UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 20-F/A
(AMENDMENT NO. 1)
[_] REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR (G) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM .... TO ....
COMMISSION FILE NUMBER 0-21222
TECNOMATIX TECHNOLOGIES LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
N/A ISRAEL
(TRANSLATION OF REGISTRANT'S (JURISDICTION OF INCORPORATION OR
NAME INTO ENGLISH) ORGANIZATION)
DELTA HOUSE, 16 ABBA EBAN AVENUE, HERZLIYA 46120, ISRAEL
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT.
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
None None
SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT.
ORDINARY SHARES, PAR VALUE NIS 0.01 PER SHARE
(TITLE OF CLASS)
SECURITIES FOR WHICH THERE IS A REPORTING OBLIGATION PURSUANT TO
SECTION 15(D) OF THE ACT.
NONE
(TITLE OF CLASS)
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report - 11,938,827 Ordinary Shares
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark which financial statement item the registrant has elected
to follow.
Item 17 [_] Item 18 [X]
- 1 -
PRELIMINARY NOTE
We are filing this Amendment No. 1 to the annual report on Form 20-F of
Tecnomatix Technologies Ltd. (the "Company") for the fiscal year ended December
31, 2003, filed with the Securities and Exchange Commission on March 31, 2004
(the "Original Filing") in order to amend the Original Filing as follows:
1. By re-filing Item 18 of the Original Filing (audited consolidated
financial statements), we are (i) revising note No. 2 to our audited
consolidated financial statements to clarify the method we use to record revenue
earned under our strategic alliance agreements, in response to a comment that we
received from the Staff of the Securities and Exchange Commission, and (ii)
adding a report of the independent auditors of Tecnomatix Technologies, Inc.
("TTI") with respect to the audit by such independent auditors of the
consolidated balance sheets of TTI as of December 31, 2002 and 2001 and the
related consolidated statements of operations, shareholders' deficit and
comprehensive income (loss) and cash flows for the years then ended.
2. We are re-filing Exhibit 4(a)(5) to the Original Filing (the "Exhibit")
to correct certain errors in the manner that it was filed. (Instead of being
filed as one item, which includes (i) an explanatory note relating to a
confidential treatment request submitted by the Company with the Securities and
Exchange Commission with respect to certain portions of the Exhibit, and (ii)
all exhibits to the agreement constituting the Exhibit, the Exhibit and the
foregoing explanatory note and exhibits were inadvertently filed as separate
filing items, beginning with "Exhibit 4a-5" and ending with "exhibit-n").
Except as set forth above, this Amendment No. 1 is not intended to revise,
update, amend or restate the information presented in any other Item of the
Original Filing or to reflect any events that have occurred after the date of
the Original Filing.
- 2 -
Registered Public Accounting Firm
ITEM 18. FINANCIAL STATEMENTS
Financial Statements of the Company.
Reports of Independent Registered Public Accounting Firm of Tecnomatix
Technologies, Inc.
Report of Independent Registered Public Accounting Firm of USDATA Corporation.
Financial Statements of USDATA Corporation.
ITEM 19. EXHIBITS
1 (1) Articles of Association (incorporated by reference to Exhibit 1 to the
Annual Report on Form 20-F for the year ended December 31, 2000).
(2) An English translation of the Hebrew original which is the official
version of the Memorandum of Association (incorporated by reference to
Exhibit 3.1 to Amendment No. 2 to the registration statement on Form F-1
(File No. 33-56152) filed on February 25, 1993).
4(a) (1) An English translation of the Hebrew original, which is the official
version of the Letter of Intent dated April 27, 2003 among Bank Hapoalim,
Tecnomatix Technologies Ltd. and Tecnomatix Ltd. (incorporated by reference
to Exhibit 4(b)(1) to the Annual Report on Form 20-F for the year ended
December 31, 2002).
(2) An English translation of the Hebrew original which is the official
version of the Debenture between Tecnomatix Technologies Ltd. and Bank
Hapoalim B.M. (incorporated by reference to Exhibit 4(b)(2) to the Annual
Report on Form 20-F for the year ended December 31, 2002).
(3) Asset Purchase Agreement dated July 29, 2003 by and between USDATA
Corporation, Tecnomatix Technologies Ltd. and certain other parties
specified therein (incorporated by reference to Exhibit A to Schedule 13D
of Tecnomatix Technologies Ltd. describing certain holding in the
securities of USDATA Corporation, filed with the Securities and Exchange
Commission on August 7, 2003).
(4) Share Purchase Agreement dated July 29, 2003, by and between SCP
Private Equity Partners II, L.P. and Tecnomatix Technologies Ltd.
(incorporated by reference to Exhibit C to the Schedule 13D of Tecnomatix
Technologies Ltd. describing certain holding in the securities of USDATA
Corporation, filed with the Securities and Exchange Commission on August 7,
2003).
(5) Services Agreement between Tecnomatix Ltd. and Hewlett Packard (Israel)
Ltd. dated October 30, 2003, as amended by Amendment No. 1 thereto dated
December 29, 2003 and Amendment No. 2 thereto dated February 25, 2004.
(Portions of this exhibit have been omitted pursuant to a request for
confidential treatment).
4(b) (1) Share Purchase and Buy Back Agreement dated January 1, 2003 between
Tecnomatix Technologies Ltd. and Harel Beit-On, our Chairman of the Board
of Directors (incorporated by reference to Exhibit 4(b)(3) to the Annual
Report on Form 20-F for the year ended December 31, 2002).
(2) First Amendment dated January 26, 2003 to Letter of Agreement dated
January 16, 2001 between Tecnomatix Technologies Ltd. and Amir Livne,
Executive Vice President of Business Development and Strategy (incorporated
by reference to Exhibit 4(b)(4) to the Annual Report on Form 20-F for the
year ended December 31, 2002).
(3) Second Amendment dated December 1, 2003 to Letter of Agreement dated
January 16, 2001 between Tecnomatix Technologies Ltd. and Amir Livne,
Executive Vice President of Business Development and Strategy (incorporated
by reference to Exhibit 4(b)(3) to the Annual Report on Form 20-F for the
year ended December 31, 2003).
- 3 -
(4) An English translation of the Hebrew original, which is the official
version of the Lease Agreement dated June 1, 2003 between Tecnomatix
Technologies Ltd. and Intergama Assets (1961) Ltd. and exhibits thereto
(incorporated by reference to Exhibit 4(b)(5) to the Annual Report on Form
20-F for the year ended December 31, 2002).
4(c) (1) Tecnomatix Technologies Ltd. 1994 Stock Option Plan (incorporated by
reference to Exhibit 10.8 to the registration statement on Form F-1 (File
No. 333-3540)).
(2) Tecnomatix Technologies Ltd. 1996 Stock Option Plan (incorporated by
reference to Exhibit 4(c) to the Annual Report on Form 20-F for the year
ended December 31, 2000).
(3) 1996 Directors Stock Option Plan (incorporated by reference to Exhibit
4(c) to the Annual Report on Form 20-F for the year ended December 31,
2000).
(4) Robcad Technologies (1980) Ltd. Stock Option Plan (incorporated by
reference to Exhibit 4(c) to the Annual Report on Form 20-F for the year
ended December 31, 2000).
