Form
20-F [X] |
Form
40-F [ ] |
Yes
[ ] |
No
[X] |
1. |
Consolidated
Financial Statements of Attunity Ltd and Its Subsidiaries as of December
31, 2004 | |
2. |
Operating
and Financial Review and Prospects | |
3. |
Exhibit
23.1-Consent of Kost Forer Gabbay &
Kasierer |
Page | |
Report
of Independent Registered Public Accounting Firm |
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 |
Tel-Aviv,
Israel |
/s/
Kost Forer Gabbay and Kasierer
KOST
FORER GABBAY & KASIERER |
January
30, 2005 |
A
Member of Ernst & Young Global |
December
31, |
|||||||
2004 |
2003 |
||||||
ASSETS |
|||||||
CURRENT
ASSETS: |
|||||||
Cash
and cash equivalents |
$ |
1,602 |
$ |
2,073 |
|||
Restricted
cash |
73 |
902 |
|||||
Short-term
bank deposits |
115 |
120 |
|||||
Marketable
securities |
- |
200 |
|||||
Trade
receivables (net of allowance for doubtful accounts of $ 145 and
$
312 at December 31, 2004 and 2003, respectively) |
2,667 |
2,845 |
|||||
Severance
pay fund |
249 |
- |
|||||
Other
accounts receivable and prepaid expenses |
1,146 |
1,006 |
|||||
|
|||||||
Total
current assets |
5,852 |
7,146 |
|||||
|
|||||||
LONG-TERM
PREPAID EXPENSES |
64 |
- |
|||||
|
|||||||
SEVERANCE
PAY FUND |
698 |
1,592 |
|||||
|
|||||||
PROPERTY
AND EQUIPMENT, NET |
841 |
926 |
|||||
|
|||||||
SOFTWARE
DEVELOPMENT COSTS, NET |
4,213 |
4,512 |
|||||
|
|||||||
GOODWILL
|
6,200 |
6,036 |
|||||
|
|||||||
DEFERRED
EXPENSES, NET |
275 |
- |
|||||
|
|||||||
Total
assets |
$ |
18,143 |
$ |
20,212 |
December
31, |
|||||||
2004 |
2003 |
||||||
LIABILITIES
AND SHAREHOLDERS' EQUITY |
|||||||
CURRENT
LIABILITIES: |
|||||||
Short-term
bank credit |
$ |
- |
$ |
206 |
|||
Current
maturities of long-term debt |
70 |
102 |
|||||
Trade
payables |
754 |
583 |
|||||
Deferred
revenues |
2,298 |
2,090 |
|||||
Employee
and payroll accruals |
1,490 |
1,239 |
|||||
Accrued
severance pay |
285 |
- |
|||||
Accrued
expenses and other liabilities |
2,227 |
3,479 |
|||||
|
|||||||
Total
current liabilities |
7,124 |
7,699 |
|||||
|
|||||||
LONG-TERM
LIABILITIES: |
|||||||
Long-term
debt |
62 |
99 |
|||||
Convertible
debt, net issued to principal shareholders |
277 |
- |
|||||
Accrued
severance pay |
1,008 |
1,941 |
|||||
|
|||||||
Total
long-term liabilities |
1,347 |
2,040 |
|||||
|
|||||||
COMMITMENTS
AND CONTINGENT LIABILITIES |
|||||||
|
|||||||
SHAREHOLDERS'
EQUITY: |
|||||||
Share
capital - Ordinary shares of NIS 0.1 par value -
Authorized:
30,000,000 value at December 31, 2004 and 2003; Issued and outstanding:
15,356,740 and 14,767,432 shares at
December
31, 2004 and 2003, respectively |
539 |
525 |
|||||
Additional
paid-in capital |
89,618 |
86,504 |
|||||
Accumulated
other comprehensive loss |
(148 |
) |
(259 |
) | |||
Accumulated
deficit |
(80,337 |
) |
(76,297 |
) | |||
|
|||||||
Total
shareholders' equity |
9,672 |
10,473 |
|||||
|
|||||||
Total
liabilities and shareholders' equity |
$ |
18,143 |
$ |
20,212 |
Year
ended December 31, |
||||||||||
2004 |
2003 |
2002 |
||||||||
Revenues: |
||||||||||
Software
licenses |
$ |
7,258 |
$ |
6,045 |
$ |
6,931 |
||||
Maintenance
and support |
5,853 |
5,832 |
6,057 |
|||||||
Services |
4,526 |
4,740 |
4,467 |
|||||||
17,637 |
16,617 |
17,455 |
||||||||
Cost
of revenues: |
||||||||||
Software
licenses |
2,164 |
2,094 |
1,878 |
|||||||
Maintenance
and support |
1,036 |
801 |
715 |
|||||||
Services
|
4,253 |
4,184 |
3,782 |
|||||||
Impairment
of capitalized software development costs |
- |
1,543 |
- |
|||||||
7,453 |
8,622 |
6,375 |
||||||||
Gross
profit |
10,184 |
7,995 |
11,080 |
|||||||
Operating
expenses: |
||||||||||
Research
and development, net |
1,475 |
1,491 |
1,438 |
|||||||
Selling
and marketing |
7,878 |
5,938 |
5,369 |
|||||||
General
and administrative |
2,580 |
2,749 |
1,938 |
|||||||
Costs
in respect of lawsuits |
- |
925 |
1,100 |
|||||||
Restructuring
and termination costs |
1,786 |
- |
608 |
|||||||
Total
operating expenses |
13,719 |
11,103 |
10,453 |
|||||||
Operating
income (loss) |
(3,535 |
) |
(3,108 |
) |
627 |
|||||
Financial
income (expenses), net |
(466 |
) |
236 |
141 |
||||||
Other
income |
40 |
- |
- |
|||||||
Income
(loss) before taxes on income |
(3,961 |
) |
(2,872 |
) |
768 |
|||||
Income
taxes |
79 |
84 |
264 |
|||||||
Net
income (loss) |
$ |
(4,040 |
) |
$ |
(2,956 |
) |
$ |
504 |
||
Basic
and diluted net earnings (loss) per share |
$ |
(0.27 |
) |
$ |
(0.20 |
) |
$ |
0.03 |
||
Weighted
average number of shares used in computing basic net earnings (loss) per
share |
15,151 |
14,767 |
14,697 |
|||||||
Weighted
average number of shares used in computing diluted net earnings (loss) per
share |
15,151 |
14,767 |
14,725 |
Accumulated |
|||||||||||||||||||||||||
Additional |
Treasury |
other |
Total |
Total |
|||||||||||||||||||||
Ordinary
shares |
paid-in |
shares
at |
comprehensive |
Accumulated |
comprehensive |
shareholders' |
|||||||||||||||||||
Shares |
Amount |
capital |
cost |
Income
(loss) |
deficit |
income
(loss) |
equity |
||||||||||||||||||
Balance
as of January 1, 2002 |
14,580,160 |
$ |
520 |
$ |
86,557 |
$ |
(31 |
) |
$ |
(876 |
) |
$ |
(73,845 |
) |
$ |
12,325 |
|||||||||
Exercise
of employees stock options |
187,272 |
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 |
