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Cascading, distribution and consolidation
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Central monitoring and management for Attunity products
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Attunity Replicate
Attunity Replicate is a high-performance data replication software, which we believe enables organizations to accelerate and reduce the costs of distributing, sharing and ensuring the availability of data for meeting business operations and business intelligence needs. Using Attunity Replicate, organizations can load data efficiently and quickly to operational data stores/warehouses and Hadoop; create copies of production databases to enable operational reporting; offload queries from operational systems to reduce load and impact; facilitate zero-downtime migrations and upgrades; and distribute data across data sources/centers. Instead of relying on a complex, resource-intensive ETL (Extract/Transform/Load) process which moves data in batches, Attunity enables ELT with a simple yet powerful GUI (Graphic User Interface) expediting the traditionally-slow process of data provisioning. The key features of Attunity Replicate are:
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Complete automation and optimized high-performance database replication, including database schema, data and changes
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Simplified user experience delivering a “Click-2-Replicate” solution, which means it allows the user to simplify and automate the implementation of end-to-end data replication
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Heterogeneous replication supporting many types of source and target databases, including cloud
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Attunity Gold Client
Attunity Gold Client Solutions is our replication software for data management within the SAP environments. We believe that businesses around the world choose Gold Client Solutions to maximize the value of their investments in SAP, by reducing enterprise storage requirements, improving the quality and availability of test data, restoring development integrity, and ensuring data security. Using Gold Client Solutions, customers can quickly select and copy subsets of only relevant data from production or non-production sources to non-production targets, with options to simultaneously scramble sensitive data and keep data subsets in sync across systems. Gold Client Solutions reside natively in the SAP application layer and supports a broad list of SAP applications. The key features of Gold Client are:
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Replicating data with all relevant data, exactly as it exists in the source
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Providing flexible selection methods allow any criteria to identify data for replication
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Creating smaller, fully functional clients
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Migrating select data to new or existing environments, on premises or in the cloud
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Simultaneously copying relevant data on multiple SAP applications
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Protecting sensitive data at export with extensive, extendable transformation rules
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Selectively deleting unwanted data in non-production systems
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Appfluent Visibility
Appfluent Visibility (which we offer through the recent acquisition of Appfluent in March 2015) is a software that provides data usage analytics for Big Data environments, including data warehousing and Hadoop. It is designed to provide visibility into usage and processing workloads of enterprise data, including insight into business activity, data usage and resource consumption across heterogeneous analytic data platforms, thereby optimizing the cost and performance of the customers’ evolving Big Data environments. The key features of Appfluent Visibility are:
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Monitoring all data usage and processing activity on leading data warehouses and Hadoop, to assess resource utilization for ETL and analytical workloads
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Analyze data usage and workload resource utilization to enable performance or cost optimization (e.g. by moving data or processing to lower cost storage or processing platforms like Hadoop)
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Discovers history of data used from large tables by analyzing calendar dates used in queries
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Audit and report on application activity and data usage by business units to chargeback and justify investments
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Integrates with leading Business Intelligence (BI) applications to correlate application users and report activity with usage
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Attunity Managed File Transfer (MFT)
Attunity MFT is a file transfer management solution that allows organizations to secure and automate business-to-business information exchanges over standard internet connections. Attunity MFT delivers security policy enforcement, auditing, inspection policies, routing, and accelerated transfers of large-file payloads across each stage of the file transfer process. The key features of MFT are:
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Secure two–tier demilitarized zone architecture (a physical or logical separation between internal and external network or computing environments, which helps organizations address regulatory, compliance and information security requirements)
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Ability to address user, server and application-driven file transfer processes
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Support for most commercial encryption and security policies
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Rich application programming interface, or API, that supports extensive inspection policies and file routing
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Attunity RepliWeb for EFR
Attunity RepliWeb for EFR is a heterogeneous file system and storage replication solution, optimized for Wide Area Network (WAN) infrastructures. The solution provides organizations with widely distributed (global/regional/local) operations, a highly reliable and fast way to replicate, mirror, backup and/or migrate unstructured data. The key features of Attunity RepliWeb for EFR are:
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Comparative snap-shot technology enabling delta only replication
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Accelerated WAN transfer engines
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Extensive file and content include/exclude definitions
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Real-time replication engines for Windows server environments
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Attunity RepliWeb for ARA
Attunity RepliWeb for ARA is an ARA and Web deployment solution for Windows (.NET & SharePoint), UNIX and Linux applications and web infrastructures. The product is used by IT operations, application development and content/marketing teams to manage and automate the deployment of applications and digital content across on-premise and cloud-based servers. The key features of Attunity RepliWeb for ARA are:
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Robust automation and scheduling engines
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End-to-end auditing and reporting of managed processes
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One-click rollback of applications, content & configurations
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Attunity CloudBeam
Attunity CloudBeam is our fully-managed data transfer SaaS-based platform that is designed to move data to, from, and between on-premises and cloud environments quickly, reliably and affordably. We believe that Attunity CloudBeam helps users to realize the value of cloud computing by alleviating the challenges of uploading and managing the transmission of Big Data, also known as the “Big Data bottleneck,” as well as address other infrastructure maintenance challenges. Supporting AWS cloud storage services, Attunity CloudBeam facilitates solutions such as loading data for analytics in the cloud, disaster recovery, content distribution, and cloud migrations. The key features of Attunity CloudBeam are:
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Automation – provides robust scheduling of data transfer processes, including continuous synchronization. The command line interface also enables application level automation
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Acceleration – high-performance movement of very large files and large numbers of files to, from, and between on-premises and cloud environments
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Manageability – enables user to manage cloud data movement without the overhead of building and maintaining cloud infrastructure
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Reliability – provides comprehensive audited and recoverable file transfers
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Security – encrypts all transfers to ensure data is not tampered with or viewed inappropriately
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Affordability – subscription-based services enable customers to pay based on usage
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Attunity BIReady
Attunity BIReady (which we offer through the acquisition of BIReady’s technology in November 2014) is a data warehouse automation software that we believe accelerates and simplifies the process of designing, generating and populating enterprise data warehouses and data marts. By supporting the entire lifecycle of data warehousing through agile automation, BIReady helps to eliminate the traditionally complex, manual tasks of preparing data for BI and Big Data analytics and their inherent dependency on many ETL development resources. The key features of BIReady are:
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Model-driven solution for managing the process of building a data warehouse
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Automated generation of data warehouse and data marts structures
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Automated generation of ETL processing, optimized for each supported data warehouse
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Automated maintenance and change management
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Support for many data warehouses including Teradata, Oracle/Exadata, IBM Netezza, and SQL Server
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Sales and Marketing
Our products and services are sold through both direct and indirect channels, including distributors, VARs and OEM partners.
We maintain direct sales operations through wholly owned subsidiaries in the United States, the United Kingdom, Hong Kong and Israel. In several countries in Europe, South and Central America as well as in China, Japan, Singapore, South Korea and Taiwan, we distribute our products through independent distributors. Our direct field force (including marketing, sales, technical pre-sales and support personnel) as of December 31, 2014 was comprised of a total of 70 persons, of which 50 persons were in North America; 17 persons were in Europe, the Middle East and Africa; and 3 persons were in the Asia Pacific region.
Over the course of the past several years, we have focused on developing long-term strategic partnerships with platform vendors, business intelligence vendors, resellers, VARs, OEMs, system integrators and managed service providers and other business partners, including leading global-class partners such as Microsoft, IBM, Oracle, HP, EMC Pivotal, AWS, SAP and Teradata. For example, in January 2015, we announced that we had entered into a strategic technology license agreement with a cloud services company, allowing the partner to use our replication and data transfer technology to facilitate data transfer between heterogeneous data environments and cloud-based systems and services.
Customer Support Services
We provide the following direct support services to our customers:
Hot-line Support. We provide technical advice and information on the use of our products. Our hot-line support is also responsible for publishing technical bulletins and distributing new versions of software and program “patches”. Such hot-line customer support is typically provided through toll-free telephonic support during business hours, which, for an additional fee, can be extended to 24 hours a day, seven days a week. We have hot-line operations in the United States, Israel and China. Support is provided via telephone, remote-access and e-mail and, in the case of our Gold Client solutions, also through dedicated website resources that include videos and other documentation. A substantial majority of our customers are covered by support contracts, with, in some cases, services being provided by local subcontractors or resellers.
Training. We provide classroom and on-site training in the use and, where necessary, implementation, of our products. The courses, which, where appropriate, are also provided as online learning programs, typically include product use education, product troubleshooting and system management. Our customers receive documentation that includes user manuals, reference manuals, tutorials, installation guides and release notes.
Professional Services. We offer consulting services and system integration assistance to customers, although most of our products do not require material support in implementation. In respect of our Gold Client solutions, we offer customers professional services for the implementation of the product, including installation assistance of the software, software configuration specific to the SAP application version, custom table analysis, custom configuration when needed, and training.
Seasonality
Our business is subject to seasonal trends, primarily in the third quarter ending September 30, when we have typically experienced relatively low sales mainly as a result of reduced sales activity of our customers and prospects during the summer months. We have also often recognized a substantial portion of our revenues in the last quarter of the year and in the last month, or even weeks or days, of a quarter.
Customers
Our products are sold, directly and indirectly, primarily to large and medium-size enterprises engaged in all areas of industry, including government, financial services, healthcare, insurance, energy, telecommunications, manufacturing, retail, pharmaceuticals and the supply chain industry, including governmental and public institutions. As described above under “Sales and Marketing,” our products are also sold indirectly through a number of regional resellers and other business partners, including world-class OEM partners.
For the years ended December 31, 2013 and 2014, no single customer accounted more than 10% of our total revenues. For the year ended December 31, 2012, Microsoft accounted for approximately 10.9% of our total revenues.
In the past three years, a substantial majority of our license revenues were derived from our connectivity and data replication products. The balance of license revenues were derived from our file replication products, which consist of our file replication, MFT, ARA and data flow management solutions, as well as our Gold Client Solutions Suite for SAP test data management.
In the past three years, a substantial majority of our maintenance and support revenues were derived from both our connectivity and data replication products (including Gold Client) as well as from maintenance of our file replication products.
In terms of geographic markets in the past three years, a substantial majority of our revenues were from sales in North America (74% in 2014) and Europe (17% in 2014).
For additional details regarding the breakdown of our revenues in the past three years by geographical distribution and by activity, see Item 5.A “Operating and Financial Review and Prospects – Operating Results – Results of Operations”.
Competition and Pricing
General: The IT marketplace is highly competitive and has few barriers to entry. The primary competitive factors affecting sales of our products are product performance and features, depth of product line, technical support and price. We compete both with international and local software vendors, many of whom have significantly greater financial, technical and marketing resources than us.
We anticipate continued growth and competition in this market and, consequently, the entrance of new competitors into the market or intensified competition, including by way of consolidation. In the past few years, we have identified a trend of consolidation in the software industry in general, and in the real-time data integration market in particular, such as IBM’s acquisition of Aspera (December 2013), Informatica Corporation’s acquisition of Wisdom Force (July 2011) and Oracle’s acquisition of GoldenGate Software (July 2009). Consolidation and mergers in our market may result in stronger competition by larger companies that threatens our market positioning. New entrants may also include the IT departments of current and potential customers of ours that develop solutions that compete with our products.
Connectivity and Data Replication: The competitors with our connectivity (including CDC) and data replication offering include Oracle (through GoldenGate), Informatica Corporation and IBM. Our existing and potential competitors may be able to develop software products and services that are as effective as, or more effective or easier to use, than those offered by us. Such existing and potential competitors may also enjoy substantial advantages over us in terms of research and development resources, manufacturing efficiency, name recognition, sales and marketing expertise, distribution channels, as well as financial resources. However, we believe that our connectivity and data replication products are generally competitive in price and features and have certain advantages as compared to competitors’ products.
ARA/Web Deployment: Our competitors in the ARA and Web Deployment market include major platform vendors, such as Microsoft, IBM and HP; server provisioning and configuration management vendors, such as BMC Software, Inc., CA Inc. and Serena Software, Inc.; and other providers of open source and freeware solutions. Our commercial competitors in this market enjoy significant advantages over us primarily in their abilities to manage both the operating systems and application stacks, stronger global brand recognition and deeper product development capabilities. The open source and freeware solutions offer significant cost benefits compared to our and other commercial solutions. However, we believe our offerings are competitive in that they address the needs of heterogeneous computing and application infrastructures, reduce the potential for vendor lock-in, are quicker and easier to install, and deliver a quicker total return on investment.
Managed File Transfer (MFT): Our competitors in the MFT market include the larger global software and middleware vendors, such as IBM (Sterling Commerce), Axway Software SA and Tibco Software Inc.; mid-tier software vendors, such as Globalscape Inc. and Ipswitch Inc.; and SaaS vendors such as Box.net and Dropbox. The MFT market is highly competitive with the larger global software vendors possessing significant advantages over us in terms of stronger global brand recognition, current feature sets, research and development resources, and sales infrastructure. Additionally, we face increased competition from SaaS vendors who offer low first-year product acquisition costs. However, we believe our MFT solution provides a competitive portfolio of features that addresses the mainstream market needs, has a lower total cost of ownership and delivers high enterprise value.
Enterprise File Replication (EFR): Our competitors in the EFR market include the major platform vendors such as Microsoft, IBM and HP; the large storage management vendors such as EMC, CA and Symantec; mid-tier replication vendors such as Vision Solutions, Inc. (Double-Take Software); as well as other providers of open source and freeware solutions. The larger commercial vendors have strong visibility and penetration with storage management processes such as de-duplication and archival processes. The open source and freeware solutions offer significant cost benefits compared to our and other commercial solutions. However, we believe our EFR solution is very competitive in its ability to reliably manage massive file/folder structures, its ability to address organizations with large numbers of server endpoint connected over WAN links, and our low total cost of ownership.
SAP Data Replication and Management: Our competitors in the SAP data replication and management market include major platform vendors, such IBM and SAP itself; global consulting services and software solutions vendors, such as Informatica, EPI-USE and BackOffice; and storage management providers, such as EMC and NetApp. Our competitors in this market enjoy advantages over us in terms of stronger global brand recognition and greater research and development and sales resources. However, we believe our solutions for SAP data are competitive in their ability to offer a rich portfolio of features and a quick implementation process, and deliver a quick total return on investment.
Data Warehouse Automation: Our competitors in the data warehouse automation market are primarily the traditional ETL vendors like Informatica and IBM. Our competitors in this market enjoy advantages over us in terms of stronger global brand recognition, research and development resources and sales infrastructure. However, we believe our data warehouse automation solutions deliver a modern alternative to these competitors’ traditional software that require significant developer investment that increases total costs and time to value. With an innovative model-driven technology, our data warehouse automation software can automate the process of making data ready for BI and analytics, significantly reducing the need for ETL development.
Data Usage Analytics: Our competitors in the data usage analytics market consist primarily of tools provided by data warehouse vendors, such as Teradata and Oracle. Our competitors in this market enjoy advantages over us in terms of stronger global brand recognition and greater research and development and sales resources. However, these vendors’ tools are limited to their respective data warehouse, whereas our Appfluent Visibility solution supports a broad range of data warehouses as well as Hadoop, providing unified analytics across many Big Data environments. We also believe that our solution provides more robust measurement and deeper analytics for data usage compared to traditional data warehouse tools that focus on operational monitoring.
Intellectual Property Rights and Software Protection
While we have one registered patent for a method for compressing and decompressing files in the field of file transfer software, we primarily rely upon a combination of security devices, copyrights, trademarks, trade secret laws and contractual restrictions to protect our proprietary rights in our products. Our policy has been to pursue copyright protection for our software and related documentation and trademark registration of our product names. In addition, our employees and independent contractors are generally required to sign non-disclosure agreements.
We have obtained trademark registrations in the U.S. for, among others, Attunity, Attunity Connect, Attunity Federate, Attunity Replicate, RepliWeb, Better Data, Smaller Databases, Data Echo, Data Recast, Gold Client and Appfluent.
We believe that copyright protection, which generally applies whether or not a license agreement exists, is sufficient to protect our proprietary rights in our products. We do not currently own any registered copyrights. Our policy is for our customers to sign non-transferable software license agreements providing contractual protection against unauthorized use of the software. Preventing the unauthorized use of software is difficult, and unauthorized software use is a persistent problem in the software industry. However, we believe that, because of the rapid pace of technological change in the software industry, the legal protections for our products are less significant factors in our success than the knowledge, ability and experience of our employees, the frequency of product enhancements and the timeliness and quality of support services provided by us.
Government Regulations
General
Israel has the benefit of a free trade agreement with the United States which, generally, permits tariff-free access into the United States for products produced by us in Israel. In addition, as a result of an agreement entered into by Israel with the European Union, or the EU, and countries remaining in the European Free Trade Association, or EFTA, the EU and EFTA have abolished customs duties on Israeli industrial products.
Grants from the Office of the Chief Scientist
The Government of Israel encourages research and development projects through the Chief Scientist pursuant to the Law for the Encouragement of Industrial Research and Development, 1984, and the regulations promulgated thereunder, or the R&D Law. Generally, grants from the Chief Scientist constitute up to 50% of qualifying research and development expenditures for particular approved projects. Under the terms of these Chief Scientist projects, a royalty of 3% to 5% is due on revenues from sales of products and related services that incorporate know-how developed, in whole or in part, within the framework of projects funded by the Chief Scientist. Royalty obligations are usually 100% of the dollar-linked amount of the grant, plus interest.
We have not received grants since 2000 and, since 2006, we have not had any liability to pay royalties to the Chief Scientist. Nevertheless, the R&D Law provides that know-how developed under an approved research and development program or rights associated with such know-how may not be transferred to third parties in Israel without the approval of the Chief Scientist. Such approval is not required for the sale or export of any products resulting from such research or development. The R&D Law, as amended, further provides that the know-how developed under an approved research and development program or rights associated with such know-how may not be transferred to any third parties outside Israel, except in certain special circumstances and subject to the Chief Scientist’s prior approval. The Chief Scientist may approve the transfer of Chief Scientist-funded know-how outside Israel, generally, in the following cases: (a) the grant recipient pays to the Chief Scientist a portion of the sale price paid in consideration for such Chief Scientist-funded know-how (according to certain formulas, which may result in repayment of up to 600% of the grant amounts plus interest), (b) the grant recipient receives know-how from a third party in exchange for its Chief Scientist-funded know-how, or (c) such transfer of Chief Scientist-funded know-how arises in connection with certain types of cooperation in research and development activities.
The R&D Law also imposes reporting requirements with respect to certain changes in the ownership of a grant recipient. The law requires the grant recipient and its controlling shareholders and non-Israeli interested parties to notify the Chief Scientist of any change in control of the recipient or a change in the holdings of the means of control of the recipient that results in a non-Israeli becoming an interested party directly in the recipient and requires the new non-Israeli interested party to undertake to the Chief Scientist to comply with the R&D Law. In addition, the rules of the Chief Scientist may require additional information or representations in respect of certain of such events. For this purpose, “control” is defined as the ability to direct the activities of a company other than any ability arising solely from serving as an officer or director of the company. A person is presumed to have control if such person holds 50% or more of the means of control of a company. “Means of control” refers to voting rights or the right to appoint directors or the chief executive officer. An “interested party” of a company includes a holder of 5% or more of its outstanding share capital or voting rights, its chief executive officer and directors, someone who has the right to appoint its chief executive officer or at least one director, and a company with respect to which any of the foregoing interested parties owns 25% or more of the outstanding share capital or voting rights or has the right to appoint 25% or more of the directors. Accordingly, any non-Israeli who acquires 5% or more of our ordinary shares will be required to notify the Chief Scientist that it has become an interested party and to sign an undertaking to comply with the R&D Law.
C.
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Organizational Structure
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Our wholly owned subsidiaries act as marketing and customer service organizations in the countries where they are incorporated and in most instances for neighboring countries. The following table sets forth the legal name, location and country of incorporation and percentage ownership of each of our current principal operating subsidiaries (direct and indirect):
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Attunity Inc.
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United States
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100%
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Attunity (UK) Limited
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United Kingdom
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100%
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Attunity (Hong Kong) Ltd.
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Hong-Kong
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100%
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Attunity Israel (1992) Ltd.
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Israel
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100%
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RepliWeb Inc.
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United States
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100%
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Hayes Technology Group, Inc.
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United States
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100%
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Appfluent Technology, LLC
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United States
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100%
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D.
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Property, Plants and Equipment
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General. Other than the leased properties described below, we do not own or lease any material tangible fixed assets. We believe that these offices and facilities are suitable and adequate for our operations as currently conducted and as currently foreseen. In the event additional or substitute offices and facilities are required, we believe that we could obtain such offices and facilities at commercially reasonable rates.
Israel. Our executive research and development facilities and sales offices are located in the industrial park of Kfar Saba, Israel. The lease expires in February 2018 and may be extended for two additional periods of three years each. The aggregate annual rent for our Israeli facilities was approximately $625,000 in 2014, compared with $535,000 in 2013 (which was comprised in 2013 of this facility and another facility that we left in mid-March 2013). We provided our Israeli office lessor with a bank guarantee in the amount of approximately $430,000 to secure our obligations under the lease.
North America. We lease approximately 7,700 square feet of office space in Burlington, MA; approximately 2,500 square feet of office space in Coconut Creek, FL; and approximately 4,300 square feet of office space in Buffalo Grove, IL. The aggregate annual rent of these facilities was approximately $289,000 in 2014 (which was comprised in 2014 of these facilities and another facility that we left in February 2014), compared with approximately $155,000 in 2013. In March 2015, we leased additional office space in Burlington of approximately 4,800 square feet, for annual rent of approximately $113,000. In April 2015, we leased additional office space in Newport Beach, CA, for annual rent of approximately $86,000.
Other Locations. We lease office space in Hong Kong and in Chertsey, England (where we expect to lease additional office space during 2015). The aggregate annual rent for these premises was approximately $232,000 in 2014 (compared with $160,000 in 2013).
ITEM 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
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OPERATING AND FINANCIAL REVIEW AND PROSPECTS
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Our discussion and analysis of our financial condition and results of operation are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. Our operating and financial review and prospects should be read in conjunction with our financial statements, accompanying notes thereto and other financial information appearing elsewhere in this annual report.
Overview
We were founded in 1988 and became a public company in the United States in 1992. We have been delivering software solutions to organizations around the world for over twenty years and we are now a leading provider of information availability software solutions that enable access, management, sharing and distribution of data, including Big Data, across heterogeneous enterprise platforms, organizations, and the cloud.
Our software solutions include data replication (Replicate and Gold Client), data flow management (Maestro), test data management (Gold Client), change data capture (CDC), data connectivity (Attunity Connect), enterprise file replication (RepliWeb), managed-file-transfer (MFT), ARA (RepliWeb for ARA), data warehouse automation (BIReady), data usage analytics (Appfluent Visibility) and cloud data transfer (CloudBeam). These software solutions benefit our customers’ businesses by enabling real-time access and availability of data and files where and when needed, across the maze of heterogeneous systems making up today’s information technology (IT) environment. Our software is commonly used for projects such as data warehousing, Hadoop, Big Data analytics, reporting, migration and modernization, ARA, data distribution and cloud initiatives.
Through direct sales as well as distribution, OEM agreements and strategic relationships with leading global-class partners, our solutions have been deployed at thousands of organizations worldwide in all areas of industry, including government, financial services, healthcare, insurance, energy, telecommunications, manufacturing, retail, pharmaceuticals and the supply chain industry.
Executive Summary
2014 Highlights
In 2014, our total revenues were approximately $35.7 million, compared to $25.2 million in 2013. Our total revenues were comprised of:
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License revenues that increased by 51% to $20.1 million in 2014, compared to $13.4 million in 2013. The increase in license revenues mainly resulted from (1) increased demand for our Attunity Replicate solution, (2) revenue from sales of Attunity Gold Client (associated with the acquisition of Hayes in December 2013), (3) strong sales due to improved marketing leads and execution of sales, including increased presence in Europe, (4) additional revenues from one of our OEM partners due to certain royalty adjustments, and (5) revenues from the recently announced license agreement with a cloud service provider; and
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Maintenance and services revenues that increased by 31% to $15.5 million, compared to $11.8 million in 2013. The increase is primarily due to (1) maintenance and service revenues from Attunity Gold Client (associated with the acquisition of Hayes in December 2013) and (2) an increase in license revenues generated throughout 2013 that contributed to higher maintenance revenues in 2014.
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Our operating loss for 2014 was $65,000 compared to operating loss of $58,000 for 2013.
Our operating loss contributed to a net loss of $1.7 million, or ($0.11) per diluted share, in 2014, compared to a net loss of $0.6 million, or $(0.05) per diluted share, in 2013.
We had cash and cash equivalents and restricted cash of approximately $19.4 million as of December 31, 2014 compared with $16.5 million as of December 31, 2013. This increase in our cash position is mainly attributable to an increase in cash flows we generated from operations.
Our shareholders’ equity increased to $31.2 million as of December 31, 2014 compared to $30.1 million as of December 31, 2013.
2015 Outlook
We identified the following trends that may influence our market and the demand for our software solutions:
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Big Data is a key target market for Attunity given our ability to enable data usage analytics and information availability. Our solutions facilitate the usage optimization, replication and transfer of large amounts of structured and unstructured data to enable analytics and business intelligence. This is a sector that continues to grow rapidly, with numerous software vendors, developers and integrators looking to invest substantial resources in this market.
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The already large open systems database, or DBMS, market, which is a target market for Attunity with our data replication software solutions, continues to grow. In addition, there is continued and accelerated growth of the amounts of data stored and managed by organizations, as well as a growing need and expectation by business users to have fresh and up-to-date information, sometimes referred to as information immediacy.
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The adoption of Hadoop is growing rapidly across industries and the world. Organizations are adding it to their IT environments to enable quicker and more nimble and cost-effective processing of Big Data. Likewise, the demand for data integration and loading solutions that support Hadoop and its technology ecosystem is increasing.
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The “Industrial Internet of Things” refers to the integration of complex physical machinery with networked sensors and software (creating large amounts of Big Data), together with machine-to-machine communication over wide distances, for the purpose of analyzing it all together (often in real-time), to gain better insights. These insights enable organizations to adjust and optimize operations. This evolving trend is presenting new opportunities for our solutions primarily because it creates large amounts of Big Data that require real-time access and availability.
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Cloud computing, which is a relatively new target market for Attunity with our data replication software solutions, continues growing significantly, with numerous software vendors, developers and integrators looking to invest substantial resources in this market.
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Ongoing extensive growth in unstructured data and a need to deploy, migrate and integrate this data across distributed computing environments and into competent Big Data systems, including Hadoop.
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While we believe that these trends will present significant opportunities for us, they also pose significant challenges and risks, including those described under Item 3.D “Risk Factors” above.
In 2015, we intend to continue to invest in expanding our sales and marketing, developing and marketing new solutions and products, such as Attunity Maestro, Appfluent Visibility and BIReady, and enhancing existing solutions and products, including support for new partner solutions and markets. We believe that this strategy will enable us to support continued sales growth and enhance market acceptance for our offerings.
Our ability to continue our growth and achieve profitability depends, in part, on the global economy and the growth rates and changes in technology trends in industries in which we operate, as well as the level of market acceptance of our solutions. As such, our results may be adversely affected if there is a further economic slowdown, a decrease in the overall market’s IT spending, a reduction in the capital expenditures by companies in our target markets or a failure of our new products to achieve market recognition.
For additional details regarding our capital resources and contractual obligations, see Item 5.B “Operating and Financial Review and Prospects– Liquidity and Capital Resources – Principal Financing Activities,” Item 5.B “Operating and Financial Review and Prospects– Liquidity and Capital Resources –Outlook” and Item 5.F “Operating and Financial Review and Prospects– Tabular Disclosure of Contractual Obligations.”
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 (1) revenue recognition; (2) stock-based compensation; (3) liabilities presented at fair value; (4) provisions for income taxes; (5) business combinations; and (6) goodwill. 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.
We believe that the following significant accounting policies are the basis for the most significant judgments and estimates used in the preparation of our consolidated financial statements.
Revenue Recognition. We generate revenues mainly from license fees and sub-license fees for the right to use our software products, maintenance, support, consulting and training services. We sell our products primarily through our direct sales force to customers and indirectly through distributors, OEMs and VARs. Both the customers and the distributors or resellers are considered end users. We are also entitled to fees from some of our OEMs and VARs upon the sublicensing of our software to end users. We account for software sales in accordance with Accounting Standards Codification, or ASC, No. 985-605, “Software Revenue Recognition”, or ASC No. 985-605.
Revenues from license and services fees 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 collectability is probable. We usually do not grant a right of return to our customers.
We determine that persuasive evidence of an arrangement exists with respect to a customer when we have a purchase order from the customer, a written contract or an approved quote, which is signed by both us and customer (documentation is dependent on the business practice for each type of customer).
Our software may be either physically or electronically delivered to the customer. We determine 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. We consider all arrangements with payment terms extending beyond five 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.
We determine whether collectability is probable on a case-by-case basis. When assessing probability of collection, we consider the number of years in business and history of collection. If we determine from the outset that collectability is not probable based upon our review process, revenue is recognized as payments are received.
With regard to software arrangements involving multiple elements, we allocate revenues to the different elements in the arrangement under the “residual method,” in accordance with ASC No. 985-605, when Vendor Specific Objective Evidence, or VSOE, of fair value exists for all undelivered elements. Under the residual method, at the outset of the arrangement with the customer, we defer revenue for the fair value of our undelivered elements (maintenance and support) and recognize revenue for the remainder of the arrangement fee attributable to the elements initially delivered in the arrangement (software product) when the basic criteria have been met. Any discount in the arrangement is allocated to the delivered element.
Our determination of fair value of each element in multiple-element arrangements is based on the price charged when the same element is sold separately. We have established VSOE for professional services based on the hourly or daily rates we charge when we sell such services separately. VSOE for maintenance and support is determined based upon the price charged for renewals of such services.
Fees from OEMs or VARs are calculated either as a percentage of the revenue generated by the seller on sales of our products, or as a percentage of the OEM’s or VAR’s products in which our products are embedded, as specified in the applicable agreement. Those revenues are recognized on a quarterly basis in arrears based on reports received from the OEM or VAR.
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 charged to customers but not recognized as revenues.
Stock-based Compensation. We account for equity-based compensation in accordance with ASC No. 718, “Compensation – Stock Compensation.” Under the fair value based measurement approach of this statement, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense over the requisite service period. Determining the fair value of stock-based awards at the grant date requires the exercise of judgment, as well as the determination of the amount of stock-based awards that are expected to be forfeited. If actual forfeitures differ from our estimates, equity-based compensation expense and our results of operations would be impacted.