(5) Performance Based Stock Option Plan (incorporated by reference to
Exhibit 4(c) to the Annual Report on Form 20-F for the year ended December
31, 2000).
(6) Tecnomatix Technologies Ltd. 2000 Employee Share Purchase Plan
(incorporated by reference to Exhibit 4(c) to the Annual Report on Form
20-F for the year ended December 31, 2000).
(7) Tecnomatix Technologies Ltd. 2003 Global Share Option Plan and United
States and Israel Appendixes (incorporated by reference to Exhibit 4(c) to
the Annual Report on Form 20-F for the year ended December 31, 2003).
8. List of subsidiaries (incorporated by reference to Exhibit 8 to the Annual
Report on Form 20-F for the year ended December 31, 2003).
12.1 Certificate of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule
15d-14(a)
12.2 Certificate of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule
15d-14(a)
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
14.1 Consent of Independent Public Accountants of Tecnomatix Technologies Ltd.
14.2 Consent of Independent Registered Public Accounting Firm of Tecnomatix
Technologies, Inc.
14.3 Consent of Independent Registered Public Accounting Firm of USDATA
Corporation.
- 4 -
SIGNATURES
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 amendment No. 1 to annual report on its behalf.
TECNOMATIX TECHNOLOGIES LTD.
By: /s/ Jaron Lotan
- -------------------
Jaron Lotan
President and chief executive officer
Date: June 21, 2004
- 5 -
TECNOMATIX TECHNOLOGIES LTD.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2003
TECNOMATIX TECHNOLOGIES LTD.
CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
--------
PAGE
----
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 2
CONSOLIDATED FINANCIAL STATEMENTS:
BALANCE SHEETS
as of December 31, 2003 and 2002 3-4
STATEMENTS OF OPERATIONS
for the years ended December 31, 2003, 2002 and 2001 5
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
for the years ended December 31, 2003, 2002 and 2001 6
STATEMENTS OF CASH FLOWS
for the years ended December 31, 2003, 2002 and 2001 7-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9-37
-F 1-
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE SHAREHOLDERS OF
TECNOMATIX TECHNOLOGIES LTD.
We have audited the accompanying consolidated balance sheets of Tecnomatix
Technologies Ltd. ("the Company") and its subsidiaries at December 31, 2003 and
2002 and the related consolidated statements of operations, shareholders' equity
and cash flows for each of the three years in the period ended December 31,
2003. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We did not audit the financial statements of certain subsidiaries, whose assets
constitute approximately 27% and 20% of total consolidated assets at December
31, 2003 and 2002, respectively, and whose revenues constitute approximately
33%, 33%, and 32% of consolidated total revenues for the years ended December
31, 2003, 2002 and 2001, respectively. Those statements were audited by other
auditors, whose reports have been furnished to us and our opinion, insofar as it
relates to the amounts included for the abovementioned subsidiaries, is based
solely on the report of those other auditors.
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 and the reports of
the other auditors referred to above provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of the Company and its
subsidiaries at December 31, 2003 and 2002 and the consolidated results of their
operations and their consolidated cash flows for each of the three years in the
period ended December 31, 2003, in conformity with U.S. generally accepted
accounting principles.
/s/ BRIGHTMAN ALMAGOR & CO.
- ---------------------------
BRIGHTMAN ALMAGOR & CO.
CERTIFIED PUBLIC ACCOUNTANTS
A MEMBER FIRM OF DELOITTE TOUCHE TOHMATSU
Tel Aviv, Israel
February 9, 2004
-F 2-
TECNOMATIX TECHNOLOGIES LTD.
CONSOLIDATED BALANCE SHEETS
(U.S. DOLLARS IN THOUSANDS)
DECEMBER 31,
---------------------
2 0 0 3 2 0 0 2
--------- ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 9,232 $ 10,466
Short-term investments (Note 4) 70 5,981
Accounts receivable, net of allowance for
doubtful accounts of $ 4,072 and $ 2,091, respectively 29,190 27,671
Other receivables and prepaid expenses (Note 16) 5,747 5,284
--------- ---------
Total current assets 44,239 49,402
--------- ---------
NON-CURRENT RECEIVABLES (Note 16) 1,108 915
--------- ---------
LONG-TERM INVESTMENTS (Note 5) 24,556 25,569
--------- ---------
PROPERTY AND EQUIPMENT (Note 6)
Cost 31,710 29,203
Less - accumulated depreciation 26,082 23,095
--------- ---------
5,628 6,108
--------- ---------
GOODWILL, NET (Note 7a) 25,829 17,210
--------- ---------
OTHER ACQUIRED INTANGIBLES, NET (Note 7b) 2,444 --
--------- ---------
OTHER ASSETS, NET (Note 8) 13,296 16,613
--------- ---------
Total assets $ 117,100 $ 115,817
========= =========
The accompanying notes are an integral part of the consolidated
financial statements.
-F 3-
TECNOMATIX TECHNOLOGIES LTD.
CONSOLIDATED BALANCE SHEETS (CONTD.)
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
------------------------
2 0 0 3 2 0 0 2
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term bank loan (Note 10) $ 833 $ --
Accounts payable 4,644 2,950
Other payables and accrued expenses (Note 16) 19,163 14,956
Deferred revenue 7,130 4,659
---------- ----------
Total current liabilities 31,770 22,565
---------- ----------
LONG-TERM LIABILITIES
Accrued restructuring expense (Note 3) 1,716 --
5 1/4% convertible subordinated notes (Note 9) -- 37,428
Long-term bank loan, less current maturities (Note 10) 24,167 --
Accrued severance pay, net (Note 11) 1,095 907
---------- ----------
Total long-term liabilities 26,978 38,335
---------- ----------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 12)
SHAREHOLDERS' EQUITY (Note 13)
Share capital:
Ordinary shares of NIS 0.01 par value
(Authorized - 20,000,000 shares, issued - 12,898,827
and 11,575,706 at December 31, 2003 and 2002,
respectively, outstanding - 11,938,827 and
10,725,706 at December 31, 2003 and 2002,
respectively) 44 40
Additional paid-in capital 83,876 71,948
Loans granted to purchase shares -- (1,158)
Accumulated other comprehensive loss:
Foreign currency translation adjustment (2,533) (4,083)
Unrealized losses on marketable securities (131) (263)
Unrealized losses on derivatives (153) --
Retained earnings (accumulated deficit) (8,707) 1,633
---------- ----------
72,396 68,117
Treasury shares, at cost (960,000 and 850,000 shares
at December 31, 2003 and 2002, respectively) (14,044) (13,200)
---------- ----------
58,352 54,917
---------- ----------
Total liabilities and shareholders' equity $ 117,100 $ 115,817
========== ==========
The accompanying notes are an integral part of the consolidated
financial statements.