14,767,432 |
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 |
14,767,432 |
525 |
86,504 |
- |
(259 |
) |
(76,297 |
) |
10,473 |
||||||||||||||||
Exercise
of warrants |
496,891 |
12 |
807 |
- |
- |
819 |
|||||||||||||||||||
Exercise
of employee by stock options |
92,417 |
2 |
115 |
- |
- |
117 |
|||||||||||||||||||
Warrants
issued in consideration for credit line |
- |
- |
256 |
- |
- |
256 |
|||||||||||||||||||
Detachable
warrants and beneficial conversion feature related to convertible debt,
net (see Note 9) |
- |
- |
1,936 |
- |
- |
1,936 |
|||||||||||||||||||
Other
comprehensive income: |
|||||||||||||||||||||||||
Foreign
currency translation adjustments |
- |
- |
- |
- |
111 |
- |
$ |
111 |
111 |
||||||||||||||||
Net
loss |
- |
- |
- |
- |
- |
(4,040 |
) |
(4,040 |
) |
(4,040 |
) | ||||||||||||||
Total
comprehensive loss |
$ |
(3,929 |
) |
||||||||||||||||||||||
|
|||||||||||||||||||||||||
Balance
as of December 31, 2004 |
15,356,740 |
$ |
539 |
$ |
89,618 |
$ |
- |
$ |
(148 |
) |
$ |
(80,337 |
) |
$ |
9,672 |
Year
ended December 31, |
||||||||||
2004 |
2003 |
2002 |
||||||||
Cash
flows from operating activities: |
||||||||||
Net
income (loss) |
$ |
(4,040 |
) |
$ |
(2,956 |
) |
$ |
504 |
||
Adjustments
required to reconcile net income (loss) to net cash provided by (used in)
operating activities: |
||||||||||
Depreciation |
391 |
543 |
679 |
|||||||
Amortization
of deferred expenses |
111 |
- |
- |
|||||||
Amortization
of debt discount |
277 |
- |
- |
|||||||
Amortization
of capitalized software development costs |
1,874 |
1,613 |
1,590 |
|||||||
Impairment
of capitalized software development costs |
- |
1,543 |
- |
|||||||
Gain
from sale of property and equipment |
(40 |
) |
- |
- |
||||||
Decrease
in accrued severance pay, net |
(5 |
) |
(74 |
) |
(18 |
) | ||||
Decrease
(increase) in trade receivables |
247 |
311 |
(552 |
) | ||||||
Decrease
(increase) in other accounts receivables and prepaid
expenses |
19 |
149 |
(101 |
) | ||||||
Increase
in long-term prepaid expenses |
(64 |
) |
- |
- |
||||||
Increase
(decrease) in trade payables |
143 |
99 |
(691 |
) | ||||||
Increase
(decrease) in deferred revenues |
150 |
178 |
(291 |
) | ||||||
Increase
(decrease) in employee and payroll accruals |
191 |
284 |
(447 |
) | ||||||
Decrease
(increase) in marketable securities, net |
205 |
(214 |
) |
24 |
||||||
Increase
(decrease) in accrued expenses and other liabilities |
(1,332 |
) |
915 |
926 |
||||||
Compensation
in respect of warrants granted to a consultant |
- |
- |
50 |
|||||||
Others |
(3 |
) |
- |
(9 |
) | |||||
Net
cash provided by (used in) operating activating |
(1,876 |
) |
2,391 |
1,664 |
||||||
Cash
flows from investing activities: |
||||||||||
Investment
in restricted cash |
- |
(902 |
) |
- |
||||||
Proceeds
from restricted cash |
830 |
- |
- |
|||||||
Short-term
deposits, net |
10 |
(32 |
) |
(88 |
) | |||||
Purchase
of property and equipment |
(364 |
) |
(238 |
) |
(199 |
) | ||||
Capitalization
of software
development costs |
(1,575 |
) |
(1,593 |
) |
(1,595 |
) | ||||
Proceeds
from sale of property and equipment |
112 |
6 |
46 |
|||||||
|
||||||||||
Net
cash used in investing activities |
(987 |
) |
(2,759 |
) |
(1,836 |
) | ||||
Cash
flows from financing activities: |
||||||||||
Proceeds
from exercise of employee stock options |
117 |
- |
5 |
|||||||
Proceeds
from exercise of warrants |
819 |
- |
- |
|||||||
Issuance
of convertible debt and detachable warrants, net of issuance
expenses |
1,689 |
- |
- |
|||||||
Receipt
of long-term debt |
35 |
69 |
86 |
|||||||
Repayment
of long-term debt |
(107 |
) |
(180 |
) |
(259 |
) | ||||
Short-term
bank credit, net |
(206 |
) |
32 |
2 |
||||||
Issuance
expenses related to issuance of shares in 2001 |
- |
- |
(103 |
) | ||||||
Proceeds
from treasury shares in respect of a senior employee |
- |
- |
31 |
|||||||
Net
cash provided by (used in) financing activities |
2,347 |
(79 |
) |
(238 |
) | |||||
|
||||||||||
Foreign
currency translation adjustments on cash and cash
equivalents |
45 |
(173 |
) |
58 |
||||||
|
||||||||||
Decrease
in cash and cash equivalents |
(471 |
) |
(620 |
) |
(352 |
) | ||||
Cash
and cash equivalents at the beginning of the year |
2,073 |
2,693 |
3,045 |
|||||||
Cash
and cash equivalents at the end of the year |
$ |
1,602 |
$ |
2,073 |
$ |
2,693 |
Year
ended December 31, |
||||||||||
2004 |
2003 |
2002 |
||||||||
Supplemental
disclosure of cash flow activities: |
||||||||||
Cash
paid during the year for: |
||||||||||
Interest |
$ |
37 |
$ |
90 |
$ |
60 |
||||
Income
taxes |
$ |
11 |
$ |
25 |
$ |
12 |
||||
Supplemental
disclosure of non-cash investing and financing
activities: |
||||||||||
Capital
lease obligation incurred upon the acquisition of property and
equipment |
$ |
- |
$ |
50 |
$ |
- |
||||
Issuance
of warrant in consideration for credit line |
$ |
256 |
$ |
- |
$ |
- |
NOTE
1:- |
GENERAL | |
Attunity
Ltd. ("Attunity") and its subsidiaries (collectively - "the Company")
develop, market and provide support for computer software integration
tools and application development tools. | ||
The
company is a leading provider of enterprise data integration software.