We estimate the fair value of employee stock options using a Black-Scholes-Merton valuation model. The fair value of an award is affected by our share price on the date of grant as well as other assumptions, including the estimated volatility of our share price over the expected term of the awards, and the estimated period of time that we expect employees to hold their stock options. The risk-free interest rate assumption is based upon U.S. Treasury interest rates appropriate for the expected life of the awards. We use the historical volatility of our ordinary shares in order to estimate future share price trends. In order to determine the estimated period of time that we expect employees to hold their stock options, we use the “simplified method” as adequate historical experience is not available to provide a reasonable estimate. The simplified method will continue to apply until enough historical experience is available to provide a reasonable estimate of the expected term. Our expected dividend rate is zero since we do not currently pay cash dividends on our common stock and do not anticipate doing so in the foreseeable future.
Liabilities Presented at Fair Value. The Plenus Right (see Item 10.C “Material Contracts – Plenus Loan” and Note 6 to our consolidated financial statements) is considered as a derivative and classified as liability in accordance with ASC No. 815-40, “Contracts in Entity’s Own Equity”, or ASC No. 815-40, and is marked to market at each reporting date. As of December 31, 2014 and 2013, the liability associated with the Plenus Right amounted to $906,000 and $1,093,000, respectively.
We determined the fair value of the Plenus Right taking into account data provided by a third-party valuation specialist who assisted us in estimating the probability of occurrence of events triggering the exercisability of such right and used the Cox, Ross and Rubinstein’s Binomial model for options valuation; however, we are ultimately responsible for determining the value. In the model: (1) the fair value is affected by our share price on the date of measurement as well as other assumptions, including the estimated volatility of our share price over the term of this instrument; and (2) the risk-free interest rate assumption is based upon U.S. Treasury interest rates appropriate for the term of this instrument. We use the historical volatility of our ordinary shares in order to estimate future share price trends and our expected dividend rate is zero since we do not currently pay cash dividends on our ordinary shares and do not anticipate doing so in the foreseeable future.
Provisions for Income Taxes. We are subject to income taxes in Israel, the United States and a number of other foreign jurisdictions. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. Based on the guidance in ASC No. 740, “Income Taxes”, we use a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax expense or benefit as the largest amount that is more than 50% likely of being realized upon settlement.
Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given that the final tax outcome of these matters will not be different. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit, the refinement of an estimate or changes in tax laws. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate, as well as the related interest and penalty.
We also assess our ability to utilize tax attributes, including those in the form of carry forwards for which the benefits have already been reflected in the financial statements. We do not record valuation allowances for deferred tax assets that we believe are more likely than not to be realized in future periods. While we believe the resulting tax balances as of December 31, 2014 and 2013 are appropriately accounted for, the ultimate outcome of such matters could result in favorable or unfavorable adjustments to our consolidated financial statements and such adjustments could be material. See Note 11 to our consolidated financial statements included elsewhere in this annual report for further information regarding income taxes.
Our income tax may be subject to audits by the tax authorities which may result in proposed assessments. We believe that we adequately provided for any reasonably foreseeable outcomes related to tax audits and settlement. However, our future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are made or resolved, audits are closed or when statutes of limitation on potential assessments expire.
Business Combinations. We account for business combinations in accordance with ASC No. 805, “Business Combinations”, or ASC No. 805. ASC No. 805 requires recognition of assets acquired, liabilities assumed, and any non-controlling interest at the acquisition date, measured at their fair values as of that date. Any excess of the fair value of net assets acquired over purchase price and any subsequent changes in estimated contingencies are to be recorded in earnings. In accordance with business combination accounting, we allocate the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. In addition, we expense acquisition-related expenses as they are incurred. We engage third-party appraisal firms to assist management in determining the fair values of certain assets acquired and liabilities assumed. Such valuations require our management to make significant estimates and assumptions, especially with respect to intangible assets.
Our management makes estimates of fair value based upon assumptions it believes to be reasonable. These estimates are based on historical experience and information obtained from the management of the acquired companies and relevant market and industry data and are, inherently, uncertain. Critical estimates made in valuing certain of the intangible assets include, but are not limited to, the following: (1) future expected cash flows from license sales, maintenance agreements, customer contracts and acquired developed technologies and patents; and (2) discount rates. Unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions, estimates or actual results. Changes to these estimates, relating to circumstances that existed at the acquisition date, are recorded as an adjustment to goodwill during the purchase price allocation period (generally within one year of the acquisition date) and as operating expenses, if otherwise.
In connection with purchase price allocations, we estimate the fair value of the maintenance and support obligations assumed in connection with acquisitions. The estimated fair value of the maintenance and support obligations is determined utilizing a cost build-up approach. The cost build-up approach determines fair value by estimating the costs related to fulfilling the obligations plus a normal profit margin. The sum of the costs and operating profit approximates, in theory, the amount that we would be required to pay a third party to assume the support obligation. See Note 3 to our consolidated financial statements for additional information on accounting for our recent acquisitions.
Goodwill. Goodwill is measured as the excess of the cost of acquisition over the sum of the amounts assigned to tangible and identifiable intangible assets acquired less liabilities assumed.
We review goodwill for impairment at least annually, typically on October 31st of each year, or more frequently if events or changes in circumstances indicate that the carrying value of goodwill may not be recoverable. We test goodwill using the two-step goodwill impairment process in accordance with ASC 350, “Intangibles-Goodwill and Other”. The first step, identifying a potential impairment, compares the fair value of the reporting unit with its carrying amount. If the carrying amount exceeds its fair value, the second step will be performed; otherwise, no further step is required. The second step, measuring the impairment loss, compares the implied fair value of the goodwill with the carrying amount of the goodwill. Any excess of the goodwill carrying amount over the applied fair value is recognized as an impairment loss, and the carrying value of goodwill is written down to fair value. As of December 31, 2014, no impairment of goodwill has been identified.
The following discussion of our results of operations for the years ended December 31, 2014, 2013 and 2012, including the following table, which presents selected financial information data in dollars and 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.
On December 18, 2013, we completed the acquisition of Hayes. As a result of this transaction, the revenues and expenses of Hayes are consolidated with our results of operations starting December 18, 2013. The assets and liabilities of Hayes are consolidated with our balance sheet as of December 31, 2013. See Note 3 to our consolidated financial statements included in this annual report.
|
|
Year Ended December 31,
(U.S. dollars in thousands)
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
Software licenses
|
|
|
56 |
% |
|
|
20,128 |
|
|
|
53 |
% |
|
|
13,364 |
|
|
|
57 |
% |
|
|
14,437 |
|
Maintenance and services
|
|
|
44 |
% |
|
|
15,524 |
|
|
|
47 |
% |
|
|
11,833 |
|
|
|
43 |
% |
|
|
11,042 |
|
Total Revenues
|
|
|
100 |
% |
|
$ |
35,652 |
|
|
|
100 |
% |
|
$ |
25,197 |
|
|
|
100 |
% |
|
$ |
25,479 |
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of software licenses
|
|
|
2 |
% |
|
$ |
890 |
|
|
|
3 |
% |
|
$ |
748 |
|
|
|
3 |
% |
|
|
831 |
|
Cost of maintenance and services
|
|
|
7 |
% |
|
|
2,431 |
|
|
|
5 |
% |
|
|
1,384 |
|
|
|
6 |
% |
|
|
1,525 |
|
Research and development
|
|
|
26 |
% |
|
|
9,316 |
|
|
|
31 |
% |
|
|
7,756 |
|
|
|
30 |
% |
|
|
7,748 |
|
Selling and marketing
|
|
|
54 |
% |
|
|
19,136 |
|
|
|
47 |
% |
|
|
11,793 |
|
|
|
39 |
% |
|
|
9,833 |
|
General and administrative
|
|
|
11 |
% |
|
|
3,944 |
|
|
|
14 |
% |
|
|
3,574 |
|
|
|
12 |
% |
|
|
3,024 |
|
Total operating expenses
|
|
|
100 |
% |
|
|
35,717 |
|
|
|
100 |
% |
|
|
25,255 |
|
|
|
90 |
% |
|
|
22,961 |
|
Operating income (loss)
|
|
|
* |
|
|
|
(65 |
) |
|
|
* |
|
|
|
(58 |
) |
|
|
10 |
% |
|
|
2,518 |
|
Financial expenses, net
|
|
|
3 |
% |
|
|
893 |
|
|
|
2 |
% |
|
|
627 |
|
|
|
5 |
% |
|
|
1,241 |
|
Income / (loss) before taxes on income
|
|
|
(3 |
)% |
|
|
(958 |
) |
|
|
(3 |
)% |
|
|
(685 |
) |
|
|
5 |
% |
|
|
1,277 |
|
Taxes on income (income tax benefit)
|
|
|
2 |
% |
|
|
734 |
|
|
|
(* |
) |
|
|
(56 |
) |
|
|
(1 |
)% |
|
|
(209 |
) |
Net income (loss)
|
|
|
(5 |
)% |
|
$ |
(1,692 |
) |
|
|
(2 |
)% |
|
$ |
(629 |
) |
|
|
6 |
% |
|
$ |
1,486 |
|
* Less than 1%
Comparison of Years Ended December 31, 2014, 2013 and 2012
Revenues. Our revenues are derived primarily from software licenses, maintenance and services. For additional details regarding the manner in which we recognize revenues, see the discussion under the caption “Critical Accounting Policies - Revenue Recognition” above.
The following table provides a breakdown of our revenues by type of revenues, relative percentages out of total revenues during the last three fiscal years as well as the percentage change between such periods (dollars in thousands):
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
Percent
change
2014 vs. 2013
|
|
|
Percent
change
2013 vs. 2012
|
|
Software licenses
|
|
$ |
20,128 |
|
|
|
56 |
% |
|
$ |
13,364 |
|
|
|
53 |
% |
|
$ |
14,437 |
|
|
|
57 |
% |
|
|
51 |
% |
|
|
(7 |
)% |
Maintenance and services
|
|
|
15,524 |
|
|
|
44 |
% |
|
|
11,833 |
|
|
|
47 |
% |
|
|
11,042 |
|
|
|
43 |
% |
|
|
31 |
% |
|
|
7 |
% |
Total
|
|
$ |
35,652 |
|
|
|
100 |
% |
|
$ |
25,197 |
|
|
|
100 |
% |
|
$ |
25,479 |
|
|
|
100 |
% |
|
|
41 |
% |
|
|
(1 |
)% |
The following table provides a breakdown by geographical area of our revenues (including maintenance and services revenues), relative percentages out of total revenues during the last three fiscal years as well as the percentage change between such periods (dollars in thousands):
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
Percent
change
2014 vs. 2013
|
|
|
Percent
change
2013 vs. 2012
|
|
North America
|
|
$ |
25,993 |
|
|
|
74 |
% |
|
$ |
17,529 |
|
|
|
70 |
% |
|
$ |
16,568 |
|
|
|
65 |
% |
|
|
48 |
% |
|
|
6 |
% |
Europe
|
|
|
6,085 |
|
|
|
17 |
% |
|
|
4,322 |
|
|
|
17 |
% |
|
|
4,932 |
|
|
|
19 |
% |
|
|
41 |
% |
|
|
(12 |
)% |
Far East
|
|
|
1,532 |
|
|
|
4 |
% |
|
|
1,774 |
|
|
|
7 |
% |
|
|
1,478 |
|
|
|
6 |
% |
|
|
(14 |
)% |
|
|
20 |
% |
Israel
|
|
|
817 |
|
|
|
2 |
% |
|
|
761 |
|
|
|
3 |
% |
|
|
948 |
|
|
|
4 |
% |
|
|
7 |
% |
|
|
(20 |
)% |
Other
|
|
|
1,225 |
|
|
|
3 |
% |
|
|
811 |
|
|
|
3 |
% |
|
|
1,553 |
|
|
|
6 |
% |
|
|
51 |
% |
|
|
(48 |
)% |
Total
|
|
$ |
35,652 |
|
|
|
100 |
% |
|
$ |
25,197 |
|
|
|
100 |
% |
|
$ |
25,479 |
|
|
|
100 |
% |
|
|
41 |
% |
|
|
(1 |
)% |
In 2014, our total revenues were approximately $35.7 million, compared to $25.2 million in 2013. Total revenues were comprised of:
|
·
|
License revenues that increased by 51% to $20.1 million in 2014, compared to $13.4 million in 2013. The increase in license revenues mainly resulted from (1) increased demand for our Attunity Replicate solution, (2) revenue from sales of Attunity Gold Client (associated with the acquisition of Hayes in December 2013), (3) strong sales due to improved marketing leads and execution of sales, including increased presence in Europe, (4) additional revenues from one of our OEM partners due to certain royalty adjustments, and (5) revenues from the recently announced license agreement with a cloud service provider; and
|
|
·
|
Maintenance and services revenues that increased by 31% to $15.5 million, compared to $11.8 million in 2013. The increase is primarily due to (1) maintenance and service revenues from Attunity Gold Client (associated with the acquisition of Hayes in December 2013) and (2) an increase in license revenues generated throughout 2013 that contributed to higher maintenance revenues in 2014.
|
In 2013, our total revenues were approximately $25.2 million, compared to $25.5 million in 2012. Total revenues were comprised of:
|
·
|
License revenues that decreased by 7% to $13.4 million in 2013, compared to $14.4 million in 2012. The decrease in license revenues mainly resulted from lower than expected sales of our solutions during the first half of 2013 with $5.0 million in license revenues, compared to $7.1 million in the first half of 2012. We attribute this decrease primarily to the generation of fewer marketing leads and a relatively weak execution of sales, both through our direct sales and our OEM partners. In the second half of 2013, we were able to improve our marketing and sales operations and our license revenues grew to $8.4 million, compared to $7.3 million in the second half of 2012. The growth in license revenues in the second half of 2013 was primarily due to increase in the average size of our deals and in the number of transactions, which we attribute to our expanded sales and marketing initiatives during that period and an increase in license revenues from one of our OEM partners, which we attribute to the modification in the commercial terms of the OEM agreement with such partner; and
|
|
·
|
Maintenance and services revenues that increased by 7% to $11.8 million, compared to $11.0 million in 2012. The increase is primarily due to an increase in license revenues generated throughout 2012 that contributed to higher maintenance revenues in the 2013.
|
While our revenues increased between 2012 and 2014 primarily in North America, where revenues increased from approximately $16.6 million in 2012 to $26.0 million in 2014, we believe the change in our revenues is primarily related to the aforesaid factors, rather than a specific demand for our products in any region.
Cost of Revenues. Cost of software license revenues consists of amortization of core technology acquired and, until 2013, royalties to a third party. Cost of maintenance and services consists primarily of salaries of employees performing the services and related overhead.
The following table sets forth a breakdown of our cost of revenues between license and maintenance and services for the last three fiscal years as well as the percentage change between such periods (dollars in thousands):
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
Percent change
2014 vs. 2013
|
|
|
Percent change
2013 vs. 2012
|
|
Cost of software licenses
|
|
$ |
890 |
|
|
$ |
748 |
|
|
$ |
831 |
|
|
|
19 |
% |
|
|
(10 |
)% |
Cost of maintenance and services
|
|
|
2,431 |
|
|
|
1,384 |
|
|
|
1,525 |
|
|
|
76 |
% |
|
|
(9 |
)% |
Total
|
|
$ |
3,321 |
|
|
$ |
2,132 |
|
|
$ |
2,356 |
|
|
|
56 |
% |
|
|
(10 |
)% |
Our cost of revenues increased to approximately $3.3 million in 2014 from approximately $2.1 million in 2013. This increase is mainly due to (1) cost of revenues of approximately $0.6 million associated with the acquisition of Hayes (Hayes' operating results are consolidated with our results of operations starting December 19, 2013), (2) an increase of approximately $0.5 million mostly due to an increase in professional services personnel (the headcount of product and customer support, including professional services, personnel increased from 14 at the end of 2013 to 19 at the end of 2014), and (3) an increase of approximately $0.2 million in amortization of acquired intangible assets.
Our cost of revenues decreased to approximately $2.1 million in 2013 from approximately $2.4 million in 2012. This decrease is mainly due to (1) a decrease in amortization of capitalized software development expenses from approximately $0.2 million in 2012 to zero in 2013 and (2) a decrease of approximately $0.1 million in our employee related costs.
Operating Expenses. The following table sets forth a breakdown of our operating expenses for the last three fiscal years as well as the percentage change between such periods (dollars in thousands):
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
Percent change
2014 vs. 2013
|
|
|
Percent change
2013 vs. 2012
|
|
Research and development
|
|
$ |
9,316 |
|
|
$ |
7,756 |
|
|
$ |
7,748 |
|
|
|
20 |
% |
|
|
0 |
% |
Selling and marketing
|
|
|
19,136 |
|
|
|
11,793 |
|
|
|
9,833 |
|
|
|
62 |
% |
|
|
20 |
% |
General and administrative
|
|
|
3,944 |
|
|
|
3,574 |
|
|
|
3,024 |
|
|
|
10 |
% |
|
|
18 |
% |
Total
|
|
$ |
32,396 |
|
|
$ |
23,123 |
|
|
$ |
20,605 |
|
|
|
40 |
% |
|
|
12 |
% |
Research and Development. Research and development, or R&D, expenses consist primarily of salaries of employees engaged in on-going research and development activities and other related costs.
Total R&D costs increased by approximately 20% from $7.8 million in 2013 to $9.3 million in 2014. The increase is attributed mainly to (1) the contribution of Hayes to our R&D costs of approximately $0.8 million and (2) an increase of approximately $0.7 million in our employee related costs due to compensation adjustments, certain expenses associated with such adjustments, and an increase in equity-based compensation. Research and development headcount increased from 58 at the end of 2013 to 63 at the end of 2014.
Total R&D costs remained at the same level with $7.8 million in 2013, compared to $7.7 million in 2012. In 2013, our employee related costs, including stock-based compensation expenses, decreased by approximately $0.1 million compared to 2012. This decrease was offset by an increase of approximately $0.1 million in rent expenses.
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, and sales offices maintenance and administrative costs.
Selling and marketing expenses increased by approximately 62% to $19.1 million in 2014 from $11.8 million in 2013. This increase is primarily due to (1) an increase of approximately $4.2 million in costs related to the expansion of our sales and marketing teams (from 54 employees as of December 31, 2013 to 70 employees as of December 31, 2014), consistent with our strategy to increase our global footprint, (2) the contribution of Hayes to our selling and marketing expenses of approximately $1.2 million, (3) an increase of $0.8 million in travel and rent expenses, consistent with our strategy to increase our global footprint, (4) additional investment in marketing activities of approximately $0.4 million to support this expansion, and (5) an increase in equity-based compensation expenses of approximately $0.3 million.
Selling and marketing expenses increased by approximately 20% to $11.8 million in 2013 from $9.8 million in 2012. This increase is primarily due to (1) an increase of approximately $1.0 million in costs related to the expansion of our sales and marketing teams (from 33 employees as of December 31, 2012 to 54 employees as of December 31, 2013) during 2013, consistent with our strategy to increase our global footprint, (2) additional investment in marketing activities of approximately $0.5 million to support this expansion, and (3) related expenses that resulted in an increase of $0.4 million in travel and rent expenses.
General and Administrative. General and administrative expenses consist primarily of compensation costs for finance, general management and administration personnel, and legal, audit, and other administrative costs.
General and administrative expenses increased by approximately 10% to $3.9 million in 2014 from $3.6 million in 2013. The increase is primarily attributable to (1) an increase in corporate and legal expenses, mainly associated with sales, of approximately $0.4 million, (2) an increase in equity-based compensation expenses of approximately $0.2 million, and (3) an increase of approximately $0.1 million in our employee related costs due to compensation adjustments and an increase in performance-based compensation. This increase was partially offset by a decrease in expenses associated with acquisitions of approximately $0.5 million.
General and administrative expenses increased by approximately 18% to $3.6 million in 2013 from $3.0 million in 2012. The increase is primarily attributable to expenses associated with the acquisition of Hayes that amounted to $0.5 million.
Operating Loss. Based on the foregoing, our operating loss increased from approximately $58,000 in 2013 to $65,000 in 2014. In 2012, we had an operating income of $2,518,000.
Financial Expenses, Net. In 2014, we had net financial expenses of $893,000 compared to approximately $627,000 in 2013. This increase is attributed mainly to accretion of contingent obligations related to acquisitions, which was recorded in 2014 in the amount of approximately $682,000, compared to $95,000 in 2013. In addition, financial expenses associated with currency hedging activities were approximately $201,000 in 2014, compared to financial income of $21,000 in 2013. This increase in financial expenses was partially offset by a decrease in financial expenses of approximately $550,000 that was attributed to a revaluation of the Plenus Right presented at fair value.
In 2013, we had net financial expenses of $627,000 compared to approximately $1.2 million in 2012. This decrease is attributed mainly to an expense of $717,000 that we recorded in 2012 related to the conversion and repayment of the Convertible Notes and the loan to us from Plenus during 2012, resulting in no financial expense in 2013. In addition, the financial expenses associated with the $2.0 million contingent milestone payment due in connection with the RepliWeb acquisition were approximately $66,000 in 2013, compared to $265,000 in 2012. This decrease in financial expenses was partially offset by an increase in financial expense of (1) approximately $140,000 that was attributed to a revaluation of the Plenus Right presented at fair value, and (2) approximately $90,000 associated with increase of expenses associated with exchange rate differences (mainly due to the revaluation of the NIS in relation to the dollar in 2013).
Taxes on Income. The corporate tax rate in Israel was 26.5% for 2014, compared with 25% in 2013 and 2012.
Taxes on income in 2014 were $734,000 compared to income tax benefit of $56,000 in 2013. The increase is mainly due to an increase in the taxable income of our U.S. subsidiaries, as we have utilized all U.S. tax loss carryforwards in 2014. The increase was partially offset by a change in deferred tax assets and liabilities with respect to acquired intangible assets.
Income tax benefit for 2013 was $56,000 compared to $209,000 in 2012. The net change mainly relates to changes in deferred tax assets and liabilities with respect to acquired intangible assets and tax loss carryforwards.
For additional details regarding our income taxes, see also note 11 to our consolidated financial statements included elsewhere in this annual report and “Item 10E – Taxation – Israeli Tax Considerations.”
Impact of Currency Fluctuations and of Inflation
Our financial results may be negatively impacted by foreign currency fluctuations and inflation.
Except as set forth below, foreign currency fluctuations and the rate of inflation did not have a material impact on our financial results in the past three years.
In 2014, the revaluation of the dollar in relation to the NIS decreased the dollar reporting value of our operating expenses by approximately $0.1 million for that year compared with 2013. Since the beginning of 2014, we have been engaged in several currency hedging transactions intended to reduce the effect of fluctuations in currency exchange rates on our financial statements. As of December 31, 2013 and 2014, the fair value of our outstanding forward and cylinder contracts amounted to approximately $0 and ($196,000), respectively.
For additional details, see Item 11 “Qualitative and Quantitative Disclosures about Market Risk” below.
B.
|
Liquidity and Capital Resources
|
In the past few years, we financed our operations through cash generated by operations, equity investments in private placements, short-term loans and, until mid-2012, borrowings under loans from Plenus and the Convertible Notes. In November 2013, we raised proceeds in a public offering, as described below.
Our funding and treasury activities are conducted within corporate practices to maximize investment returns while maintaining appropriate liquidity for both our short and long term needs. Cash and cash equivalents are held primarily in U.S. dollars and NIS.
Principal Financing Activities
In the past two years, we have engaged in several financing activities designed to improve our cash position, as follows:
Public offering. On November 26, 2013, we closed a firm commitment underwritten public offering of 2,852,000 ordinary shares (including 372,000 ordinary shares issued to the underwriter upon full exercise of its over-allotment option), at a public offering price of $7.00 per share. The net proceeds for us were approximately $18.0 million.
Credit Line. In August 2012, we secured a short-term line of credit of approximately $1.0 million from an Israeli bank, which credit line expired in April 2014. Draws under the credit line bore interest, most of which at the bank’s cost of funds plus a margin of 3.0%.
Working Capital and Cash Flows
As of December 31, 2014, we had $19.4 million in cash and cash equivalents (including restricted cash of $0.4 million), compared to $16.5 million in cash and cash equivalents as of December 31, 2013. The increase is mainly due to increase in cash flows we generated from operations.
As of December 31, 2013 and 2014, we did not have any third-party debt other than the short-term credit line that expired in April 2014. As of December 31, 2014, our working capital amounted to $11.6 million, compared to $12.3 million as of December 31, 2013.
The following table presents the major components of net cash flows used in and provided by operating, investing and financing activities for the periods presented (dollars in thousands):
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
Net cash provided by operating activities
|
|
$ |
3,091 |
|
|
$ |
262 |
|
|
$ |
1,942 |
|
Net cash provided by (used in) investing activities
|
|
|
(1,624 |
) |
|
|
(4,826 |
) |
|
|
54 |
|
Net cash provided by financing activities
|
|
|
1,009 |
|
|
|
17,322 |
|
|
|
363 |
|
In the past three years, we used a significant portion of our cash for acquisitions. In 2014, 2013 and 2012, we paid a total of approximately $0.7 million, $4.2 million and $4.4 million, respectively, as cash consideration (including contingent consideration paid during these years but excluding consideration payable in ordinary shares) for this purpose (namely, the acquisitions of BiReady, Hayes and RepliWeb described elsewhere in this annual report).
Net cash provided by operating activities was $3.1 million in 2014, compared to approximately $0.3 million in 2013 and $1.9 million in 2012. The increase from 2013 to 2014 is mainly due to $1.7 million increase in net cash inflow from deferred revenues and decrease of $1.0 million in net cash outflow from accrued expenses. This increase was partially offset by a $0.3 million increase in net cash outflow from trade payables. The decrease from 2012 to 2013 is mainly attributed to a decrease in net income as compared to 2012.
Net cash used in investing activities in 2014 was approximately $1.6 million, compared to $4.8 million in 2013 and compared to net cash provided by investing activities in 2012 of $54,000. The change between 2014 and 2013 is mainly attributable to $4.2 million of cash paid in connection with the acquisition of Hayes in December 2013. The change between 2013 and 2012 is attributable mainly to the aforesaid $4.2 million of cash paid in connection with the acquisition of Hayes as well as our relocation to new office space in Israel during the first quarter of 2013, which resulted in capital expenditures in the amount of approximately $0.7 million.
Net cash provided by financing activities in 2014 was $1.0 million, compared to $17.3 million in 2013 and $0.4 million in 2012. The decrease between 2014 and 2013 is attributable mainly to $18.0 million raised in the public offering during 2013. The increase between 2012 and 2013 is mainly due to the aforesaid 2013 public offering as well as proceeds of approximately $1.1 million we received from exercises of warrants and stock options during 2013 (compared to proceeds of approximately $0.6 million we received from exercises of warrants and stock options in 2012). This increase was partially offset by the payment, in April 2013, of $2.0 million to RepliWeb’s former shareholders, as a full and final payment of the contingent consideration payable to them in connection with the acquisition of RepliWeb.
Principal Capital Expenditure and Divestitures
During 2014, our capital expenditures totaled approximately $446,000 (compared to $663,000 during 2013 and $308,000 during 2012), most of which were used for the purchase of computer equipment. Other than future capital expenditures in connection with the purchase of computers and licensee software and consistent with the amounts described in 2014, we have no significant capital expenditures in progress. We did not affect any principal divestitures in the past three years.
Outlook
Currently, our principal commitments consist of liability for the contingent payments due to (1) Hayes former shareholders in the amount of up to $4.2 million (presented in our consolidated financial statements at present value of approximately $3.9 million), which, if earned, is generally payable in April 2015 and 2016 (we expect to make payment of approximately $2.0 million in April 2015), (2) BIReady in the amount of up to EUR 300,000 (approximately $0.4 million) (presented in our consolidated financial statements at present value of approximately $0.3 million), which, if earned, is generally payable in April 2016 and 2017, and (3) Appfluent former shareholders (not yet presented in our consolidated financial statements) which, if earned, is generally payable in April 2016 and 2017. See also Item 5.F “Tabular Disclosure of Contractual Obligations.”
In light of our cash balances and other factors, including our ability to generate cash from operations, we believe that our existing capital resources will be adequate to satisfy our working capital and capital expenditure requirements for a period of no less than the next twelve months.
C.
|
Research and Development, Patents and Licenses, etc.
|
The software industry is characterized by rapid product changes 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 and in Illinois. As of December 31, 2014, we employed 63 persons in research and development compared to 58 persons as of December 31, 2013.
We have committed substantial financial resources to our research and development efforts. During 2014, 2013 and 2012, our research and development expenditures were approximately $9.3 million, $7.8 million and $7.7 million, respectively.
As described in Item 4.B “Information on the Company - Business Overview - Government Regulations,” we participated in the past in programs sponsored by the Chief Scientist.
See Item 5.A “Operating Results – Executive Summary.”
E.
|
Off-Balance Sheet Arrangements
|
We do not have any off-balance sheet arrangements, as such term is defined under Item 5.E of the instructions to Form 20-F, that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
F.
|
Tabular Disclosure of Contractual Obligations
|
The following table summarizes our contractual obligations and commercial commitments, as of December 31, 2014:
|
|
Payments due by period
(U.S. dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance pay obligation (1)
|
|
|
1,049 |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
|
|
-- |
|
Operating lease obligations (2)
|
|
|
4,315 |
|
|
|
1,414 |
|
|
|
2,181 |
|
|
|
720 |
|
|
|
-- |
|
Hayes and BIReady contingent payment obligations (3)
|
|
|
4,262 |
|
|
|
2,054 |
|
|
|
2,208 |
|
|
|
-- |
|
|
|
-- |
|
Total (4)
|
|
$ |
9,626 |
|
|
$ |
3,468 |
|
|
$ |
4,389 |
|
|
$ |
720 |
|
|
$ |
- |
|
* For 2015.
(1) Severance payments of $4,296,000 are payable only upon termination, retirement or death of the respective employee. Of this amount, $1,049,000 is unfunded. Since we are unable to reasonably estimate the timing of settlement, the timing of such payments is not specified in the table. See also Note 2(s) to our Consolidated Financial Statements.
(2) Includes rent expenses of approximately $3,975,000 related to our leased facilities for the next five years.
(3) Includes: (a) the fair value of contingent payment of up to $4,200,000 in the aggregate payable in April 2015 and in April 2016 to former Hayes shareholders and (b) the fair value of contingent payment of up to EUR 300,000 (approximately $375,000) in the aggregate payable in April 2016 and April 2017 to BIReady.