-F 4-
TECNOMATIX TECHNOLOGIES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
YEAR ENDED DECEMBER 31,
-----------------------------------------------
2 0 0 3 2 0 0 2 2 0 0 1
------------- ------------- -------------
REVENUES (Notes 2 and 17a):
Software license fees $ 36,033 $ 36,385 $ 42,316
Services 50,224 45,620 44,584
------------- ------------- -------------
Total revenues 86,257 82,005 86,900
COSTS AND EXPENSES:
Cost of software license fees (Note 17b):
Cost and expenses 10,114 8,062 7,851
Impairment of capitalized software development costs 2,180 -- 316
------------- ------------- -------------
Total cost of software license fees 12,294 8,062 8,167
Cost of services 15,281 15,005 15,268
Amortization of acquired intangibles 136 2,491 7,758
Research and development, net (Note 17c) 14,960 14,812 19,216
Selling and marketing (Note 17f) 42,491 36,887 44,624
General and administrative 4,673 5,013 4,855
Write-off of long-term investment (Note 5) -- 457 --
Restructuring charges (Note 17d) 2,659 651 1,527
Impairment of software acquired (Note 17e) 937 375 --
In-process research and development
and acquisition related costs (Note 3 and 17d) 3,530 -- --
------------- ------------- -------------
TOTAL COSTS AND EXPENSES 96,961 83,753 101,415
------------- ------------- -------------
OPERATING LOSS (10,704) (1,748) (14,515)
Financial income (expense), net (Note 17g) 679 (799) 1,191
------------- ------------- -------------
LOSS BEFORE TAXES ON INCOME (10,025) (2,547) (13,324)
Taxes on income (Note 14) (212) 148 (54)
------------- ------------- -------------
LOSS AFTER TAXES ON INCOME (10,237) (2,399) (13,378)
Company's share in loss of affiliated company (103) (431) (532)
------------- ------------- -------------
NET LOSS $ (10,340) $ (2,830) $ (13,910)
============= ============= =============
Basic and diluted loss per ordinary share $ (0.94) $ (0.27) $ (1.35)
============= ============= =============
Shares used in computing basic and diluted loss
per ordinary share 11,054,556 10,607,140 10,366,125
============= ============= =============
The accompanying notes are an integral part of the consolidated
financial statements.
-F 5-
TECNOMATIX TECHNOLOGIES LTD.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
NUMBER OF
ORDINARY NUMBER LOANS
SHARES OF ADDITIONAL GRANTED TO
NIS 0.01 TREASURY SHARE PAID-IN PURCHASE
PAR VALUE SHARES CAPITAL CAPITAL SHARES
------------ -------- ------- ---------- ----------
Balance at January 1, 2001 11,136,023 (850,000) $ 38 $ 69,011 $ (1,136)
Exercise of employees' options 20,056 (*) 169
Share purchases under ESPP 200,179 1 1,131
Loans granted to purchase shares (77)
Comprehensive loss -
Net loss for the year
Other comprehensive loss -
Unrealized loss on marketable securities
Foreign currency translation adjustment
Comprehensive loss
------------ -------- ------- ---------- ----------
Balance at December 31, 2001 11,356,258 (850,000) 39 70,311 (1,213)
Exercise of employees' options 69,269 (*) 474
Share purchases under ESPP 150,179 1 1,163
Loans granted to purchase shares 55
Comprehensive loss -
Net loss for the year
Other comprehensive income -
Unrealized income on marketable
securities
Foreign currency translation adjustment
Comprehensive loss
------------ -------- ------- ---------- ----------
Balance at December 31, 2002 11,575,706 (850,000) 40 71,948 (1,158)
Issuance of ordinary shares 1,085,571 3 10,387
Exercise of employees' options 112,590 (*) 656
Share purchases under ESPP 124,960 1 885
Loans granted to purchase shares (110,000) 1,158
Comprehensive loss -
Net loss for the year
Other comprehensive income -
Unrealized loss on marketable
securities
Foreign currency translation adjustment
Changes in net unrealized holding loss
on
derivative instruments
Comprehensive loss
------------ -------- ------- ---------- ----------
Balance at December 31, 2003 12,898,827 (960,000) $ 44 $ 83,876 $ --
============ ======== ======= ========== ==========
ACCUMULATED TOTAL
OTHER RETAINED TREASURY SHARE-
COMPREHENSIVE EARNINGS SHARES COMPREHENSIVE HOLDERS'
INCOME (LOSS) (DEFICIT) AT COST LOSS EQUITY
------------- --------- --------- ------------- ---------
Balance at January 1, 2001 $ (3,390) $ 18,373 $(13,200) $ 69,696
Exercise of employees' options 169
Share purchases under ESPP 1,132
Loans granted to purchase shares (77)
Comprehensive loss -
Net loss for the year (13,910) (13,910) (13,910)
Other comprehensive loss -
Unrealized loss on marketable securities (161) (161) (161)
Foreign currency translation adjustment (956) (956) (956)
-------------
Comprehensive loss $ (15,027)
------------- --------- --------- ============= ---------
Balance at December 31, 2001 (4,507) 4,463 (13,200) 55,893
Exercise of employees' options 474
Share purchases under ESPP 1,164
Loans granted to purchase shares 55
Comprehensive loss -
Net loss for the year (2,830) (2,830) (2,830)
Other comprehensive income -
Unrealized income on marketable 7 7 7
securities
Foreign currency translation adjustment 154 154 154
-------------
Comprehensive loss $ (2,669)
------------- --------- --------- ============= ---------
Balance at December 31, 2002 (4,346) 1,633 (13,200) 54,917
Issuance of ordinary shares 10,390
Exercise of employees' options 656
Share purchases under ESPP 886
Loans granted to purchase shares (844) 314
Comprehensive loss -
Net loss for the year (10,340) (10,340) (10,340)
Other comprehensive income -
Unrealized loss on marketable 132 132 132
securities
Foreign currency translation adjustment 1,550 1,550 1,550
Changes in net unrealized holding loss (153)
on derivative instruments (153) (153)
-------------
Comprehensive loss $ (8,811)
------------- --------- --------- ============= ---------
Balance at December 31, 2003 $ (2,817) $ (8,707) $(14,044) $ 58,352
============= ========= ========= =========
(*) Less than 1 thousand.
The accompanying notes are an integral part of the financial statements.
-F 6-
TECNOMATIX TECHNOLOGIES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31,
-----------------------------------
2 0 0 3 2 0 0 2 2 0 0 1
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (10,340) $ (2,830) $ (13,910)
Adjustments to reconcile net loss
to net cash provided by operating activities (Appendix A) 21,486 9,685 18,672
--------- --------- ---------
Net cash provided by operating activities 11,146 6,855 4,762
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Long-term investments (295) (206) (874)
Purchase of marketable securities (10,222) (18,484) (26,922)
Proceeds from realization of marketable securities 11,746 11,914 29,519
Realization of (investment in) non-current receivables (29) (23) 18
Purchase of property and equipment and other assets (2,169) (3,088) (2,592)
Capitalization of software development costs (3,937) (4,097) (5,103)
Proceeds from sale of property and equipment 45 5 119
Acquisition of subsidiaries, net of
cash acquired (Appendix B) 2,000 (111) --
--------- --------- ---------
Net cash used in investing activities (2,861) (14,090) (5,835)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of convertible notes (22,351) (5,709) (3,986)
Redemption of convertible notes (14,910) -- --
Long-term Bank loan 25,000 -- --
Repayment of loans granted to purchase shares 314 100 --
Exercise of employees' options 656 474 169
Purchase of shares under Employee Share Purchase Plan (ESPP) 886 1,164 1,132
Short-term credit, net -- (720) 2
--------- --------- ---------
Net cash used in financing activities (10,405) (4,691) (2,683)
--------- --------- ---------
Effect of exchange rate changes on cash 886 722 (403)
--------- --------- ---------
Net change in cash and cash equivalents (1,234) (11,204) (4,159)
Cash and cash equivalents at beginning of year 10,466 21,670 25,829
--------- --------- ---------
Cash and cash equivalents at end of year $ 9,232 $ 10,466 $ 21,670
========= ========= =========
The accompanying notes are an integral part of the consolidated
financial statements.