Using its products, companies seamlessly connect to data sources, stream
data changes across the enterprise, and federate heterogeneous information
to achieve a single view of their business. Attunity software runs
natively on enterprise data servers, turning locked data silos into an
efficient Information Grid. The company also provides consulting,
maintenance and other related services for its products including
maintenance services to its legacy products: CorVision - an application
generator, APTuser - a database retrieval and production report generator,
and Mancal 2000 - a logistics and financial application software package
(through its Israeli subsidiary, Attunity Software Services Ltd. ("ASS")).
| ||
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"), followed on a consistent basis. | ||
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. Accordingly, 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. | ||
Amounts
in currencies other than dollars have been translated as
follows: | ||
Monetary
balances - at the exchange rate in effect on the balance sheet
date. | ||
Revenues
and costs - at the exchange rates in effect as of the date of recognition
of the transactions. | ||
All
exchange gains and losses from the remeasurement mentioned above are
reflected in the statement of operations in financial expenses (income),
net. |
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
purchase date. | ||
e. |
Restricted
cash: | |
Restricted
cash is primarily invested in highly liquid deposits, These deposits were
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 annual rate of 1.9%. 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 are 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. |
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 | |
Leasehold
improvements |
Over
the shorter of the related lease period or the life of the
asset |
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. | ||
In
2004, 2003 and 2002, no impairment losses were
identified. | ||
j. |
Goodwill: | |
Goodwill
represents the excess of the cost of businesses acquired over the fair
value of the net assets acquired in the acquisition. | ||
Effective
January 1, 2002, the Company adopted the full provisions of Statement of
Financial Accounting Standards No. 142 ‘‘Goodwill and Other Intangible
Assets (‘‘SFAS No. 142). | ||
SFAS
142 prescribes a two phase process for impairment testing of goodwill. The
first phase screens for impairment, while the second phase (if necessary)
measures impairment. | ||
In
the first phase of impairment testing, goodwill attributable to each of
the reporting units is tested for impairment by comparing the fair value
of each reporting unit with its carrying value. If the carrying value of
the reporting unit exceeds its fair value, the second phase is then
performed. The second phase of the goodwill impairment test compares the
implied fair value of the reporting unit's goodwill with the carrying
amount of that goodwill. If the carrying amount of the reporting unit's
goodwill exceeds the implied fair value of that goodwill, an impairment
loss is recognized in an amount equal to that
excess. |
NOTE
2:- |
SIGNIFICANT
ACCOUNTING POLICIES (Cont.) | |
Fair
value of the reporting unit was determined using discounted cash flows and
market capitalization. Significant estimates used in the methodology
include estimates of future cash flows, future short-term and long-term
growth rates and weighted average cost of capital. | ||
As
of December 31, 2004, no impairment losses have been
identified. | ||
The
change in the carrying amount of goodwill for the year ended December 31,
2004, is due to translation adjustments. | ||
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 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’s 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. Amortization
equals the greater of the amount computed using the: (1) ratio that
current gross revenues for a product bear to the total of current and
anticipated future gross revenues from sales of the product, or (2) the
straight-line method over the estimated economic life of the product (five
years). Amortization commences when the product is available for general
product release to customers. The Amortization expense is included as part
of cost of revenues. | ||
At
each balance sheet date, the unamortized capitalized costs of the software
products are compared to the net realizable value of the product. If the
unamortized capitalized costs of a computer software product exceed the
net realizable value of that product, such excess is written off. The net
realizable value is calculated as the estimated future gross revenues from
the product reduced by the estimated future costs of completing and
disposing of that product, including the costs of performing maintenance
and customer support required to satisfy the Company's responsibility set
forth at the time of sale. | ||
In
the year ended December 31, 2003, the Company wrote off capitalized
software costs in the amount of $ 1,543. The aforementioned wrote off was
included as part of cost of revenues. |
NOTE
2:- |
SIGNIFICANT
ACCOUNTING POLICIES (Cont.) | |
l. |
Income
taxes: | |
The
Company accounts for income taxes are accounted for 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 temporary differences between financial reporting
and tax bases of assets and liabilities and for carryforward losses
deferred taxes 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, 2004, 2003 and 2002
amounted to $ 218, $ 208 and $ 55, respectively. | ||
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 to be 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"). | ||
The
Company and its subsidiaries have also adopted Staff Accounting Bulletin
("SAB") No. 104, "Revenue Recognition" ("SAB No. 104"). | ||
Revenue
from license fees and services are recognized when persuasive evidence of
an arrangement exists, delivery of the product has occurred or the
services have been rendered, the fee is fixed or determinable and
collectibility is probable. The Company does not grant a right of return
to its customers. | ||
Persuasive
evidence of an arrangement exists - The Company determines that persuasive
evidence of an arrangement exists with respect to a customer when it has a
purchase order from the customer or a written contract, which is signed by
both the Company and customer (documentation is dependent on the business
practice for each type of customer). | ||
Delivery
has occurred - The Company's software may be either physically or
electronically delivered to the customer. The Company determines that
delivery has occurred upon shipment of the software or when the software
is made available to the customer through electronic delivery, when the
customer has been provided with access codes that allow the customer to
take immediate possession of the software on its
hardware. |
NOTE
2:- |
SIGNIFICANT
ACCOUNTING POLICIES (Cont.) | |
The
fee is fixed or determinable - The Company considers all arrangements with
payment terms extending beyond 5 months 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. | ||
Collectibility
is probable - The Company determines whether collectibility is probable on
a case-by-case basis. When assessing probability of collection, the
Company considers the number of years in business and history of
collection. If the Company determines from the outset that collectibility
is not probable based upon its review process, revenue is recognized as
payments are received. | ||
With
regard to software arrangements involving multiple elements, the Company
has 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"). According to SOP No. 98-9, revenues should be allocated
to the different elements in the arrangement 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.
Under the residual method, at the outset of the arrangement with the
customer, the Company defers revenue for the fair value of its undelivered
elements (maintenance and support, consulting and training) and recognizes
revenue for the remainder of the arrangement fee attributable to the
elements initially delivered in the arrangement (software product) when
the basic criteria in SOP No. 97-2 have been met. Any discount in the
arrangement is allocated to the delivered element. | ||
The
Company's determination of fair value of each element in multiple-element
arrangements is based on VSOE. The Company aligns its assessment of VSOE
for the elements in the transaction to the price charged when the same
element is sold separately. The Company has analyzed all of the elements
included in its multiple-element arrangements and determined that it has
sufficient VSOE to allocate revenue to the maintenance and support,
consulting and training ("professional") services components of its
license arrangements. The Company sells its professional services
separately, and accordingly it has established VSOE for professional
services based on its hourly or daily rates. VSOE for maintenance and
support is determined based upon the customer's annual renewal rates for
these elements. Accordingly, assuming all other revenue recognition
criteria are met, the Company recognizes revenue from software licenses
upon delivery using the residual method in accordance with SOP No.