(4) As of December 31, 2014, these figures exclude (1) $93,000 for an accrual for uncertain income tax position under ASC No. 740, “Income Taxes,” because we are unable to reasonably estimate the ultimate amount or timing of settlement of this amount (see Note 11(f) of our consolidated financial statements included elsewhere in this annual report), and (2) $906,000 for liabilities presented at fair value associated with the Plenus Right because we are unable to reasonably estimate the ultimate amount of, or timing of payment for, such Plenus Right (see Note 6 of our consolidated financial statements included elsewhere in this annual report).
|
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|
A.
|
Directors and Senior Management
|
The following lists the name, age, principal position and a biographical description of each of our current directors and senior management.
Name
|
|
Age
|
|
Director Since
|
|
Position with the Company
|
Shimon Alon
|
|
65
|
|
2004
|
|
Chairman of the Board of Directors and Chief Executive Officer
|
Dror Harel-Elkayam
|
|
47
|
|
- -
|
|
Chief Financial Officer and Secretary
|
Mel Passarelli
|
|
58
|
|
- -
|
|
Vice President, North American Operations
|
Erez Zeevi
|
|
49
|
|
- -
|
|
Vice President, Research and Development and Worldwide Support
|
Dov Biran
|
|
62
|
|
2003
|
|
Director
|
Dan Falk (1) (2)
|
|
70
|
|
2002
|
|
Director
|
Tali Alush-Aben (1) (2)
|
|
51
|
|
2008
|
|
Outside Director
|
Ron Zuckerman
|
|
57
|
|
2004
|
|
Director
|
Gil Weiser (1) (2)
|
|
73
|
|
2010
|
|
Outside Director
|
(1)
|
Member of the Audit Committee.
|
(2)
|
Member of the Compensation Committee.
|
Shimon Alon was appointed Chairman of our Board of Directors in April 2004 and was appointed our Chief Executive Officer in June 2008. From September 1997 until June 2003, Mr. Alon served as Chief Executive Officer of Precise Software Solutions Ltd., or Precise, a provider of application performance management. Since the acquisition of Precise by Veritas Software Corp., or Veritas, in June 2003, Mr. Alon has served as an executive advisor to Veritas. Prior to Precise, Mr. Alon held a number of positions at Scitex Corporation Ltd. and its subsidiaries, including President and Chief Executive Officer of Scitex America and Managing Director of Scitex Europe. Mr. Alon holds a degree from the Executive Management Program at the Harvard Business School.
Dror Harel-Elkayam was appointed Chief Financial Officer in October 2010. Prior to that, he served as our Vice President - Finance and Secretary since October 2004. From August 1997 until June 2003, he served as the Director of Finance and Corporate Secretary of Precise. Since the acquisition of Precise by Veritas in June 2003 and until September 2004, he served as a Director of Finance of Precise. Mr. Harel-Elkayam holds a B.A. degree in economics and accounting from the Hebrew University, Jerusalem. He is also a certificated public accountant in Israel.
Mel Passarelli was appointed Vice President, North American Operations in April 2007. From 2005 until 2007, he served as Vice President, Worldwide Sales in Vistagy, Inc. (now a part of Siemens). Prior to Vistagy, Mr. Passarelli served in senior management roles at Artisoft Inc., Omtool Ltd. and Intergraph Corporation (now part of Hexagon). Mr. Passarelli holds a B.A. degree in economics and political science and an M.B.A. degree in marketing and finance, both from the State University of New York in Buffalo. He also holds a J.D. from Suffolk University School of Law in Boston.
Erez Zeevi was appointed as our Vice President, Research and Development and Worldwide Support in March 2009. From January 2006 until March 2009, he served as our Director of Research and Development. Mr. Zeevi joined Attunity in 1993 and has served in various positions associated with our Research and Development activities. He holds a B.Sc. degree in software engineering from the Technion, Israel Institute of Technology in Haifa.
Dr. Dov Biran has been a director since December 2003. From March 2000 through October 2001, he served as acting Chief Executive Officer, Chief Technology Officer and a Director of Attunity. Dr. Biran is the founder and the Chief Executive Officer of Fitango, Inc. Prior thereto, Dr. Biran was the founder and President of Bridges for Islands, which was acquired by us in February 2000. Dr. Biran was the Chief Executive Officer of Optimal Technologies, Chief Information Officer of Dubek Ltd. and an officer in the computer unit of the Israeli Defense Forces. He also served as a Professor of entrepreneurship and computers at Babson College, Northeastern University and Tel Aviv University. Dr. Biran holds a B.Sc., M.B.A., and a Ph.D. in computers from Tel Aviv University.
Dan Falk has been a director since April 2002. From 1999 until 2000, he served as the President and Chief Operating Officer and then Chief Executive Officer of Sapiens International Corporation N.V., or Sapiens, a publicly traded company that provides cost-effective business software solutions. From 1995 until 1999, Mr. Falk was Executive Vice President and Chief Financial Officer of Orbotech Ltd., a maker of automated optical inspection and computer aided manufacturing systems. Mr. Falk is a member of the boards of directors of Orbotech, Nice Systems Ltd., and Ormat Technologies, Inc., and the Chairman of the Board of Directors of AVT-Advanced Vision Technology Ltd. He holds a B.A degree in economics and political science and an M.B.A. degree, both from the Hebrew University, Jerusalem.
Tali Alush-Aben has been an outside director since December 2008. She is currently an independent consultant. Until January 2008, she was a General Partner at Gemini, an Israeli venture capital fund she joined in 1994. Her focus in Gemini was primarily on software companies. Prior to joining Gemini, she served as Marketing Director of RadView, then a start-up software company, and as Senior Product Marketing Manager at SunSoft Inc. From 1990 to 1992, she served as Marketing Director for Mercury Interactive Corporation. Ms. Alush-Aben is also a member of the board of directors of Vizrt Ltd. She holds a B.Sc. degree in mathematics and computer science and an M.B.A. degree, both from Tel-Aviv University.
Ron Zuckerman has been a director since May 2004. Mr. Zuckerman co-founded Precise and served as its Chairman until it was acquired by Veritas in June 2003. Mr. Zuckerman co-founded Sapiens and served as its Chairman and Chief Executive Officer until March 2000. Mr. Zuckerman was a co-founder and director of GVT Holdings SA, a Brazilian telephone operator, until it was acquired by the Vivendi Group in late 2009. Mr. Zuckerman was also an early investor and a director of Wintegra Inc. until it was acquired by PMC-Sierra Inc. in late 2010. He is also an investor and a director in several other privately held companies. Mr. Zuckerman holds a B.Sc. degree in economics from Brandeis University.
Gil Weiser has been an outside director since December 2010. Mr. Weiser currently serves as a director of several companies, including ClickSoftware Technologies Ltd., and as the Chairman of BG Technologies Ltd. He has more than 25 years of experience in management and operations, with executive posts at corporate, academic and financial entities. He served as the Chief Executive Officer of Orsus Solutions Ltd. from August 2006 to June 2010, and as the Chief Executive Officer of Hewlett Packard (Israel) and CMS Corporation from 1995 to 2000. From 1993 until 1995, he served as President and Chief Executive Officer of Fibronics International Inc. and as Chief Executive Officer of Digital (DEC Israel) from 1978 to 1993. He also served as a director of the Tel Aviv Stock Exchange from 2002 to 2004 and as Chairman of the Multinational Companies Forum. Mr. Weiser holds a B.Sc. degree from Technion, Israel Institute of Technology in Haifa as well as a M.Sc. degree in science from the University of Minnesota.
Additional Information
There are no family relationships between any of the directors or members of senior management named above.
Our articles of association provide for a Board of Directors of not fewer than two nor more than eleven members. Our Board of Directors is currently composed of six directors (including the two outside directors). Officers serve at the pleasure of the Board of Directors, subject to the terms of any agreement between the officer and us. In accordance with the Companies Law, the concurrent office of Mr. Alon as both our Chairman and Chief Executive Officer for a term of three years was approved by our shareholders in December 2014.
Messrs. Alon, Biran, Falk and Zuckerman will serve as directors until our annual general meeting of shareholders in 2015. Ms. Alush-Aben was re-elected as an outside director in December 2014 for an additional three-year term. Mr. Weiser was re-elected as an outside director in December 2013 for an additional three-year term.
We are not aware of any arrangements or understandings with major shareholders, customers, suppliers or others, pursuant to which any person referred to above was selected as a director or member of senior management.
Aggregate Executive Compensation
Our objective is to attract, motivate and retain highly skilled personnel who will assist Attunity to reach its business objectives, performance and the creation of shareholder value and otherwise contribute to its long-term success. In December 2013, our shareholders approved the compensation policy for our executive officers and directors, or the Compensation Policy, which was designed to correlate executive compensation with Attunity’s objectives and goals and otherwise embraces a performance culture that is based on merit, and differentiates and rewards excellent performance in the long term.
The following table sets forth all cash and cash-equivalent compensation we paid with respect to all of our directors and executive officers as a group for the periods indicated:
|
|
Salaries, fees,
|
|
|
Pension, retirement
|
|
2014 - All directors and executive officers as a group, consisting of 9 persons for the year ended December 31, 2014
|
|
$ |
1,522,000 |
|
|
$ |
236,000 |
|
|
|
|
|
|
|
|
|
|
2013 - All directors and executive officers as a group, consisting of 8 persons for the year ended December 31, 2013
|
|
$ |
1,023,000 |
|
|
$ |
163,000 |
|
We provide leased automobiles to our executive officers in Israel pursuant to standard policies and procedures.
During 2014, we granted to our directors and officers listed in Item 6A above options to purchase, in the aggregate, 287,185 ordinary shares at a weighted average exercise price per share of $10.43. The options expire in 2020. The weighted average fair value of these options as of the grant date was $4.85 per option. For a discussion of the accounting method and assumptions used in valuation of such options, see Note 10 to our consolidated financial statements included elsewhere in this annual report. See also “Item 6.E. - Directors, Senior Management and Employee – Share Ownership –– Equity Incentive Plans” below.
Individual Compensation of Covered Executives
The table and summary below outline the compensation granted to our five most highly compensated "office holders" during or with respect to the year ended December 31, 2014. The Companies Law defines the term “office holder” of a company to include a director, the chief executive officer, the chief business manager, a vice president and any officer that reports directly to the chief executive officer. We refer to the five individuals for whom disclosure is provided herein as our “Covered Executives.”
For purposes of the table and the summary below, “compensation” includes base salary, bonuses (including sales commissions), equity-based compensation, retirement or termination payments, benefits and perquisites such as car, and social benefits and any undertaking to provide such compensation. All amounts reported in the table are in terms of cost to the Company, as recognized in our financial statements for the year ended December 31, 2014.
Name and Principal Position (1)
|
|
Annual Base Salary (2)
|
|
|
Bonus (3)
|
|
|
Equity-Based
Compensation (4)
|
|
|
All Other Compensation (5)
|
|
|
Total
|
|
|
|
(US$ in thousands)
|
|
Shimon Alon, Chairman of the Board and Chief Executive Officer
|
|
|
336 |
|
|
|
226 |
(6) |
|
|
208 |
(7) |
|
|
172 |
(8) |
|
|
942 |
|
Paul Kelly, Vice President of Sales EMEA
|
|
|
198 |
|
|
|
132 |
|
|
|
77 |
|
|
|
106 |
|
|
|
513 |
|
Mel Passarelli, Vice President North American Operations
|
|
|
175 |
|
|
|
195 |
|
|
|
52 |
|
|
|
62 |
|
|
|
484 |
|
Itamar Ankorion, Vice President of Business Development
|
|
|
160 |
|
|
|
153 |
|
|
|
52 |
|
|
|
56 |
|
|
|
421 |
|
Dror Elkayam, Chief Financial Officer
|
|
|
190 |
|
|
|
41 |
|
|
|
65 |
|
|
|
117 |
|
|
|
413 |
|
*
|
Since all or part of the compensation may be denominated in currencies other than the U.S. dollar, fluctuations in dollar amounts may be attributed to exchange rate fluctuations. In particular, for purposes of this table, cash compensation amounts denominated in currencies other than the U.S. dollar were converted into dollars at an exchange rate of NIS 3.57 per $1.00 and of GBP 1.65 per $1.00, which reflect the average applicable conversion rates for 2014.
|
(1)
|
Unless otherwise indicated herein, all Covered Executives are (i) employed on a full-time (100%) basis; and (ii) subject to customary confidentiality, intellectual property assignment and non-solicitation provisions as well as an undertaking not to compete with us or in our field of business for at least 12 months following termination of employment.
|
(2)
|
Unless otherwise indicated herein, reflects the annual gross salary.
|
(3)
|
Amounts reported in this column represent annual bonuses, including sales commissions, granted to the Covered Executives based on formulas set forth in their respective employment agreements. Consistent with our Compensation Policy, such bonuses are based upon (i) for the CEO – see footnote 6 below; (ii) for other non-sales executive officers (in this list –Mr. Harel-Elkayam) - achievement of milestones and targets and the measurable results of the Company, as compared to our budget and/or work plan for the relevant year, with a portion of the bonus (up to 20%) being based on the achievement and performance of pre-determined individual key performance indicators (KPIs) and/or other appropriate criteria, and, in any event, not to exceed the amount of one (100%) annual base salary of such executive; and (iii) for sales executive officers (in this list –Messrs. Kelly, Passarelli and Ankorion) - achievement of targets of revenues generated by the individual and/or his/her team or division and/or the Company, as well as, in appropriate circumstances, other measurable criteria, and in any event, not to exceed the amount of 250% of annual base salary of such executive.
|
(4)
|
Amounts reported in this column represent the grant date fair value (and the associated accounting expense recognized by the Company) in accordance with accounting guidance for stock-based compensation. For a discussion of the assumptions used in reaching this valuation, see Note 10c to our consolidated financial statements. All of the awards were in the form of stock options, which expire six years after the grant date, and were made pursuant to one of our equity incentive plans.
|
(5)
|
Amounts reported in this column include benefits and perquisites, including those mandated by applicable law. Such benefits and perquisites may include, to the extent applicable to the Covered Executive, payments, contributions and/or allocations for savings funds (e.g., Managers Life Insurance Policy), education funds (“keren hishtalmut”), pension, severance, vacation, car or car allowance, medical insurances and benefits, risk insurances (e.g., life, or work disability insurance), convalescence or recreation pay, relocation, employers payments for social security, tax gross-up payments and other benefits and perquisites consistent with Attunity’s guidelines. Unless otherwise indicated herein, all Covered Executives in Israel are entitled (including by virtue of Israeli labor laws), among other things, to (i) a company car and all related expenses, except related taxes; (ii) Company contributions for the benefit of the Covered Executive to (a) our Managers Insurance Policy in the amount of 15.33% of the Covered Executive gross salary (a portion of which is for severance pay, to which the Covered Executive would be entitled), and (b) our Education Fund in the amount of 7.5% of the Covered Executive’s gross salary; (iii) up to 23 days paid vacation per year (iv) 10 days recreation (“Havra’a”) payment a year in an amount normally paid by our Company in accordance with applicable law; (v) a notice period of up to three months prior to termination (other than termination for cause), during which they are generally entitled to all compensation and rights under their employment agreements; and (vi) certain benefits in connection with a change of control of the Company, such as accelerated vesting of stock options and/or extended period of up to six months of termination.
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(6)
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Consistent with our Compensation Policy, and as approved by our shareholders in December 2013, for each of the years 2013 and 2014, Mr. Alon was entitled to an annual bonus that will not exceed the NIS equivalent of approximately $201,000 gross (for 100% achievement of performance milestones) or approximately $282,000 (for overachievement of 120% or more). Following a modification to Mr. Alon’s employment terms, and as approved by our shareholders in December 2014, for the year 2015, Mr. Alon will be entitled to an annual bonus that will not exceed the NIS equivalent of approximately $217,000 gross (for 100% achievement of performance milestones) or approximately $304,000 (for overachievement of 120% or more). In general, the annual bonus is payable on a quarterly basis, subject to Mr. Alon achieving certain criteria and milestones set by our Compensation Committee and Board of Directors. The milestones and criteria for the annual bonus for the years 2013, 2014 and 2015, consist of several performance metrics (namely, an annual revenue metric and, for 2014 and 2015, also a profitability metric), which are tied to our annual budget for the applicable year and are subject to target thresholds within each metric and ranges of bonus payout.
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(7)
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As approved by our shareholders, Mr. Alon is entitled, on the date of the annual meeting of shareholders for each of 2013, 2014 and 2015, to a grant of options to purchase a number of ordinary shares equal to 0.7% of the total outstanding shares (on a fully diluted basis) of the Company as of November 1st of each year, at an exercise price equal to the average market price of the shares in the 30 trading days prior to the applicable grant date. The fair market value of the proposed grant, as measured on the date of the grant, based on Black-Scholes model, may not exceed the NIS equivalent of approximately $906,000, or the Cap, which is the equivalent of three times Mr. Alon’s annual base salary per year of vesting, on a linear basis. (i.e., if the fair market value on the applicable grant date exceeds the Cap per year, the number of options will be reduced so that it does not exceed the Cap). Consistent with the foregoing, on December 26, 2013 and December 30, 2014, we granted Mr. Alon options to purchase 93,338 ordinary shares at an exercise price equal to $8.55 per share and 119,185 ordinary shares at an exercise price equal to $9.87 per share, respectively. One third of the options vest one year after the grant date, with the balance vesting in eight equal quarterly installments. Vesting of the options will accelerate upon certain change of control events, in accordance with Mr. Alon’s employment agreement.
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(8)
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In the event of termination of Mr. Alon’s employment for any reason (other than (1) termination by the Company for cause, i.e., in circumstances where he would not be entitled to severance pay under Israeli law, or (2) resignation at any time without providing the Company with the required prior notice), Mr. Alon will be entitled to an adjustment period of 12 months following the end of the prior notice period under the agreement (or from the date that he actually ceased to provide services should we choose to waive the prior notice period). During the adjustment period, Mr. Alon will be entitled to all rights to which he is entitled under his employment agreement and he will be entitled to exercise any vested options; however, his options will cease to vest. The employee-employer relationship will not terminate until the end of the adjustment period. Mr. Alon will be entitled to reimbursement of all expenses in connection with his employment.
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Compensation of Non-Employee Directors
Our non-employee directors, including outside directors, receive, commencing in 2014, an annual fee of $15,000 and attendance fees of NIS 1,650 per meeting (equivalent to approximately $415 per meeting attended, linked to the Israeli Consumer Price Index (“CPI”)).
According to the Compensation Policy, non-employee directors may be granted equity based compensation which shall vest over a period of at least three years, and having a fair market value (determined according to acceptable valuation practices at the time of grant) that will not exceed, with respect to each year of vesting (measured on a linear basis), the equivalent of $80,000 for each. Consistent with the Compensation Policy, each of our non-employee directors who may serve from time to time, including our outside directors, will be granted options, as follows:
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a grant of options under our stock option plans to purchase 20,000 ordinary shares every three years for which such non-employee director holds office, which options vest in three equal installments over three years;
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an exercise price of all options equal to the fair market value of the ordinary shares on the date of the grant (i.e., the closing price of our shares on the date of the annual general meeting of shareholders in which such director is elected or reelected); and
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the portion of outstanding options that is scheduled to vest during the year at which the director’s service with us is terminated or expires will be accelerated and become fully vested and exercisable for a period of 180 days thereafter, unless termination was due to the director’s resignation or for one of the causes set forth in the Companies Law.
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All of the options granted to our directors are made pursuant to one of our equity incentive plans and expire six years after the grant date.
Other than the foregoing fees, reimbursement for expenses and the award of stock options, we do not compensate our directors for serving on our Board of Directors.
Change of Control Arrangements
All of our executive officers as well as certain additional key employees are entitled to (1) accelerated vesting of the ordinary shares subject to outstanding options granted to them in connection with a change in control of the Company and (2) an extended period of six months of termination notice in connection with a termination of employment within one year following a change in control of the Company.
Introduction
According to the Israeli Companies Law and our articles of association, the management of our business is vested in our Board of Directors. The Board of Directors may exercise all powers and may take all actions that are not specifically granted to our shareholders. As part of its powers, our Board of Directors may cause us to borrow or secure payment of any sum or sums of money for our purposes, at times and upon terms and conditions as it determines, including the grant of security interests in all or any part of our property.
Election of Directors; Board Meetings
Pursuant to our articles of association, all of our directors are elected at annual meetings of our shareholders. Except for our outside directors (as described below), our directors hold office until the next annual meeting of shareholders following the annual meeting at which they were appointed, which is required to be held at least once during every calendar year and not more than fifteen months after the last preceding meeting. Pursuant to applicable NASDAQ rules, director nominees are recommended for the Board of Directors’ selection by a majority of our “independent directors” within the meaning of the NASDAQ Listing Rule 5605(a)(2).
Except for our outside directors (as described below), directors may be removed earlier from office by resolution passed at a general meeting of our shareholders and our Board of Directors may temporarily fill vacancies in the Board until the next annual meeting of shareholders.
Our articles of association provide for a Board of Directors of not fewer than two nor more than eleven members. Our Board is currently composed of six directors (including two outside directors).
Under the Israeli Companies Law, our Board of Directors is required to determine the minimum number of directors who must have “accounting and financial expertise” (as such term is defined in regulations promulgated under the Companies Law). Our Board determined that the Board should consist of at least one director who has “accounting and financial expertise.” However, our Board has determined that both Mr. Dan Falk and Mr. Gil Weiser have the requisite “accounting and financial expertise.”
Meetings of the Board of Directors are generally held at least once each quarter, with additional special meetings scheduled when required.
Outside Directors
The Israeli Companies Law requires Israeli companies with shares that have been offered to the public in or outside of Israel, such as Attunity, to appoint at least two outside directors.
To qualify as an outside director, an individual (or the individual’s relative, partner, employer or any entity under the individual’s control) may not have, and may not have had at any time during the previous two years, any “affiliation” (i) with the company, the company’s controlling shareholder or its relative, or another entity affiliated with the company or its controlling shareholder, or (ii) in a company without a controlling shareholder (or a shareholder that owns more than 25% of its voting power), such as Attunity, with any person who, at the time of appointment, is the chairman, the chief executive officer, the chief financial officer or a 5% shareholder of the company. The term affiliation includes:
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an employment relationship;
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a business or professional relationship;
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service as an "office holder", excluding service as a director that was appointed to serve as an outside director of a company that is about to make its initial public offering.
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In addition, pursuant to the Companies Law, (1) an outside director must have either “accounting and financial expertise” or “professional qualifications” (as such terms are defined in regulations promulgated under the Companies Law) and (2) at least one of the outside directors must have “accounting and financial expertise.” Our outside directors are Mr. Gil Weiser and Ms. Tali Alush-Aben. We have determined that Mr. Weiser has the requisite “accounting and financial expertise” and that Ms. Alush-Aben has the requisite “professional qualifications.”
No person may serve as an outside director if the person’s position or other activities create, or may create a conflict of interest with the person’s responsibilities as an outside director or may otherwise interfere with the person’s ability to serve as an outside director. If, at the time an outside director is to be appointed, all current members of the Board of Directors who are not controlling shareholders or their relatives are of the same gender, then the outside director must be of the other gender.
Outside directors are elected by shareholders. The shareholders voting in favor of their election must include at least a majority of the shares of the non-controlling shareholders of the company who voted on the matter. This minority approval requirement need not be met if the total shareholdings of those non-controlling shareholders who vote against their election represent 2% or less of all of the voting rights in the company.
The initial term of an outside director is three years and he or she may be reelected for up to two additional three-year terms. Thereafter, in a company whose shares are listed for trading on, among others, the NASDAQ Capital Market, such as Attunity, he or she may be reelected by our shareholders for additional periods of up to three years each, if our audit committee and the Board of Directors confirm that, in light of the outside director’s expertise and special contribution to the work of the Board of Directors and its committees, the reelection for such additional period is beneficial to the Company. Reelection of an outside director may be effected through one of the following mechanisms: (1) the Board of Directors proposed the reelection of the nominee and the election was approved by the shareholders by the majority required to appoint outside directors for their initial term as described above; or (2) a shareholder holding 1% or more of the voting rights proposed the reelection of the nominee or the external director himself or herself proposed their own reelection, and the reelection is approved by a majority of the votes cast by the shareholders of the company, excluding the votes of controlling shareholders and those who have a personal interest in the matter as a result of their relations with the controlling shareholders; provided that the aggregate votes cast in favor of the reelection by such non-excluded shareholders constitute more than 2% of the voting rights in the company.
Outside directors can be removed from office only by the same special percentage of shareholders as can elect them, or by a court, and then only if the outside directors cease to meet the statutory qualifications with respect to their appointment or if they violate their duty of loyalty to the company.
Any committee of the Board of Directors must include at least one outside director, except that the audit and compensation committees must include all of the outside directors. An outside director is entitled to compensation as provided in regulations adopted under the Israeli Companies Law and is otherwise prohibited from receiving any other compensation, directly or indirectly, in connection with such service.
Independent Directors
Under the NASDAQ rules, a majority of our Board of Directors must qualify as independent directors within the meaning of NASDAQ Listing Rule 5605(a)(2). Our Board of Directors has determined that all of our directors, except for Mr. Alon, our Chairman of the Board of Directors and Chief Executive Officer, would qualify as “independent directors” within the meaning of such rule.
Committees of the Board of Directors
Subject to the provisions of the Israeli Companies Law, our Board of Directors may delegate its powers to committees consisting of board members. Our Board of Directors currently operates an audit committee and a compensation committee.
Audit Committee
Pursuant to applicable SEC and NASDAQ rules, we are required to have an audit committee of at least three members, each of whom must satisfy the independence requirements of the SEC and NASDAQ. In addition, pursuant to NASDAQ rules, all of the members of the audit committee must be financially literate and at least one member must possess accounting or related financial management expertise. The audit committee must also have a written charter specifying the committee’s duties and responsibilities, which include, among other things, the selection and evaluation of our independent auditors.
Under the Companies Law, our Board of Directors is required to appoint an audit committee, which must be comprised of at least three directors, include all of the outside directors, a majority of its members must satisfy the independence standards under the Companies Law, and the chairman is required to be an outside director. The duties of the audit committee under the Companies Law include, among others, examining flaws in the business management of the company and suggesting remedial measures to the Board, assessing the Company’s internal audit system and the performance of its internal auditor, and, as more fully described under
Item 10.B. below, approval of certain interested party transactions.
Our audit committee adopted a written charter specifying the committee’s duties and responsibilities, which include, among other things, assisting our Board of Directors in overseeing the accounting and financial reporting processes of our Company and audits of our financial statements, including the integrity of our financial statements; compliance with legal and regulatory requirements; our independent public accountants’ appointment, qualifications and independence; the performance of our internal audit function and independent public accountants; finding any defects in the business management of our Company for which purpose the audit committee may consult with our independent auditors and internal auditor and proposing to the Board of Directors ways to correct such defects; approving related-party transactions; and such other duties as may be directed by our Board of Directors or required by applicable law. In addition, our audit committee functions as our Qualified Legal Compliance Committee, or the QLCC. In its capacity as the QLCC, the audit committee is also responsible for investigating reports made by attorneys appearing and practicing before the SEC in representing us of perceived material violations of U.S. federal or state securities laws, breaches of fiduciary duty or similar violations by us or any of our agents.
Our audit committee is currently composed of Mr. Weiser, the chairperson of our audit committee, Ms. Alush-Aben and Mr. Falk, all of whom satisfy the respective “independence” requirements of the Companies Law, SEC and NASDAQ rules for audit committee members.
Our audit committee meets at least once each quarter, with additional special meetings scheduled when required.
Compensation Committee
Pursuant to applicable NASDAQ rules, the compensation payable to a company’s chief executive officer and other executive officers must generally be approved by a compensation committee comprised solely of independent directors.
Under the Companies Law, our Board of Directors is required to appoint a compensation committee, which must be comprised of at least three directors, include all of the outside directors, its other members must satisfy certain independence standards under the Companies Law, and the chairman is required to be an outside director. Under the Companies Law, the role of the compensation committee is to recommend to the Board of Directors, for ultimate shareholder approval by a special majority, a policy governing the compensation of office holders based on specified criteria; to review, from time to time, modifications to the compensation policy and examine its implementation; to approve, as more fully described under “Approval of Related Party Transactions Under Israeli Law” below, the actual compensation terms of office holders prior to approval thereof by the Board of Directors; and to resolve whether to exempt the compensation terms of a candidate for chief executive officer from shareholder approval.
Our compensation committee, established in December 2012, adopted a written charter specifying the committee’s duties and responsibilities, which include, among other things, the duties and roles assigned to it pursuant to the Companies Law and applicable NASDAQ rules described above; and oversight and administration of our equity based plans.
Our compensation committee is currently composed of Ms. Alush-Aben, the chairperson of our compensation committee, Mr. Weiser and Mr. Falk, all of whom satisfy the respective “independence” requirements of the Companies Law, SEC and NASDAQ rules for compensation committee members.
Our compensation committee meets at least once each quarter, with additional special meetings scheduled when required.
Internal Audit
Under the Companies Law, our Board of Directors is also required to appoint an internal auditor proposed by the audit committee. The role of the internal auditor is to examine, among other things, whether our activities comply with the law and orderly business procedure. The internal auditor may not be an interested party or office holder, or a relative of any interested party or office holder, and may not be a member of our independent accounting firm. The Companies Law defines the term “interested party” to include a person who holds 5% or more of a company’s outstanding share capital or voting rights, a person who has the right to appoint one or more directors or the general manager, or any person who serves as a director or as the general manager. Mr. Eyal Weitzman of EWC Audit Ltd., an Israeli accounting firm, serves as our internal auditor.
Directors’ Service Contracts
Our Chief Executive Officer. We entered into an employment agreement with Mr. Alon, our Chief Executive Officer, who is also the Chairman of our Board of Directors. See Item 6.B “Directors, Senior Management and Employees – Compensation – Individual Compensation of Covered Executives.”
Other. Except as set forth above and in Item 6.B “Directors, Senior Management and Employees – Compensation,” there are no arrangements or understandings between us and any of our current directors or executive officers for benefits upon termination of service.
Fiduciary Duties of Office Holders
The Companies Law imposes a duty of care and a duty of loyalty on all office holders of a company.
The duty of care requires an office holder to act with the level of skill with which a reasonable office holder in the same position would have acted under the same circumstances. The duty of care of an office holder includes a duty to use reasonable means to obtain:
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information on the advisability of a given action brought for his approval or performed by him by virtue of his position; and
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all other important information pertaining to these actions.
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The duty of loyalty of an office holder requires an office holder to act in good faith and for the benefit of the company, and includes a duty to:
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refrain from any conflict of interest between the performance of his duties in the company and his performance of his other duties or personal affairs;
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refrain from any action that constitutes competition with the company’s business;
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refrain from exploiting any business opportunity of the company to receive a personal gain for himself or others; and
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disclose to the company any information or documents relating to the company’s affairs which the office holder has received due to his position as an office holder.