-F 7-
TECNOMATIX TECHNOLOGIES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTD.)
(U.S. DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31,
-----------------------------------
2 0 0 3 2 0 0 2 2 0 0 1
--------- --------- ---------
APPENDIX A
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
In-process research and development $ 3,193 $ -- $ --
Company's share in loss of affiliated company 103 431 532
Minority interest in net loss of subsidiary -- (3) --
Depreciation and amortization 7,533 10,180 16,435
Impairment of software assets 3,117 -- 316
Write-off of investment in Visopt B.V -- 457 --
Gain from repurchase of the Company's
convertible notes (156) (599) (1,393)
Other (43) (298) 492
CHANGES IN ASSETS AND LIABILITIES, NET OF EFFECT OF
PURCHASE OF SUBSIDIARY:
Decrease (increase) in assets:
Accounts receivable 1,002 (3,951) 6,512
Changes in trading marketable securities, net 5,984 4,828 --
Deferred income taxes -- 246 246
Other receivables and prepaid expenses 145 985 1,734
Increase (decrease) in liabilities:
Accounts payable 781 (198) (862)
Other payables and accrued expenses (105) (2,595) (4,914)
Accrued severance pay, net (68) 202 (426)
--------- --------- ---------
$ 21,486 $ 9,685 $ 18,672
========= ========= =========
APPENDIX B
ACQUISITION OF SUBSIDIARIES, NET OF CASH ACQUIRED (Note 3)
Working capital - excluding cash $ 3,894 $ 1,146 $ --
Property and equipment (168) (137) --
Other assets (54) -- --
In-process research and development (3,193) -- --
Goodwill and other intangible assets (10,902) (1,120) --
Long term liabilities 2,033 -- --
Share capital 10,390 -- --
--------- --------- ---------
$ 2,000 $ (111) $ --
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,208 $ 5,166 $ 5,191
========= ========= =========
Taxes $ 272 $ 260 $ 252
========= ========= =========
The accompanying notes are an integral part of the consolidated
financial statements.
-F 8-
TECNOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1 - GENERAL
Tecnomatix Technologies Ltd. (the "Company") is an Israeli
corporation engaged in the development, selling, marketing and
support of Manufacturing Process Management ("MPM") software tools
for the collaborative development and optimization of manufacturing
processes across the extended enterprise. The Company's products are
used by world-leading automotive, electrionics and aerospace
companies and their suppliers and other discrete manufacturing
companies. The Company's software solutions enable the optimization
of the manufacturing process chain, increased throughput, and reduced
time-to-market, time-to-volume and product costs. The Company
operates in two business segments, Mechanical and Electronics. The
Company sells and supports its products mainly in Europe, the United
States and Asia.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of
America.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
FINANCIAL STATEMENTS IN U.S. DOLLARS
The reporting currency of the Company is the U.S. dollar ("dollar").
The dollar is the functional currency of the Company and its
subsidiaries in Israel and in the United States. Transactions and
balances originally denominated in dollars are presented at their
original amounts. Non-dollar transactions and balances are remeasured
into dollars in accordance with the principles set forth in Statement
of Financial Accounting Standards ("SFAS") No. 52 "Foreign Currency
Translation" ("SFAS No. 52"). All exchange gains and losses from
remeasurement of monetary balance sheet items resulting from
transactions in non-dollar currencies are recorded in the statement
of operations as they arise.
The financial statements of certain of the Company's subsidiaries
whose functional currency is other than the dollar are translated
into dollars in accordance with the principles set forth in SFAS No.
52. Assets and liabilities have been translated at year-end exchange
rates; results of operations have been translated at average exchange
rates. The translation adjustments have been reported as a separate
component of shareholders' equity.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial
statements of the Company and its subsidiaries. All significant
inter-company transactions and balances have been eliminated.
CASH EQUIVALENTS
Cash equivalents consist of short-term, highly liquid investments
that are readily convertible into cash with original maturities of
three months or less.
MARKETABLE SECURITIES
The Company accounts for its investments in marketable securities
using SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS No. 115").
Management determines the appropriate classification of its
investments in marketable debt and equity securities at the time of
purchase and reevaluates such determinations at each balance sheet
date. Held-to-maturity
-F 9-
TECNOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (contd.)
MARKETABLE SECURITIES (contd.)
securities include debt securities for which the Company has the
intent and ability to hold to maturity. Investments in marketable
debt securities that are classified as held to maturity are stated at
amortized cost.
Investments in marketable debt securities that are classified as
"trading securities" are stated at market value. Net realized and
unrealized gains losses on these securities are included in other
income (expense).
Debt securities for which the Company does not have the intent or
ability to hold to maturity are classified as available-for-sale.
Available-for-sale debt and equity securities are stated at fair
value, with the unrealized gains and losses reported as a separate
component of shareholders' equity under accumulated other
comprehensive loss.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is calculated
based on the straight-line method over the estimated useful lives of
the assets, as follows:
Computers and software 3-5 years
Office furniture and equipment 3-16 years
Motor vehicles 4-7 years
Leasehold improvements are amortized based on the straight-line
method over the shorter of the term of the lease, or the estimated
useful life of the improvements.
IMPAIRMENT OF LONG- LIVED ASSETS
The Company regularly reviews whether facts and circumstances exist
which indicate that the carrying amount of assets may not be
recoverable. The Company assesses the recoverability of the carrying
amount of its long lived assets based on expected undiscounted cash
flows. If an asset's carrying amount is determined to be not
recoverable, the Company recognizes an impairment loss based upon the
difference between the carrying amount and the fair value of such
assets, in accordance with SFAS No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144").
SOFTWARE DEVELOPMENT COSTS
The Company capitalizes software development costs in accordance with
SFAS No. 86 "Accounting for the Costs of Computer Software to Be
Sold, Leased, or Otherwise Marketed" ("SFAS No. 86"). Capitalization
of software development costs begins upon the establishment of
technological feasibility, and continues up to the time the software
is available for general release to customers. The establishment of
technological feasibility and the ongoing assessment of the
recoverability of these costs requires considerable judgment by
management with respect to certain external factors including, but
not limited to, anticipated future gross product revenue, estimated
economic life and changes in software and hardware technology.
Amortization of capitalized software development costs is provided on
a product-by-product basis and begins when the product is available
for general release to customers. Annual amortization is the greater
of the amount computed using the ratio of current gross revenue for a
product to the total of current and anticipated product revenue or
the straight-line basis over the remaining economic useful life of
the software, which is not more than five years. The actual lives of
the Company's capitalized software maybe less than management's
initial estimates. Amortization of capitalized software development
costs is reflected in cost of software license fees.
-F 10-
TECNOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (contd.)
SOFTWARE DEVELOPMENT COSTS (contd.)