98-9. | ||
Arrangements
for the sale of software products that include consulting and training
services are evaluated to determine whether those services are essential
to the functionality of other elements of the arrangement. The Company had
determined that these services are not considered essential to the
functionality of other elements of the arrangement, therefore, these
revenues are recognized as a separate element of the
arrangement. | ||
Revenues
from royalties are recognized according to quarterly royalties reports, as
such reports are received from customers. Royalties are received from
customers who 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. |
NOTE
2:- |
SIGNIFICANT
ACCOUNTING POLICIES (Cont.) | |
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. | ||
Services
revenues are recognized as the services are performed. | ||
Deferred
revenues include unearned amounts received under maintenance and support
contracts and amounts received from customers but not recognized as
revenues. | ||
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, 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, 2004, 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. | ||
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.
|
NOTE
2:- |
SIGNIFICANT
ACCOUNTING POLICIES (Cont.) | |
The
Company adopted the disclosure provisions of Financial Accounting
Standards Board Statement No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure" ("SFAS No. 148"), which amended
certain provisions of SFAS 123 to provide alternative methods of
transition for an entity that voluntarily changes to the fair value based
method of accounting for stock-based employee compensation. The Company
continues to apply the provisions of APB No. 25, in accounting for
stock-based compensation. | ||
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 2004, 2003 and 2002 was estimated at the
date of grant using a Black-Scholes option pricing model with the
following weighted average assumptions: |
2004 |
2003 |
2002 | |||||
Dividend
yield |
0% |
0% |
0% | ||||
Expected
volatility |
69% |
43.8% |
79.5% | ||||
Risk-free
interest |
3.5% |
3.5% |
3% | ||||
Expected
life |
4
years |
4
years |
6
years |
Pro
forma information under SFAS No. 123, is as
follows: |
Year
ended December 31, |
|||||||||||
2004 |
2003 |
2002 |
|||||||||
Net
income (loss) |
$ |
(4,040 |
) |
$ |
(2,956 |
) |
$ |
504 |
|||
Deduct:
stock-based employee compensation expenses determined under fair value
based method for all awards |
$ |
(616 |
) |
$ |
(586 |
) |
$ |
(994 |
) | ||
Pro
forma net loss |
$ |
(4,656 |
) |
$ |
(3,542 |
) |
$ |
(490 |
) | ||
Basic
and diluted net earnings (loss) per share: |
|||||||||||
|
|||||||||||
As
reported |
$ |
(0.27 |
) |
$ |
(0.20 |
) |
$ |
0.03 |
|||
Proforma |
|||||||||||
$ |
(0.31 |
) |
$ |
(0.24 |
) |
$ |
0.03 |
Had compensation cost for the Company’s stock option plans been determined based on the fair value based method set forth in FAS 123, the Company’s net income (loss) and net earnings (loss) per share would have been changed to the pro forma amounts indicated above. |
NOTE
2:- |
SIGNIFICANT
ACCOUNTING POLICIES (Cont.) | |
For
purposes of pro-forma disclosure, the estimated fair value of the options
is amortized to expenses over the options’ vesting period, based on the
straight line method. | ||
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 for
services or goods provided. SFAS No. 123 requires the use of an option
valuation model to measure the fair value of the warrants at the date of
grant. | ||
r. |
Basic
and diluted net earnings (loss) per share: | |
Basic
net earnings (loss) per share is computed based on the weighted average
number of Ordinary shares outstanding during each year. Diluted net
earnings (loss) per share adjusts basic net earnings (loss) per share for
the effect of convertible securities and stock options only in the periods
in which such effect is dilutive. | ||
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 due to their anti-dilutive effect was 8,976,887,
6,963,321 and 6,367,656 for the years ended December 31, 2004, 2003 and
2002, respectively. In 2004 1,142,857 shares resulting from the
conversation of debt were excluded from the calculation of dilutive net
loss per share due to their unti-dilutive effect. | ||
s. |
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, 2004, 2003 and 2002 were
$ 320, $ 498 and $ 576,
respectively. |
NOTE
2:- |
SIGNIFICANT
ACCOUNTING POLICIES (Cont.) | |
t. |
Deferred
expenses: | |
Deferred
expenses relating to debt issuance expenses and to receipt of a credit
line are amortized over the term of the debt and credit line,
respectively. | ||
u. |
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, trade payables, 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. | ||
v. |
Impact
of recently issued accounting standards: | |
On
December 16, 2004, the Financial Accounting Standards Board issued
Statement No. 123 (revised 2004 Share-Based Payment ("Statement 123R"),
which is a revision of FASB Statement No. 123, Accounting for Stock-Based
Compensation ("Statement 123"). Statement 123R supersedes APB Opinion No.
25, "Accounting for Stock Issued to Employees" and amends FASB statement
No. 95 "Statement. Generally, the approach in Statement 123(R) is similar
to the approach described in Statement 123. However, Statement 123
permits, but does not require, share-based payments to employees to be
recognized based on their fair values, while Statement 123R requires all
share-based payments to employees to be recognized based on their fair
values. Pro forma disclosure is no longer an
alternative. | ||
Statement
123R must be adopted no later than July 1, 2005. The Company expects to
adopt this statement on July 1, 2005 | ||
The
Company expects that the adoption of Statement 123R may have a material
effect on its result of operations. | ||
The
impact of adoption of Statement 123(R) cannot be predicted at this time
because it will depend on levels of share-based payments granted in the
future. However, had the Company adopted Statement 123(R) in prior
periods, the impact of that standard would have approximated the impact of
Statement 123 as described in the disclosure of pro forma net income
(loss) and earnings (loss) per share in Note 2p to the consolidated
financial statements. |
NOTE
3:- |
OTHER
ACCOUNTS RECEIVABLE AND PREPAID
EXPENSES |
December
31, |
||||||||
2004 |
2003 |
|||||||
Prepaid
expenses |
$ |
483 |
$ |
338 |
||||
Government
authorities |
451 |
485 |
||||||
Employees |
33 |
64 |
||||||
Other |
179 |
119 |
||||||
$ |
1,146 |
$ |
1,006 |
NOTE
4:- |
PROPERTY
AND EQUIPMENT, NET |
December
31, |
||||||||
2004 |
2003 |
|||||||
Cost: |
||||||||
Computers
and peripheral equipment |
$ |
3,866 |
$ |
3,559 |
||||
Office
furniture and equipment |
639 |
622 |
||||||
Motor
vehicles |
408 |
629 |
||||||
