain royalties and
licenses payable to third parties and to the Office of the Chief Scientist of
the Ministry of Industry and Trade, or the Chief Scientist. Cost of maintenance,
support and services consists primarily of salaries of employees performing the
services and related overhead. Our cost of revenues increased 11% to $7.1
million in 2003 from $6.4 million in 2002 primarily due to the increase in
royalties to the Chief Scientist and increase in cost of services in our
European operations resulting from local currency changes against the dollar. We
anticipate that our cost of revenues as a percentage of sales will remain the
same in 2004.
Gross Profit. Our gross profit decreased 13.9% to $9.5 million in 2003
from $11.1 million in 2002, as a direct result of decreased revenues and
increased cost of revenues in 2003.
Research and Development, Net. Research and development expenses
consist primarily of salaries of employees engaged in on-going research and
development
5
activities and other related costs. Total research and development costs, before
capitalized software costs, increased by 1.7% to $3.1 million in 2003 from $3
million in 2002. The increase is principally attributable to an increase in
salaries. We capitalized approximately $1.6 million of software developments
costs in 2003 and 2002. As a result of the foregoing, net research and
development costs increased by 3.7% to $1.5 million in 2003 from $1.4 million in
2002. We do not plan to significantly increase our expenditures for research and
development in 2004.
Selling and Marketing. Selling and marketing expenses consist primarily
of costs relating to compensation and overhead to sales, marketing and business
development personnel, travel and related expenses, advertising expenses and
sales offices maintenance and administrative costs. Selling and marketing
expenses increased by 10.6% to $5.9 million in 2003 from $5.4 million in 2002
due to an increase in marketing and business development investments. We expect
that our selling and marketing expenses will increase in 2004 as a result of our
decision to add sales personnel and to increase our marketing expenses as part
of our plan to increase our license revenues.
General and Administrative. General and administrative expenses consist
primarily of compensation costs for administration, finance and general
management personnel, legal, audit, other administrative costs and bad debts.
General and administrative expenses increased by 41.8% to $2.7 million in 2003
from $1.9 million in 2002. The increase is principally attributable to the
increase of $0.4 million in bad debts in our Asia and Israeli operations, higher
legal fees, hiring a new CFO and to an increase in the compensation of our
Chairman and CEO. We do not believe that our general and administrative expenses
will increase significantly in 2004.
Restructuring and Other Non-Recurring Charges. We recorded non-recurring
charges of $0.4 million and $0.8 million relating to legal dispute with the
Special Situations Funds in 2003 and 2002 respectively and $0.6 million and $0.3
million relating to legal dispute with the landlord of our former offices in
Massachusetts in 2003 and 2002 respectively. Both disputes were resolved in
early 2004 without additional costs. In 2002 we had $0.6 million of charges
relating to severance payments and other expenses.
Impairment of software development costs. We recorded $1.5 million asset
impairment charge with respect to our capitalized software costs of a product we
no longer sell.
Operating Income (Loss). Based on the foregoing, we recorded an
operating loss of $3.1 million in 2003 compared to an operating profit of $0.6
million in 2002.
Financial Income, Net. Our financial income was offset in part by (i)
interest expense and (ii) currency translation adjustments between the dollar
and Europeans and Israeli currency. In 2003, we had net financial income of
$236,000 as compared to $141,000 in 2002. This increase in financial income is
attributable mainly to foreign currency translation adjustments.
6
Taxes on Income. Income taxes for 2003 were $84,000 compared with
$264,000 in 2002. In 2002, we incurred higher taxes due to a required increase
in withholding of taxes on export sales.
Year Ended December 31, 2002 Compared with Year Ended December 31, 2001
Revenues. Total revenues increased 3.5% to $17.5 million in 2002 from
$16.8 million in 2001. This increase is mainly attributable to a 9% increase in
revenues from software licenses, which increased to $6.9 million in 2002 from
$6.3 million in 2001.
Cost of Revenues. Cost of revenues decreased 24.6% to $6.3 million in
2002 from $8.5 million in 2001 primarily due to the decrease in amortization of
capitalized software development costs and salary expenses.