In 2002, based upon management's periodic review of the useful lives
of its various assets, the Company's estimate of the useful life of
various modules of its capitalized software changed from 3 years to 5
years, effective April 1, 2002. The change related, mainly, to the
software capitalized as part of the Company's shift in focus to MPM
related solutions. Management believed that this change will more
appropriately match the amortization expense of the software with the
periods in which the software will be utilized. This change in
estimate resulted in a decrease in net loss for 2002 of approximately
$1.6 million and a decrease of $0.15 per share basic and diluted for
2002.
ACQUISITION- RELATED INTANGIBLE ASSETS
In July 2001, the FASB issued SFAS No. 141, "Business Combinations"
("SFAS No. 141"), and SFAS No. 142, "Goodwill and Other Intangible
Assets" ("SFAS No. 142"). SFAS No. 141 requires all business
combinations initiated after June 30, 2001 to be accounted for using
the purchase method. Under SFAS No. 142, goodwill and intangible
assets with indefinite lives are no longer amortized but are reviewed
annually (or more frequently if impairment indicators arise) for
impairment. Identifiable intangible assets that are not deemed to
have indefinite lives will continue to be amortized over their useful
lives (but with no maximum life). The Company adopted SFAS No.142
effective January 1, 2002. As a result of SFAS No. 141 an assembled
workforce no longer qualifies as a separately identifiable intangible
and has been reclassified as goodwill.
A reconciliation of previously reported net loss and loss per share
to the amounts adjusted for the exclusion of goodwill amortization is
as follows:
YEAR ENDED
DECEMBER 31,
------------
2 0 0 1
------------
Net loss $ (13,910)
Goodwill amortization 3,942
------------
Adjusted net loss $ (9,968)
============
Reported basic and diluted loss per share $ (1.35)
Goodwill amortization 0.38
------------
Adjusted basic and diluted loss per share $ (0.97)
============
Acquisition-related intangible assets result from the Company's
acquisitions of businesses accounted for under the purchase method
and consist of the values of identifiable intangible assets including
developed software products, distribution rights and trade names, as
well as goodwill. Goodwill is the amount by which the acquisition
cost exceeds the fair values of identifiable acquired net assets on
the date of purchase. Acquisition-related intangible assets are
reported at cost, net of accumulated amortization. Identifiable
intangible assets are amortized on a straight-line basis over their
estimated useful lives of three to five years for developed software
products and distribution rights, and seven years for trade-names.
STOCK-BASED COMPENSATION
The Company accounts for employee stock-based compensation in
accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25), and in
accordance with FASB Interpretation No. 44 . Pursuant to these
accounting pronouncements, the Company records compensation for stock
options granted to employees over the vesting period of the options
based on the difference, if any, between the exercise price of the
options and the market price of the underlying shares at that date.
-F 11-
TECNOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (contd.)
STOCK-BASED COMPENSATION (contd.)
Deferred compensation is amortized to compensation expense over the
vesting period of the options.
Had compensation cost for the Company's option plans been determined
on the basis of the fair value at the grant dates in accordance with
the provisions of SFAS No. 123 "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), as amended by SFAS No. 148
"Accounting for Stock-Based Compensation" ("SFAS No. 148"), the
Company's pro forma net loss and pro forma basic and diluted net loss
per share would have been as follows:
YEAR ENDED DECEMBER 31,
-------------------------------------
2 0 0 3 2 0 0 2 2 0 0 1
--------- --------- -----------
Pro forma net loss:
Net loss for the year, as reported $ (10,340) $ (2,830) $ (13,910)
Deduct - stock-based compensation determined
under APB 25 -- -- --
Add - stock-based compensation determined
under SFAS 123 (4,867) (5,452) (5,975)
--------- --------- -----------
$ (15,207) $ (8,282) $ (19,885)
========= ========= ===========
PRO FORMA BASIC AND DILUTED LOSS PER SHARE:
As reported $ (0.94) $ (0.27) $ (1.35)
Pro forma $ (1.38) $ (0.78) $ (1.92)
========= ========= ===========
DATA IN RESPECT OF THE STOCK OPTION PLANS
For purposes of estimating fair value in accordance with SFAS 123,
the Company utilized the Black - Scholes option-pricing model. The
following assumptions were utilized in such calculations for the
years 2003, 2002 and 2001 (all in weighted averages):
2003 2002 2001
------ ------ -------
Risk-free interest rate 3.0% 3.6% 4.7%
Expected life of options 5 year 5 year 5 years
Expected volatility 61% 70% 72%
Expected dividend yield none none none
Because additional option grants are expected to be made each year,
and due to the factors described in the preceding paragraph, the
above pro forma disclosures are not necessarily representative of pro
forma effects of reported net income for future years.
REVENUE RECOGNITION
The Company recognizes revenues in accordance with the American
Institute of Certified Public Accountants ("AICPA") Statement of
Position 97-2, Software Revenue Recognition, as amended.
Revenues from software license fees are recognized when persuasive
evidence of an arrangement exists, the software product covered by
written agreement or a purchase order signed by the customer has been
delivered, the license fees are fixed and determinable and collection
of the license fees is considered probable. When software
arrangements involve multiple elements the Company allocates revenue
to each element based on the relative fair values of the elements.
The Company's determination of fair value of each element in multiple
element
-F 12-
TECNOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (contd.)
REVENUE RECOGNITION (contd.)
arrangements is based on vendor-specific objective evidence ("VSOE").
The Company limits its assessment of VSOE for each element to the
price charged when the same element is sold separately.
The Company's products generally do not require significant
customization. Revenues from software product license agreements,
which require significant customization and modification of the
software product are recognized using the percentage-of-completion
method, based on the relationship of actual labor costs incurred, to
total labor costs estimated to be incurred over the duration of the
contract. Provisions for estimated losses on uncompleted contracts
are made in the period in which such losses are first determined, in
the amount of the estimated loss on the entire contract.
Service revenues include consulting services, post-contract customer
support and training. Consulting revenues are generally recognized on
a time and material basis. However, revenues from certain fixed-price
contracts are recognized on the percentage of completion basis.
Software maintenance agreements provide technical support and the
right to unspecified upgrades on an if-and-when-available basis.
Post-contract customer support revenues are recognized ratably over
the term of the support period (generally one year) and training and
other service revenues are recognized as the related services are
provided.
Revenues from strategic alliance agreements (see Note 12) are
recognized in accordance with EITF99-19.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs (net of third-party grants) that are
not capitalized to software and development costs are expensed as
incurred. The Company has no obligation to repay the grants if
sufficient sales are not generated.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts has been made on the basis of
specific accounts receivable.
DEFERRED INCOME TAXES
Deferred income taxes are provided for temporary differences between
the assets and liabilities, as measured in the financial statements
and for tax purposes, at the tax rates expected to be in effect when
these differences reverse, in accordance with SFAS No. 109
"Accounting for Income Taxes" ("SFAS No. 109").
PROVISION FOR WARRANTY
The Company warrants its products in certain countries in Europe. The
warranty period is generally between six to twelve months. As of
December 31, 2003 and 2002, the provision for warranty cost was
immaterial.
LOSS PER ORDINARY SHARE
Basic and diluted loss per share are computed in accordance with SFAS
No. 128 "Earnings per Share" ("SFAS No. 128"), using the weighted
average number of ordinary shares outstanding. Loss per share exclude
any dilutive effect of options, warrants and convertible securities.