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Each person listed in the table under Item 6.A “Directors and Senior Management” above is considered an office holder under the Companies Law.
Approval of Related Party Transactions Under Israeli Law
General. Under the Companies Law, a company may approve an action by an office holder from which the office holder would otherwise have to refrain, as described above, if:
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the office holder acts in good faith and the act or its approval does not cause harm to the company; and
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the office holder disclosed the nature of his or her interest in the transaction (including any significant fact or document) to the company at a reasonable time before the company’s approval of such matter.
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Disclosure of Personal Interests of an Office Holder. The Companies Law requires that an office holder disclose to the company, promptly, and, in any event, not later than the board meeting at which the transaction is first discussed, any direct or indirect personal interest that he or she may have and all related material information known to him or her relating to any existing or proposed transaction by the company. If the transaction is an extraordinary transaction, the office holder must also disclose any personal interest held by:
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the office holder’s relatives. Relatives are defined to include the spouse, siblings, parents, grandparents, descendants, spouse’s descendants and the spouses of any of these people; or
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any corporation in which the office holder or his or her relatives holds 5% or more of the shares or voting rights, serves as a director or general manager or has the right to appoint at least one director or the general manager.
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Under the Companies Law, an extraordinary transaction is a transaction:
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not in the ordinary course of business;
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not on market terms; or
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that is likely to have a material impact on the company’s profitability, assets or liabilities.
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The Companies Law does not specify to whom within the company nor the manner in which required disclosures are to be made. We require our office holders to make such disclosures to our Board of Directors.
Under the Companies Law, once an office holder complies with the above disclosure requirement, the Board of Directors may approve a transaction between the company and an office holder, or a third party in which an office holder has a personal interest, unless the articles of association provide otherwise and provided that the transaction is not detrimental to the company’s interest. If the transaction is an extraordinary transaction, first the audit committee and then the board of directors, in that order, must approve the transaction. Under specific circumstances, shareholder approval may also be required. A director who has a personal interest in an extraordinary transaction, which is considered at a meeting of the board of directors or the audit committee, may not be present at this meeting or vote on this matter, unless a majority of the Board of Directors or the audit committee, as the case may be, has a personal interest. If a majority of the Board of Directors has a personal interest, then shareholder approval is generally also required.
Approval of Office Holder Compensation. Pursuant to a recent amendment to the Companies Law, every Israeli public company, such as Attunity, must adopt a compensation policy, recommended by the compensation committee, and approved by the Board of Directors and the shareholders, in that order. The shareholder approval requires a majority of the votes cast by shareholders, excluding any controlling shareholder and those who have a personal interest in the matter. In general, all office holders’ terms of compensation – including fixed remuneration, bonuses, equity compensation, retirement or termination payments, indemnification, liability insurance and the grant of an exemption from liability – must comply with the company’s compensation policy. In December 2013, our shareholders approved the Compensation Policy.
In addition, the compensation terms of directors, the chief executive officer, and any employee or service provider who is considered a controlling shareholder, must be approved separately by the compensation committee, the Board of Directors and the shareholders of the company (by the same majority noted above), in that order. The compensation terms of other officers require the approval of the compensation committee and the board of directors.
Exculpation, Indemnification and Insurance of Directors and Officers
Exculpation of Office Holders. Under the Companies Law, an Israeli company may not exempt an office holder from his or her liability for a breach of the duty of loyalty to the company, but may exempt an office holder, in advance, from his or her liability, in whole or in part, for a breach of his or her duty of care to the company (except with regard to distributions), if the articles of association so provide. Our articles of association permit us to exempt our office holders to the fullest extent permitted by law.
Office Holders’ Insurance. As permitted by the Companies Law, our articles of association provide that, subject to the provisions of the Companies Law, we may enter into a contract for the insurance of the liability of any of our office holders concerning an act performed by him or her in his or her capacity as an office holder for:
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a breach of his or her duty of care to us or to another person;
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a breach of his or her duty of loyalty to us, provided that the office holder acted in good faith and had reasonable cause to assume that his or her act would not prejudice our interests;
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a financial liability imposed upon him or her in favor of another person;
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expenses he or she incurs as a result of administrative proceedings that may be instituted against him or her under Israeli securities laws, if applicable, and payments made to injured persons under specific circumstances thereunder; and
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any other matter in respect of which it is permitted or will be permitted under applicable law to insure the liability of an office holder in the Company.
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Indemnification of Office Holders. As permitted by the Companies Law, our articles of association provide that we may indemnify any of our office holders for an act performed in his or her capacity as an office holder, retroactively (after the liability has been incurred) or in advance against the following:
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a financial liability incurred by, or imposed on, him or her in favor of another person by any judgment, including a settlement or an arbitration award approved by a court; provided that our undertaking to indemnify with respect to such events on a prospective basis is limited to events that our Board of Directors believes are foreseeable in light of our actual operations at the time of providing the undertaking and to a sum or standard that our Board of Directors determines to be reasonable under the circumstances, and further provided that such events and amount or criteria are set forth in the undertaking to indemnify;
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reasonable litigation expenses, including attorney’s fees, incurred by the office holder as a result of an investigation or proceeding instituted against him by a competent authority, provided that such investigation or proceeding concluded without the filing of an indictment against him and either (A) concluded without the imposition of any financial liability in lieu of criminal proceedings or (B) concluded with the imposition of a financial liability in lieu of criminal proceedings with respect to a criminal offense that does not require proof of criminal intent or in connection with a financial sanction;
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reasonable litigation expenses, including attorneys’ fees, incurred by the office holder or charged to him or her by a court, resulting from the following: proceedings we institute against him or her or instituted on our behalf or by another person; a criminal indictment from which he or she was acquitted; or a criminal indictment in which he or she was convicted for a criminal offense that does not require proof of intent;
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expenses he or she incurs as a result of administrative proceedings that may be instituted against him or her under Israeli securities laws, if applicable, and payments made to injured persons under specific circumstances thereunder; and
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any other matter in respect of which it is permitted or will be permitted under applicable law to indemnify an office holder in the Company.
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Limitations on Exculpation, Insurance and Indemnification. The Companies Law provides that a company may not indemnify an office holder nor exculpate an office holder nor enter into an insurance contract which would provide coverage for any monetary liability incurred as a result of any of the following:
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a breach by the office holder of his or her duty of loyalty, unless with respect to indemnification and insurance, the office holder acted in good faith and had a reasonable basis to believe that the act would not prejudice the company;
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a breach by the office holder of his or her duty of care if the breach was committed intentionally or recklessly, unless it was committed only negligently;
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any act or omission committed with the intent to derive an illegal personal benefit; or
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any fine levied against the office holder.
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In addition, under the Companies Law, exculpation of, an undertaking to indemnify or indemnification of, and procurement of insurance coverage for, our office holders must be approved by our audit committee and our Board of Directors and, in specified circumstances, such as if the office holder is a director, by our shareholders.
We have undertaken to indemnify our office holders to the fullest extent permitted by law, including exculpation from the duty of care, by providing them with a Letter of Indemnification, the form of which was approved by our shareholders. We also currently maintain directors and officers liability insurance with an aggregate coverage limit of $15 million, with a Side A coverage of an additional $5 million.
The following table details certain data on the workforce of Attunity and its consolidated subsidiaries for the periods indicated:
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As of December 31,
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2014
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2013
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2012
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Numbers of employees by geographic location
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United States
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67 |
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53 |
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26 |
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Israel
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75 |
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70 |
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76 |
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Europe
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15 |
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8 |
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6 |
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Other
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5 |
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5 |
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6 |
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Total workforce
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162 |
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136 |
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114 |
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Numbers of employees by category of activity
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Research and development
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63 |
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58 |
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59 |
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Sales and marketing
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70 |
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54 |
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33 |
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Product and customer support (including professional services)
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19 |
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14 |
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11 |
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Management and administrative
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10 |
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10 |
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11 |
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Total workforce
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162 |
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136 |
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114 |
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The overall increase in our workforce, from 136 employees in 2013 to 162 employees in 2014, was primarily due to the expansion of our sales and marketing personnel and of our professional services team as part of our strategy to increase our global footprint. The overall increase in our workforce, from 114 employees in 2012 to 136 employees in 2013, was primarily due to the expansion of our sales and marketing personnel as part of our strategy to increase our global footprint and the acquisition of Hayes in December 2013.
We consider our relations with our employees to be good and we have never experienced a strike or work stoppage.
Our employees are not represented by labor unions. Nevertheless, with respect to our employees in Israel, who constitute a majority of our workforce, certain provisions of the collective bargaining agreements between the ‘Histadrut’ (General Federation of Labor in Israel) and the Coordination Bureau of Economic Organizations (including the Industrialists’ Association) may be applicable to our employees by virtue of an order of the Israeli Ministry of Labor. These provisions concern mainly the length of the workday, minimum daily wages, insurance for work-related accidents, determination of severance pay and other conditions of employment. We generally provide our employees with benefits and working conditions beyond the required minimums.
Pursuant to Israeli law, we are legally required to pay severance benefits upon certain circumstances, including the retirement or death of an employee or the termination of employment of an employee without due cause. Israeli employers and employees are required to pay predetermined amounts to the National Insurance Institute, which is substantially similar to the United States Social Security Administration. In 2014, payments to the National Insurance Institute amounted to approximately 10.18% of wages, of which approximately two thirds was contributed by employees with the balance contributed by the employer.
Beneficial Ownership of Executive Officers and Directors
See the table in Item 7.A “Major Shareholders and Related Party Transactions – Major Shareholders” below, which is incorporated herein by reference.
Equity Incentive Plans
Our Option Plans
In 2001, we adopted our 2001 Employee Stock Option Plan, or the 2001 Plan, under which stock options could be granted to employees, officers, directors and consultants of our Company and our subsidiaries. The 2001 Plan does not have a specific expiration date, although we no longer grant awards under this plan in light of the adoption of the 2012 Plan.
In 2003, we adopted the 2003 Israeli Stock Option Plan, or the 2003 Plan, under which stock options may be granted to employees employed by us or by our affiliates, to permit our Israeli employees to benefit from tax advantages that became available at that time under Section 102 of the Israeli Tax Ordinance. The 2003 Plan had a term of ten years and expired in December 2013.
In 2012, we adopted the 2012 Stock Incentive Plan, or the 2012 Plan, under which stock options as well as other equity-based awards, including restricted stock units and performance units, may be granted to employees, officers, directors and consultants of our Company and our subsidiaries. The 2012 Plan has a term of ten years and will terminate in December 2022.
All of these equity incentive plans, to which we refer as the Option Plans, are administered by our compensation committee. Subject to the Option Plans and applicable law, our compensation committee has the authority to make all determinations deemed necessary or advisable for the administration of such plans, including to whom equity awards may be granted, the time and the extent to which these awards may be exercised, the exercise or purchase price of shares covered by each option or other award, the type of awards and how to interpret such plans. Among others, the compensation committee has the authority to provide for, or, where applicable, recommend for approval by the Board of Directors, accelerated vesting of the ordinary shares subject to outstanding options. See also Item 6.B – “Change of Control Arrangements.”
The number of shares reserved for issuance under all of the Option Plans is currently 3,300,625 ordinary shares. Any options or similar awards which are canceled or forfeited before expiration become available for future grants. As of April 1, 2015, 36,595 ordinary shares remain available for grant of awards under the Option Plans.
Grants in 2014
In 2014, we granted options exercisable into 810,185 ordinary shares under the Option Plans (compared to options exercisable into 366,088 ordinary shares that we granted in 2013).
Total Outstanding Options
The following table sets forth, as of December 31, 2014, the number of options outstanding under our Option Plans and their respective exercise prices and expiration dates:
Number of Outstanding Options
|
|
Range of exercise price
|
|
Weighted average remaining contractual life (in years)
|
|
|
|
|
|
237,174
|
|
$0.48 - $1.52
|
|
0.85
|
556,404
|
|
$2.00 - $3.44
|
|
2.69
|
204,417
|
|
$5.68 - $7.81
|
|
5.34
|
378,148
|
|
$8.04 - $9.87
|
|
5.30
|
512,625
|
|
$10.03 - $11.32
|
|
5.28
|
|
|
|
|
|
Total: 1,888,768 (*)
|
|
|
|
3.97
|
|
(*) Includes 897,199 options that are vested and exercisable as of December 31, 2014.
|
|
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information, to our knowledge, as of April 1, 2015 regarding the beneficial ownership by (i) all shareholders who own beneficially more than 5% of our ordinary shares and (ii) by each of our directors and executive officers:
|
|
Number of Ordinary Shares
Beneficially Owned (1)
|
|
|
Percentage of Outstanding
Ordinary Shares (2)
|
|
Shimon Alon
|
|
|
1,518,594 |
(3) |
|
|
9.37 |
% |
Diker Management, LLC
|
|
|
1,142,095 |
(4) |
|
|
7.12 |
% |
Ron Zuckerman
|
|
|
820,894 |
(5)(6) |
|
|
5.11 |
% |
Directors and Officers as a group
(consisting of 9 persons)*
|
|
|
2,840,888 |
(7) |
|
|
17.28 |
% |
*
|
Except for Messrs. Alon and Zuckerman, all of our directors and executive officers beneficially own less than 1% of our outstanding shares.
|
(1)
|
Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Ordinary shares relating to options currently exercisable or exercisable within 60 days of the date of this table are deemed outstanding for computing the percentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person. Except as indicated by footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power with respect to all shares shown as beneficially owned by them.
|
(2)
|
The percentages shown are based on 16,029,788 shares issued and outstanding as of April 1, 2015. This figure of outstanding ordinary shares outstanding does not include:
|
|
·
|
employee stock options to purchase an aggregate of 1,875,608 ordinary shares at a weighted average exercise price of approximately $6.92 per share, with the latest expiration date of these options being January 21, 2021 (of which, options to purchase 976,354 of our ordinary shares were exercisable as of April 1, 2015); and
|
|
·
|
outstanding warrants to purchase an aggregate of 19,701 ordinary shares at an exercise price of $0.48 per share, which expire on various dates until July 29, 2015.
|
(3)
|
Mr. Alon is the Chairman of our Board and our Chief Executive Officer. Includes (i) 1,339,709 ordinary shares; and (ii) 178,885 ordinary shares issuable upon exercise of stock options at exercise prices ranging from $1.00 to $8.76 per ordinary share. These options expire between December 22, 2015 and December 26, 2019. The business address of Mr. Alon is c/o Attunity Ltd., 16 Atir Yeda Street, Atir Yeda Industrial Park, Kfar Saba, 4464321, Israel.
|
(4)
|
This information is based solely on information provided in the Schedule 13G filed with the SEC on February 17, 2015 by Diker GP, LLC, a Delaware limited liability company, as the general partner to several Delaware limited partnerships indicated therein, or, collectively, the Diker Funds; Diker Management, LLC, a Delaware limited liability company, or Diker Management, as the investment manager of the Diker Funds; and Charles M. Diker and Mark N. Diker, both citizens of the United States who are the managing members of each of Diker GP and Diker Management. As affiliates of a registered investment adviser, each of Diker GP and the other reporting persons disclaimed all beneficial ownership of the ordinary shares, and in any case, disclaimed beneficial ownership of these shares except to the extent of the reporting person’s pecuniary interest in these shares. The business address of Diker GP and the other reporting person is 730 Fifth Avenue, 15th Floor, New York, NY 10019.
|
(5)
|
Mr. Zuckerman is a member of our Board. Includes (i) 798,394 ordinary shares; and (ii) 22,500 ordinary shares issuable upon exercise of stock options at exercise prices ranging from $2.84 to $8.76 per ordinary share. These options expire between December 22, 2015 and December 22, 2017. Excludes the Bonale Shares (see footnote 5 below). The business address of Mr. Zuckerman is c/o Attunity Ltd., 16 Atir Yeda Street, Atir Yeda Industrial Park, Kfar Saba, 4464321, Israel.
|
(6)
|
Based on an Amendment No. 9 to a Schedule 13D filed by Mr. Zuckerman with the SEC on March 13, 2012, or the Schedule 13D, Bonale Foundation, a trust for the benefit of persons related to Mr. Zuckerman, beneficially owns 420,725 ordinary shares, which represent approximately 2.62% of our outstanding ordinary shares, or the Bonale Shares. According to the Schedule 13D, Mr. Zuckerman does not direct the management of Bonale Foundation, its investment or voting decisions and disclaims beneficial ownership of the Bonale Shares.
|
(7)
|
Includes (i) 2,427,254 ordinary shares; and (ii) 413,634 ordinary shares issuable upon exercise of stock options at an exercise price ranging from $1.00 to $11.32 per ordinary share. These options expire between December 22, 2015 and March 19, 2020.
|
To the best of our knowledge, the Company is not directly or indirectly owned or controlled by another corporation, by any foreign government or by any other natural or legal person severally or jointly, except as disclosed in the above table regarding our major shareholders.
Significant Changes in the Ownership of Major Shareholders
During the past three years, the significant changes in the percentage ownership of our major shareholders were as follows:
|
·
|
On February 17, 2015, Diker GP and related persons filed a Schedule 13G with the SEC, whereby they reported that they are the beneficial owners of 1,142,095 ordinary shares, or 7.12% of our outstanding ordinary shares as of April 1, 2015.
|
|
·
|
The following table sets forth the beneficial ownership of our ordinary shares by Mr. Alon and Mr. Zuckerman as of January 1, 2012 and April 1, 2015:
|
|
|
Beneficial Ownership
(January 1, 2012)*
|
|
|
Beneficial Ownership
(April 1, 2015)**
|
|
|
|
Number of Ordinary Shares
Beneficially Owned
|
|
|
Percentage
|
|
|
Number of Ordinary Shares
Beneficially Owned
|
|
|
Percentage
|
|
Shimon Alon
|
|
|
1,516,914 |
(1) |
|
|
14.33 |
% |
|
|
1,518,594 |
(2) |
|
|
9.37 |
% |
Ron Zuckerman
|
|
|
803,395 |
(3) |
|
|
7.90 |
% |
|
|
820,894 |
(4) |
|
|
5.11 |
% |
* For details regarding the manner in which we calculate beneficial ownership, see footnote 1 to the table under Item 7A above. The percentages shown are based on 9,987,777 shares issued and outstanding as of January 1, 2012.
** For details regarding the manner in which we calculate beneficial ownership, see footnote 1 to the table under Item 7A above. The percentages shown are based on 16,029,788 shares issued and outstanding as of April 1, 2015.
|
(1)
|
Includes (i) 919,312 ordinary shares; (ii) 27,600 ordinary shares issuable upon exercise of warrants issued in September 2006, exercisable at an exercise price of $0.48 per ordinary share; (iii) 250,298 ordinary shares issuable upon exercise of warrants issued in May 2009, exercisable at an exercise price of $0.48 per ordinary share; (iv) 19,704 ordinary shares issuable upon exercise of warrants (issued in connection with our 2009 rights offering) at an exercise price of $0.48 per ordinary share; and (v) 400,000 ordinary shares issuable upon exercise of stock options at exercise prices ranging from $1.00 to $9.68 per ordinary share. These options expire between December 28, 2012 and December 30, 2016.
|
|
(2)
|
See footnote 3 to the table under Item 7A above.
|
|
(3)
|
Includes (i) 626,925 ordinary shares; (ii) 27,600 ordinary shares issuable upon exercise of warrants issued in September 2006, exercisable at an exercise price of $0.48 per ordinary share; (iii) 104,166 ordinary shares issuable upon exercise of warrants issued in May 2009, exercisable at an exercise price of $0.48 per ordinary share; (iv) 19,704 ordinary shares issuable upon exercise of warrants (issued in connection with our 2009 rights offering) at an exercise price of $0.48 per ordinary share; and (v) 25,000 ordinary shares issuable upon exercise of stock options at exercise prices ranging from $0.32 to $9.68 per ordinary share. These options expire between December 28, 2012 and December 22, 2015.
|
|
(4)
|
See footnote 4 to the table under Item 7A above.
|
Major Shareholders Voting Rights
Our major shareholders do not have different voting rights.
Record Holders
Based on a review of the information provided to us by our transfer agent, as of April 1, 2015, there were 43 holders of record of our ordinary shares, of which 23 record holders, holding approximately 90.8% of our ordinary shares, had registered addresses in the United States. These numbers are not representative of the number of beneficial holders of our shares nor is it representative of where such beneficial holders reside since many of these ordinary shares were held of record by brokers or other nominees (including one U.S. nominee company, CEDE & Co., which held approximately 82% of our outstanding ordinary shares as of said date).
B.
|
Related Party Transactions
|
See Item 6.B “Directors, Senior Management and Employees - Compensation” with respect to compensation payable to our senior management and directors.
A.
|
Consolidated Statements and Other Financial Information
|
Financial Statements
See the consolidated financial statements, including the notes thereto, included in Item 18 “Financial Statements” of this annual report.
Export Sales
In the year ended December 31, 2014, the amount of our export sales (i.e., sales outside Israel) was approximately $34.8 million, which represents 98% of our total sales.
Legal Proceedings
We are currently not, and have not been in the recent past, a party to any legal proceedings which may have or have had in the recent past significant effects on our financial position or profitability. However, we are, or may be, from time to time named as a defendant in certain routine litigation incidental to our business.
Dividend Distribution Policy
We have never paid and do not intend to pay cash dividends on our ordinary shares in the foreseeable future. Our earnings and other cash resources will be used to continue the development and expansion of our business. Any future dividend policy will be determined by our Board of Directors and will be based upon conditions then existing, including our results of operations, financial condition, current and anticipated cash needs, contractual restrictions and other conditions.
According to the Israeli Companies Law, a company may distribute dividends only out of its “profits,” as such term is defined in the Israeli Companies Law, as of the end of the most recent fiscal year or as accrued over a period of two years, whichever is higher. Our Board of Directors is authorized to declare dividends, provided that there is no reasonable concern that payment of the dividend will prevent us from satisfying our existing and foreseeable obligations as they become due. Notwithstanding the foregoing, dividends may be paid with the approval of a court, provided that there is no reasonable concern that payment of the dividend will prevent us from satisfying our existing and foreseeable obligations as they become due. Profits, for purposes of the Israeli Companies Law, means the greater of retained earnings or earnings accumulated during the preceding two years, after deduction of previous distributions that were not already deducted from the surpluses, as evidenced by financial statements prepared no more than six months prior to the date of distribution.
Except as otherwise disclosed in this annual report, no significant change has occurred since December 31, 2014.
A.
|
Offer and Listing Details
|
Annual Share Price Information
The following table sets forth, for each of the years indicated, the range of high ask and low bid prices and high and low sale prices, as applicable, of our ordinary shares on the Over-The-Counter Bulletin Board, or OTCBB, through July 25, 2012, and, starting July 26, 2012, on the NASDAQ Capital Market:
Year
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
2010
|
|
$ |
3.24 |
|
|
$ |
0.88 |
|
2011
|
|
$ |
3.56 |
|
|
$ |
1.56 |
|
2012
|
|
$ |
9.75 |
|
|
$ |
2.36 |
|
2013
|
|
$ |
11.22 |
|
|
$ |
4.42 |
|
2014
|
|
$ |
12.00 |
|
|
$ |
5.83 |
|
Quarterly Share Price Information
The following table sets forth, for each of the full financial quarters in the years indicated, the range of high ask and low bid prices and high and low sale prices, as applicable, of our ordinary shares on the NASDAQ Capital Market:
|
|
High
|
|
|
Low
|
|
2013
|
|
|
|
|
|
|
First Quarter
|
|
$ |
8.25 |
|
|
$ |
6.65 |
|
Second Quarter
|
|
$ |
6.89 |
|
|
$ |
4.42 |
|
Third Quarter
|
|
$ |
9.00 |
|
|
$ |
5.24 |
|
Fourth Quarter
|
|
$ |
11.22 |
|
|
$ |
7.25 |
|
2014
|
|
|
|
|
|
|
First Quarter
|
|
$ |
12.00 |
|
|
$ |
9.00 |
|
Second Quarter
|
|
$ |
11.35 |
|
|
$ |
7.59 |
|
Third Quarter
|
|
$ |
8.25 |
|
|
$ |
5.83 |
|
Fourth Quarter
|
|
$ |
11.21 |
|
|
$ |
6.54 |
|
2015
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$ |
10.94 |
|
|
$ |
8.75 |
|
Monthly Share Price Information
The following table sets forth, for each of the most recent last six months, the range of high and low sale prices, as applicable, of our ordinary shares on the NASDAQ Capital Market:
Month
|
|
High
|
|
|
Low
|
|
October 2014
|
|
$ |
9.14 |
|
|
$ |
6.54 |
|
November 2014
|
|
$ |
9.84 |
|
|
$ |
8.65 |
|
December 2014
|
|
$ |
11.21 |
|
|
$ |
9.26 |
|
January 2015
|
|
$ |
10.94 |
|
|
$ |
8.75 |
|
February 2015
|
|
$ |
10.00 |
|
|
$ |
9.11 |
|
March 2015
|
|
$ |
10.92 |
|
|
$ |
9.12 |
|
April 2015 (through April 13, 2015)
|
|
$ |
10.35 |
|
|
$ |
9.22 |
|
On April 13, 2015, the last reported sale price of our ordinary shares on the NASDAQ Capital Market was $10.14 per share.
Not applicable.
Our ordinary shares were traded on the NASDAQ Global Market from our initial public offering on December 17, 1992 through August 15, 2007 and on the NASDAQ Capital Market from August 16, 2007 through February 22, 2008. From February 26, 2008 through July 25, 2012, our ordinary shares were quoted on the OTCBB. Effective July 26, 2012, our ordinary shares were relisted on the NASDAQ Capital Market under the symbol “ATTU.”
Not applicable.
Not applicable.
Not applicable.
Not applicable.
B.
|
Memorandum and Articles of Association
|
Set out below is a description of certain provisions of our memorandum of association and articles of association and of the Israeli Companies Law (as currently in effect) related to such provisions, unless otherwise specified. This description is only a summary and does not purport to be complete and is qualified by reference to the full text of the memorandum and articles, which are incorporated by reference as exhibits to this annual report, and to Israeli law.
Purposes and Objects of the Company
We are a public company registered under the Israeli Companies Law as Attunity Ltd, registration number 52-003801-9. Pursuant to our memorandum and articles of association, our objectives are to carry on any lawful activity.
The Powers of the Directors
Under the provisions of the Israeli Companies Law and our articles of association, a director generally cannot participate in a meeting nor vote on a proposal, arrangement or contract in which he or she is personally interested. In addition, our directors generally cannot vote compensation to themselves or any members of their body without the approval of our compensation committee and our shareholders at a general meeting. See Item 6.C “Directors, Senior Management and Employees – Board Practices – Approval of Related Party Transactions Under Israeli Law.”
The authority of our directors to enter into borrowing arrangements on our behalf is not limited, except in the same manner as any other transaction by us.
Under our articles of association, retirement of directors from office is not subject to any age limitation and our directors are not required to own shares in our Company in order to qualify to serve as directors.
Rights Attached to Shares
Our authorized share capital consists of 32,500,000 ordinary shares of a nominal value of NIS 0.4 each. The shares do not entitle their holders to preemptive rights.
Dividend rights. Subject to any preferential, deferred, qualified or other rights, privileges or conditions attached to any special class of shares with regard to dividends, the profits of the Company available for dividend and resolved to be distributed shall be applied in payment of dividends upon the shares of the Company in proportion to the amount paid up or credited as paid-up per the nominal value thereon respectively. Unless otherwise specified in the conditions of issuance of the shares, all dividends with respect to shares which were not fully paid up within a certain period, for which dividends were paid, shall be paid proportionally to the amounts paid or credited as paid on the nominal value of the shares during any portion of the abovementioned period. Our Board of Directors may declare interim dividends and propose the final dividend with respect to any fiscal year only out of profits legally available for distribution, in accordance with the provisions of the Israeli Companies Law. In this respect, see Item 8.A “Financial Information – Consolidated and Other Financial Information – Dividend Distribution Policy.” If after one year a dividend has been declared and it is still unclaimed, our Board of Directors is entitled to invest or utilize the unclaimed amount of dividend in any manner to our benefit until it is claimed. We are not obligated to pay interest on an unclaimed dividend.
Voting rights. Holders of ordinary shares have one vote for each ordinary share held on all matters submitted to a vote of shareholders. Such voting rights may be affected by the grant of any special voting rights to the holders of a class of shares with preferential rights that may be authorized in the future.
Rights to share in profits. Our shareholders have the right to share in our profits distributed as a dividend and any other permitted distribution. See this Item 10.B “Additional Information – Memorandum and Articles of Association – Rights Attached to Shares – Dividend Rights.”
Rights to share in surplus in the event of liquidation. In the event of our liquidation, after satisfaction of liabilities to creditors, our assets will be distributed to the holders of ordinary shares in proportion to the nominal value of their holdings. This right may be affected by the grant of preferential dividend or distribution rights to the holders of a class of shares with preferential rights that may be authorized in the future.
Liability to capital calls by the Company. Under our memorandum and articles of association as well as the Israeli Companies Law, the liability of our shareholders is limited to the unpaid amount of the par value of the shares held by them.
Limitations on any existing or prospective major shareholder. See Item 6.C “Directors, Senior Management and Employees – Board Practices – Approval of Related Party Transactions Under Israeli Law.”
Changing Rights Attached to Shares
The rights attached to any class of shares (unless otherwise provided by the terms of issuance of the shares of that class) may be varied with the consent in writing of the holders of all the issued shares of that class, or with the sanction of a vote at a meeting of the shareholders passed at a separate meeting of the holders of the shares of the class by a majority of the voting rights of such class represented at the meeting in person or by proxy and voting thereon.
Under our articles of association, unless otherwise provided by the conditions of issuance, the enlargement of an existing class of shares, or the issuance of additional shares thereof, shall not be deemed to modify or abrogate the rights attached to the previously issued shares of such class or of any other class.
Shareholders Meetings
The Board of Directors must convene an annual meeting of shareholders at least once every calendar year, within fifteen months of the last annual meeting. A special meeting of shareholders may be convened by the Board of Directors, as it decides.
The Companies Law generally allows shareholders (1) who hold at least 1% of the outstanding shares of a public company to submit a proposal for inclusion on the agenda of a general meeting of the company’s shareholders and (2) who hold at least 5% of the outstanding ordinary shares of a public company to convene a special meeting of shareholders upon request in accordance with the Companies Law. Our articles of association contain procedural guidelines and disclosure items with respect to the submission of shareholder proposals for shareholders meetings.
In accordance with our articles of association, unless a longer period for notice is prescribed by the Israeli Companies Law, at least ten (10) days and not more than sixty (60) days’ notice of any general meeting of shareholders shall be given. Under the Companies Law, shareholder meetings generally require prior notice of not less than 21 days or, with respect to certain matters, such as election of directors and affiliated party transactions, not less than 35 days.