Gross Profit. Gross profit increased 31.6% to $11.1 million in 2002 from
$8.4 million in 2001, as a direct result of increased revenues and decreased
cost of revenues in 2002.
Research and Development, Net. Total research and development costs
decreased by 43.6% to $3 million in 2002 from $5.4 million in 2001. The decrease
is principally attributable to a decrease in headcount and in salaries. We
capitalized approximately $1.6 million of software developments costs in 2002
and $1.8 million in 2001. As a result of the foregoing, net research and
development costs decreased by 60.0% to $1.4 million in 2002 from $3.6 million
in 2001.
Selling and Marketing, Net. Selling and marketing expenses decreased by
55.7% to $5.4 million in 2002 from $12.1 million in 2001 due to a substantial
decrease in marketing investments and a reduction in headcount.
General and Administrative. General and administrative expenses
decreased by 54.1% to $1.9 million in 2002 from $4.2 million in 2001. The
decrease is principally attributable to the decrease in headcount and decreased
lease and salary expenses.
Restructuring and Other Non-Recurring Charges. We recorded non-recurring
charges of $0.8 million and $0.3 million relating to legal disputes with the
Special Situations Funds and with the landlord of our former offices in
Massachusetts respectively and $0.6 million relating to severance payments and
other expenses in 2002, compared with restructuring charges of $1.3 million
relating to severance payments, write-off of leasehold improvements and other
related expenses in 2001.
Impairment of software development costs and Other. We recorded a $2.4
million asset impairment charge with respect to our capitalized software
development costs and $0.3 relating assembled workforce in 2001.
Operating Income (Loss). Based on the foregoing, we recorded an
operating income of $0.6 million in 2002 compared to an operating loss of $15.5
million in 2001.
7
Financial Income, Net. In 2002, we had net financial income of $141,000
as compared to $48,000 in 2001. This increase in financial income is
attributable to foreign currency translation adjustments.
Taxes on Income. The income taxes for 2002 were $264,000 compared with
an income tax provision of $402,000 in 2001.
Gain on Disposal of Segment. We recorded a $201,000 gain in 2001 with
respect to provisions related to the disposal of Medatech in our financial
statements for 2000.
Net Income (Loss). As a result of the foregoing, we had net income of
$0.5 million in 2002 compared to a net loss of $15.6 million in 2001.
Conditions in Israel
Since the establishment of the State of Israel in 1948, a number of
armed conflicts have taken place between Israel and its Arab neighbors, and a
state of hostility, varying from time to time in intensity and degree, has led
to security and economic problems for Israel. Since September 2000, there has
been a marked increase in violence, civil unrest and hostility, including armed
clashes, between the State of Israel and the Palestinians, and acts of terror
have been committed inside Israel and against Israeli targets in the West Bank
and Gaza. There is no indication as to how long the current hostilities will
last or whether there will be any further escalation. Any further escalation in
these hostilities or any future armed conflict, political instability or
violence in the region may have a negative effect on our business condition,
harm our results of operations and adversely affect our share price.
Furthermore, there are a number of countries that restrict business with Israel
or Israeli companies. Restrictive laws or policies of those countries directed
towards Israel or Israeli businesses may have an adverse impact on our
operations, our financial results or the expansion of our business.
In addition, some of our executive officers and employees in Israel are
obligated to perform up to 36 days, depending on rank and position, of military
reserve duty annually and are subject to being called for active duty under
emergency circumstances. If a military conflict or war arises, these individuals
could be required to serve in the military for extended periods of time. Our
operations could be disrupted by the absence for a significant period of one or
more of our executive officers or key employees or a significant number of other
employees due to military service. Any disruption in our operations could
adversely affect our business.
To date, no executive officer or key employee was recruited for military
service for any significant time period. Any further deterioration of the
hostilities between Israel and its Arab neighbors into a full scale conflict
might require more significant military reserve service by some of our
employees, which may have a material adverse effect on our business.