A total of 412,321, 558,179 and 428,683 incremental shares were
excluded from the calculation of diluted net loss per ordinary share
for 2003, 2002 and 2001 respectively due to the anti-dilutive effect.
-F 13-
TECNOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (contd.)
DERIVATIVE FINANCIAL INSTRUMENTS
The company's primary objective for holding derivative financial
instruments is to manage currency and interest rate exposures. The
company adopted SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities" and SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities" (collectively
referred to as SFAS 133).
SFAS 133 requires that all derivatives be recorded in the balance
sheet at fair value. If certain conditions are met, a derivative may
be specifically designated as a hedge of exposures to changes in fair
value, cash flows or foreign currency exchange rates. The accounting
for changes in the fair value of a derivative depends on the intended
use of the derivative and the nature of any hedge designation
thereon.
Currency Risk - As the company transacts business in various
currencies other than the U.S. dollar, foreign exchange rate risk
arises from the possibility that changes in foreign currency exchange
rates will impact the fair value or the cash flows of financial
instruments denominated in a foreign currency. The Company uses
derivatives in the normal course of business, primarily to reduce its
exposure to foreign currency risk stemming from various assets,
liabilities and cash flows. Principally, the Company uses currency
forwards, options and cylinders as hedging instruments to hedge the
impact of the variability in exchange rates on accounts receivable
and future cash flows denominated in certain foreign currencies.
Although such contracts may qualify as cash flow hedges or fair value
hedges the Company did not designate them as hedges against specific
assets or liabilities.
Derivatives credit risk - Counter parties to currency exchange
forward contracts are major financial institutions with credit
ratings of investment grade or better and no collateral is required.
There are no significant risk concentrations. Management believes the
risk of incurring losses on derivative contracts related to credit
risk, if any, is remote and any losses would be immaterial.
As of December 31, 2003, the Company had entered into a (i) forward
transaction to sell $3,168,000 for a total amount of NIS 14,000,000
that will mature on several dates ending on April 15, 2004, and (ii)
"cylinder" foreign currency transactions pursuant to which the
company have entered into currency put option contracts to sell up to
$2,749,000 for a total amount of NIS 12,000,000 in exchange for
writing currency call option contracts to buy up to $2,655,000 for a
total amount of NIS 12,000,000.
Interest Rate risk -During 2003, the company entered into an interest
rate swap to effectively convert the interest rate from floating to
fixed on $18.5 million of the $25 million credit facility. Under the
interest rate swap agreement, the Company receives LIBOR plus a
margin every three months and pays 5.335% on $8.5 million and 4.635%
on $10 million every three months until July 31, 2007. The Company's
interest rate swap agreement qualifies and is designated as a cash
flows hedge thus, changes in the fair value of the swap are recorded
in other comprehensive income and reclassified from other
comprehensive income into earnings to offset the hedged item effects
on earnings. In addition, the interest rate swap agreement qualifies
for the "shortcut" method of accounting for hedges, as defined by
SFAS 133. Under the "shortcut" method, the hedges are assumed to be
perfectly effective, and thus, there is no ineffectiveness to be
recorded in earnings. At December 31, 2003, the fair value of the
company's interest rate swap agreement was a liability of $153 and is
reflected in other liabilities in the accompanying consolidated
balance sheet.
-F 14-
TECNOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (contd.)
RECENTLY ISSUED ACCOUNTING STANDARDS
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities, an interpretation of
ARB 51". The primary objectives of this interpretation are to provide
guidance on the identification of entities for which control is
achieved through means other than through voting rights ("variable
interest entities") and how to determine when and which business
enterprise (the "primary beneficiary") should consolidate the
variable interest entity. This new model for consolidation applies to
an entity in which either (i) the equity investors (if any) do not
have a controlling financial interest; or (ii) the equity investment
at risk is insufficient to finance that entity's activities without
receiving additional subordinated financial support from other
parties. In addition, FIN 46 requires that the primary beneficiary,
as well as all other enterprises with a significant variable interest
in a variable interest entity, make additional disclosures. Certain
disclosure requirements of FIN 46 were effective for financial
statements issued after January 31, 2003. In December 2003, the FASB
issued FIN 46 (revised December 2003), "Consolidation of Variable
Interest Entities" ("FIN 46-R") to address certain FIN 46
implementation issues. The effective dates and impact of FIN 46 and
FIN 46-R are as follows: (i) Special-purpose entities ("SPEs")
created prior to February 1, 2003. The company must apply either the
provisions of FIN 46 or early adopt the provisions of FIN 46-R at the
end of the first interim or annual reporting period ending after
December 15, 2003. (ii) Non-SPEs created prior to February 1, 2003.
The company is required to adopt FIN 46-R at the end of the first
interim or annual reporting period ending after March 15, 2004. (iii)
All entities, regardless of whether an SPE, that were created
subsequent to January 31, 2003. The provisions of FIN 46 were
applicable for variable interests in entities obtained after January
31, 2003. The adoption of the provisions applicable to SPEs and all
other variable interests obtained after January 31, 2003 did not have
a material impact on the company's consolidated financial position,
consolidated results of operations, or liquidity.
In April 2003, the FASB issued SFAS No. 149, "Amendment of SFAS No.
133 on Derivative Instruments and Hedging Activities." SFAS No. 149
amends and clarifies accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, and for
hedging activities under SFAS No. 133. In particular, this Statement
clarifies under what circumstances a contract with an initial net
investment meets the characteristic of a derivative. It also
clarifies when a derivative contains a financing component that
warrants special reporting in the statement of cash flows. SFAS No.
149 is generally effective for contracts entered into or modified
after June 30, 2003 and did not have a material impact on the
Company's financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity." SFAS No. 150 establishes standards for how a company
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an
issuer classify certain financial instruments as a liability (or as
an asset in some circumstances). SFAS No. 150 is effective for
financial instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. The adoption of SFAS No. 150
did not have an impact on the Company's financial statements.
RECLASSIFICATION
Certain figures from prior years have been reclassified in order to
conform to the 2003 presentation.
-F 15-
TECNOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 3 - SIGNIFICANT ACQUISITIONS
A. ACQUISITION OF USDATA CORPORATION NET ASSETS
In September 2003, the Company acquired substantially all the
assets and certain liabilities of USDATA Corporation ("USDATA"),
a North American developer of production management products
based in Richardson, Texas, in consideration for 945,807 ordinary
shares issued to USDATA of which 222,319 shares are held in
escrow for up to 18 months following the acquisition. As part of
the asset purchase transaction, SCP Private Equity Partners II,
L.P. ("SCP"), the primary shareholder of USDATA, purchased from
the Company 139,764 ordinary shares for an aggregate purchase
price of $2,000.
The two share issuances to USDATA and to SCP, are accounted for
as one transaction as if SCP invested in USDATA and immediately
thereafter the Company issued to USDATA the aggregate amount of
1,085,571 ordinary shares in consideration of the acquired assets
which included the cash invested by SCP.
The fair value of the ordinary shares issued -$9.57 per share,
was determined in accordance with EITF 99-12 based on the average
market price of the shares during the period of two days before
and ending two days after the date the terms of the acquisition
were agreed to and announced -July 30,2003. Accordingly, the
total value of 1,085,571 ordinary shares is $10,390.