The quorum required at any meeting of shareholders consists of at least two shareholders present in person or represented by proxy who hold or represent, in the aggregate, at least 25% of the total voting rights in the Company. A meeting adjourned for lack of a quorum generally is adjourned to the same day in the following week at the same time and place or any time and place as the directors designate in a notice to the shareholders. If, at such adjourned meeting, a quorum is not present within half an hour from the time appointed for holding the meeting, any two shareholders present in person or by proxy shall constitute a quorum, except with respect to adjourned shareholder meetings convened for shareholder proposals.
Under our articles of association, all resolutions require approval of no less than a majority of the voting rights represented at the meeting in person or by proxy and voting thereon, except that certain provisions of our articles of association relating to shareholder proposals and election and removal of directors would require a special majority of two thirds (66.66%) or more of the voting power represented at the meeting in person or by proxy and voting thereon.
Pursuant to our articles of association, our directors (except outside directors) are elected at our annual general meeting of shareholders by a vote of the holders of a majority of the voting power represented and voting at such meeting. See Item 6.C “Directors, Senior Management and Employees – Board Practices – Election of Directors; Board Meetings.”
Limitations on the Rights to Own Securities in Our Company
Neither our memorandum of association or our articles of association nor the laws of the State of Israel restrict in any way the ownership or voting of shares by non-residents, except with respect to subjects of countries which are in a state of war with Israel.
Duties of Shareholders
Disclosure by Controlling Shareholders. Under the Companies Law, the disclosure requirements that apply to an office holder also apply to a controlling shareholder of a public company. A controlling shareholder is a shareholder who has the ability to direct the activities of a company, including a shareholder that owns 25% or more of the voting rights if no other shareholder owns more than 50% of the voting rights, but excluding a shareholder whose power derives solely from his or her position on the Board of Directors or any other position with the company.
Approval of Certain Transactions. Extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, and the engagement of a controlling shareholder as an office holder or employee (including compensation therefor), generally require the approval of the audit committee (or compensation committee with respect to engagement as an office holder or employee), the Board of Directors and the shareholders, in that order. The shareholder approval must include at least a majority of the shares of non-interested shareholders voted on the matter. However, the transaction can be approved by shareholders without this special approval if the total shares of non-interested shareholders that voted against the transaction do not represent more than 2% of the voting rights in the company. In addition, any such extraordinary transaction whose term is longer than three years may require further shareholder approval every three years, unless, where permissible under the Companies Law, the audit committee approves that a longer term is reasonable under the circumstances. With respect to approval of compensation to directors and executive officers, see also Item 6.C “Directors, Senior Management and Employees – Board Practices – Approval of Related Party Transactions Under Israeli Law.”
General Duties of Shareholders. In addition, under the Companies Law, each shareholder has a duty to act in good faith toward the company and other shareholders and to refrain from abusing his or her power in the company, such as in shareholder votes. In addition, specified shareholders have a duty of fairness toward the company. These shareholders include any controlling shareholder, any shareholder who knows that it possesses the power to determine the outcome of a shareholder vote and any shareholder who, pursuant to the provisions of the articles of association, has the power to appoint or prevent the appointment of an office holder or any other power with respect to the company. However, the Companies Law does not define the substance of this duty of fairness.
Provisions Restricting Change in Control of Our Company
Except for (1) establishing advance notice and procedural guidelines and disclosure items with respect to the submission of shareholder proposals for shareholders meetings, and (2) requiring a special majority voting in order to amend certain provisions of our articles of association relating to shareholder proposals and election and removal of directors, there are no specific provisions of our memorandum or articles of association that would have an effect of delaying, deferring or preventing a change in control of Attunity or that would operate only with respect to a merger, acquisition or corporate restructuring involving us (or any of our subsidiaries). However, as described below, certain provisions of the Companies Law may have such effect.
The Companies Law includes provisions that allow a merger transaction and requires that each company that is a party to the merger have the transaction approved by its Board of Directors and a vote of the majority of its shares. For purposes of the shareholder vote of each party, unless a court rules otherwise, the merger will not be deemed approved if shares representing a majority of the voting power present at the shareholders meeting and which are not held by the other party to the merger (or by any person who holds 25% or more of the voting power or the right to appoint 25% or more of the directors of the other party) vote against the merger. Upon the request of a creditor of either party to the proposed merger, the court may delay or prevent the merger if it concludes that there exists a reasonable concern that as a result of the merger the surviving company will be unable to satisfy the obligations of any of the parties to the merger. In addition, a merger may not be completed unless at least (1) 50 days have passed from the time that the requisite proposals for approval of the merger were filed with the Israeli Registrar of Companies by each merging company and (2) 30 days have passed since the merger was approved by the shareholders of each merging company.
The Companies Law also provides that an acquisition of shares in a public company must be made by means of a “special” tender offer if as a result of the acquisition (1) the purchaser would become a 25% or greater shareholder of the company, unless there is already another 25% or greater shareholder of the company or (2) the purchaser would become a 45% or greater shareholder of the company, unless there is already a 45% or greater shareholder of the company. These requirements do not apply if, in general, the acquisition (1) was made in a private placement that received shareholder approval, (2) was from a 25% or greater shareholder of the company which resulted in the acquirer becoming a 25% or greater shareholder of the company, or (3) was from a 45% or greater shareholder of the company which resulted in the acquirer becoming a 45% or greater shareholder of the company. A “special” tender offer must be extended to all shareholders, but the offeror is not required to purchase more than 5% of the company’s outstanding shares, regardless of how many shares are tendered by shareholders. In general, the tender offer may be consummated only if (1) at least 5% of the company’s outstanding shares will be acquired by the offeror and (2) the number of shares tendered in the offer exceeds the number of shares whose holders objected to the offer.
If, as a result of an acquisition of shares, the acquirer will hold more than 90% of a company’s outstanding shares, the acquisition must be made by means of a tender offer for all of the outstanding shares. In general, if less than 5% of the outstanding shares are not tendered in the tender offer and more than half of the offerees who have no personal interest in the offer tendered their shares, all the shares that the acquirer offered to purchase will be transferred to it. Shareholders may request appraisal rights in connection with a full tender offer for a period of six months following the consummation of the tender offer, but the acquirer is entitled to stipulate that tendering shareholders will forfeit such appraisal rights.
Lastly, Israeli tax law treats some acquisitions, such as stock-for-stock exchanges between an Israeli company and a foreign company, less favorably than U.S. tax laws. For example, Israeli tax law may, under certain circumstances, subject a shareholder who exchanges his ordinary shares for shares in another corporation to taxation prior to the sale of the shares received in such stock-for-stock swap.
Disclosure of Shareholders Ownership
The Israeli Securities Law and regulations promulgated thereunder do not require a company whose shares are publicly traded solely on a stock exchange outside of Israel, as in the case of our Company, to disclose its share ownership.
Changes in Our Capital
Changes in our capital, such as increase of authorized share capital or creation of another class of shares, are subject to the approval of the shareholders by the holders of at least 75% of the votes of shareholders present by person or by proxy and voting in the shareholders meeting.
Acquisition of Appfluent
On March 5, 2015, we and Attunity Inc., a Massachusetts corporation and our wholly owned subsidiary, or Buyer, entered into an Agreement and Plan of Merger, or the Merger Agreement, with Appfluent; Atlas Acquisition Sub 1, LLC, or Merger Sub 1, and Atlas Acquisition Sub 2, LLC, or Merger Sub 2, to which we refer, together with Merger Sub 1, as Merger Subs, both of which are Delaware limited liability companies wholly owned by Buyer; and one of Appfluent shareholders, as the Stockholders’ Representative.
Pursuant to the Merger Agreement, we have acquired all of the outstanding shares of Appfluent by way of a merger, with Merger Sub 2 continuing as the surviving entity and an indirect wholly owned subsidiary of us. Under the Merger Agreement, the total consideration is composed of:
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$10.95 million (subject to working capital adjustments) payable in cash at the closing of the Merger Agreement, or the Closing, of which $1.1 million will be held in escrow for one year following the Closing, or the Escrow Amount;
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$5.65 million which are payable in ordinary shares of the Company, reflecting a $9.71 price per share, or the PPS, such that the Company has issued, at the Closing, approximately 582,000 ordinary shares of the Company, or the Closing Shares, representing approximately 3.6% of our then outstanding shares (on a post-issuance basis), or 3.8% on a pre-issuance basis;
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$1.4 million which will be payable in ordinary shares of the Company based on the PPS, such that the Company will issue, 18 months following the Closing, approximately 144,000 ordinary shares of the Company, or, subject to adjustments, the Holdback Shares, representing approximately 0.9% of our then outstanding shares (on both a pre-issuance and post-issuance basis); and
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milestone-based contingent payments, as follows (subject to downward adjustments):
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For 2015 - if the revenues we recognize from sales of Appfluent products in the period between the Closing and December 31, 2015, or the 2015 Revenues, are at least $7.8 million, or the 2015 Target, we will be required to pay additional consideration equal to three (3) times the excess of the 2015 Revenues over the 2015 Target.
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For 2016 - if the revenues we recognize from sales of Appfluent products during 2016, or the 2016 Revenues, are at least the higher of (i) the product of the 2015 Revenues multiplied by 1.3 and (ii) $9.0 million, or the 2016 Target, we will be required to pay additional consideration equal to three (3) times the excess of the 2016 Revenues over the 2016 Target.
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The aforesaid milestone-based contingent payments are payable, subject to certain exceptions, in cash (60%) and ordinary shares of the Company (40%), based on the average price per share over a 30-day period prior to applicable payment date, or the Earnout Shares.
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The Merger Agreement and related transaction agreements include other customary agreements and covenants, including the following:
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We have agreed to deploy a $2.0 million retention plan (payable in cash and ordinary shares of the Company) to attract and retain certain key employees of Appfluent;
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At Closing, we entered into a registration rights agreement with certain Appfluent stockholders, whereby we have undertaken to file up to two Form F-3 registration statements to allow the holders of the Closing Shares and Holdback Shares (as well as the Earnout Shares, if any) to freely resell such shares under the Securities Act, subject to the “lock-up” undertaking described below. In addition, certain principal Appfluent stockholders who are “accredited investors” will be entitled to piggyback registration rights for a period of six months following the Closing; and
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The Closing Shares will be subject to a “lock-up”, whereby, commencing three months after the Closing, only one third of such shares may be sold in each three-month period.
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The Merger Agreement also includes customary representations and warranties by the parties, which survive the Closing (and, in general, expire on the 18th month anniversary of the Closing), and indemnification provisions whereby the stockholders of Appfluent will indemnify us and the Buyer for damages arising out of breach(es) or inaccuracies of Appfluent’s or Appfluent stockholders’ representations, warranties and covenants subject to certain limitations including, in general, a cap on Appfluent stockholders’ obligation to indemnify us and the Buyer equal to the Escrow Amount, Holdback Shares and 15% of the aforesaid contemplated contingent payments, if any. Similarly, we and the Buyer agreed to indemnify the stockholders of Appfluent for damages arising out of breach(es) or inaccuracies of Attunity’s and Buyer’s representations, warranties and covenants subject to certain limitations including, in general, a cap of $3 million. The Escrow Amount and the Holdback Shares will be available to partially secure indemnity claims made by Attunity, if any.
The Closing, which was subject to customary closing conditions, occurred on March 18, 2015.
Acquisition of Hayes
On December 18, 2013, we and Buyer entered into a Share Purchase Agreement, or the Purchase Agreement, with Hayes, the shareholders of Hayes (to which we refer as the “Sellers”) and one of the Sellers, as the Shareholders’ Representative.
Pursuant to the Purchase Agreement, we acquired all of the outstanding shares of Hayes, with Hayes continuing after the closing as an indirect wholly owned subsidiary of us. Under the Purchase Agreement, the total consideration is composed of:
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$4.5 million in cash, paid at the closing;
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$1.65 million, which are payable in 185,000 ordinary shares of the Company (to which we refer as the “Closing Share Consideration”). 123,500 of these ordinary shares were subject to a six-month “lock-up” period that ended on June 17, 2014, during which period they could not be sold or otherwise disposed, subject to certain exceptions. The balance of 61,500 shares were held-back for one year to secure indemnity claims and were issued on December 17, 2014; and
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Two milestone-based contingent payments of up to, in the aggregate, $4.2 million payable in cash (with option of Sellers to receive up to 50% of such amount in ordinary shares of the Company) which, if earned, are generally payable during April 2015 and April 2016. We expect to pay in April 2015 approximately $2.0 million, for the first milestone-based payment.
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The Purchase Agreement includes customary representations, warranties and covenants by the parties, which survived the closing and, subject to certain exceptions, expire on the second anniversary of the closing. In this respect, the Sellers agreed to indemnify us and the Buyer for damages arising out of breach(es) or inaccuracies of Hayes’ or the Sellers’ representations, warranties and covenants subject to certain limitations, including a cap equal to 25% of the consideration for breach(es) or inaccuracies of Hayes’ or the Sellers’ representations and warranties. Similarly, we and the Buyer agreed to indemnify the Sellers for damages arising out of breach(es) or inaccuracies of Attunity’s and Buyer’s representations, warranties and covenants subject to certain limitations, including a cap of $375,000. To secure the Sellers’ indemnity obligations (i) one third of the Closing Share Consideration was held-back and not issued for one year and (ii) we and Buyer retained a right to a set-off from the contingent payments.
We also granted the Sellers “piggyback” registration rights, for three years following the closing, in case we file a registration statement relating to the offer and sale of ordinary shares for the account of any of our directors and executive officers.
The closing of the transactions contemplated under the Purchase Agreement, which was subject to customary closing conditions, occurred on December 18, 2013.
Microsoft OEM Agreement (CDC)
In December 2010, we entered into an OEM agreement, or the OEM Agreement, with Microsoft. Pursuant to the OEM Agreement, which has an initial term of five (5) years, we agreed to customize and integrate our CDC software into Microsoft’s next version of SQL Server and to provide Microsoft with the associated maintenance services. Global in scope, the OEM Agreement also covers resellers, developers and distributors of Microsoft’s SQL Server.
The overall value over the term of the OEM Agreement is nearly $7 million for both the license and maintenance. As such, we are entitled to receive (1) a total of $3.0 million in two payments, which were paid in full during 2011, and (2) a total of $3.9 million in 12 quarterly payments of approximately $0.3 million each, which are expected to start toward the end of 2012. We recognize revenues from this agreement ratably starting 2011 and, starting 2012, in equal quarterly installments during the remainder of the term of the agreement. The OEM Agreement contains customary representations, warranties and covenants of Attunity.
Pursuant to the OEM Agreement, Microsoft is also entitled to a right of first offer, whereby we are required to notify Microsoft in the event that we wish to sell the Company or sell or grant an exclusive license of the technology underlying the CDC product and, if the offer is accepted by Microsoft, negotiate such transaction with Microsoft, or, if rejected by Microsoft, we may enter into such transaction with a third party only on substantially the same or more favorable terms than the initial offer made by us to Microsoft. Microsoft is also entitled to terminate the OEM Agreement under certain circumstances, including upon a change of control of the Company.
Plenus Loan
On January 31, 2007, we entered into the Plenus Loan, whereby Plenus provided us a $2.0 million loan and in connection therewith, we issued to Plenus warrants to purchase up to 109,971 ordinary shares at an initial exercise price per share of $5.456 (subsequently adjusted to $0.48).
In September 2011, in connection with the acquisition of RepliWeb, we and Plenus entered into an amendment to the Plenus Loan and the related security agreements whereby, among other things, (1) the period during which Plenus is entitled to compensation upon consummation of a Fundamental Transaction, as described in the following sentence, was extended until December 31, 2017, and (2) during such extended period, Plenus may elect to receive $300,000 in cash in lieu of such compensation. In particular, under the Plenus Loan, as amended, if on or before December 31, 2017, we enter into a “Fundamental Transaction”, which is defined to include a sale through a merger, selling all or substantially all of our assets, or a transaction in which a person or entity acquires more than 50% of our outstanding shares, then we will be required to pay Plenus an amount equal to, in general, the higher of $300,000 or 15% of the aggregate proceeds payable to our shareholders or us in connection with such Fundamental Transaction. We refer to such right as the “Plenus Right.”
In January 2012, the Plenus Loan was fully repaid in accordance with its terms. However, the Plenus Right remains outstanding.
Israeli law and regulations do not impose any material foreign exchange restrictions on non-Israeli holders of our ordinary shares. There are currently no Israeli currency control restrictions on payments of dividends or other distributions with respect to our ordinary shares or the proceeds from the sale of the shares, except for the obligation of Israeli residents to file reports with the Bank of Israel regarding certain transactions. However, legislation remains in effect pursuant to which currency controls can be imposed by administrative action at any time.
The ownership or voting of our ordinary shares by non-residents of Israel, except with respect to citizens of countries which are in a state of war with Israel, is not restricted in any way by our memorandum of association or articles of association or by the laws of the State of Israel.
Israeli Tax Considerations
The following is a summary of the current tax structure applicable to companies in Israel, with special reference to its effect on us. The following also contains a discussion of the material Israeli tax consequences to purchasers of our ordinary shares and Israeli government programs benefiting us. This summary does not discuss all the aspects of Israeli tax law that may be relevant to a particular investor in light of his or her personal investment circumstances or to some types of investors subject to special treatment under Israeli law. To the extent that the discussion is based on new tax legislation that has not been subject to judicial or administrative interpretation, we cannot assure you that the tax authorities will accept the views expressed in the discussion in question. The discussion is not intended, and should not be taken, as legal or professional tax advice and is not exhaustive of all possible tax considerations.
General Corporate Tax Structure
Israeli companies are currently subject to “Corporate Tax” on their taxable income at the rate of 26.5% for the 2014 tax year and for future tax years. Israeli companies are generally subject to Capital Gains Tax at the corporate tax rate.
Tax Benefits Under the Law for the Encouragement of Industry (Taxes), 1969
According to the Law for the Encouragement of Industry (Taxes), 1969, or the Industry Encouragement Law, an Industrial Company is a company resident in Israel, at least 90% of the income of which, in a given tax year, determined in Israeli currency (exclusive of income from some government loans, capital gains, interest and dividends), is derived from an Industrial Enterprise owned by it. An “Industrial Enterprise” is defined as an enterprise whose major activity in a given tax year is industrial production activity in Israel.
Under the Industry Encouragement Law, Industrial Companies are entitled to the following preferred corporate tax benefits:
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amortization of purchases of know-how and patents over an eight-year period for tax purposes;
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deductions over a three-year period of expenses involved with the issuance and listing of shares on a stock market;
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the right to elect, under specified conditions, to file a consolidated tax return with additional related Israeli Industrial Companies; and
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accelerated depreciation rates on equipment.
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Eligibility for benefits under the Industry Encouragement Law is not subject to receipt of prior approval from any governmental authority.
We believe that we currently qualify as an Industrial Company within the definition of the Industry Encouragement Law. We cannot assure you that we will continue to qualify as an Industrial Company or that the benefits described above will be available to us in the future.
Tax Benefits and Government Support for Research and Development
Israeli tax law allows, under specific conditions, a tax deduction in the year incurred for expenditures, including capital expenditures, relating to scientific research and development projects, if the expenditures are approved by the relevant Israeli Government ministry, determined by the field of research, and the research and development is for the promotion of the company and is carried out by or on behalf of the company seeking such deduction. However, the amount of such deductible expenses shall be reduced by the sum of any funds received through government grants for the finance of such scientific research and development projects. Expenditures not so approved are deductible over a three-year period.
Israeli Transfer Pricing Regulations
On November 29, 2006, Income Tax Regulations (Determination of Market Terms), 2006, promulgated under Section 85A of the Tax Ordinance, came into force (the “TP Regs”). Section 85A of the Tax Ordinance and the TP Regs generally require that all cross-border transactions carried out between related parties will be conducted on an arm’s length principle basis and will be taxed accordingly.
Capital Gains Tax
Israeli law generally imposes a capital gains tax on the sale of any capital assets by residents of Israel, as defined for Israeli tax purposes, and on the sale of capital assets located in Israel, including shares of Israeli companies by non-residents of Israel, unless a specific exemption is available or unless a tax treaty between Israel and the shareholder’s country of residence provides otherwise. The law distinguishes between real gain and inflationary surplus. The inflationary surplus is a portion of the total capital gain that is equivalent to the increase of the relevant asset’s purchase price which is attributable to the increase in the Israeli CPI, or a foreign currency exchange rate, between the date of purchase and the date of sale. The real gain is the excess of the total capital gain over the inflationary surplus.
Israeli Residents
The tax rate applicable to capital gains derived from the sale of shares, whether listed on a stock market or not, is 25% for Israeli individuals, unless such shareholder claims a deduction for financing expenses in connection with such shares, in which case the gain will generally be taxed at a rate of 30%. Additionally, if such shareholder is considered a “Significant Shareholder” at any time during the 12-month period preceding such sale, i.e. such shareholder holds directly or indirectly, including with others, at least 10% of any means of control in the company, the tax rate shall be 30%. However, the foregoing tax rates will not apply to: (i) dealers in securities; and (ii) shareholders who acquired their shares prior to an initial public offering (that may be subject to a different tax arrangement). Israeli Companies are subject to the Corporate Tax rate on capital gains derived from the sale of listed shares.
The tax basis of our shares acquired by individuals prior to January 1, 2003 will generally be determined in accordance with the average closing share price in the three trading days preceding January 1, 2003. However, a request may be made to the tax authorities to consider the actual adjusted cost of the shares as the tax basis if it is higher than such average price.
As of January 1, 2013, shareholders that are individuals who have taxable income that exceeds NIS 800,000 in a tax year (linked to the CPI each year, which equated to NIS 811,560 in the 2014 tax year), will be subject to an additional tax, referred to as High Income Tax, at the rate of 2% on their taxable income for such tax year which is in excess of such threshold. For this purpose, taxable income includes taxable capital gains from the sale of our shares and taxable income from dividend distributions.
Non-Israeli Residents
Non-Israeli residents are generally exempt from Israeli capital gains tax on any gains derived from the sale of shares of Israeli companies publicly traded on a recognized stock exchange outside of Israel, provided however that such shareholders did not acquire their shares prior to an initial public offering, and that the gains did not derive from a permanent establishment of such shareholders in Israel. However, non-Israeli corporations will not be entitled to such exemption if Israeli residents (i) have a controlling interest of more than 25% in such non-Israeli corporation, or (ii) are the beneficiaries or are entitled to 25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly.
In certain instances where our shareholders may be liable to Israeli tax on the sale of their ordinary shares, the payment of the consideration may be subject to the withholding of Israeli tax at the source.
In addition, pursuant to the Convention between the Government of the United States of America and the Government of Israel with respect to Taxes on Income, as amended, the sale, exchange or disposition of ordinary shares by a person who qualifies as a resident of the United States within the meaning of the U.S.- Israel Tax Treaty and who is entitled to claim the benefits afforded to such person by the U.S.-Israel Tax Treaty generally will not be subject to the Israeli capital gains tax unless such Treaty U.S. Resident holds, directly or indirectly, shares representing 10% or more of our voting power during any part of the 12-month period preceding such sale, exchange or disposition, subject to particular conditions, or the capital gains from such sale, exchange or disposition can be allocated to a permanent establishment in Israel. In such case, the Treaty U.S. Resident would be subject to Israeli tax, to the extent applicable; however, under the U.S.-Israel Tax Treaty, such Treaty U.S. Resident would be permitted to claim a credit for such taxes against the U.S. federal income tax imposed with respect to such sale, exchange or disposition, subject to the limitations in U.S. laws applicable to foreign tax credits. The U.S.-Israel Tax Treaty does not relate to U.S. state or local taxes.
Taxation of Non-Residents on Dividend Distributions
Non-residents of Israel are subject to income tax on income accrued or derived from sources in Israel. Such sources of income include passive income such as dividends, royalties and interest, as well as non-passive income from services rendered in Israel. On distributions of dividends other than bonus shares or stock dividends, income tax will generally apply at the rate of 25%, or 30% for a shareholder that is considered a Significant Shareholder at any time during the 12-month period preceding such distribution, unless a different rate is provided in a treaty between Israel and the shareholder’s country of residence.
Under the U.S.-Israel Tax Treaty, the maximum tax on dividends paid to a holder of ordinary shares who is a Treaty U.S. Resident is 25%. Such tax rate is generally reduced to 12.5% if the shareholder is a U.S. corporation and holds at least 10% of our issued voting power during the part of the tax year that precedes the date of payment of the dividend and during the whole of its prior tax year, however this reduced rate will not apply if more than 25% of the Israeli company’s gross income consists of interest or dividends, other than dividends or interest received from subsidiary corporations or corporations 50% or more of the outstanding shares of the voting stock of which is owned by the Israeli company.
United States Federal Income Tax Consequences
THE FOLLOWING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION AND IS NOT INTENDED TO BE, AND SHOULD NOT BE CONSIDERED TO BE, LEGAL OR TAX ADVICE. EACH U.S. HOLDER SHOULD CONSULT WITH HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULAR U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND SALE OF ORDINARY SHARES, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.
U.S. Federal Income Taxation
Subject to the limitations described in the next paragraph, the following discussion summarizes the material U.S. federal income tax consequences to a “U.S. Holder” arising from the purchase, ownership and sale of the ordinary shares. For this purpose, a “U.S. Holder” is a holder of ordinary shares that is: (1) an individual citizen or resident of the United States, including an alien individual who is a lawful permanent resident of the United States or meets the substantial presence residency test under U.S. federal income tax laws; (2) a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) or a partnership (other than a partnership that is not treated as a U.S. person under any applicable U.S. Treasury regulations) created or organized in or under the laws of the United States or the District of Columbia or any political subdivision thereof; (3) an estate, the income of which is subject to U.S. federal income tax regardless of source; (4) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust; (5) a trust that has a valid election in effect to be treated as a U.S. person to the extent provided in U.S. Treasury regulations; or (6) any person otherwise subject to U.S. federal income tax on a net income basis in respect of the ordinary shares, if such status as a U.S. Holder is not overridden pursuant to the provisions of an applicable tax treaty.
This summary is for general information purposes only and does not purport to be a comprehensive description of all of the U.S. federal income tax considerations that may be relevant to a decision to purchase or hold our ordinary shares. This summary generally considers only U.S. Holders that will own our ordinary shares as capital assets. Except to the limited extent discussed below, this summary does not consider the U.S. federal tax consequences to a person that is not a U.S. Holder, not does it describe the rules applicable to determine a taxpayer’s status as a U.S. Holder. This summary is based on the provisions of the Internal Revenue Code of 1986, as amended, or the Code, final, temporary and proposed U.S. Treasury regulations promulgated thereunder, administrative and judicial interpretations thereof, and the U.S./Israel Income Tax Treaty, all as in effect as of the date hereof and all of which are subject to change, possibly on a retroactive basis, and all of which are open to differing interpretations. Attunity will not seek a ruling from the U.S. Internal Revenue Service, or the IRS, with regard to the U.S. federal income tax treatment of an investment in our ordinary shares by U.S. Holders and, therefore, can provide no assurances that the IRS will agree with the conclusions set forth below.
This discussion does not address all of the aspects of U.S. federal income taxation that may be relevant to a particular shareholder based on such shareholder’s particular circumstances and in particular does not discuss any estate, gift, generation-skipping, transfer, state, local or foreign tax considerations. In addition, this discussion does not address the U.S. federal income tax treatment of a U.S. Holder who is: (1) a bank, life insurance company, regulated investment company, or other financial institution or “financial services entity”; (2) a broker or dealer in securities or foreign currency; (3) a person who acquired our ordinary shares in connection with employment or other performance of services; (4) a U.S. Holder that is subject to the U.S. alternative minimum tax; (5) a U.S. Holder that holds our ordinary shares as a hedge or as part of a hedging, straddle, conversion or constructive sale transaction or other risk-reduction transaction for U.S. federal income tax purposes; (6) a tax-exempt entity; (7) real estate investment trusts; (8) a U.S. Holder that expatriates out of the United States or a former long-term resident of the United States; or (9) a person having a functional currency other than the U.S. dollar. This discussion does not address the U.S. federal income tax treatment of a U.S. Holder that owns, directly or constructively, at any time, ordinary shares representing 10% or more of our voting power. Additionally, the U.S. federal income tax treatment of persons who hold ordinary shares through a partnership or other pass-through entity are not considered.
You are encouraged to consult your own tax advisor with respect to the specific U.S. federal and state income tax consequences to you of purchasing, holding or disposing of our ordinary shares, including the effects of applicable state, local, foreign or other tax laws and possible changes in the tax laws.
Distributions on Ordinary Shares
We do not intend to pay dividends in the foreseeable future. In the event that we do pay dividends, and subject to the discussion under the heading “Passive Foreign Investment Companies” below, a U.S. Holder will be required to include in gross income as ordinary income the amount of any distribution paid on ordinary shares (including the amount of any Israeli tax withheld on the date of the distribution), to the extent that such distribution does not exceed our current and accumulated earnings and profits, as determined for U.S. federal income tax purposes. The amount of a distribution which exceeds our earnings and profits will be treated first as a non-taxable return of capital, reducing the U.S. Holder’s tax basis for the ordinary shares to the extent thereof, and then capital gain. Corporate holders generally will not be allowed a deduction for dividends received. For noncorporate U.S. Holders, to the extent that their total adjusted income does not exceed applicable thresholds, the maximum federal income tax rate for “qualified dividend income” and long-term capital gains is generally 15%. For those noncorporate U.S. Holders whose total adjusted income exceeds such income thresholds, the maximum federal income tax rate for “qualified dividend income” and long-term capital gains is generally 20%. For this purpose, “qualified dividend income” means, inter alia, dividends received from a “qualified foreign corporation.” A “qualified foreign corporation” is a corporation that is entitled to the benefits of a comprehensive tax treaty with the United States which includes an exchange of information program. The IRS has stated that the Israel/U.S. Tax Treaty satisfies this requirement and we believe we are eligible for the benefits of that treaty.
In addition, our dividends will be qualified dividend income if our ordinary shares are readily tradable on the NASDAQ Capital Market or another established securities market in the United States. Dividends will not qualify for the preferential rate if we are treated, in the year the dividend is paid or in the prior year, as a passive foreign investment company, or PFIC. A U.S. Holder will not be entitled to the preferential rate: (1) if the U.S. Holder has not held our ordinary shares or ADRs for at least 61 days of the 121 day period beginning on the date which is 60 days before the ex-dividend date, or (2) to the extent the U.S. Holder is under an obligation to make related payments on substantially similar property. Any days during which the U.S. Holder has diminished its risk of loss on our ordinary shares are not counted towards meeting the 61-day holding period. Finally, U.S. Holders who elect to treat the dividend income as “investment income” pursuant to Code section 163(d)(4) will not be eligible for the preferential rate of taxation.