8
Economic Conditions
In recent years Israel has been going through a period of recession in
economic activity, resulting in low growth rates and growing unemployment. Our
operations could be adversely affected if the economic conditions in Israel
continue to deteriorate. In addition, due to significant economic measures
proposed by the Israeli Government, there have been several general strikes and
work stoppages in 2003 and 2004, affecting all banks, airports and ports. These
strikes have had an adverse effect on the Israeli economy and on business,
including our ability to deliver products to our customers. Following the
passing by the Israeli Parliament of laws to implement the economic measures,
the Israeli trade unions have threatened further strikes or work-stoppages, and
these may have a material adverse effect on the Israeli economy and on us.
Trade Agreements
Israel is a member of the United Nations, the International Monetary
Fund, the International Bank for Reconstruction and Development and the
International Finance Corporation. Israel is a signatory to the General
Agreement on Tariffs and Trade, which provides for reciprocal lowering of trade
barriers among its members. In addition, Israel has been granted preferences
under the Generalized System of Preferences from the U.S., Australia, Canada and
Japan. These preferences allow Israel to export products covered by such
programs either duty-free or at reduced tariffs.
Israel and the European Union Community concluded a Free Trade Agreement
in July 1975 which confers certain advantages on Israeli exports to most
European countries and obligates Israel to lower its tariffs on imports from
these countries over a number of years. In 1985, Israel and the U.S. entered
into an agreement to establish a free trade area. The free trade area has
eliminated all tariff and specified non-tariff barriers on most trade between
the two countries. On January 1, 1993, an agreement between Israel and the
European Free Trade Association, known as EFTA, which includes Austria, Finland,
Iceland, Liechtenstein, Norway, Sweden and Switzerland, established a free-trade
zone between Israel and the EFTA nations. In November 1995, Israel entered into
a new agreement with the European Union, which includes redefinement of rules of
origin and other improvements, including providing for Israel to become a member
of the research and technology programs of the European Union. In recent years,
Israel has established commercial and trade relations with a number of other
nations, including China, India, Russia, Turkey and other nations in Eastern
Europe and Asia.
Effective Corporate Tax Rate
Israeli companies are generally subject to income tax at the corporate
rate of 36% of taxable income. We have been granted the status of an "Approved
Enterprise" under the Law for the Encouragement of Capital Investments, 1959
(the "Investment Law") with respect to our production facilities. An enlargement
project of ours was granted "Approved Enterprise" status in December 1998. In
accordance with the provisions of the Investment Law, we have elected to enjoy
"alternative benefits," wherein a company waives the receipt of grants in return
for a tax exemption. Income derived from an
9
"Approved Enterprise" is tax-exempt for a period of two years, commencing with
the year it first earns taxable income, and is subject to corporate tax at the
rate of 10% to 25% for additional periods of five to eight years based on the
percentage of foreign investments in our company. Our subsidiary, Attunity
Software Services Ltd., or ASS granted "Approved Enterprise" status for two
separate investment programs from 1991 and 1993 whereby it has elected to
receive Government grants and to enjoy the benefit of a reduced tax rate of 25%
during a period of seven years commencing with the year it first earns taxable
income. The period of tax benefits, detailed above, is subject to limits of the
earlier of twelve years from the commencement of production, or fourteen years
from the date of approval. In 1993, ASS received approval for an expansion of
the aforementioned programs whereby it elected to enjoy "alternative benefits" -
waiver of grants in return for tax exemption - and, accordingly, its income from
the "Approved Enterprise" will be tax-exempt for a period of ten years
commencing with the year it first earns taxable income. As of December 31, 2003,
ASS has not received final approvals for such programs.
Since we currently have no taxable income, the benefits have not yet
commenced for all programs. Should we or ASS derive income from sources other
than the "Approved Enterprise" during the periods of benefits, such income shall
be taxable at the regular corporate tax rate of 36%. Our taxes outside Israel
are dependent on our operations in each jurisdiction as well as relevant laws
and treaties. Under Israeli tax law, the results of our foreign consolidated
subsidiaries, which have generally been unprofitable, cannot be consolidated for
tax purposes with the results of operations of the parent company.