Leasehold
improvements |
1,201 |
1,182 |
||||||
6,114 |
5,992 |
|||||||
Accumulated
depreciation: |
5,273 |
5,066 |
||||||
Depreciated
cost |
$ |
841 |
$ |
926 |
Depreciation expenses for the years ended December 31, 2004, 2003 and 2002 are $ 391, $ 543 and $ 679, respectively. | |
As for charges on the Company's property and equipment, see Note 11. |
NOTE
5:- |
SOFTWARE
DEVELOPMENT COSTS, NET |
December
31, |
||||||||
2004 |
2003 |
|||||||
Software
development costs |
$ |
16,922 |
$ |
15,347 |
||||
Less
- accumulated amortization |
12,709 |
10,835 |
||||||
|
||||||||
Amortized
cost |
$ |
4,213 |
$ |
4,512 |
||||
Amortization expenses for the years ended December 31, 2004, 2003 and 2002 are $ 1,874, $ 1,613 and $ 1,590, respectively. |
NOTE
5:- |
SOFTWARE
DEVELOPMENT COSTS, NET (Cont.) | |
In 2003 the Company wrote-off capitalized software costs in the amount of $ 1,543. | ||
Estimated amortization expenses for the years ended: |
December
31, |
|||||
2005 |
1,401 |
||||
2006 |
1,081 |
||||
2007 |
819 |
||||
2008
|
584 |
||||
2009 |
328 |
||||
$ |
4,213 |
NOTE 6:- | SHORT-TERM BANK CREDIT |
Interest
rate |
December
31, |
||||||||||||||||
2004 |
2003 |
2004 |
2003 |
||||||||||||||
% | |||||||||||||||||
Short-term
bank loans: |
|||||||||||||||||
In
NIS |
- |
8.0 |
$ |
- |
$ |
206 |
(1) |
Total
authorized credit lines approximate |
$ |
151 |
$ |
250 |
||||||
|
|||||||||||
(2) |
Unutilized
credit lines approximate |
$ |
151 |
$ |
250 |
||||||
(3) |
Weighted
average interest rates at the end of the year |
7.0 |
% |
8.5 |
% |
NOTE
7:- |
CREDIT
LINE | |
In
June 2004, the Company entered into a loan agreement ("the Agreement")
with Plenus Technologies Ltd. ("the lender"). According to the Agreement
the lender undertakes to make available to the Company a revolving credit
facility in the aggregate amount of $ 3,000. The agreement expires in June
2006. | ||
The
Company shall pay the lender interest on the principal amount outstanding
at an annual rate of 6.5% and a fee equal to 1% of the unutilized credit
line amount. | ||
As
of December 31, 2004, the Company had not utilized any of the credit
facility. |
NOTE
7:- |
CREDIT
LINE (Cont.) | |
As
part of the Agreement, the lender received a non-forfeitable exercisable
warrant to purchase the Company’s Ordinary shares at an exercise price of
$ 3 per share (subject to adjustments). The amount of shares that the
lender may purchase upon exercise of the warrant will be determined
according to a formula which is based on the date the credit facility is
terminated and the amount of the credit facility utilized, but will be not
less than 200,000 shares and not more than 300,000 shares. The warrant
expires 5 years after the date of grant. | ||
Since
the warrant is non-forfeitable and immediately exercisable, the
measurement date of the warrant was its issuance date. The fair value of
the warrant was measured based on the minimum amount of shares to be
issued upon exercise and amounted to $ 256. This amount was recorded as
prepaid expenses, which are being amortized over the term of the credit
line. The aforementioned fair value was measured according to the
Black-Scholes option pricing model with the following weighted-average
assumptions: weighted average-risk-free interest rate of 3%, dividend
yield of 0%, expected volatility of the Company's Ordinary shares of
70.1%, and a weighted-average expected life of 5 years.
| ||
The
aforementioned fair value may be adjusted in future periods based on the
ultimate amount of shares that will be issued upon exercise of the
warrant. | ||
NOTE
8:- |
ACCRUED
EXPENSES AND OTHER LIABILITIES |
December
31, |
||||||||
2004 |
2003 |
|||||||
Government
authorities |
$ |
432 |
$ |
498 |
||||
SSF
Lawsuit (see also Note 17b) |
- |
1,000 |
||||||
Accrued
expenses |
672 |
425 |
||||||
Accrued
termination cost (see also Note 17c(3)) |
764 |
- |
||||||
Burlington
lease lawsuit (see also Note 17b) |
- |
850 |
||||||
Royalties
to Government authorities |
290 |
642 |
||||||
Others |
69 |
64 |
||||||
$ |
2,227 |
$ |
3,479 |
NOTE
9:- |
CONVERTIBLE
DEBT AND DETACHABLE WARRANTS | |
In April 2004, the Company issued to a group of existing principal shareholders a convertible debt with a face amount of $ 2,000 bearing interest at 5% per annum, and warrants to purchase 480,000 Ordinary shares at a price per share of $ 1.75, for an aggregate consideration of $ 2,000. The principal of the debt is repayable at the end of five years and the interest is payable semiannually. The debt is convertible into Ordinary shares at a conversion price of $ 1.75 per share. The amount that may be converted will be equal to at least 50% of the face amount of the debt. The warrants expire 3 years after the date of grant. As part of the aforementioned issuance, the life of the previously issued warrants held by the aforementioned shareholders was extended for one year. | ||
In accordance with APB No. 14, "Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants", the Company allocated the total proceeds received between the convertible debt and the warrants and the modification of the previous warrants held by shareholders (which was recorded as additional paid-in-capital) based on the relative fair values at the time of issuance. The aforementioned allocation resulted in a discount on the convertible debt. | ||
In addition, in accordance with EITF No. 98-5, "Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios" ("EITF 98-5") and EITF No. 00-27, "Application of issue No. 98-5 to Certain Convertible Instruments" ("EITF 00-27"), the Company recognized and measured the embedded beneficial conversion feature present in the convertible debt, by allocating a portion of the proceeds equal to the intrinsic value of the feature to additional paid-in-capital. The intrinsic value of the feature was calculated on the commitment date using the effective conversion price which had resulted subsequent to the allocation of the proceeds between the detachable warrants, modification of the previously issued warrants and the convertible debt. This intrinsic value is limited to the portion of the proceeds allocated to the convertible debt. | ||
The aforementioned accounting treatment resulted in a total debt discount equal to the full face amount of the debt ($ 2,000). The discount is being amortized over a 5 year period from the date of issuance until the stated redemption date of the debt. | ||
During the year ended December 31, 2004, the Company recorded financial expenses in the amount of $ 277, attributed to the amortization of the aforementioned debt discount. | ||
Issuance expenses in respect of the convertible debt in the amount of $ 247, were deferred and recorded as "Deferred expenses". These deferred expenses will be amortized over the period from the date of issuance to the stated redemption date of the debt. | ||