The amount of a distribution with respect to our ordinary shares will be measured by the amount of the fair market value of any property distributed, and for U.S. federal income tax purposes, the amount of any Israeli taxes withheld therefrom. Cash distributions paid by us in NIS will be included in the income of U.S. Holders at a U.S. dollar amount based upon the spot rate of exchange in effect on the date the dividend is includible in the income of the U.S. Holder, and U.S. Holders will have a tax basis in such NIS for U.S. federal income tax purposes equal to such U.S. dollar value. If the U.S. Holder subsequently converts the NIS, any subsequent gain or loss in respect of such NIS arising from exchange rate fluctuations will be U.S. source ordinary exchange gain or loss.
Distributions paid by us will generally be foreign source income for U.S. foreign tax credit purposes. Subject to the limitations set forth in the Code, U.S. Holders may elect to claim a foreign tax credit against their U.S. income tax liability for Israeli income tax withheld from distributions received in respect of the ordinary shares. In general, these rules limit the amount allowable as a foreign tax credit in any year to the amount of regular U.S. tax for the year attributable to foreign source taxable income. This limitation on the use of foreign tax credits generally will not apply to an electing individual U.S. Holder whose creditable foreign taxes during the year do not exceed $300, or $600 for joint filers, if such individual’s gross income for the taxable year from non-U.S. sources consists solely of certain passive income. A U.S. Holder will be denied a foreign tax credit with respect to Israeli income tax withheld from dividends received with respect to the ordinary shares if such U.S. Holder has not held the ordinary shares for at least 16 days out of the 31-day period beginning on the date that is 15 days before the ex-dividend date or to the extent that such U.S. Holder is under an obligation to make certain related payments with respect to substantially similar or related property. Any day during which a U.S. Holder has substantially diminished his or her risk of loss with respect to the ordinary shares will not count toward meeting the 16-day holding period. A U.S. Holder will also be denied a foreign tax credit if the U.S. Holder holds the ordinary shares in an arrangement in which the U.S. Holder’s reasonably expected economic profit is insubstantial compared to the foreign taxes expected to be paid or accrued. The rules relating to the determination of the U.S. foreign tax credit are complex, and U.S. Holders should consult with their own tax advisors to determine whether, and to what extent, they are entitled to such credit. U.S. Holders that do not elect to claim a foreign tax credit may instead claim a deduction for Israeli income taxes withheld, provided such U.S. Holders itemize their deductions.
Disposition of Shares
Except as provided under the PFIC rules described below, upon the sale, exchange or other disposition of our ordinary shares, a U.S. Holder will recognize capital gain or loss in an amount equal to the difference between such U.S. Holder’s tax basis for the ordinary shares and the amount realized on the disposition (or its U.S. dollar equivalent determined by reference to the spot rate of exchange on the date of disposition, if the amount realized is denominated in a foreign currency). The gain or loss realized on the sale or exchange or other disposition of ordinary shares will be long-term capital gain or loss if the U.S. Holder has a holding period of more than one year at the time of the disposition.
In general, gain realized by a U.S. Holder on a sale, exchange or other disposition of ordinary shares will generally be treated as U.S. source income for U.S. foreign tax credit purposes. A loss realized by a U.S. Holder on the sale, exchange or other disposition of ordinary shares is generally allocated to U.S. source income. However, U.S. Treasury regulations require such loss to be allocated to foreign source income to the extent specified dividends were received by the taxpayer within the 24-month period preceding the date on which the taxpayer recognized the loss. The deductibility of a loss realized on the sale, exchange or other disposition of ordinary shares is subject to limitations.
Tax on Net Investment Income
U.S. Holders who are individuals, estates or trusts will generally be required to pay a new 3.8% tax on their net investment income (including dividends on and gains from the sale or other disposition of our ordinary shares), or in the case of estates and trusts on their net investment income that is not distributed. In each case, the 3.8% Medicare tax applies only to the extent the U.S. Holder’s total adjusted income exceeds applicable thresholds.
Passive Foreign Investment Companies
Special U.S. federal income tax laws apply to a U.S. Holder who owns shares of a corporation that was (at any time during the U.S. Holder’s holding period) a PFIC. We would be treated as a PFIC for U.S. federal income tax purposes for any tax year if, in such tax year, either:
75% or more of our gross income (including our pro rata share of gross income for any company, U.S. or foreign, in which we are considered to own 25% or more of the shares by value), in a taxable year is passive (the “Income Test”); or
At least 50% of our assets, averaged over the year and generally determined based upon value (including our pro rata share of the assets of any company in which we are considered to own 25% or more of the shares by value), in a taxable year are held for the production of, or produce, passive income (the “Asset Test”).
For this purpose, passive income generally consists of dividends, interest, rents, royalties, annuities and income from certain commodities transactions and from notional principal contracts. Cash is treated as generating passive income.
If we are or become a PFIC, each U.S. Holder who has not elected to treat us as a qualified electing fund by making a “QEF election”, or who has not elected to mark the shares to market (as discussed below), would, upon receipt of certain distributions by us and upon disposition of our ordinary shares at a gain, be liable to pay U.S. federal income tax at the then prevailing highest tax rates on ordinary income plus interest on such tax, as if the distribution or gain had been recognized ratably over the taxpayer’s holding period for the ordinary shares. In addition, when shares of a PFIC are acquired by reason of death from a decedent that was a U.S. Holder, the tax basis of such shares would not receive a step-up to fair market value as of the date of the decedent’s death, but instead would be equal to the decedent’s basis if lower, unless all gain were recognized by the decedent. Indirect investments in a PFIC may also be subject to special U.S. federal income tax rules.
The PFIC rules would not apply to a U.S. Holder who makes a QEF election for all taxable years that such U.S. Holder has held the ordinary shares while we are a PFIC, provided that we comply with specified reporting requirements. Instead, each U.S. Holder who has made such a QEF election is required for each taxable year that we are a PFIC to include in income such U.S. Holder’s pro rata share of our ordinary earnings as ordinary income and such U.S. Holder’s pro rata share of our net capital gains as long-term capital gain, regardless of whether we make any distributions of such earnings or gain. In general, a QEF election is effective only if we make available certain required information. The QEF election is made on a shareholder-by-shareholder basis and generally may be revoked only with the consent of the IRS. Although we have no obligation to do so, we intend to notify U.S. Holders if we believe we will be treated as a PFIC for any tax year in order to enable U.S. Holders to consider whether to make a QEF election. In addition, we intend to comply with the applicable information reporting requirements for U.S. Holders to make a QEF election. U.S. Holders should consult with their own tax advisors regarding eligibility, manner and advisability of making a QEF election if we are treated as a PFIC.
A U.S. Holder of PFIC shares which are traded on qualifying public markets, including the NASDAQ Capital Market, can elect to mark the shares to market annually, recognizing as ordinary income or loss each year an amount equal to the difference as of the close of the taxable year between the fair market value of the PFIC shares and the U.S. Holder’s adjusted tax basis in the PFIC shares. Losses are allowed only to the extent of net mark-to-market gain previously included income by the U.S. Holder under the election for prior taxable years.
We believe that we were not a PFIC for any of our 2007 through 2014 taxable years. The tests for determining PFIC status, however, are applied annually, and it is difficult to make accurate projections of future income and assets which are relevant to this determination. Accordingly, there can be no assurance that we are not or will not become a PFIC. U.S. Holders who hold ordinary shares during a period when we are a PFIC will be subject to the foregoing rules, even if we cease to be a PFIC, subject to specified exceptions for U.S. Holders who made a QEF or mark-to-market election. U.S. Holders are strongly urged to consult their tax advisors about the PFIC rules, including tax return filing requirements and the eligibility, manner, and consequences to them of making a QEF or mark-to-market election with respect to our ordinary shares in the event that we qualify as a PFIC.
Information Reporting and Withholding
A U.S. Holder may be subject to backup withholding at a rate of 28% with respect to cash dividends and proceed from a disposition of ordinary shares. In general, back-up withholding will apply only if a U.S. Holder fails to comply with specified identification procedures. Backup withholding will not apply with respect to payments made to designated exempt recipients, such as corporations and tax-exempt organizations. Backup withholding is not an additional tax and may be claimed as a credit against the U.S. federal income tax liability of a U.S. Holder, provided that the required information is timely furnished to the IRS.
Under the Hiring Incentives to Restore Employment Act of 2010 (the “HIRE Act”), some payments made to “foreign financial institutions” in respect of accounts of U.S. stockholders at such financial institutions may be subject to withholding at a rate of 30%. U.S. Treasury Regulations provide that such withholding will only apply to distributions paid on or after January 1, 2014 (a notice issued by the IRS, Notice 2013-31, postponed the date on which the 30% will start to apply to June 30, 2014), and to other “withholdable payments” (including payments of gross proceeds from a sale or other disposition of our ordinary shares) made on or after January 1, 2017. U.S. Holders should consult their tax advisors regarding the effect, if any, of the HIRE Act on their ownership and disposition of our ordinary shares. See “—Non-U.S. Holders of Ordinary Shares.”
Non-U.S. Holders of Ordinary Shares
Except as provided below, an individual, corporation, estate or trust that is not a U.S. Holder generally will not be subject to U.S. federal income or withholding tax on the payment of dividends on, and the proceeds from the disposition of, our ordinary shares.
A non-U.S. Holder may be subject to U.S. federal income or withholding tax on a dividend paid on our ordinary shares or the proceeds from the disposition of our ordinary shares if: (1) such item is effectively connected with the conduct by the non-U.S. Holder of a trade or business in the United States or, in the case of a non-U.S. Holder that is a resident of a country which has an income tax treaty with the United States, such item is attributable to a permanent establishment or, in the case of gain realized by an individual non-U.S. Holder, a fixed place of business in the United States; (2) in the case of a disposition of our ordinary shares, the individual non-U.S. Holder is present in the United States for 183 days or more in the taxable year of the sale and other specified conditions are met; (3) the non-U.S. Holder is subject to U.S. federal income tax pursuant to the provisions of the U.S. tax law applicable to U.S. expatriates.
In general, non-U.S. Holders will not be subject to backup withholding with respect to the payment of dividends on our ordinary shares if payment is made through a paying agent, or office of a foreign broker outside the United States. However, if payment is made in the United States or by a U.S. related person, non-U.S. Holders may be subject to backup withholding, unless the non-U.S. Holder provides on an applicable Form W-8 (or a substantially similar form) a taxpayer identification number, certifies to its foreign status, or otherwise establishes an exemption. A U.S. related person for these purposes is a person with one or more current relationships with the United States.
The amount of any backup withholding from a payment to a non-U.S. Holder will be allowed as a credit against such holder’s U.S. federal income tax liability and may entitle such holder to a refund, provided that the required information is timely furnished to the IRS.
The HIRE Act may impose withholding taxes on some types of payments made to “foreign financial institutions” and some other non-U.S. entities. Under the HIRE Act, the failure to comply with additional certification, information reporting and other specified requirements could result in withholding tax being imposed on payments of dividends and sales proceeds to U.S. Holders that own ordinary shares through foreign accounts or foreign intermediaries and specified non-U.S. Holders. The HIRE Act imposes a 30% withholding tax on dividends on, and gross proceeds from the sale or other disposition of, ordinary shares paid from the United States to a foreign financial institution or to a foreign nonfinancial entity, unless (1) the foreign financial institution undertakes specified diligence and reporting obligations or (2) the foreign nonfinancial entity either certifies it does not have any substantial U.S. owners or furnishes identifying information regarding each substantial U.S. owner. In addition, if the payee is a foreign financial institution, it generally must enter into an agreement with the U.S. Treasury that requires, among other things, that it undertake to identify accounts held by specified U.S. persons or U.S.-owned foreign entities, annually report certain information about such accounts, and withhold 30% on payments to other specified account holders. U.S. Treasury Regulations provide that such withholding will only apply to distributions paid on or after January 1, 2014 (a notice issued by the IRS, Notice 2013-31, postponed the date on which the 30% will start to apply to June 30, 2014), and to other “withholdable payments” (including payments of gross proceeds from a sale or other disposition of our ordinary shares) made on or after January 1, 2017. You should consult your tax advisor regarding the HIRE Act.
F.
|
Dividends and Paying Agents
|
Not applicable.
Not applicable.
We are subject to the reporting requirements of the United States Securities Exchange Act of 1934, as amended, or the Exchange Act, as applicable to “foreign private issuers” as defined in Rule 3b-4 under the Exchange Act, and in accordance therewith, we file annual and interim reports and other information with the SEC.
As a foreign private issuer, we are exempt from certain provisions of the Exchange Act. Accordingly, our proxy solicitations are not subject to the disclosure and procedural requirements of Regulation 14A under the Exchange Act and transactions in our equity securities by our officers and directors are exempt from reporting and the “short-swing” profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial statements as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act.
Notwithstanding the foregoing, we furnish reports with the SEC on Form 6-K containing unaudited financial information for the first three quarters of each fiscal year and we solicit proxies and furnish proxy statements for all meetings of shareholders, a copy of which proxy statement is furnished promptly thereafter with the SEC under the cover of a Current Report on Form 6-K.
This annual report and the exhibits thereto and any other document we file pursuant to the Exchange Act may be inspected without charge and copied at prescribed rates at the following SEC public reference rooms: 100 F Street, N.E., Washington, D.C. 20549; and on the SEC Internet site (http://www.sec.gov) and on our website www.attunity.com. However, the content of our website is not incorporated by reference into this annual report.
You may obtain information on the operation of the SEC’s public reference room in Washington, D.C. by calling the SEC at 1-800-SEC-0330 or by visiting the SEC’s website at http://www.sec.gov. The Exchange Act file number for our SEC filings is 0-20892.
The documents concerning our Company which are referred to in this annual report may also be inspected at our offices located at 16 Atir Yeda Street, Atir Yeda Industrial Park, Kfar Saba, 4464321, Israel.
I.
|
Subsidiary Information
|
Not applicable.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
|
General
We are exposed to a variety of market risks, including foreign currency fluctuations and changes in interest rates. To manage the volatility related to the foreign currency exposure, we may enter from time to time into various derivative transactions. However, we do not use financial instruments for trading purposes and are not a party to any leveraged derivative.
As of December 31, 2014, we had cash and cash equivalents (including restricted cash) of approximately $19.4 million. As of that date, most of such cash and cash equivalents were held in U.S. dollars and NIS. The majority of our cash and cash equivalents are invested in banks in Israel and, to a smaller extent, in banks in the United States. The Israeli bank deposits are not insured, while the deposits made in the United States are in excess of insured limits and are not otherwise insured.
Interest Rate Risk
Our exposure to market risk for changes in interest rates is immaterial primarily because our cash and cash equivalents are mostly deposited in short-term deposits and we do not have any material borrowings.
Our cash and cash equivalents are held substantially in NIS and in U.S. dollars. We place our cash and cash equivalents with major financial banks.
For purposes of specific risk analysis, we use a sensitivity analysis to determine the impact that market risk exposure may have on the financial income derived from our cash and cash equivalents or financial expenses associated with our borrowings. The potential loss to us over one year that would result from a hypothetical change of 10% in the LIBOR or other prime interest rates would be immaterial, as we do not have material borrowings nor do we have material deposits.
Foreign Currency Exchange Risk
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 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 those other currencies. In addition, a significant portion of our operating costs are incurred in NIS. In the past several years, the NIS appreciated against the U.S. dollar, which raised the dollar cost of our Israeli operations. However, in 2014, with the devaluation of NIS against the U.S. dollar, the dollar cost of our Israeli operations decreased.
The following table sets forth, for the periods indicated, (1) devaluation or appreciation of the U.S. dollar against the most significant currencies for our business, i.e., the NIS, the GBP and the Euro; and (2) inflation as reflected in changes in the Israeli consumer price index.
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|
Year Ended December 31,
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
NIS
|
|
|
(6.4 |
)% |
|
|
7.7 |
% |
|
|
(1.3 |
)% |
|
|
(6.4 |
)% |
|
|
12.2 |
% |
Euro
|
|
|
7.4 |
% |
|
|
4.2 |
% |
|
|
(0.4 |
)% |
|
|
(3.2 |
)% |
|
|
13.3 |
% |
GBP
|
|
|
4.4 |
% |
|
|
7.3 |
% |
|
|
2.5 |
% |
|
|
(7.5 |
)% |
|
|
6.2 |
% |
Israeli Consumer Price Index
|
|
|
2.7 |
% |
|
|
2.2 |
% |
|
|
1.6 |
% |
|
|
1.83 |
% |
|
|
(0.2 |
)% |
Our operating results may be affected by fluctuations in the value of the dollar as it relates to foreign currencies, predominantly the NIS. In 2014, the devaluation of the NIS in relation to the dollar decreased the dollar reporting value of our operating expenses by approximately $0.1 million for that year. By contrast, in 2013, the revaluation of the NIS in relation to the dollar increased the dollar reporting value of our operating expenses by approximately $0.7 million for that year. Other than that, foreign currency fluctuations did not have a material impact on our financial results in the past three years.
A revaluation of the NIS in relation to the dollar, as was the case in 2008 through 2010 and in 2012 through 2013, has the effect of increasing 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). For example, an increase of 10% in the value of the NIS relative to the U.S. dollar in 2013 would have resulted in an increase in the U.S. dollar reporting value of our operating expenses of approximately $1.1 million for that year. A revaluation of the NIS relative to the U.S. dollar also has the effect of increasing 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 decrease in the value of the NIS in relation to the dollar, has the effect of decreasing the dollar value of any unlinked NIS assets and the dollar amounts of any unlinked NIS liabilities and expenses.
During 2014, we engaged in currency hedging transactions intended to reduce the effect of fluctuations in currency exchange rates on our financial statements and we may enter into similar transactions in the future. As of December 31, 2014, we had outstanding currency options in the total amount of approximately $6.3 million to hedge portions of our forecasted expenses denominated in NIS with put and call options (“zero-cost cylinder”). These options expire in various dates until January 2016. However, we cannot guarantee that such measures will effectively protect us from adverse effects due to the impact of change in currency exchange rates.
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DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
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ITEMS 12A, 12B AND 12C
Not applicable.
ITEM 12D
The Company does not have any outstanding American Depositary Shares or American Depositary Receipts.
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not applicable.
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MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
|
None.
ITEM 15. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, including our chief executive officer, or CEO, and our chief financial officer, or CFO, is responsible for establishing and maintaining our disclosure controls and procedures (within the meaning of Rule 13a-15(e) of the Exchange Act). These controls and procedures were designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information was accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. We evaluated these disclosure controls and procedures under the supervision of our CEO and CFO as of December 31, 2014. Based upon that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures are effective as of December 31, 2014.
Management’s Annual Report on Internal Control Over Financial Reporting
We performed an evaluation of the effectiveness of our internal control over financial reporting that is designed by, or under the supervision of, our principal executive and principal financial officers, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:
|
·
|
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
|
|
·
|
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
|
|
·
|
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
|
Our management recognizes that there are inherent limitations in the effectiveness of any system of internal control over financial reporting, including the possibility of human error and the circumvention or override of internal control. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation, and may not prevent or detect all misstatements. Further, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2014 based on the framework for Internal Control-Integrated Framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013).
Based on such evaluation, our management, including the CEO and CFO, has concluded that our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) as of December 31, 2014 is effective.
Attestation Report of the Registered Public Accounting Firm
The effectiveness of our internal control over financial reporting as of December 31, 2014, has been audited by Kost, Forer, Gabbay & Kasierer, a member of Ernst & Young Global, or EY, an independent registered public accounting firm who audited and reported on the consolidated financial statements of the Company for the year ended December 31, 2014.
This annual report includes an attestation report of EY, our registered public accounting firm, regarding internal control over financial reporting on page F-3 of our audited consolidated financial statements set forth in “Item 18 – Financial Statements”, and incorporated herein by reference.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting that occurred during the year ended December 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our board of directors has determined that Mr. Dan Falk, who serves on our audit committee, meets the definition of an audit committee financial expert, as that term is defined in Item 16A of Form 20-F. Mr. Falk qualified as an “independent director” using the NASDAQ Stock Market definition of independence, in NASDAQ Listing Rule 5605(a)(2).
We have adopted a code of ethics that applies to all of our directors, executive officers and employees. The code of ethics is publicly available on our website at www.attunity.com. If we make any amendment to the code of ethics or grant any waivers, including any implicit waiver, from a provision of the codes of ethics, which applies to our chief executive officer, chief financial officer, chief accounting officer or controller, or persons performing similar functions, we will disclose the nature of such amendment or waiver on our website. The information on our website is not incorporated by reference into this annual report.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Fees Paid to Independent Public Accountants
In the annual meeting held on December 30, 2014, our shareholders approved the reappointment of EY as our independent registered public accounting firm until the next annual meeting.
The following table sets forth, for each of the years indicated, the aggregate fees billed by EY and the percentage of each of the fees out of the total amount paid to them:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audit Fees (1)
|
|
$ |
231,687 |
|
|
|
87 |
% |
|
$ |
152,041 |
|
|
|
51 |
% |
Audit-Related Fees (2)
|
|
|
- |
|
|
|
- |
|
|
|
52,000 |
|
|
|
17 |
% |
Tax Fees (3)
|
|
|
33,570 |
|
|
|
13 |
% |
|
|
62,356 |
|
|
|
21 |
% |
All Other Fees (4)
|
|
|
- |
|
|
|
- |
|
|
|
32,000 |
|
|
|
11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
265,257 |
|
|
|
100 |
% |
|
|
298,397 |
|
|
|
100 |
% |
|
(1)
|
Audit fees consist of fees for professional services rendered by our principal accountant for the audit of our consolidated annual financial statements, including in the year ended December 31, 2014, the audit of our internal control over financial reporting, or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements.
|
|
(2)
|
Audit-related fees consist of services performed by EY in connection with the public offering we conducted in November 2013.
|
|
(3)
|
Tax fees relate to services performed by the tax division of EY for tax compliance, planning and advice, including a transfer pricing study.
|
|
(4)
|
Other fees relate to tax due diligence and tax planning services associated with acquisitions.
|
Pre-Approval Policies and Procedures
Our audit committee has adopted a policy and procedures for the pre-approval of audit and non-audit services rendered by EY. Pre-approval of an audit or non-audit service may be given as a general pre-approval, as part of the audit committee’s approval of the scope of the engagement of EY, or on an individual basis. Any proposed services exceeding general pre-approved levels also require specific pre-approval by our audit committee. The policy prohibits retention of the independent registered public accounting firm to perform the prohibited non-audit functions defined in Section 201 of the SOX or the rules of the SEC, and also requires the audit committee to consider whether proposed services are compatible with the independence of the public accountants. All of the fees in the table above were approved in accordance with these policies and procedures.
|
EXEMPTIONS FROM THE LISTING REQUIREMENTS AND STANDARDS FOR AUDIT COMMITTEES
|
None.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
None.
Item 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
Not applicable.
Item 16G. CORPORATE GOVERNANCE
We are a foreign private issuer whose ordinary shares are listed on the NASDAQ Capital Market. As such, we are required to comply with U.S. federal securities laws, including SOX, and the NASDAQ rules, including the NASDAQ corporate governance requirements. The NASDAQ rules provide that foreign private issuers may follow home country practice in lieu of certain qualitative listing requirements subject to certain exceptions and except to the extent that such exemptions would be contrary to U.S. federal securities laws, so long as the foreign issuer discloses that it does not follow such listing requirement and describes the home country practice followed in its reports filed with the SEC. Below is a concise summary of the significant ways in which our corporate governance practices differ from the corporate governance requirements of NASDAQ applicable to domestic U.S. listed companies:
The NASDAQ rules require that an issuer have a quorum requirement for shareholders meetings of at least one-third of the outstanding shares of the issuer’s common voting stock. We have chosen to follow home country practice with respect to the quorum requirements of shareholder meetings. Our articles of association, as permitted under the Israeli Companies Law and Israeli practice, provide that the quorum requirements for shareholders meetings are at least 25% of the total voting rights in the Company or, with respect to adjourned shareholders meetings convened by the board of directors, the presence of a minimum of two shareholders.
The NASDAQ rules (namely, NASDAQ Listing Rule 5635(c)) also require shareholder approval of stock option plans available to officers, directors or employees and any material amendments thereto. We have decided to follow home country practice in lieu of obtaining shareholder approval for our stock option plans. However, subject to exceptions permitted under the Companies Law, we are required to seek shareholder approval of any grants of options to directors and controlling shareholders or plans that require shareholder approval for other reasons.
Additionally, we have chosen to follow our home country practice in lieu of the requirements of NASDAQ Listing Rule 5250(d)(1), relating to an issuer’s furnishing of its annual report to shareholders. Specifically, we file annual reports on Form 20-F, which contain financial statements audited by an independent accounting firm, electronically with the SEC and post a copy on our website.
Item 16H. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 17. FINANCIAL STATEMENTS
The Company has elected to furnish financial statements and related information specified in Item 18.
ITEM 18. FINANCIAL STATEMENTS
Consolidated Financial Statements.
Index to Financial Statements
|
F-1
|
Reports of Independent Registered Public Accounting Firm
|
F-2
|
Consolidated Balance Sheets
|
F-4
|
Consolidated Statements of Operations
|
F-6
|
Consolidated Statements of Comprehensive Income (Loss)
|
F-7
|
Statements of Changes in Shareholders’ Equity
|
F-8
|
Consolidated Statements of Cash Flows
|
F-10
|
Notes to Consolidated Financial Statements
|
F-12
|
Exhibit
|
Description
|
|
|
1.1
|
Memorandum of Association of the Registrant, as amended and restated ¶ (1)
|
1.2
|
Amended and Restated Articles of Association of the Registrant (2)
|
2.1
|
Specimen of Ordinary Share Certificate (3)
|
4.3
|
2001 Stock Option Plan, as amended (4)
|
4.4
|
2003 Israeli Stock Option Plan, as amended (5)
|
4.5
|
Loan Agreement dated January 31, 2007 among the Registrant and Plenus Technologies Ltd.; Form of First and Second Warrants to purchase Ordinary Shares issued by the Registrant to Plenus; Floating Charge Agreement dated January 31, 2007 among the Registrant, Plenus and its affiliates; and Fixed Charge Agreement dated January 31, 2007 among the Registrant, Plenus and its affiliates (6), as amended by Amendment to the Loan Agreement and Charge Agreements, dated March 30, 2009 (7), and by Amendment No. 2 to the Loan Agreement and Charge Agreements, dated September 4, 2011 (8)
|
4.6
|
Form of Indemnification Letter (9)
|
4.7
|
Change Data Capture OEM Agreement, dated as of December 14, 2010, by and between Attunity Inc. and Microsoft Corporation (10)
|
4.8
|
2012 Stock Incentive Plan (11)
|
4.9
|
Compensation Policy for Executive Officers and Directors (12)
|
4.10
|
Share Purchase Agreement, dated as of December 18, 2013, by and among the Registrant, Attunity Inc., Hayes Technology Group, Inc., and the other persons named therein (13)
|
4.11
|
Agreement and Plan of Merger, dated as of March 5, 2015, by and among the Registrant, Attunity Inc., Appfluent Technology, Inc. and the other signatories thereto*
|
4.12
|
Registration Rights Agreement, dated as of March 18, 2015, by and among the Registrant and the other signatories thereto*
|
8
|
List of Subsidiaries of the Registrant*
|
12.1
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended*
|
12.2
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended*
|
13.1
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350**
|
13.2
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350**
|
15.1
|
Consent of Kost Forer Gabbay & Kasierer, a Member of Ernst & Young Global*
|
101
|
The following financial information from the Registrant’s Annual Report on Form 20-F for the year ended December 31, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statement of Comprehensive Income (Loss); (iv) Statements of Changes in Shareholders’ Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and in detail*
|
(1)
|
Filed as Exhibit 3.1 to the Registrant’s Registration Statement on Form F-3, filed with the SEC on September 27, 2012, and incorporated herein by reference.
|
(2)
|
Filed as Exhibit 3.2 to the Registrant’s Registration Statement on Form F-3, filed with the SEC on September 27, 2012, and incorporated herein by reference.
|
(3)
|
Filed as Exhibit 4.1 to the Registrant’s Registration Statement on Form F-3, filed with the SEC on September 27, 2012, and incorporated herein by reference.
|
(4)
|
Filed as Exhibit 4.3 to the Registrant’s Registration Statement on Form S-8, filed with the SEC on January 26, 2005, and incorporated herein by reference. The 2001 Stock Option Plan was amended in the annual general meetings of the Registrant’s shareholders in December 2005 and December 2006, as reflected in Item 3 of the Registrant’s Proxy Statement filed on Report of Foreign Private Issuer on Form 6-K submitted to the SEC on November 29, 2005, and in Item 2 of the Registrant’s Proxy Statement filed on Report of Foreign Private Issuer on Form 6-K submitted to the SEC on November 22, 2006, which are incorporated herein by reference.
|
(5)
|
Filed as Exhibit 4.4 to the Registrant’s Registration Statement on Form S-8, filed with the SEC on January 26, 2005, and incorporated herein by reference. The 2003 Israeli Stock Option Plan was amended in the annual general meetings of the Registrant’s shareholders in December 2005 and December 2006, as reflected in Item 3 of the Registrant’s Proxy Statement filed on Report of Foreign Private Issuer on Form 6-K submitted to the SEC on November 29, 2005, and in Item 2 of the Registrant’s Proxy Statement filed on Report of Foreign Private Issuer on Form 6-K submitted to the SEC on November 22, 2006, which are incorporated herein by reference.
|
(6)
|
Filed as Exhibits 4.1, 4.2, 4.3, 4.4 and 4.5, respectively, to the Registrant’s Report of Foreign Private Issuer on Form 6-K submitted to the SEC on February 6, 2007, and incorporated herein by reference.
|
(7)
|
Filed as Exhibit 4.6 to the Registrant’s Annual Report on Form 20-F for the year ended December 31, 2008, and incorporated herein by reference.
|
(8)
|
Filed as Exhibit 4.6 to the Registrant’s Annual Report on Form 20-F/A for the year ended December 31, 2011, and incorporated herein by reference.
|
(9)
|
Filed as Appendix B to the Registrant’s Proxy Statement filed on Report of Foreign Private Issuer on Form 6-K submitted to the SEC on November 14, 2011, and incorporated herein by reference.
|
(10)
|
Filed as Exhibit 4.10 to the Registrant’s Annual Report on Form 20-F for the year ended December 31, 2010, and incorporated herein by reference.
|
(11)
|
Filed as Appendix A to the Registrant’s Proxy Statement filed on Report of Foreign Private Issuer on Form 6-K submitted to the SEC on November 20, 2012, and incorporated herein by reference.
|
(12)
|
Filed as Appendix A to the Registrant’s Proxy Statement filed on Report of Foreign Private Issuer on Form 6-K submitted to the SEC on November 19, 2013, and incorporated herein by reference.
|
(13)
|
Filed as Exhibit 4.13 to the Registrant’s Annual Report on Form 20-F for the year ended December 31, 2013, and incorporated herein by reference.
|
ATTUNITY LTD. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2014
U.S. DOLLARS IN THOUSANDS
INDEX
|
|
|
|
|
F-2
|
|
|
|
F-4 - F-5
|
|
|
|
F-6
|
|
|
|
F-7
|
|
|
|
F-8 - F-9
|
|
|
|
F-10 - F-11
|
|
|
|
F-12 - F-35
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
ATTUNITY LTD.