Impact of Currency Fluctuations and of Inflation
Our financial results may be negatively impacted by foreign currency
fluctuations. Our foreign operations are generally transacted through our
international sales subsidiaries in Europe, the Middle East and Africa, and Asia
Pacific. As a result, these sales and related expenses are denominated in
currencies other than the U.S. dollar. Because our financial results are
reported in U.S. dollars, our results of operations may be adversely impacted by
fluctuations in the rates of exchange between the U.S. dollar and other
currencies, including:
o a decrease in the value of currencies in certain of the EMEA or
APAC relative to the U.S. dollar, which would decrease our
reported U.S. dollar revenue, as we generate revenue in these
local currencies and report the related revenue in U.S. dollars;
and
o an increase in the value of currencies in certain of the
EMEA or APAC, or Israel relative to the U.S.
dollar, which would increase our sales and marketing costs in
these countries and would increase research and development
costs in Israel.
10
The dollar cost of our operations in Israel is influenced by the extent
to which any increase in the rate of inflation in Israel is (or is not) offset,
or is offset on a lagging basis, by the devaluation of the NIS in relation to
the dollar. Unless offset by a devaluation of the NIS, inflation in Israel will
have a negative effect on our profitability as we incur expenses, principally
salaries and related personnel expenses, in NIS. For several years prior to
1997, the rate of inflation in Israel exceeded the rate of devaluation of the
NIS against the dollar and companies experienced increases in the dollar cost of
their operations in Israel. This trend was reversed during 1997 and 1998. In
1999 and 2000, the rate of inflation exceeded the rate of devaluation of the NIS
against the U.S. dollar. In 2001 and 2002, the devaluation rate again exceeded
the inflation rate in Israel. In 2003 the rate of inflation was negative and the
NIS was revaluated vis-a-vis the dollar. We cannot assure you that we will not
be materially and adversely affected in the future if inflation in Israel
exceeds the devaluation of the NIS against the dollar or if the timing of such
devaluation lags behind inflation in Israel.
The following table sets forth, for the periods indicated, information
with respect to the rate of inflation in Israel, the rate of devaluation of the
NIS against the dollar, and the rate of inflation in Israel adjusted for such
devaluation:
Israeli
Israeli inflation
Year ended Israeli Israeli devaluation adjusted for
December 31, price index inflation rate % rate % devaluation %
------------ ----------- ---------------- ------ -------------
1999 408.0 1.3 (0.2) 1.5
2000 408.0 0 (2.7) 2.8
2001 413.8 1.4 9.3 (7.8)
2002 440.65 6.4 7.3 (0.7)
2003 432.34 (1.9) (7.6) 6.1
A devaluation of the NIS in relation to the dollar has the effect of
reducing the dollar amount of any of our expenses or liabilities which are
payable in NIS (unless such expenses or payables are linked to the dollar). Such
devaluation also has the effect of decreasing the dollar value of any asset,
which consists of NIS or receivables payable in NIS (unless such receivables are
linked to the dollar). Conversely, any increase in the value of the NIS in
relation to the dollar has the effect of increasing the dollar value of any
unlinked NIS assets and the dollar amounts of any unlinked NIS liabilities and
expenses.
B. Liquidity and Capital Resources
Historically, we have financed our operations through cash generated by
operations, funds generated by our public offering in 1992 (approximately $12
million), private equity investments (approximately $24.8 million), exercise of
stock options and warrants (approximately $9.5 million) as well as from research
and development and marketing grants, primarily from the Government of Israel.
In March 2000, we raised net proceeds of approximately $13 million in a private
placement of our securities. In October 2001, we raised additional proceeds of
approximately $5 million in a private
11
placement of our securities. On a limited basis we have also financed our
operations through short-term loans and borrowings under available credit
facilities.