As of December 31, 2004, no shares were issued pursuant to the conversion of the debt or the exercise of the warrants. |
December
31, |
||||||||
2004 |
2003 |
|||||||
Principal
of debt |
$ |
2,000 |
$ |
- |
||||
Unamortized
debt discount |
(1,723 |
) |
- |
|||||
Convertible
debt, net |
$ |
277 |
$ |
- |
NOTE 10:- | LONG-TERM DEBT |
December
31, |
||||||||
2004 |
2003 |
|||||||
Capital
lease obligations, linked to the U.S. dollar and bear interest of 9.1%
|
$ |
51 |
$ |
108 |
||||
Banks
loans, linked to the Israeli Consumer Price Index and bears weighted
interest of 6% |
81 |
93 |
||||||
132 |
201 |
|||||||
Less
- current maturities: |
||||||||
Capital
lease obligations |
32 |
61 |
||||||
bank
loans |
38 |
41 |
||||||
$ |
62 |
$ |
99 |
As of December 31, 2004, the aggregate annual maturities of long-term debt are as follows: | ||||||||
First
year (current maturities) |
$ |
70 |
$ |
102 |
||||
Second
year |
16 |
49 |
||||||
Third
year |
5 |
42 |
||||||
Fourth
year |
- |
8 |
||||||
$ |
132 |
$ |
201 |
|||||
See also Note 11. |
NOTE
11:- |
CHARGES
(ASSETS PLEDGED) | |
a. |
To
secure the performance of the Company's obligations pursuant to the credit
line described in Note 7, the Company pledged and granted the lender, a
first priority floating charge on all of its rights, title and interest in
all its present and future tangible and intangible
assets. | |
b. |
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
12:- |
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, 2004, are as
follows: |
Year
ended December 31, |
Operating
leases |
||||
2005 |
$ |
664 |
|||
2006 |
330 |
||||
2007
and thereafter |
351 |
||||
$ |
1,345 |
Rent
expenses under operating leases for the years ended December 31, 2004,
2003 and 2002 were $ 739, $ 580 and $ 704,
respectively. | |||
b. |
Royalties: | ||
The
Company participated in programs sponsored by the Israeli Government for
the support of research and development activities. Through December 31,
2004, 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 $ 2,426 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% 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, 2004, the Company has paid or accrued royalties to the OCS in
the amount of $ 1,956. As of December 31, 2004, the aggregate
contingent liability to the OCS amounted to $ 470. | |||
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. |
NOTE
12:- |
COMMITMENTS
AND CONTINGENT LIABILITIES (Cont.) | ||
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 at costs in respect of lawsuits 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. In March, 2004, the Company and the landlord settled the dispute
where the Company has agreed to pay $ 825 and will be released from the
lease agreement. | |||
NOTE
13:- |
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. |
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% of the fair market value of the Company's
Ordinary shares on the date of grant. 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, 5,700,000 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, 2004, there are
1,045,396 options available for future
grants. |
NOTE
13:- |
SHAREHOLDERS'
EQUITY (Cont.) | |
The
following is a summary of the Company's stock options activity the various
plans: |
Year
ended December 31, |
||||||||||||||||||||
2004 |
2003 |
2002 |
||||||||||||||||||
Number
of
options |
Weighted
average
exercise
price |
Number
of
options |
Weighted
average
exercise
price |
Number
of
options |
Weighted
average
exercise
price |
|||||||||||||||
In
thousands |
In
thousands |
In
thousands |
||||||||||||||||||
Outstanding
at beginning of year |
3,544 |
$ |
1.78 |
1,604 |
$ |
3.71 |
2,238 |
$ |
3.87 |
|||||||||||
Granted |
1,225 |
$ |
2.37 |
2,137 |
$ |
1.57 |
143 |
$ |
1.09 |
|||||||||||
Exercised |
(92 |
) |
$ |
1.27 |
- |
$ |
- |
(187 |
) |
$ |
0.02 |
|||||||||
Canceled
or forfeited |
(281 |
) |
$ |
1.44 |
(197 |
) |
$ |
7.83 |
(590 |
) |
$ |
4.85 |
||||||||
Outstanding
at end of year |
4,396 |
$ |
1.97 |
3,544 |
$ |
1.78 |
1,604 |
$ |
3.71 |
|||||||||||
Exercisable
at end of year |
2,066 |
$ |
2.56 |
1,072 |
$ |
3.78 |
990 |
$ |
5.18 |
The
options outstanding as of December 31, 2004, have been separated into
ranges of exercise prices as follows: |
Options |
Weighted |
Options |
Weighted
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 |
2004 |
life
|
price |
2004 |
exercisable |
||||||||||||
$ |
In
thousands |
Years |
$ |
In
thousands |
$ |
||||||||||||
$ 0.02 |
6 |
1.00 |
$ |
0.02 |
6 |
$ |
0.02 |
||||||||||
$ 0.8
- 0.91 |
230 |
5.75 |
$ |
0.82 |
130 |
$ |
0.90 |
||||||||||
$ 1.05
- 1.42 |
1,346 |
2.98 |
$ |
1.26 |
1,067 |
$ |
1.26 |
||||||||||
$ 1.5
- 2.25 |
1,146 |
4.31 |
$ |
1.89 |
487 |
$ |
1.77 |
||||||||||
$ 2.3
- 2.46 |
1,173 |
9.75 |
$ |
2.35 |
- |
$ |
- |
||||||||||
$ 2.88
- 3.13 |
71 |
6.46 |
$ |
3.06 |
23 |
$ |
2.96 |
||||||||||
$ 4.5
- 6.5 |
49 |
1.91 |
$ |
5.41 |
44 |
$ |
5.55 |
||||||||||
$ 6.88
- 9.75 |
327 |
1.42 |
$ |
7.86 |
261 |
$ |
8.46 |
||||||||||
$ 10
- 13.25 |
35 |
1.35 |
$ |
10.78 |
35 |
$ |
10.78 |
||||||||||
$ 16 |
13 |
1.00 |
$ |
16.00 |
13 |
$ |
16.00 |
||||||||||
4,396 |
$ |
1.97 |
2,066 |
$ |
2.56 |
NOTE
13:- |
SHAREHOLDERS'
EQUITY (Cont.) | |
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, |
||||||||||||||||||||
2004 |
2003 |
2002 |
||||||||||||||||||
Weighted
average fair value |
Weighted
average exercise price |
Weighted
average fair value |
Weighted
average exercise price |
Weighted
average fair value |
Weighted
average exercise price |
|||||||||||||||
Equals
market price at date of grant |
$ |
1.27 |
$ |
2.38 |
$ |
0.70 |
$ |
1.55 |
$ |
0.84 |
$ |
1.22 |
||||||||
Exceeds
market price at date of grant |
$ |
- |
$ |
- |
$ |
0.24 |
$ |
2.17 |
$ |
- |
$ |
- |
||||||||
Lower
than market price at date of grant |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
1.29 |
$ |
0.02 |
c. |
Stock
warrants: | |
The
Company has issued warrants, as follows: |
Issuance
date |
Outstanding
as
of
December
31,
2004 |
Exercise
price |
Exercisable
as
of
December
31,
2004 |
Exercisable
through | ||||||
June
2000 (1) |
425,000 |
$ |
11.49-14.44 |
425,000 |
March
31, 2005 | |||||
October
2000 (2) |
72,000 |
|
$ |
$7.19 |
72,000 |
October
31. 2005 | ||||
October
2001 (3) |
673,845 |
$ |
$1.75 |
673,845 |
October
24, 2005 | |||||
October
2001 (4) |
2,208,489 |
$ |
$1.75 |
2,208,489 |
October
24, 2006 | |||||
October
2001 (4) |
736,162 |
$ |
$2.00 |
736,162 |
October
24, 2006 | |||||
February
2004 (5) |
40,000 |
$ |
$1.92 |
40,000 |
February
14, 2007 | |||||
April
2004 (6) |
480,000 |
$ |
$1.75 |
480,000 |
April
28, 2007 | |||||
June
2004 (7) |
200,000 |
$ |
$3.00 |
200,000 |
June
2, 2009 | |||||
4,835,496 |
4,835,496 |
(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 investors and placement agents of the October 2001 private placement.
| |
(4) |
Issued
to investors and placement agents of the October 2001 private placement.