The acquisition will allow the Company to realize its vision to
provide a Manufacturing Process Management (MPM) solution that
spans the entire manufacturing process life cycle, from planning
through its execution till its retirement.
The transaction was accounted for in accordance with SFAS No. 141
and SFAS No. 142, and the financial results of USDATA have been
included in the Company's financial statements beginning on the
acquisition date. The total purchase price of $11,112 (including
acquisition costs of $722) has been allocated on the basis of the
estimated fair value of the assets acquired and the liabilities
assumed.
Values assigned to acquired in-process research and development,
and developed software product were determined by the Company
using a discounted cash flow analysis (the Excess Earnings
Method). To determine the value of the in-process research and
development, the Company considered, among other factors, the
state of development of the project, the time and cost needed to
complete the project, expected income, and associated risks,
which included the inherent difficulties and uncertainties in
completing the project and thereby achieving technological
feasibility and risks related to the viability of and potential
changes to future target markets. This analysis resulted in
amounts assigned to in-process research and development project
that had not reached technological feasibility and did not have
alternative future uses. To determine the value of the developed
software product, the expected future cash flows of the existing
technology product were discounted taking into account risks
related to the characteristics and applications of the product,
existing and future markets, and assessments of the life cycle
stage of the product. Based on this analysis, the existing
technology that had reached technological feasibility was
capitalized.
As a result of the acquisition of USDATA, the Company incurred
incremental costs to exit and consolidate activities at USDATA
locations, and involuntarily terminate USDATA employees. These
expenses that are not associated with the generation of future
revenue and have no future economic benefit are assumed
liabilities in the allocation of the purchase price to the net
assets acquired. These restructuring costs, primarily relating to
abandonment of leased facilities and severance, were recorded in
the purchase price allocation and amounted to $2,950.
The excess of the purchase price over the fair value of the net
tangible assets acquired has been attributed to current
technology, software distribution rights, in-process research and
development, and goodwill in the amounts of $1,873, $706, $3,193
and $8,323, respectively. The purchase price attributed to
current technology and software distribution agreement is being
amortized over their estimated useful lives, which are 5.5 and
3.5 years, respectively.
-F 16-
TECNOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 3 - SIGNIFICANT ACQUISITIONS (contd.)
A. ACQUISITION OF USDATA CORPORATION NET ASSETS (contd.)
The $8,323 of goodwill, was assigned to the Mechanical Segment of
the Company. In accordance with SFAS No. 141 and SFAS No. 142,
the purchase price attributed to goodwill is no longer amortized,
but rather is subject to periodic impairment test.
The allocation of fair value is as follows:
Cash received from SCP $ 2,000
Intangible assets 2,579
In-process research and development 3,193
Goodwill 8,323
Liabilities acquired (2,033)
Liabilities to exit activities (2,950)
--------
Total purchase price $ 11,112
========
The following unaudited pro forma summary presents information as
if the acquisition of USDATA occurred at the beginning of the
periods presented. In-process research and development charges
and acquisition costs are considered nonrecurring charges related
directly to the acquisition and have therefore been excluded from
pro forma net income and pro forma earnings per share. The pro
forma information, which is provided for information purposes
only, is based on historical information and does not necessarily
reflect the results that would have occurred, nor is it
necessarily indicative of future results of operations of the
consolidated entities.
YEAR ENDED DECEMBER 31,
-----------------------
2003 2002
--------- ---------
Revenues $ 93,728 $ 92,349
Net loss $ (9,778) $ (3,890)
Loss per share:
Basic and diluted $ (0.88) $ (0.37)
B. ACQUISITION OF CIMBRIDGE SOFTWARE BUSINESS
In October 2002 Tecnomatix Unicam, Inc. ("TUI"), an indirect
wholly owned subsidiary of the Company, acquired certain assets
and assumed certain liabilities relating to the CIMBridge
software business ("CIMBridge") from Teradyne, Inc. ("Teradyne").
The transaction was accounted for in accordance with SFAS No.141
and SFAS No. 142, and the financial results of CIMBridge have
been included in the Company's financial statements beginning on
the acquisition date. The purchase price is to be paid on a
contingent and deferred basis based upon a revenue sharing
arrangement. Under the revenue sharing arrangement, the total
cash paid by TUI to Teradyne shall be the sum of Teradyne's
software license and maintenance revenue share plus a certain
finders fee during a four-year period commencing on the
acquisition date, in excess of $514, whereby Teradyne's software
license revenue share shall be equal to 40% of revenue recognized
by TUI from software licensing, and Teradyne's maintenance
revenue share shall be equal to 40% of revenue recognized by TUI
from maintenance agreements in excess of an annual threshold
amounting to $1,800, $1,700, $1,500, and $1,400 for the years
ended September 30, 2003, 2004, 2005, and 2006, respectively. As
of December 31, 2003, no milestones have been achieved and the
Company has not paid any amount on account of the purchase.
The purchase price has been allocated on the basis of the
estimated fair value of the assets purchased and the liabilities
assumed. The excess of the purchase price over the fair value of
the net tangible assets acquired has been attributed to goodwill.
-F 17-
TECNOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 3 - SIGNIFICANT ACQUISITIONS (contd.)
B. ACQUISITION OF CIMBRIDGE SOFTWARE BUSINESS (contd.)
The following table summarizes the estimated fair value of the
assets acquired and liabilities assumed at the date of
acquisition:
Equipment $ 137
Deposits 18
Goodwill 1,120
-------
Total assets $ 1,275
=======
Liabilities assumed $ 721
Deferred revenue 443
Acquisition costs 111
-------
Total liabilities assumed $ 1,275
=======
NOTE 4 - SHORT-TERM INVESTMENTS
Comprised as follows:
DECEMBER 31,
------------------
2 0 0 3 2 0 0 2
------- -------
Trading marketable securities - Corporate bonds $ 70 $ 5,981
======= =======
NOTE 5 - LONG-TERM INVESTMENTS
Comprised as follows:
DECEMBER 31,
-------------------
2 0 0 3 2 0 0 2
-------- --------
Held-to-maturity marketable securities (1):
Government of Israel bonds $ 6,923 $ 2,766
Corporate bonds 17,344 22,706
-------- --------
24,267 25,472
-------- --------
Investment in affiliated company:
Zuken Tecnomatix (2) 289 97
-------- --------
$ 24,556 $ 25,569
======== ========
(1) Includes structured notes in the amount of $10,000 and $3,106 as
of December 31, 2003 and 2002, respectively. Such structured
notes are debt instruments whose cash flows are linked to the
movement in interest rates. The structured notes are issued by
U.S. government-sponsored enterprises and financial
institutions. The notes typically contain embedded option
components such as caps, calls, and floors. Contractual cash
flows for principal from such structured notes can vary in
timing throughout the life of the structured notes Interest
income resulting from investment in structured notes is
accounted for based on the guidance provided in EITF No. 96-12,
"Recognition of Interest Income and Balance Sheet Classification
of Structured Notes". Under this guidance the retrospective
interest method is used for recognizing interest income.
-F 18-
TECNOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 5 - LONG-TERM INVESTMENTS (contd.)