In March 2004 we signed an agreement with a group of investors that
owns 2,043,146 of our shares and warrants to purchase an additional 2,944,651
shares at exercise prices of $1.75 and $2.25, according to which the group will
invest, subject to shareholder approval, an additional $2 million in our company
in the form of a five-year convertible debenture, convertible at $1.75 per share
and warrants to purchase 480,000 ordinary shares at an exercise price of $1.75
per share.
As of December 31, 2003, we had $3.3 million in cash, cash equivalents,
restricted cash and marketable securities as compared to $2.8 million in cash
and cash equivalents at December 31, 2002. As of December 31, 2003, we had a
bank line of credit of approximately $0.2 million, which is unused.
As of December 31, 2003 we had $52,000 in long-term loans from United
Mizrachi Bank Ltd. These loans bear interest ranging between 5% to 7.8%.
Principal and interest are linked to the Israeli Consumer Price Index.
Net cash provided by operating activities was $2.4 million in 2003 and
$1.7 million in 2002. Net cash used in investing activities was $2.8 million in
2003 and $1.8 million in 2002, which funds were used primarily for software
development costs. Net cash used in financing activities was $0.1 million in
2003 and $0.2 million in 2002.
Our principal commitments consist of obligations outstanding under
operating leases. Our capital expenditures were approximately $288,000 in 2003
and $199,000 in 2002. The majority of our capital expenditures were for
computers and software. We currently do not have significant capital spending or
purchase commitments.
We anticipate that our existing capital resources and the additional
funds provided by the convertible debenture, once approved by the shareholders
meeting, will be adequate to satisfy our working capital and capital expenditure
requirements until December 31, 2004, but we may need to raise additional funds
in the next twelve months in order to provide the necessary capital for our
working capital and capital expenditure requirements.
C. Research and Development, Patents and Licenses
The software industry is characterized by rapid product change resulting
from new technological developments, performance improvements and lower hardware
costs and is highly competitive with respect to timely product innovation. We,
through our research and development and support personnel, work closely with
our customers and prospective customers to determine their requirements, to
design enhancements and new releases to meet their needs and to adapt our
products to new platforms, operating systems and databases. Research and
development activities for all products principally take place in our research
and development facilities in Israel. As of December 31, 2003, we employed 37
persons in research and development.
12
We seek external resources for co-financing our development projects,
mainly from the Office of the Chief Scientist of the Israeli Ministry of
Industry and Trade. The Chief Scientist participated in financing Attunity
Connect(TM), APTuser(R) and the Hungarian version of Mancal 2000. Under the
Israeli Law for the Encouragement of Industrial Research and Development, or the
Research Law, research and development programs approved by the research
committee of the Chief Scientist are eligible for grants of up to 50% of project
expenditures if they meet certain criteria, in return for the payment of
royalties from the sale of the product developed in accordance with the program.
The terms of these grants prohibit the manufacture outside of Israel or the
transfer of the technology developed pursuant to the terms of these grants to
any person or entity without the prior consent of the Chief Scientist. The
Research Law also provides that know-how from the research and development which
is used to produce the product may not be transferred to third parties without
the approval of the Chief Scientist. There can be no assurance that such
consent, if requested, will be granted.
We have committed substantial financial resources to our research and
development efforts. During 2001, 2002 and 2003, our research and development
expenditures were $5.4 million, $3.0 million and $3.1 million, respectively. We
did not receive any reimbursement from the Chief Scientist during the last three
years. We capitalized computer software development costs of $1.8 million, $1.6
million and $1.6 million in 2001, 2002 and 2003, respectively. We believe that
our investment in product development activities in 2004 will be consistent with
our expenditures in 2003.
D. Trend Information
We expect that our results will continue to be impacted by the continued
decline in revenues from our legacy products and by increased sales and
marketing expenditures while we attempt to gain market acceptance for our data
integration products. As a result of an unpredictable business environment and
long sales cycles we are unable to provide any guidance as to sales and
profitability trends.