Later it was sold to another group of investors and contractual life was
extended for one year (see Note 9). | |
(5) |
Issued
to consultants and agents. | |
(6) |
Issued
to the holders of the convertible debt (see Note 9). | |
(7) |
Issued
to a lender as part of the credit line agreement (see Note
7). |
d. |
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
14:- |
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 an "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. | ||
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 to 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. |
NOTE
14:- |
INCOME
TAXES (Cont.) | |
If
these retained tax-exempt profits are distributed 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, 2004, the accumulated
deficit of the Company and ASS do not include tax-exempt profits earned by
an "Approved Enterprise". | ||
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. | ||
b. |
Measurement
of taxable income under the Income Tax (Inflationary Adjustments) Law,
1985: | |
Results
of Attunity for tax purposes are measured and reflected in real terms NIS
after adjustments for increases in the Consumer Price Index. As explained
in Note 2b, the financial statements of Attunity 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 temporary
differences resulting from change in exchange rates and indexing for tax
purposes. | ||
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. These companies may also be entitled to deduct
over a three year period expenses incurred in connection with a public
share offering and to amortize know-how acquired from third
party. |
d. |
Tax
loss carryforwards: | |
Net
operating loss carryforwards as of December 31, 2004 are as
follows: |
Israel |
$ |
28,376 |
|||
United
States *) |
6,186 |
||||
UK |
2,831 |
||||
Hong
Kong |
1,784 |
||||
France |
1,727 |
||||
$ |
40,904 |
Net
operating losses in Israel, UK and Hong Kong may be carried forward
indefinitely. Net operating losses in the U.S. may be carried forward
through periods which will be expired in the years 2007-2023 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.
| ||
e. |
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, |
||||||||
2004 |
2003 |
|||||||
Net
operating loss carryforwards |
$ |
10,137 |
$ |
11,428 |
||||
Other |
902 |
890 |
||||||
Total
deferred tax asset before valuation allowance |
11,039 |
12,318 |
||||||
Less
- valuation allowance |
(11,039 |
) |
(12,318 |
) | ||||
Net
deferred tax assets |
$ |
- |
$ |
- |
The
Company has provided valuation allowances in respect of deferred tax
assets resulting from tax loss carryforwards 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 carryforwards and other temporary differences will not
be realized in the foreseeable future. | ||
During
fiscal year 2004, the Company decreased the valuation allowance by
$ 1,279 to $ 11,039. |
NOTE
14:- |
INCOME
TAXES (Cont.) | |
f. |
Reconciliation: | |
Reconciliation
of the tax expenses (benefit) to the actual tax expenses (benefit):
| ||
The
main reconciling items of the statutory tax rate of the company (2002,
2003 -36%,2004-35%) to the effective tax rate (0%) are valuation
allowances provided for deferred tax assets (in all reported periods) and
reversal of valuation allowance in 2002. | ||
g. |
Pre-tax
income (loss): |
Domestic |
$ |
(3,269 |
) |
$ |
(2,489 |
) |
$ |
(1,753 |
) | ||
Foreign |
(692 |
) |
(383 |
) |
2,521 |
||||||
$ |
(3,961 |
) |
$ |
(2,872 |
) |
$ |
768 |
h. |
Reduction
in corporate tax rate: | |
In
June 2004, the Israeli Parliament approved an amendment to the Income Tax
Ordinance (No. 140 and Temporary Provision) (the "Amendment"), which
progressively reduces the regular corporate tax rate from 36% to 35% in
2004, 34% in 2005, 32% in 2006 and to a rate of 30% in 2007. The amendment
was signed and published in July 2004 and is, therefore, considered
enacted in July 2004. |
NOTE
15:- |
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, |
|||||||||||
2004 |
2003 |
2002 |
|||||||||
Numerator
for basic and diluted net earnings (loss) per share - income (loss)
available to shareholders of Ordinary shares |
$ |
(4,040 |
) |
$ |
(2,956 |
) |
$ |
504 |
b. |
Denominator: |
Denominator
for basic net earnings per share - weighted average number of Ordinary
shares |
15,151 |
14,767 |
14,697 |
||||||||
Effect
of dilutive securities: |
|||||||||||
Employee
stock options |
*)
- |
*)
- |
28 |
||||||||
|
|||||||||||
Denominator
for diluted net earnings (loss) per share - adjusted weighted average
number of Ordinary shares, assuming exercise of options |
15,151 |
14,767 |
14,725 |
*) |
For
convertible securities excluded from the calculation of earnings (loss)
per share in the reported periods, see Note 2r
. |
NOTE
16:- |
GEOGRAPHIC
AND MAJOR CUSTOMERS INFORMATION | |
The Company manages its business on the 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, |
|||||||||||
2004 |
2003 |
2002 |
|||||||||
Israel |
$ |
2,763 |
$ |
2,952 |
$ |
2,576 |
|||||
United
States |
6,329 |
6,528 |
7,025 |
||||||||
Europe |
6,595 |
5,411 |
4,950 |
||||||||
Far
East |
1,203 |
908 |
1,064 |
||||||||
South
America |
355 |
369 |
1,500 |
||||||||
Other |
392 |
449 |
340 |
||||||||
$ |
17,637 |
$ |
16,617 |
$ |
17,455 |
The Company's long-lived assets separated into geographical location are as follows: |
December
31, |
||||||||
2004 |
2003 |
|||||||
Israel |
$ |
11,154 |
$ |
11,144 |
||||
United
States |
204 |
180 |
||||||
Other |
171 |
150 |
||||||
$ |
11,529 |
$ |
11,474 |
In
2004, 2003 and 2002 over 90% of license revenues are derived from the
Connect product. | |
The
Company's maintenance and support revenues are derived from annual
maintenance and support payments made by customers who use the Connect
product or the Corvision, Mancal 2000 and Aptuser products, which are
legacy products. In 2004, 2003 and 2002 maintenance and support revenues
derived from the legacy products represented 47%, 50% and 59%,
respectively out
of the total consolidated maintenance and support revenues. Maintenance
and support revenues in 2004, 2003 and 2002 related to the Connect product
represented 53%, 50% and 41%, respectively out of the total consolidated
maintenance and support revenues. | |
In
2004, no customer accounted for more than 10% of revenues. In 2003, the
Company had a customer that accounted for 10.3% of revenues. In 2002, a
different customer accounted for 10.3% of
revenues. |
NOTE
17:- |
SELECTED
STATEMENTS OF OPERATIONS DATA | |
a. |
Research
and development costs, net: |
Year
ended December 31, |
|||||||||||
2004 |
2003 |
2002 |
|||||||||
Total
costs |
$ |
3,050 |
$ |
3,084 |
$ |
3,033 |
|||||
Capitalized
software development costs |
(1,575 |
) |
(1,593 |
) |
(1,595 |
) | |||||
$ |
1,475 |
$ |
1,491 |
$ |
1,438 |
b. |
Costs
in respect of lawsuits: |
SSF
lawsuit (1) |
$ |
- |
$ |
365 |
$ |
810 |
|||||
Burlington
lease lawsuit (2) |
- |
560 |
290 |
||||||||
|
$ |
- |
$ |
925 |
$ |
1,100 |
c. |
Restructuring
and termination costs: |
Employment
termination benefits (3) |
$ |
1,786 |
$ |
- |
$ |
467 |
|||||
Others |
- |
- |
141 |
||||||||
$ |
1,786 |
$ |
- |
$ |
608 |
(1) |
See
Note 12c. | ||
(2) |
In
2002, the Company's subsidiary in the United States ceased the use of its
former lease facilities prior to end of the lease term, which was to
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. | |||
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 term, 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 not paying 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. Accordingly the company recorded in 2003 an additional expenses
of $ 560 in respect of the termination of the lease
agreement. | |||
(3) |
One
time charge related to employment termination of the then chief executive
officer of the Company and other employees during 2002.