We have audited the accompanying consolidated balance sheets of Attunity Ltd. and subsidiaries (the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2014. 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 the standards of the Public Company Accounting Oversight Board (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 subsidiaries at December 31, 2014 and 2013, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated April 14, 2015, expressed an unqualified opinion thereon.
|
/s/ KOST FORER GABBAY & KASIERER
|
Tel-Aviv, Israel
|
KOST FORER GABBAY & KASIERER
|
April 14, 2015
|
A Member of Ernst & Young Global
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
ATTUNITY LTD.
We have audited Attunity Ltd. and subsidiaries (the “Company”) internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the “COSO criteria”). The Company’s management is responsible for maintaining effectiveness of internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of December 31, 2014 and 2013 and the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2014 of the Company and our report dated April 14, 2015 expressed an unqualified opinion thereon.
|
/s/ KOST FORER GABBAY & KASIERER
|
Tel-Aviv, Israel
|
KOST FORER GABBAY & KASIERER
|
April 14, 2015
|
A Member of Ernst & Young Global
|
ATTUNITY LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
18,959 |
|
|
$ |
16,481 |
|
Restricted cash
|
|
|
430 |
|
|
|
- |
|
Trade receivables (net of allowance for doubtful accounts of $15 at December 31, 2014 and 2013)
|
|
|
5,991 |
|
|
|
5,224 |
|
Other accounts receivable and prepaid expenses
|
|
|
453 |
|
|
|
685 |
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
25,833 |
|
|
|
22,390 |
|
|
|
|
|
|
|
|
|
|
Severance pay fund
|
|
|
3,247 |
|
|
|
3,233 |
|
Property and equipment, net
|
|
|
980 |
|
|
|
879 |
|
Intangible assets, net
|
|
|
5,402 |
|
|
|
5,345 |
|
Goodwill
|
|
|
17,467 |
|
|
|
17,748 |
|
Other assets
|
|
|
577 |
|
|
|
385 |
|
|
|
|
|
|
|
|
|
|
Total long-term assets
|
|
|
27,673 |
|
|
|
27,590 |
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
53,506 |
|
|
$ |
49,980 |
|
The accompanying notes are an integral part of the consolidated financial statements.
ATTUNITY LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands, except share and amounts per share data
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade payables
|
|
$ |
322 |
|
|
$ |
458 |
|
Payment obligation related to acquisitions
|
|
|
2,278 |
|
|
|
503 |
|
Deferred revenues
|
|
|
7,091 |
|
|
|
5,065 |
|
Employees and payroll accruals
|
|
|
3,023 |
|
|
|
3,210 |
|
Accrued expenses and other current liabilities
|
|
|
1,551 |
|
|
|
862 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
14,265 |
|
|
|
10,098 |
|
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
|
576 |
|
|
|
957 |
|
Liability presented at fair value
|
|
|
906 |
|
|
|
1,093 |
|
Payment obligation related to acquisitions
|
|
|
2,208 |
|
|
|
3,280 |
|
Accrued severance pay
|
|
|
4,296 |
|
|
|
4,328 |
|
Other liabilities
|
|
|
98 |
|
|
|
126 |
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
8,084 |
|
|
|
9,784 |
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
Share capital - Ordinary shares of NIS 0.4 par value -
|
|
|
|
|
|
|
|
|
Authorized: 32,500,000 shares at December 31, 2014 and 2013;
Issued and outstanding: 15,375,716 shares at December 31, 2014
and 14,527,292 shares at December 31, 2013
|
|
|
1,772 |
|
|
|
1,677 |
|
Additional paid-in capital
|
|
|
133,931 |
|
|
|
130,944 |
|
Receipt on account of shares
|
|
|
- |
|
|
|
81 |
|
Accumulated other comprehensive loss
|
|
|
(871 |
) |
|
|
(621 |
) |
Accumulated deficit
|
|
|
(103,675 |
) |
|
|
(101,983 |
) |
|
|
|
|
|
|
|
|
|
Total shareholders’ equity
|
|
|
31,157 |
|
|
|
30,098 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders’ equity
|
|
$ |
53,506 |
|
|
$ |
49,980 |
|
The accompanying notes are an integral part of the consolidated financial statements.
ATTUNITY LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
U.S. dollars and share amounts in thousands, except per share data
|
|
Year ended
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Software licenses
|
|
$ |
20,128 |
|
|
$ |
13,364 |
|
|
$ |
14,437 |
|
Maintenance and services
|
|
|
15,524 |
|
|
|
11,833 |
|
|
|
11,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
35,652 |
|
|
|
25,197 |
|
|
|
25,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of software licenses
|
|
|
890 |
|
|
|
748 |
|
|
|
831 |
|
Cost of maintenance and services
|
|
|
2,431 |
|
|
|
1,384 |
|
|
|
1,525 |
|
Research and development
|
|
|
9,316 |
|
|
|
7,756 |
|
|
|
7,748 |
|
Selling and marketing
|
|
|
19,136 |
|
|
|
11,793 |
|
|
|
9,833 |
|
General and administrative
|
|
|
3,944 |
|
|
|
3,574 |
|
|
|
3,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
35,717 |
|
|
|
25,255 |
|
|
|
22,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(65 |
) |
|
|
(58 |
) |
|
|
2,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial expenses, net
|
|
|
893 |
|
|
|
627 |
|
|
|
1,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before taxes on income
|
|
|
(958 |
) |
|
|
(685 |
) |
|
|
1,277 |
|
Taxes on income (income tax benefit)
|
|
|
734 |
|
|
|
(56 |
) |
|
|
(209 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$ |
(1,692 |
) |
|
$ |
(629 |
) |
|
$ |
1,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net (loss) income per share
|
|
$ |
(0.11 |
) |
|
$ |
(0.05 |
) |
|
$ |
0.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in computing basic net (loss) income per share
|
|
|
15,024 |
|
|
|
11,474 |
|
|
|
10,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net (loss) income per share
|
|
$ |
(0.11 |
) |
|
$ |
(0.05 |
) |
|
$ |
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in computing Diluted net income (loss) per share
|
|
$ |
15,024 |
|
|
$ |
11,474 |
|
|
$ |
12,311 |
|
The accompanying notes are an integral part of the consolidated financial statements.
ATTUNITY LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
U.S. dollars in thousands
|
|
Year ended
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$ |
(1,692 |
) |
|
$ |
(629 |
) |
|
$ |
1,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
(250 |
) |
|
|
51 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in accumulated comprehensive (loss) income
|
|
|
(250 |
) |
|
|
51 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income
|
|
$ |
(1,942 |
) |
|
$ |
(578 |
) |
|
$ |
1,504 |
|
ATTUNITY LTD. AND SUBSIDIARIES
U.S. dollars in thousands, except share data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Receipt
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
Ordinary Shares
|
|
|
paid-in
|
|
|
on account
|
|
|
comprehensive
|
|
|
Accumulated
|
|
|
shareholders’
|
|
|
|
Number
|
|
|
Amount
|
|
|
capital
|
|
|
of shares
|
|
|
Loss
|
|
|
deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2012
|
|
|
9,987,777 |
|
|
$ |
1,146 |
|
|
$ |
107,572 |
|
|
|
- |
|
|
$ |
(690 |
) |
|
$ |
(102,840 |
) |
|
$ |
5,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of warrants, rights and stock options
|
|
|
519,715 |
|
|
|
53 |
|
|
|
683 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
736 |
|
Tax benefit related to exercise of stock options
|
|
|
- |
|
|
|
- |
|
|
|
40 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
40 |
|
Stock-based compensation
|
|
|
- |
|
|
|
- |
|
|
|
736 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
736 |
|
Conversion of convertible debt
|
|
|
316,491 |
|
|
|
61 |
|
|
|
1,251 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,312 |
|
Exercise of rights related to convertible debt
|
|
|
95,947 |
|
|
|
10 |
|
|
|
36 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
46 |
|
Other comprehensive income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
18 |
|
|
|
- |
|
|
|
18 |
|
Net income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,486 |
|
|
|
1,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2012
|
|
|
10,919,930 |
|
|
|
1,270 |
|
|
|
110,318 |
|
|
|
|
|
|
|
(672 |
) |
|
|
(101,354 |
) |
|
|
9,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of warrants and stock options
|
|
|
631,862 |
|
|
|
70 |
|
|
|
1,026 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,096 |
|
Tax benefit related to exercise of stock options
|
|
|
- |
|
|
|
- |
|
|
|
189 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
189 |
|
Stock-based compensation
|
|
|
- |
|
|
|
- |
|
|
|
746 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
746 |
|
Receipt on account of shares
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
81 |
|
|
|
- |
|
|
|
- |
|
|
|
81 |
|
Issuance of common shares, net of issuance expenses
|
|
|
2,852,000 |
|
|
|
323 |
|
|
|
17,633 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
17,956 |
|
Issuance of shares related to Hayes acquisition
|
|
|
123,500 |
|
|
|
14 |
|
|
|
1,032 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,046 |
|
Other comprehensive loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
51 |
|
|
|
- |
|
|
|
51 |
|
Net loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(629 |
) |
|
|
(629 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2013
|
|
|
14,527,292 |
|
|
|
1,677 |
|
|
|
130,944 |
|
|
|
81 |
|
|
|
(621 |
) |
|
|
(101,983 |
) |
|
|
30,098 |
|
The accompanying notes are an integral part of the consolidated financial statements.
ATTUNITY LTD. AND SUBSIDIARIES
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
U.S. dollars in thousands, except share data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Receipt
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
Ordinary Shares
|
|
|
paid-in
|
|
|
on account
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
|
|
|
|
Number
|
|
|
Amount
|
|
|
capital
|
|
|
of shares
|
|
|
Loss
|
|
|
deficit
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2013
|
|
|
14,527,292 |
|
|
$ |
1,677 |
|
|
$ |
130,944 |
|
|
$ |
81 |
|
|
$ |
(621 |
) |
|
$ |
(101,983 |
) |
|
$ |
30,098 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of warrants and stock options
|
|
|
619,082 |
|
|
|
70 |
|
|
|
818 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
888 |
|
Tax benefit related to exercise of stock options
|
|
|
- |
|
|
|
- |
|
|
|
121 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
121 |
|
Stock-based compensation
|
|
|
- |
|
|
|
- |
|
|
|
1,489 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,489 |
|
Receipt on account of shares
|
|
|
167,842 |
|
|
|
19 |
|
|
|
62 |
|
|
|
(81 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Issuance of shares related to Hayes acquisition
|
|
|
61,500 |
|
|
|
6 |
|
|
|
497 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
503 |
|
Other comprehensive loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(250 |
) |
|
|
- |
|
|
|
(250 |
) |
Net loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,692 |
) |
|
|
(1,692 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2014
|
|
|
15,375,716 |
|
|
$ |
1,772 |
|
|
$ |
133,931 |
|
|
$ |
- |
|
|
$ |
(871 |
) |
|
$ |
(103,675 |
) |
|
$ |
31,157 |
|
The accompanying notes are an integral part of the consolidated financial statements.
ATTUNITY LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
|
|
Year ended
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
(1,692 |
) |
|
$ |
(629 |
) |
|
$ |
1,486 |
|
Adjustments required to reconcile net income (loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
345 |
|
|
|
256 |
|
|
|
255 |
|
Loss from disposals of property and equipment
|
|
|
- |
|
|
|
- |
|
|
|
10 |
|
Stock-based compensation
|
|
|
1,489 |
|
|
|
746 |
|
|
|
736 |
|
Amortization of intangible assets
|
|
|
1,215 |
|
|
|
909 |
|
|
|
984 |
|
Accretion of payment obligation
|
|
|
682 |
|
|
|
95 |
|
|
|
265 |
|
Convertible debt inducement expenses
|
|
|
- |
|
|
|
- |
|
|
|
108 |
|
Changes in liabilities presented at fair value
|
|
|
(187 |
) |
|
|
363 |
|
|
|
706 |
|
Change in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued severance pay, net
|
|
|
(46 |
) |
|
|
(14 |
) |
|
|
326 |
|
Trade receivables
|
|
|
(767 |
) |
|
|
(1,049 |
) |
|
|
(1,683 |
) |
Other accounts receivable and prepaid expenses
|
|
|
265 |
|
|
|
(226 |
) |
|
|
(165 |
) |
Other assets
|
|
|
(1 |
) |
|
|
4 |
|
|
|
(21 |
) |
Trade payables
|
|
|
(136 |
) |
|
|
115 |
|
|
|
(136 |
) |
Deferred revenues
|
|
|
1,674 |
|
|
|
10 |
|
|
|
(86 |
) |
Employees and payroll accruals
|
|
|
(187 |
) |
|
|
506 |
|
|
|
438 |
|
Accrued expenses and other current liabilities
|
|
|
782 |
|
|
|
(220 |
) |
|
|
(955 |
) |
Tax benefit related to exercise of stock options
|
|
|
(121 |
) |
|
|
(189 |
) |
|
|
(40 |
) |
Change in deferred taxes, net
|
|
|
(224 |
) |
|
|
(415 |
) |
|
|
(286 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
3,091 |
|
|
|
262 |
|
|
|
1,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(446 |
) |
|
|
(663 |
) |
|
|
(308 |
) |
Decrease (increase) in restricted cash
|
|
|
(430 |
) |
|
|
- |
|
|
|
362 |
|
Cash paid in connection with acquisition, net of acquired cash (Note 3)
|
|
|
(748 |
) |
|
|
(4,163 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(1,624 |
) |
|
|
(4,826 |
) |
|
|
54 |
|
The accompanying notes are an integral part of the consolidated financial statements.
ATTUNITY LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
|
|
Year ended
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common shares, net of issuance expenses
|
|
|
- |
|
|
|
17,956 |
|
|
|
- |
|
Proceeds from exercise of warrants, rights and stock options
|
|
|
888 |
|
|
|
1,096 |
|
|
|
576 |
|
Receipts on account of shares
|
|
|
- |
|
|
|
81 |
|
|
|
- |
|
Repayment of long-term debt
|
|
|
- |
|
|
|
- |
|
|
|
(115 |
) |
Repayment of convertible debt
|
|
|
- |
|
|
|
- |
|
|
|
(138 |
) |
Payment of contingent consideration
|
|
|
- |
|
|
|
(2,000 |
) |
|
|
- |
|
Tax benefit related to exercise of stock options
|
|
|
121 |
|
|
|
189 |
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
1,009 |
|
|
|
17,322 |
|
|
|
363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments on cash and cash equivalents
|
|
|
2 |
|
|
|
(55 |
) |
|
|
(65 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
2,478 |
|
|
|
12,703 |
|
|
|
2,294 |
|
Cash and cash equivalents at the beginning of the year
|
|
|
16,481 |
|
|
|
3,778 |
|
|
|
1,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the year
|
|
$ |
18,959 |
|
|
$ |
16,481 |
|
|
$ |
3,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
5 |
|
|
$ |
6 |
|
|
$ |
225 |
|
Income taxes
|
|
$ |
500 |
|
|
$ |
426 |
|
|
$ |
298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares related to acquisition
|
|
$ |
503 |
|
|
$ |
1,046 |
|
|
$ |
- |
|
Liability presented at fair value allocated to equity
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,410 |
|
The accompanying notes are an integral part of the consolidated financial statements.
ATTUNITY LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share amounts and per share data
Attunity Ltd. (the “Company” or “Attunity”) and its subsidiaries develop, market, sell and support information availability software solutions that enable access, management, sharing and distribution of data, including Big Data, across heterogeneous enterprise platforms, organizations and the cloud. In addition, the Company provides maintenance and other related services for its products.
The Company has established wholly-owned subsidiaries in the United States, UK, Hong-Kong and Israel. The Company’s subsidiaries are engaged primarily in sales and marketing.
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES
|
The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), followed on a consistent basis.
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The Company’s management believes that the estimates, judgments and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, the Company’s management evaluates estimates, including those related to fair values and useful lives of intangible assets, tax assets and liabilities, fair values of stock-based awards, as well as certain financial instruments classified as liabilities. Such estimates are based on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
|
b.
|
Financial statements in U.S. dollars (“dollars”):
|
A majority of the revenues of the Company and of certain of its subsidiaries is generated in dollars. In addition, a substantial portion of the Company’s and certain subsidiaries’ costs are denominated in dollars. Accordingly, the Company’s management has determined that the dollar is the currency in the primary economic environment in which those companies operate. Thus, the functional and reporting currency of those companies is the dollar. Accordingly, monetary amounts denominated in a currency other than the functional currency are re-measured into the functional currency in accordance with Accounting Standards Codification (“ASC”) No. 830, “Foreign Currency Matters,” while all transaction gains and losses of the re-measured monetary balance sheet items are reflected in the statements of operations as financial income or expenses, as appropriate.
ATTUNITY LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share amounts and per share data
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 applicable year. The resulting translation adjustments are reported as an accumulated other comprehensive loss component of shareholders’ equity.
|
c.
|
Principles of consolidation:
|
The consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation.
Certain amounts in prior years’ financial statements have been reclassified to conform to the current year’s presentation. The reclassification had no effect on previously reported net income, cash flows or shareholders’ equity.
Cash equivalents are short-term highly liquid investments that are readily convertible to cash, with original maturities of three months or less, when purchased.
Restricted cash is primarily invested in short-term deposits to secure the Company’s obligations under its Israeli office lease agreement.
|
g.
|
Property and equipment, net:
|
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:
|
Percentage
|
|
|
Computers and peripheral equipment
|
20 – 33 (mainly 33)
|
Office furniture and equipment
|
10 – 20 (mainly 15)
|
Leasehold improvements
|
Over the shorter of the related lease period or the life of the asset
|
ATTUNITY LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share amounts and per share data
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
|
h.
|
Goodwill and other intangible assets:
|
Goodwill reflects the excess of the purchase price of business acquired over the fair value of net assets acquired. Under ASC No. 350, “Intangibles – Goodwill and other” (“ASC No. 350”), goodwill is not amortized but instead is tested for impairment at least annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. In accordance with ASC No. 350, the Company performs an annual impairment test on October 31st of each year.
The Company operates in one operating segment and this segment comprises the only reporting unit. The Company tests goodwill using the two-step process in accordance with ASC No. 350. The first step, identifying a potential impairment, compares the fair value of the reporting unit with its carrying amount. If the carrying amount exceeds its fair value, the second step would need to be performed; otherwise, no further step is required. The second step, measuring the impairment loss, compares the implied fair value of the goodwill with the carrying amount of the goodwill. Any excess of the goodwill carrying amount over the applied fair value is recognized as an impairment loss, and the carrying value of goodwill is written down to fair value. During the years ended December 31, 2014, 2013 and 2012, no impairment of goodwill has been identified.
The intangible assets of the Company are not considered to have an indefinite useful life and are amortized over their estimated useful lives. Intangible assets consist of core technology, customer relationships and non-competition agreements. Core technology and customer relationships are amortized over their estimated useful lives in proportion to the economic benefits realized. This accounting policy results in accelerated amortization of such assets as compared to the straight-line method. Non-competition agreements are amortized on a straight-line basis.
|
i.
|
Impairment of long lived assets and intangible assets subject to amortization:
|
According to ASC No. 360, “Property, Plant and Equipment”, the carrying amount of these assets to be held and used is reviewed whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of these assets is measured by comparison of the carrying amount of each asset (or asset group) to the future undiscounted cash flows the asset (or asset group) is expected to generate. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. During 2014, 2013 and 2012, no impairment losses were identified.
In determining the fair values of long-lived assets for purpose of measuring impairment, the Company’s assumptions include those that market participants would consider in valuations of similar assets.
ATTUNITY LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share amounts and per share data
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
|
j.
|
Business combinations:
|
The Company accounted for business combinations in accordance with ASC No. 805, “Business Combinations” (“ASC No. 805”). ASC No. 805 requires recognition of assets acquired, liabilities assumed, and any non-controlling interest at the acquisition date, measured at their fair values as of that date. Any excess of the fair value of net assets acquired over purchase price and any subsequent changes in estimated contingencies are to be recorded in consolidated statements of operations. In addition, changes in valuation allowance related to acquired deferred tax assets and in acquired income tax position are to be recognized in consolidated statements of operations.
Acquisition related costs are expensed to the statement of operations in the period incurred.
|
k.
|
Research and development costs:
|
Research and development costs are charged to the statement of operations as incurred. ASC No. 985-20, “Software - Costs of Software to Be Sold, Leased, or Marketed”, requires capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based on the Company’s product development process, technological feasibility is established upon completion of a working model. Costs incurred by the Company between completion of the working models and the point at which the products are ready for general release, have been insignificant. Therefore, all research and development costs are expensed as incurred.
The Company accounts for income taxes and uncertain tax positions in accordance with ASC No. 740, “Income Taxes” (“ASC No. 740”). ASC No. 740 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 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 amounts more likely than not to be realized.
Deferred tax liabilities and assets are classified as current or non-current based on the classification of the related asset or liability for financial reporting, or according to the expected reversal dates of the specific temporary differences if not related to an asset or liability for financial reporting.
ASC No. 740 contains a two-step approach to recognizing and measuring a liability for uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes.
ATTUNITY LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share amounts and per share data
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. The Company accrues interest and penalties related to unrecognized tax benefits in its taxes on income (income tax benefit).
The Company generates revenues mainly from license fees and sublicense fees for the right to use its software products and maintenance, support, consulting and training services. The Company grants licenses to its products primarily through its direct sales force and indirectly through original equipment manufacturers (“OEMs”), distributors, resellers and value added resellers (“VARs”). Both the customers and the OEMs, distributors, resellers or VARs are considered to be end users. The Company is also entitled to consideration from some distributors and OEMs upon the sublicensing of the software to their end users.
The Company accounts for software sales in accordance with ASC No. 985-605, “Software Revenue Recognition” (“ASC No. 985-605”). 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 collectability is probable. The Company usually does not grant a right of return to its customers.
As required by ASC No. 985-605, the Company determines the value of the software component of its multiple-element arrangements using the residual method when vendor specific objective evidence (“VSOE”) of fair value exists for all the undelivered elements of the support and maintenance agreements or services included. VSOE is based on the price charged when an element is sold separately or renewed. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is allocated to the delivered elements and is recognized as revenue.
Maintenance and support agreements provide customers with rights to unspecified software product updates, if and when available. These services grant the customers telephone access to technical support personnel during the term of the service. The Company recognizes maintenance and support services revenues ratably over the term of the agreement, typically one year.
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 delivered elements of the arrangement. The Company 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 royalty reports received from the applicable distributors and OEMs. The Company is entitled to either a percentage of the distributor's or OEM’s revenue from the combined product or to a percentage of the revenues of the product sold, as the case may be.
ATTUNITY LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share amounts and per share data
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
Service revenues are recognized as the services are performed.
Deferred revenue includes unearned amounts paid under maintenance and support contracts and amounts received from customers under license agreements but not recognized as revenues.
Cost of software licenses is comprised mainly of amortization of core technology acquired. Cost of maintenance and services is comprised mainly of post-sale customer support and professional services personnel.
|
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 and trade receivables.
Cash and cash equivalents and restricted cash are invested in major banks mainly in Israel and the United States. Such deposits in the United States may be in excess of insured limits and are not insured in other jurisdictions, such as Israel. Generally, these deposits may be redeemed upon demand and, therefore, bear low risk.
The Company’s trade receivables are mainly derived from sales to customers located primarily in the United States, Europe and the Far East. The Company performs ongoing credit evaluations of its customers and, through December 31, 2014, 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. There were no material bad debt expenses or write-offs recorded for the years ended December 31, 2014, 2013 and 2012.
|
p.
|
Accounting for stock-based compensation:
|
The Company accounts for stock-based compensation in accordance with ASC No. 718, “Compensation - Stock Compensation” (“ASC No. 718”). ASC No. 718 is applicable for stock-based awards exchanged for employees’ services and in certain circumstances for nonemployee directors. Pursuant to ASC No. 718, stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense over the requisite service period. ASC No. 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
ASC No. 718 requires the cash flows resulting from tax deductions in excess of the equity-based compensation costs recognized for those equity-based awards to be classified as financing cash flows. During the years ended December 31, 2014, 2013 and 2012, the Company classified $121, $189 and $40, respectively, of excess tax benefit from equity-based compensation as financing cash flows.
ATTUNITY LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share amounts and per share data
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
The Company selected the Black-Scholes option pricing model as the most appropriate fair value method for its stock-options awards. This option-pricing model requires a number of assumptions, of which the most significant are the expected stock price volatility and the expected option term. Expected volatility is calculated based upon actual historical stock price movements over the most recent periods ending on the grant date, equal to the expected option term. Expected option term is calculated based on the simplified method as adequate historical experience is not available to provide a reasonable estimate. The simplified method will continue to apply until enough historical experience is available to provide a reasonable estimate of the expected term. The risk-free interest rate is based on the yield from U.S. treasury bonds with an equivalent term to the expected life of the options. Historically, the Company has not paid dividends and in addition has no foreseeable plans to pay dividends, and therefore uses an expected dividend yield of zero in the option pricing model.
The Company applies ASC No. 505-50, “Equity-Based Payments to Non-Employees”, with respect to options issued to non-employees.
The fair value for options granted in 2014, 2013 and 2012 is estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
Dividend yield
|
|
|
0% |
|
|
|
0% |
|
|
|
0% |
|
Expected volatility
|
|
|
61% |
|
|
|
69% |
|
|
|
127% |
|
Risk-free interest
|
|
|
1.24% |
|
|
|
1.03% |
|
|
|
0.56% |
|
Expected life (in years)
|
|
|
4 |
|
|
|
4 |
|
|
|
4 |
|
The Company recognizes compensation expenses for the value of its awards based on the straight-line method over the requisite service period of each of the awards, net of estimated forfeitures. Estimated forfeitures are based on actual historical pre-vesting forfeitures.
|
q.
|
Derivatives and hedging:
|
The Company accounts for derivatives and hedging based on ASC No. 815, “Derivatives and Hedging” (“ASC No. 815”). ASC No. 815 requires the Company to recognize all derivatives on the balance sheet at fair value. The accounting for changes in the fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship.
ATTUNITY LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share amounts and per share data
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
According to ASC No. 815, for derivative instruments that are designated and qualify as hedging instruments, the Company must designate the hedging instrument, based upon the exposure being hedged, as a fair value hedge, cash flow hedge, or a hedge of a net investment in a foreign operation. If the derivatives meet the definition of a hedge and are so designated, depending on the nature of the hedge, changes in the fair value of such derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings, or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative’s change in fair value is recognized in earnings.
The Company entered into forward and option contracts to hedge against the risk of overall changes in future cash flow from payments of payroll and related expenses denominated in New Israeli Shekels (“NIS”). These contracts were not designated as hedging instruments and as such gains or losses are recognized in “financial expenses, net”. As of December 31, 2014 and 2013, the fair value of the Company’s outstanding forward and option contracts amounted to $196 and $0, respectively, which is included within accrued expenses and other current liabilities in the balance sheet. The Company measured the fair value of these contracts in accordance with ASC No. 820, “Fair Value Measurements and Disclosures” (“ASC No. 820”), and they were classified as level 2. Net income (loss) from hedging transactions recognized in financial expenses, net during 2014, 2013 and 2012 was ($201), $21 and $53, respectively.
As of December 31, 2014 and 2013, the notional principal amount of the hedging contracts to sell U.S. dollars held by the Company was $6,300 and $0, respectively.
|
r.
|
Basic and diluted net income (loss) per share:
|
Basic and diluted income (loss) per ordinary share are presented in conformity with ASC No. 260 “Earnings Per Share”, for all years presented. Basic income (loss) per ordinary share is computed by dividing the net income (loss) for each reporting period by the weighted average number of ordinary shares outstanding during the period. Diluted income (loss) per ordinary share is computed by dividing the net income (loss) for each reporting period plus additional expense or income that would have been outstanding if potentially dilutive securities had been exercised during the period by the weighted average number of ordinary shares outstanding during the period plus any additional ordinary shares that would have been outstanding if potentially dilutive securities had been exercised during the period, calculated under the treasury stock method.
The total weighted average number of shares related to the outstanding stock options excluded from the calculation of diluted net loss per share due to their anti-dilutive effect was 1,888,768, 1,714,765 and 2,718,673 for the years ended December 31, 2014, 2013 and 2012, respectively.
ATTUNITY LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share amounts and per share data
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
The Company’s liability for severance pay for employees located in Israel who have joined the Company before December 1, 2009 is calculated pursuant to Israel’s Severance Pay Law, 1963 (“Severance Pay Law”) based on the employees’ most recent monthly salary multiplied by the number of years of employment, as of the balance sheet date. The Company’s liability for all of these Israeli employees is partially provided by monthly deposits with a severance pay fund and insurance policies and, any unfunded amounts are covered by a provision established by the Company.
The carrying value of deposited funds in respect of severance liability for Israeli employees who joined the Company prior to December 1, 2009 includes profits or losses accumulated up to the balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the employee’s obligation pursuant to the Severance Pay Law or employment agreements. The value of these policies is recorded as an asset in the Company’s balance sheets.
The Company’s agreements with employees in Israel who have joined the Company after December 1, 2009 are in accordance with Section 14 of the Severance Pay Law, pursuant to which the Company’s contributions for severance pay fully cover its severance liability, i.e., upon contribution of the full amount of the employee’s monthly salary for each year of service, no additional calculations is conducted between the parties regarding the matter of severance pay and no additional payments is made by the Company to the employee. Accordingly, such deposits and related obligations are not stated on the balance sheet, as the Company is legally released from obligation to employees once the deposit amounts have been paid.
Severance pay expense for the years ended December 31, 2014, 2013 and 2012 amounted to $ 594, $ 423 and $ 730, respectively.
|
t.
|
Fair value of financial instruments:
|
The Company applies ASC No. 820, pursuant to which fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date.