As a result of unfavorable decision against us in our litigation with
the various Special Situation Funds and a settlement we reached with the
landlord of our former offices in Massachusetts, we incurred a liability of $1.9
million in the years ended December 31, 2003 and 2002 with respect to these
matters. In March 2004, we paid the Special Situation Funds $684,000 and agreed
to pay $825,000 to the landlord of our former offices in Massachusetts in full
satisfaction of our lease commitment.
E. Off-Balance Sheet Arrangements
We are not a party to any material off-balance sheet arrangements. In
addition, we have no unconsolidated special purpose financing or partnership
entities that are likely to create material contingent obligations.
13
F. Tabular Disclosure of Contractual Obligations
The following table summarizes our minimum contractual obligations and
commercial commitments, including obligations of discontinued operations, as of
December 31, 2003 and the effect we expect them to have on our liquidity and
cash flow in future periods.
Contractual Obligations Payments due by Period
----------------------------------- -------------------------------------------
less than
Total 1 year 1-3 Years 3-5 Years
------ --------- --------- ---------
Long-term debt obligations....... $ 93 $ 41 $ 52 $ -
Capital (finance) lease obligations 108 61 67 -
Operating lease obligations (*).. 1,549 590 889 70
----- --- --- --
Total............................ $1,750 $ 692 $1,008 $ 70
(*) Does not include an operating lease obligation of $ 2,005 for which
we have entered into a settlement agreement to be completed in early April 2004
that provides for a payment of $825 in full satisfaction of the obligation.
14
Item 3
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements on
Forms F-3 (File No. 333-14140, 333-11972 and 333-12450) and Registration
Statements on Forms S-8 (File No. 333-84180, 333-932 and 333-11648) of Attunity
Ltd. ("the Company") of our report dated March 11, 2004 with respect to the
consolidated financial statements of the Company for the year ended December 31,
2003 included in the Company's Report on Form 6-K for the month of March 2004.
/s/Kost Forer Gabbay and Kasierer
Tel-Aviv, Israel KOST FORER GABBAY & KASIERER
March 30, 2004 A member of Ernst & Young Global
Item 4
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002
I, Arie Gonen:
1. I have reviewed this filing of our financial statement for the year ended
December 31, 2003 on Form 6-K of Attunity Ltd.;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13(a)-15(e) and 15d-15(e)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, 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 report is being prepared;
(b) [Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986]
(c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the
audit committee of the registrant's board of directors (or persons performing
the equivalent function):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: March 30, 2004
/s/Arie Gonen *
---------------
Arie Gonen
Chief Executive Officer
* The originally executed copy of this Certification will be maintained at the
Company's offices and will be made available for inspection upon request.
Item 5
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002
I, Ofer Segev, certify that:
1. I have reviewed this filing of our financial statement for the year ended
December 31, 2003 on Form 6-K of Attunity Ltd.;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13(a)-15(e) and 15d-15(e)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, 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 report is being prepared;
(b) [Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986]
(c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the period covered by the annual
report that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the
audit committee of the registrant's board of directors (or persons performing
the equivalent function):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: March 30, 2004
/s/Ofer Segev *
---------------
Ofer Segev
Chief Financial Officer
* The originally executed copy of this Certification will be maintained at the
Company's offices and will be made available for inspection upon request.
Item 6
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the filing of the financial statements for the year-ended
December 31, 2003 of Attunity Ltd. (the "Company") on Form 6-K as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Arie
Gonen, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/Arie Gonen*
--------------
Arie Gonen
Chief Executive Officer
March 30, 2004
* The originally executed copy of this Certification will be maintained at the
Company's offices and will be made available for inspection upon request.
Item 7
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the filing of the financial statements for the year-ended
December 31, 2003 of Attunity Ltd. (the "Company") on Form 6-K as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Ofer
Segev, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/Ofer Segev*
--------------
Ofer Segev
Chief Financial Officer
March 30, 2004
* The originally executed copy of this Certification will be maintained at the
Company's offices and will be made available for inspection upon request.
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.
ATTUNITY LTD
------------
(Registrant)
By: /s/Arie Gonen
-----------------
Arie Gonen
Chief Executive Officer
Date: March 30, 2004