| ||
(4) |
During
2004 the Company recorded termination expenses in respect of the CEO’s and
other senior employee’s termination of employment. | ||
As
of December 31, 2004 the company has an accrual in the amount of $764
related to amounts to be paid to the terminated employees in respect of
their termination. |
NOTE 17:- | SELECTED STATEMENTS OF OPERATIONS DATA (Cont.) |
d. |
Financial
income (expenses), net: |
Year
ended December 31, |
|||||||||||
2004 |
2003 |
2002 |
|||||||||
Financial
income: |
|||||||||||
Gain
on trading marketable securities |
$ |
- |
$ |
3 |
$ |
- |
|||||
Interest
and other income |
39 |
90 |
69 |
||||||||
Foreign
currency translation differences, net |
39 |
236 |
141 |
||||||||
78 |
336 |
210 |
|||||||||
Financial
expenses: |
|||||||||||
Interest |
(156 |
) |
(100 |
) |
(69 |
) | |||||
Amortization
of debt discount |
(277 |
) |
- |
- |
|||||||
Amortization
of deferred expenses (issuance expenses and credit line
costs) |
(111 |
) |
- |
- |
|||||||
(544 |
) |
(100 |
) |
(69 |
) | ||||||
$ |
(466 |
) |
$ |
236 |
$ |
141 |
Out
of the financial expenses an amount of $ 360 relates to convertible debt
issued to principal shareholders. |
NOTE
18:- |
SUBSEQUENT
EVENTS | |
a. |
In
January 2005, the Company signed a private placement agreement with
certain investors. Pursuant to the agreement, the Company issued 727,273
of its Ordinary shares at $ 2.75 per share (total consideration of $
2,000). The investors also received for no additional consideration
three-year warrants to purchase 290,909 Ordinary shares at an exercise
price of $ 2.75 per share. | |
b. |
In
January 2005, the Company discontinued its non-core consulting operations
in France by selling it for approximately $ 65 (EURO 50). In addition, the
Company is entitled to certain earn-out over a period of 5 years ending in
2009. |
Year
Ended December 31, |
||||||||||
2004 |
2003 |
2002 |
||||||||
Revenues: |
||||||||||
Software
licenses |
41 |
% |
36 |
% |
40 |
% | ||||
Maintenance
and support |
33 |
35 |
34 |
|||||||
Services |
26 |
29 |
26 |
|||||||
Total
revenues |
100 |
100 |
100 |
|||||||
Cost
of revenues: |
||||||||||
Software
licenses |
12 |
13 |
11 |
|||||||
Maintenance
and support |
6 |
5 |
4 |
|||||||
Services |
24 |
25 |
22 |
|||||||
Impairment
of software development costs |
- |
9 |
- |
|||||||
Total
cost of revenues |
42 |
52 |
37 |
|||||||
Gross
profit |
58 |
48 |
63 |
|||||||
Research
and development, net |
8 |
9 |
8 |
|||||||
Selling
and marketing |
45 |
36 |
31 |
|||||||
General
and administrative |
15 |
16 |
11 |
|||||||
Costs
in respect of lawsuits |
- |
6 |
6 |
|||||||
Restructuring
and termination costs |
10 |
- |
4 |
|||||||
Total
operating expenses |
78 |
67 |
60 |
|||||||
Operating
income (loss) |
(20 |
) |
(19 |
) |
3 |
|||||
Financial
and other income (expenses), net |
2 |
1 |
0 |
|||||||
Income
taxes |
0 |
0 |
1
|
|||||||
Net
income (loss) |
(22 |
)% |
(18 |
)% |
2 |
% |
· |
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 |
· |
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. |
Year
ended December 31, |
Israeli
consumer price index |
Israeli
inflation rate % |
Israeli
devaluation rate % |
Israeli
inflation adjusted for devaluation % | ||||
2001 |
101.6 |
1.4 |
9.3 |
(7.8) | ||||
2002 |
108.2 |
6.5 |
7.3 |
(0.7) | ||||
2003 |
106.2 |
(1.6) |
(9.2) |
(7.6) | ||||
2004 |
107.4 |
1.2 |
(1.6) |
2.8 |
Contractual
Obligations |
Payments
due by Period |
||||||||||||
Total |
less
than 1 year |
1-3
Years |
3-5
Years |
||||||||||
Long-term
debt obligations |
$ |
132 |
$ |
113 |
$ |
19 |
$ |
-- |
|||||
Capital
(finance) lease obligations |
103
|
95 |
8 |
-- |
|||||||||
Operating
lease obligations |
840 |
435 |
405 |
70
|
|||||||||
Total |
$ |
1,075 |
$ |
643 |
$ |
432 |
$ |
70 |
ATTUNITY LTD | ||
|
|
|
By: | /s/ Ofer Segev | |
Ofer Segev | ||
Date: March 31, 2005 | Chief Financial Officer |