In determining fair value, the Company uses various valuation approaches. ASC No. 820 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company.
ATTUNITY LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share amounts and per share data
NOTE 2:-
|
SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
The hierarchy is broken down into three levels based on the inputs as follows:
|
Level 1 -
|
Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company can access at the measurement date.
|
|
Level 2 -
|
Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
|
|
Level 3 -
|
Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
|
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The carrying amounts of cash and cash equivalents, restricted cash, trade receivables, trade payables, employees and payroll accruals, accrued expenses and other current liabilities approximate their fair values due to the short-term maturity of these instruments.
|
u.
|
Comprehensive income (loss):
|
The Company accounts for comprehensive income (loss) in accordance with ASC No. 220, “Comprehensive Income.” This statement establishes standards for the reporting and display of comprehensive income (loss) and its components in a full set of general purpose financial statements. Comprehensive income (loss) generally represents all changes in shareholders’ equity during the period except those resulting from investments by, or distributions to, shareholders. The Company determined that its only item of comprehensive income (loss) relates to foreign currency translation adjustment.
|
v.
|
Impact of recently issued accounting standard not yet adopted:
|
In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”). ASU 2014-09 supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605)”, and requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. The Company is currently in the process of evaluating the impact of the adoption of ASU 2014-09 on its consolidated financial statements.
ATTUNITY LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share amounts and per share data
|
a.
|
On November 14, 2014, the Company acquired the technology and certain related assets of BIReady B.V., a Netherlands-based developer of data warehouse automation technology, for EUR 600,000 (approximately $748) in cash, approximately 31,900 ordinary shares of the Company (recorded for total fair value of $224) which will be held-back to secure indemnity claims and will be issued on November 14, 2015 and an earnout potential of up to EUR 300,000 (approximately $374) in cash over 2015 and 2016. In connection with this contingent payment consideration, the Company initially recorded at the closing date, an estimated liability of $300 ($300 as of December 31, 2014). The acquisition is accounted for as business combination under ASC No. 805. The total purchase price was allocated to core technology based on its estimated fair value in the amount of $1,272, which is amortized on a straight line basis over 5 years. With respect to this acquisition, transaction costs were immaterial and pro forma information was not presented due to immateriality.
|
|
b.
|
On December 18, 2013, the Company completed, through the Company’s wholly owned subsidiary, Attunity Inc., the acquisition of 100% of the shares of Hayes Technology Group, Inc. (“Hayes”), a U.S.-based provider of data replication software solutions for SAP environments. The results of operations of Hayes are included in the consolidated financial statements from the closing date. Under the related acquisition agreement, the total consideration is composed as follows:
|
|
-
|
$4,500 in cash paid on the closing date;
|
|
-
|
185,000 ordinary shares of the Company for total fair value of $1,547, out of which 123,500 shares were issued on the closing date and 61,500 shares were held-back to secure indemnity claims and issued on December 18, 2014. The held-back shares were recorded at fair market value of $503 under purchase obligations and were classified to equity upon issuance of the shares; and
|
|
-
|
Milestone-based contingent payments in a total of up to $4,200, out of which up to $2,100 is payable in 2015 and up to $2,100 is payable in 2016. The contingent payments are payable pro-rata, provided that at least 75% of the applicable milestone target is met and have a catch-up mechanism in 2015. This contingent payment consideration was measured at fair value at the closing date and recorded as a liability on the balance sheet in the amount of $3,251 ($3,962 as of December 31, 2014). Accretion of the contingent consideration liability is included in financial expenses, net.
|
In addition, the Company incurred acquisition related costs in a total amount of $505, which are included in general and administrative expenses for the year 2013. Acquisition related costs include legal, accounting fees and other external costs directly related to the acquisition.
The main reason for this acquisition was to penetrate into the large SAP markets and leverage the synergy of the technologies of both companies and to benefit from a wider customer base. Accordingly, a significant amount of the acquisition consideration was recorded as goodwill due to the synergies with Hayes.
ATTUNITY LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share amounts and per share data
NOTE 3:-
|
ACQUISITIONS (Cont.)
|
Purchase price allocation:
Under business combination accounting, the total purchase price was allocated to Hayes’ net tangible and intangible assets based on their estimated fair values as set forth below. The excess of the purchase price over the net tangible and identifiable intangible assets was recorded as goodwill.
Net assets (including cash of $337)
|
|
$ |
733 |
|
Deferred revenues
|
|
|
(366 |
) |
Intangible assets
|
|
|
4,384 |
|
Goodwill
|
|
|
4,547 |
|
|
|
|
|
|
Total purchase price
|
|
$ |
9,298 |
|
In performing the purchase price allocation, the Company considered, among other factors, analysis of historical financial performance, highest and best use of the acquired assets and estimates of future performance of Hayes’ products. In its allocation, the Company also considered the fair value of intangible assets based on a market participant approach to valuation performed by a third party valuation firm using an income approach and estimates and assumptions provided by management. The following table sets forth the components of intangible assets associated with the Hayes acquisition:
|
|
Fair
value
|
|
|
|
|
|
Core technology (1)
|
|
$ |
3,596 |
|
Customer relationships (2)
|
|
|
564 |
|
Non-Competition agreement (3)
|
|
|
224 |
|
|
|
|
|
|
Total intangible assets
|
|
$ |
4,384 |
|
|
(1)
|
Core technology represents a combination of Hayes processes and trade secrets related to the design and development of its products. This proprietary know-how can be leveraged to develop new technology and improve the Company products and is amortized over 6 years using the accelerated method.
|
|
(2)
|
Customer relationships represent the underlying relationships and agreements with Hayes’ installed customer base and are amortized over 9 years using the accelerated method.
|
|
(3)
|
The amount assigned to the non-competition agreement relates to the non-competition agreement that the Company entered into with the founder of Hayes for a period of 4 years, which is amortized on a straight line basis over four years.
|
ATTUNITY LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share amounts and per share data
NOTE 3:-
|
ACQUISITIONS (Cont.)
|
The following unaudited condensed combined pro forma information for the years ended December 31, 2013 and 2012, gives effect to the acquisition of Hayes as if the acquisition had occurred on January 1, 2012. The pro forma information is not necessarily indicative of the results of operations, which actually would have occurred had the acquisition been consummated on that date, nor does it purport to represent the results of operations for future periods. For the purposes of the pro forma information, the Company has assumed that net income includes additional amortization of intangible assets related to the acquisition of $1,109 and $707 in 2013 and 2012, respectively, and related tax effects.
|
|
Year ended
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
Unaudited
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
28,381 |
|
|
$ |
29,030 |
|
Net loss
|
|
$ |
(1,240 |
) |
|
$ |
(320 |
) |
Basic and diluted loss per share
|
|
$ |
(0.11 |
) |
|
$ |
(0.03 |
) |
NOTE 4:-
|
PROPERTY AND EQUIPMENT, NET
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
Cost:
|
|
|
|
|
|
|
Computers and peripheral equipment
|
|
$ |
3,322 |
|
|
$ |
3,022 |
|
Office furniture and equipment
|
|
|
608 |
|
|
|
492 |
|
Leasehold improvements
|
|
|
782 |
|
|
|
752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
4,712 |
|
|
|
4,266 |
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation
|
|
|
3,732 |
|
|
|
3,387 |
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$ |
980 |
|
|
$ |
879 |
|
As for charges on the Company’s property and equipment, see Note 8.
ATTUNITY LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share amounts and per share data
NOTE 5:-
|
GOODWILL AND OTHER INTANGIBLE ASSETS, NET
|
Changes in goodwill during the years ended December 31, 2014 and 2013 are as follows:
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
Goodwill, beginning of year
|
|
$ |
17,748 |
|
|
$ |
13,094 |
|
Revaluation (foreign currency exchange differences)
|
|
|
(281 |
) |
|
|
107 |
|
Acquisition of Hayes
|
|
|
- |
|
|
|
4,547 |
|
|
|
|
|
|
|
|
|
|
Goodwill, end of year
|
|
$ |
17,467 |
|
|
$ |
17,748 |
|
|
b.
|
Other intangible assets, net:
|
Net other intangible assets consisted of the following:
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
Original amount:
|
|
|
|
|
|
|
Core technology
|
|
$ |
7,034 |
|
|
$ |
5,762 |
|
Customer relationships
|
|
|
1,599 |
|
|
|
1,599 |
|
Non-competition agreement
|
|
|
224 |
|
|
|
224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
8,857 |
|
|
|
7,585 |
|
Accumulated amortization:
|
|
|
|
|
|
|
|
|
Core technology
|
|
|
2,315 |
|
|
|
1,426 |
|
Customer relationships
|
|
|
1,084 |
|
|
|
814 |
|
Non-competition agreement
|
|
|
56 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
3,455 |
|
|
|
2,240 |
|
Other intangible assets ,net:
|
|
|
|
|
|
|
|
|
Core technology
|
|
|
4,719 |
|
|
|
4,336 |
|
Customer relationships
|
|
|
515 |
|
|
|
785 |
|
Non-competition agreement
|
|
|
168 |
|
|
|
224 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,402 |
|
|
$ |
5,345 |
|
The estimated future amortization expense of other intangible assets as of December 31, 2014 for the years ending:
Year ending December 31,
|
|
|
|
2015
|
|
$ |
1,749 |
|
2016
|
|
|
1,422 |
|
2017
|
|
|
1,073 |
|
2018
|
|
|
670 |
|
Thereafter
|
|
|
488 |
|
|
|
$ |
5,402 |
|
ATTUNITY LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share amounts and per share data
NOTE 6:-
|
LIABILITY PRESENTED AT FAIR VALUE
|
The Company entered into a Loan Agreement with Plenus Technologies Ltd. (“Plenus” or the “Lender”), dated January 31, 2007 (as amended on March 30, 2009 and September 4, 2011, the “Loan Agreement”). According to the Loan Agreement if, during the period between March 19, 2009 and December 31, 2017, the Company enters into a “Fundamental Transaction” (which is defined in the Loan Agreement to include (i) the acquisition of the Company by means of a merger or other form of corporate reorganization in which 50% or more of the outstanding shares is exchanged for securities or other consideration issued or paid by the acquiring entity, (ii) the sale of all or substantially all of the assets of the Company, or (iii) a transaction or a series of transactions in which a person or entity acquires more than 50% of the outstanding shares of the Company), then the Lender shall be entitled to the following: (i) in the cases of merger or acquisition of shares, an amount equal to 15% of the aggregate proceeds payable in connection with such Fundamental Transaction to the shareholders, or (ii) in the case of the sale of substantially all of the Company’s assets, an amount equal to 15% of the aggregate proceeds payable to the Company in connection with such Fundamental Transaction; the “aggregate proceeds” shall be calculated while subtracting any amount of debts, liabilities and obligations which have accrued prior to the closing of such Fundamental Transaction and have not been assumed by the purchaser in such Fundamental Transaction. During such period, the Lender may elect to receive $300 in cash in lieu of such compensation.
The Company accounted for the above mentioned compensation in accordance with ASC 815-40, based on which the above was considered as a derivative and recorded as a liability on the balance sheet and is marked to market at each reporting period. The fair value of this derivative was based on valuation using a Binomial Model for options valuation based on assumptions provided by management. The Company classified the fair value of this derivative as level 3.
NOTE 7:-
|
CONVERTIBLE DEBT
|
In April 2004, the Company issued to a group of investors interest-bearing convertible notes in the face amount of $2,000, initially repayable after five years (as amended and extended from time to time, the “Convertible Notes”). The conversion price of the Convertible Notes was adjusted from time to time. The Company recorded a bifurcated conversion feature embedded in the convertible debt, and marked it to market based on its fair value each reporting period.
During the year ended December 31, 2012, the Convertible Notes then outstanding were converted into ordinary shares of the Company and the outstanding associated bifurcated conversion feature was accordingly allocated to equity. As of December 31, 2013, substantially all of the principal amount and accrued interest were repaid in full by way of conversion of the Convertible Notes into ordinary shares.
In accordance with ASC No. 470-20-40-16, “Debt with conversion and other options”, the Company recognized inducement expense of $108 in 2012, against additional paid-in-capital, related to the conversion.
The holders of the Convertible Notes also exercised their rights to acquire an aggregate of 39,407 additional ordinary shares at $0.48 per share during 2012.
ATTUNITY LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share amounts and per share data
NOTE 8:-
|
CHARGES (ASSETS PLEDGED)
|
|
a.
|
As collateral for certain liabilities of the Company to others, fixed charges have been recorded on certain equipment of the Company.
|
|
b.
|
The Company has an outstanding bank guarantee in the amount of $430 to its Israeli office lessor to secure its obligations under the office lease agreement.
|
NOTE 9:-
|
COMMITMENTS AND CONTINGENT LIABILITIES
|
The Company leases its operating facilities under non-cancelable operating lease agreements, which expire on various dates, the latest of which is in June 2019. In addition, the Company leases computers and motor vehicles under non-cancelable operating leases. Future minimum commitments under these leases as of December 31, 2014, are as follows:
Year ended December 31,
|
|
Operating
Leases
|
|
|
|
|
|
2015
|
|
$ |
1,414 |
|
2016
|
|
|
1,139 |
|
2017
|
|
|
1,042 |
|
2018
|
|
|
543 |
|
2019 and after
|
|
|
177 |
|
|
|
|
|
|
|
|
$ |
4,315 |
|
|
b.
|
Rent expenses under facilities operating leases for the years ended December 31, 2014, 2013 and 2012 were (net of sublease income in the amount of $0, $0 and $30, respectively) $1,146, $850 and $663, respectively.
|
NOTE 10:- SHAREHOLDERS’ EQUITY
|
a.
|
On November 26, 2013, the Company closed a firm commitment underwritten public offering of 2,852,000 ordinary shares (including 372,000 ordinary shares issued to the underwriter upon full exercise of its over-allotment option), at a public offering price of $7.00 per share. The net proceeds for the Company were approximately $18,000.
|
|
b.
|
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.
|
ATTUNITY LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share amounts and per share data
NOTE 10:-
|
SHAREHOLDERS’ EQUITY (Cont.)
|
Under the Company’s 2001 Stock Option Plan and 2003 Israeli Stock Option, the Company has granted options to purchase ordinary shares to employees, directors and officers as an incentive to attract and retain qualified personnel. The 2001 plan does not have a specific expiration date whereas the 2003 plan was terminated in December 2013.
In December 2012, the Company adopted the 2012 Stock Incentive Plan (together with the 2001 and 2003 plans, the “Plans”), under which stock options as well as other equity-based awards, including restricted stock units and performance units, may be granted to employees, directors and consultants of the Company or its affiliates. The 2012 Stock Incentive Plan has a term of ten years and will terminate in December 2022.
In general, 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 incentive stock options and 75% of the fair market for non-qualified options. Under the terms of the Plans, options generally become exercisable ratably over three years of employment, commencing with the date of grant or with the date of hire (for new employees at their first grant). The options generally expire no later than 6 years from the date of the grant, and are non-transferable, except under the laws of succession.
Under the Plans, 3,250,625 ordinary shares of the Company were reserved for issuance. Any options that are canceled or forfeited before expiration become available for future grants. As of December 31, 2014, there were 50,845 options available for future grants. In January 2015, the Company’s Board of Directors approved an increase of 50,000 shares of the Company reserved for issuance under the Plans.
Upon exercise of options by employees, directors and contractors, the Company issues ordinary shares for each option exercised.
The following is a summary of the Company’s stock options granted under the Plans:
|
|
Year ended
December 31, 2014
|
|
|
|
Number
of options
(thousands)
|
|
|
Weighted
average exercise
price (per share)
|
|
|
Aggregate
intrinsic value
(1)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at beginning of year
|
|
|
1,715 |
|
|
$ |
3.47 |
|
|
$ |
11,809 |
|
Granted
|
|
|
810 |
|
|
|
10.11 |
|
|
|
|
|
Exercised
|
|
|
(540 |
) |
|
|
(1.57 |
) |
|
|
|
|
Forfeited
|
|
|
(96 |
) |
|
|
(9.97 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
$ |
1,889 |
|
|
$ |
6.53 |
|
|
$ |
8,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at end of year
|
|
$ |
1,792 |
|
|
$ |
6.36 |
|
|
$ |
8,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year
|
|
$ |
897 |
|
|
$ |
3.22 |
|
|
$ |
6,757 |
|
|
(1)
|
Calculation of aggregate intrinsic value for options outstanding and exercisable is based on the share price of the Company’s ordinary shares as of December 31, 2014 which was $10.75 per share.
|
ATTUNITY LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share amounts and per share data
NOTE 10:-
|
SHAREHOLDERS’ EQUITY (Cont.)
|
The total intrinsic value of options exercised for the years ended, December 31, 2014, 2013 and 2012 was $2,881, $1,244 and $1,170, respectively.
As of December 31, 2014, there was $3,506 of total unrecognized compensation cost related to non-vested share-based compensation that are expected to be recognized over a period of up to three years.
The options outstanding as of December 31, 2014, have been separated into ranges of exercise price per share as follows:
|
|
|
Outstanding
|
|
|
Exercisable
|
|
Exercise price
|
|
|
Number outstanding
(thousands)
|
|
|
Weighted average remaining contractual
life
(years)
|
|
|
Weighted average exercise
price
|
|
|
Number exercisable
(thousands)
|
|
|
Weighted average remaining contractual life
(years)
|
|
|
Weighted average exercise
price
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.48 - $1.52 |
|
|
|
237 |
|
|
|
0.85 |
|
|
|
1.16 |
|
|
|
237 |
|
|
|
0.85 |
|
|
|
1.16 |
|
$ |
2.00 - $3.44 |
|
|
|
556 |
|
|
|
2.69 |
|
|
|
2.86 |
|
|
|
538 |
|
|
|
2.67 |
|
|
|
2.85 |
|
$ |
5.68 - $7.81 |
|
|
|
205 |
|
|
|
5.34 |
|
|
|
6.87 |
|
|
|
15 |
|
|
|
4.30 |
|
|
|
6.03 |
|
$ |
8.04 - $9.87 |
|
|
|
378 |
|
|
|
5.30 |
|
|
|
9.14 |
|
|
|
74 |
|
|
|
4.41 |
|
|
|
8.72 |
|
$ |
10.03 - $11.32 |
|
|
|
513 |
|
|
|
5.28 |
|
|
|
10.95 |
|
|
|
33 |
|
|
|
4.92 |
|
|
|
10.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,889 |
|
|
|
3.97 |
|
|
$ |
6.53 |
|
|
|
897 |
|
|
|
2.44 |
|
|
$ |
3.22 |
|
The allocation of the stock-based compensation is as follows:
|
|
Year ended
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
$ |
440 |
|
|
$ |
237 |
|
|
$ |
306 |
|
Selling and marketing
|
|
|
636 |
|
|
|
325 |
|
|
|
241 |
|
General and administrative
|
|
|
413 |
|
|
|
184 |
|
|
|
189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation
|
|
|
1,489 |
|
|
|
746 |
|
|
|
736 |
|
As of December 31, 2014, there were outstanding warrants to purchase an aggregate of 27,582 ordinary shares at an exercise price of $0.48 per share, which expire on various dates until July 29, 2015.
During 2014, 78,828 warrants were exercised for proceeds of $38.
ATTUNITY LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share amounts and per share data
|
a.
|
Taxes on income (Income tax benefits) are comprised as follows:
|
|
|
Year ended
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax benefit
|
|
$ |
(224 |
) |
|
$ |
(432 |
) |
|
$ |
(321 |
) |
Current taxes
|
|
|
958 |
|
|
|
376 |
|
|
|
112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
734 |
|
|
$ |
(56 |
) |
|
$ |
(209 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$ |
140 |
|
|
$ |
(6 |
) |
|
$ |
201 |
|
Foreign
|
|
|
594
|
|
|
|
(50 |
) |
|
|
(410 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
734 |
|
|
$ |
(56 |
) |
|
$ |
(209 |
) |
Domestic taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$ |
140 |
|
|
$ |
(6 |
) |
|
$ |
201 |
|
Deferred
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140 |
|
|
|
(6 |
) |
|
|
201 |
|
Foreign taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
818 |
|
|
|
382 |
|
|
|
(89 |
) |
Deferred
|
|
|
(224 |
) |
|
|
(432 |
) |
|
|
(321 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
594 |
|
|
|
(50 |
) |
|
|
(410 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes (income tax benefits)
|
|
$ |
734 |
|
|
$ |
(56 |
) |
|
$ |
(209 |
) |
The components of income (loss) before taxes on income attributable to domestic and foreign operations are as follows:
|
|
Year ended
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$ |
(2,540 |
) |
|
$ |
(688 |
) |
|
$ |
1,147 |
|
Foreign
|
|
|
1,582 |
|
|
|
3 |
|
|
|
130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(958 |
) |
|
$ |
(685 |
) |
|
$ |
1,277 |
|
ATTUNITY LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share amounts and per share data
NOTE 11:-
|
INCOME TAXES (Cont.)
|
|
b.
|
A reconciliation between the theoretical tax expense, assuming all income is taxed at the statutory tax rate applicable to income of the Company and the actual tax expense as reported in the statement of operations is as follows:
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
Income (loss) before taxes, as reported in the consolidated statements of income
|
|
$ |
(958 |
) |
|
$ |
(685 |
) |
|
$ |
1,277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory tax rate
|
|
|
26.5 |
% |
|
|
25 |
% |
|
|
25 |
% |
Theoretical tax expense (benefit) on the above amount at the Israeli statutory tax rate
|
|
$ |
(254 |
) |
|
$ |
(171 |
) |
|
$ |
319 |
|
Tax adjustment in respect of different tax rate of foreign subsidiaries
|
|
|
112 |
|
|
|
(6 |
) |
|
|
21 |
|
Non-deductible expenses and other permanent differences
|
|
|
496 |
|
|
|
226 |
|
|
|
233 |
|
Losses and timing differences for which valuation allowance was provided
|
|
|
288 |
|
|
|
760 |
|
|
|
934 |
|
Utilization of tax losses for which valuation allowance was provided for in prior years
|
|
|
(52 |
) |
|
|
(816 |
) |
|
|
(1,538 |
) |
Other
|
|
|
144 |
|
|
|
(49 |
) |
|
|
(178 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual taxes on income (income tax benefit)
|
|
$ |
734 |
|
|
$ |
(56 |
) |
|
$ |
(209 |
) |
Taxable income of the Israeli companies is subject to the Israeli corporate tax at the rate as follows: 2012 - 25%, 2013 – 25%, 2014 – 26.5%.
The Company and its Israeli subsidiaries have not received final tax assessments since incorporation. However, in accordance with the Israeli tax laws, tax returns submitted up to and including the 2010 tax year can be regarded as final.
Tax loss carryforward:
The Company’s tax loss carryforwards were approximately $41,600 as of December 31, 2014. Such losses can be carried forward indefinitely to offset future taxable income of the Company.
|
d.
|
Income taxes of non-Israeli subsidiaries:
|
Non-Israeli subsidiaries are taxed according to the tax laws in their respective countries of residence.
The U.S. tax returns of Attunity Inc. and RepliWeb Inc. remain subject to examination by the U.S. tax authorities for the tax years 2011-2013 and 2008-2013, respectively.
ATTUNITY LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share amounts and per share data
NOTE 11:-
|
INCOME TAXES (Cont.)
|
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,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
Net operating loss carry forwards
|
|
$ |
12,590 |
|
|
$ |
11,645 |
|
Temporary differences related to research and development expenses
|
|
|
1,865
|
|
|
|
1,631 |
|
Temporary differences related to accrued employee costs
|
|
|
378 |
|
|
|
590 |
|
Deferred revenue and other
|
|
|
706 |
|
|
|
554 |
|
Total deferred tax asset before valuation allowance
|
|
|
15,539 |
|
|
|
14,420 |
|
Less - valuation allowance
|
|
|
(14,834 |
) |
|
|
(13,836 |
) |
|
|
|
|
|
|
|
|
|
Deferred tax asset
|
|
|
705 |
|
|
|
584 |
|
|
|
|
|
|
|
|
|
|
Deferred tax liability - Intangible assets and other
|
|
|
(68 |
) |
|
|
(171 |
) |
|
|
|
|
|
|
|
|
|
Deferred tax assets, net
|
|
$ |
637 |
|
|
$ |
413 |
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Foreign:
|
|
|
|
|
|
|
|
|
Current deferred tax asset, net
|
|
|
181 |
|
|
|
148 |
|
Non-current deferred tax asset, net
|
|
|
456 |
|
|
|
265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
637 |
|
|
|
413 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
637 |
|
|
$ |
413 |
|
Current deferred tax asset is included within other current accounts receivable and prepaid expenses on the balance sheet. Non-current deferred tax asset, net is included within other assets on the balance sheet.
The Company has provided valuation allowances in respect of deferred tax assets resulting from tax loss carry forwards and other temporary differences in Israel and in several of its subsidiaries. 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 carry forwards and other temporary differences will not be realized in the foreseeable future.
The net change in the valuation allowance primarily relates to increase in deferred taxes on net operating losses for which full valuation allowance was recorded.
ATTUNITY LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share amounts and per share data
NOTE 11:-
|
INCOME TAXES (Cont.)
|
ASC No. 718 prohibits recognition of a deferred tax asset for excess tax benefits due to stock option exercises that have not yet been realized through a reduction in income tax payable. All net operating loss carry forwards relate to excess tax deductions from stock options which have not yet been realized. Such unrecognized deferred tax benefits will be accounted for as a credit to additional paid-in-capital, if and when realized.
|
f.
|
Accounting for uncertainty in income taxes:
|
A reconciliation of the beginning and ending amount of unrecognized tax benefits related to uncertain tax positions is as follows:
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
Opening balance
|
|
$ |
103 |
|
|
$ |
201 |
|
Additions for prior years’ tax position
|
|
|
10 |
|
|
|
26 |
|
Reduction of prior years’ tax position due to lapse of statute of limitation
|
|
|
(20 |
) |
|
|
(124 |
) |
|
|
|
|
|
|
|
|
|
Closing balance
|
|
$ |
93 |
|
|
$ |
103 |
|
|
|
|
|
|
|
|
|
|
Included in accrued expenses and other current liabilities
|
|
$ |
39 |
|
|
$ |
21 |
|
|
|
|
|
|
|
|
|
|
Included in other long term liabilities
|
|
$ |
54 |
|
|
$ |
82 |
|
As of December 31, 2014, the entire amount of the unrecognized tax benefits could affect the Company’s income tax provision and the effective tax rate.
During the years ended December 31, 2014 and 2013, the Company recorded $10 and $26 for interest expense related to uncertain tax positions, respectively. As of December 31, 2014 and 2013, the Company had accrued interest liability related to uncertain tax positions in the amounts of $39 and $48, respectively, which is included in the liability balance. In the next 12 months, the statute of limitations with respect to the 2010 tax year will lapse, which will impact the unrecognized tax position liability balance with respect to the 2010 tax year.
The Company believes that it has adequately provided for any reasonably foreseeable outcomes related to tax audits and settlement. However, the final tax outcome of its tax audits could be different from that which is reflected in the Company’s income tax provisions and accruals. Such differences could have a material effect on the Company’s income tax provision and net income in the period in which such determination is made.
ATTUNITY LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share amounts and per share data
NOTE 12:-
|
ENTITY-WIDE DISCLOSURES
|
Revenues by geographical areas were as follows:
|
|
Year ended
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$ |
25,993 |
|
|
$ |
17,529 |
|
|
$ |
16,568 |
|
Europe
|
|
|
6,085 |
|
|
|
4,322 |
|
|
|
4,932 |
|
Far East
|
|
|
1,532 |
|
|
|
1,774 |
|
|
|
1,478 |
|
Israel
|
|
|
817 |
|
|
|
761 |
|
|
|
948 |
|
Other
|
|
|
1,225 |
|
|
|
811 |
|
|
|
1,553 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
35,652 |
|
|
$ |
25,197 |
|
|
$ |
25,479 |
|
For the years ended December 31, 2014 and 2013, no single customer accounted more than 10% of the Company’s total revenues. For the year ended December 31, 2012, one of the Company’s OEM partners accounted for approximately 10.9% of its revenues.
All of the Company’s long-lived assets are located in Israel apart for assets in insignificant amounts which are located elsewhere.
NOTE 13:-
|
FINANCIAL EXPENSE, NET
|
|
|
Year ended
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
2012
|
|
Financial income:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
(19 |
) |
|
$ |
(1 |
) |
|
$ |
(2 |
) |
Revaluation of liabilities presented at fair value
|
|
|
(187 |
) |
|
|
- |
|
|
|
- |
|
Hedging
|
|
|
- |
|
|
|
(21 |
) |
|
|
(53 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(206 |
) |
|
|
(22 |
) |
|
|
(55 |
) |
Financial expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and bank charges
|
|
|
124 |
|
|
|
45 |
|
|
|
124 |
|
Hedging
|
|
|
201 |
|
|
|
- |
|
|
|
- |
|
Exchange rate differences, net
|
|
|
92 |
|
|
|
146 |
|
|
|
94 |
|
Revaluation of liabilities presented at fair value
|
|
|
- |
|
|
|
363 |
|
|
|
705 |
|
Convertible debt inducement expenses
|
|
|
- |
|
|
|
- |
|
|
|
108 |
|
Accretion of contingent payment obligations
|
|
|
682 |
|
|
|
95 |
|
|
|
265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,099 |
|
|
|
649 |
|
|
|
1,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
893 |
|
|
$ |
627 |
|
|
$ |
1,241 |
|
ATTUNITY LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except share amounts and per share data
NOTE 14:-
|
SUBSEQUENT EVENTS
|
On March 18, 2015, the Company completed, through the Company’s wholly owned subsidiary, Attunity Inc., the acquisition of 100% of the shares of Appfluent Technology, Inc. (“Appfluent”), a U.S.-based provider of data usage analytics for Big Data environments, including data warehousing and Hadoop.
Under the related acquisition agreement, the total consideration is composed of:
|
-
|
$10,950 paid in cash on the closing date (subject to working capital adjustments), of which $1,100 is being held in escrow for one year following the closing date;
|
|
-
|
$5,650 which was payable in ordinary shares of the Company, reflecting a $9.71 price per share (the “PPS”), such that the Company issued, on the closing date, approximately 582,000 ordinary shares of the Company;
|
|
-
|
$1,400 which is payable in ordinary shares of the Company based on the PPS, such that approximately 144,000 ordinary shares of the Company were held-back to secure indemnity claims and the Company will issue them in September 2016; and
|
|
-
|
milestone-based contingent payments in a total amount of up to $31,500 which, if earned, are payable in 2016 and 2017.
|
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
ATTUNITY LTD
By: /s/ Shimon Alon
Shimon Alon
Chairman and Chief Executive Officer
Dated: April 14, 2015
88