Aggregate maturities of marketable securities are as follows:
DECEMBER 31,
------------
2 0 0 3
------------
Within one year $ 1,003
Two years 11,717
Three years 1,538
Five years 1,509
Six to ten years 8,500
------------
$ 24,267
============
Market value $ 25,353
============
(2) In December 2000, the Company and Zuken Inc., a Japanese-based
corporation, established Zuken Tecnomatix K.K. ("Zuken
Tecnomatix"), a Japanese-based joint venture, for the purpose of
selling and marketing the Electronics division's software
products in Japan. Upon its establishment, the Company invested
$437 (49,000 Japanese Yen) in Zuken Tecnomatix in exchange for
49% of its share capital. The Company's investment consisting
of:
DECEMBER 31,
--------------------
2 0 0 3 2 0 0 2
-------- --------
Investment in equity $ 437 $ 437
Loans 918 623
-------- --------
1,355 1,060
Less: accumulated losses (1,066) (963)
-------- --------
$ 289 $ 97
======== ========
NOTE 6 - PROPERTY AND EQUIPMENT
Comprised as follows:
DECEMBER 31,
-------------------
2 0 0 3 2 0 0 2
-------- --------
Cost:
Computers and software $ 23,192 $ 21,551
Office furniture and equipment 5,218 4,888
Motor vehicles 730 519
Leasehold improvements 2,570 2,245
-------- --------
31,710 29,203
-------- --------
Accumulated depreciation:
Computers and software 20,388 18,265
Office furniture and equipment 3,692 3,096
Motor vehicles 330 312
Leasehold improvements 1,672 1,422
-------- --------
26,082 23,095
-------- --------
Property and equipment ,net $ 5,628 $ 6,108
======== ========
-F 19-
TECNOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 7 - ACQUIRED INTANGIBLES, NET
Comprised as follows:
DECEMBER 31,
-------------------
2 0 0 3 2 0 0 2
-------- --------
A. GOODWILL, NET
Cost $ 36,855 $ 28,236
-------- --------
Accumulated amortization 11,026 11,026
-------- --------
$ 25,829 $ 17,210
======== ========
B. OTHER ACQUIRED INTANGIBLES, NET
Cost:
Developed software products $ 13,926 $ 12,053
Trade name 283 283
Distribution rights 930 224
-------- --------
15,139 12,560
-------- --------
Accumulated amortization:
Developed software products 12,138 12,053
Trade name 283 283
Distribution rights 274 224
-------- --------
12,695 12,560
-------- --------
$ 2,444 $ --
======== ========
NOTE 8 - OTHER ASSETS, NET
Comprised as follows:
DECEMBER 31,
-------------------
2 0 0 3 2 0 0 2
-------- --------
Cost:
Software development costs $ 43,466 $ 42,120
Deferred financing costs relating to the issuance of
5 1/4% convertible subordinated notes -- 1,188
Other -- 1,346
-------- --------
43,466 44,654
-------- --------
Accumulated amortization:
Software development costs 30,170 26,937
Deferred financing costs relating to the issuance of
5 1/4% convertible subordinated notes -- 912
Other -- 192
-------- --------
30,170 28,041
-------- --------
$ 13,296 $ 16,613
======== ========
-F 20-
TECNOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 9 - 5 1/4% CONVERTIBLE SUBORDINATED NOTES
On August 12, 1997, the Company issued to the public an aggregate
amount of $ 97,750 convertible subordinated notes (the "Notes"). The
related issuance expenses of $ 3,104 were recorded as deferred
expenses and were amortized using the straight-line method over the
life of the Notes.
The Notes bore interest at 51/4% per annum, payable semi-annually.
The maturity date of the Notes was August 15, 2004.
The Notes were convertible into ordinary shares of the Company at any
time at or before maturity, unless previously redeemed, at a
conversion price of $ 42.39 per share, subject to adjustment in
certain events.
The Company could, at its option, redeem the Notes on or after August
18, 2000, in whole or in part, at different redemption prices.
Through September 2003, the Company repurchased an aggregate amount
of $82,951 principal amount of the Notes. In December 2003, the
Company redeemed the remaining $14,799 principal amount of the Notes
at a redemption price of 100.75% plus accrued interest as of the
redemption date. As a result of the repurchases in 2003, 2002 and
2001 the Company realized a gain of $156, $599 and $1,393,
respectively.
NOTE 10 - LONG TERM BANK LOAN
In April 2003, the Company obtained from Bank Hapoalim B.M (the
"Bank") a credit line in the aggregate principal amount of $25,000.
Through December 31, 2003, the Company drew the full amount of the
credit line. Loans drawn under the credit line bear interest at a
rate of 3.325%, which is equal to the three-month LIBOR rate at the
time of the withdrawal (1.25%) plus a spread of 2.075%. The Company
used this credit line to repurchase additional Notes in the third
quarter of 2003 and to redeem the notes in the fourth quarter of
2003.
The credit line matures four years after withdrawal. Unless the
Company uses its right of prepayment of the credit, repayment of an
amount of $10,000 under the line of credit is required to be made in
equal quarterly payments, commencing 15 months after withdrawal, and
repayment of the remaining amounts under the line of credit, is
required to be made upon the maturity of the line of credit or the
earlier maturity of certain bonds deposited with the Bank to secure
repayment.
In connection with the credit line, the Company agreed to pledge its
assets as collateral to the Bank and to maintain certain financial
ratios which include (a) a covenant to maintain certain levels of
cash, cash equivalents, bonds and deposits, as long as the credit
line is outstanding with such level being initially $30 million and
gradually decreasing as the Company progresses with repayment of the
credit line; (b) commencing with the third quarter of 2004, an
average quarterly EBITDA of at least $1 million in the preceding
three quarters; (c) a ratio of shareholders' equity to total assets
of not less than 40% and an amount of shareholders' equity of not
less than $33 million; and (d) a ratio of current assets to current
liabilities (excluding amounts due under its convertible subordinated
notes and excluding then current maturities under the credit line) of
at least 1.5 at each balance sheet date commencing with the first
quarter of 2004. As of December 31 2003, the Company was in
compliance with the relevant covenants.
NOTE 11 - ACCRUED SEVERANCE PAY, NET
The majority of the Company's liability for severance pay is
calculated in accordance with the Israeli law based on the most
recent salary paid to employees and the length of employment with the
Company. The Company's liability for severance pay is fully provided
for. Part of the liability is funded through individual insurance
policies purchased from outside insurance companies, which are not
under the Company's control.
The aggregate value of the insurance policies as of December 31, 2003
and 2002 was $1,903 and $1,504, respectively.
Severance pay expenses for the years ended December 31, 2003, 2002
and 2001 were $697, 561 and $683, respectively.
The Company has no liability for pension expenses to its employees.
-F 21-
TECNOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 12 - COMMITMENTS AND CONTINGENT LIABILITIES
ROYALTIES
1. The Company is committed to pay royalties to the Office of the
Chief Scientist of the Israeli Ministry of Commerce and Trade on
proceeds from sales of products in the research and development
of which the Chief Scientist has participated by way of grants,
up to the amount of 100%-150% of the grants received (in dollar
terms) (from 1999 - up to the amount of 100% of the grants
received plus interest at LIBOR). The royalties are payable at a
rate of 3% for the first three years of product sales and 3.5%
thereafter. The total amount of grants received, net of royalties
paid or accrued, at December 31, 2003 was $ 13,773. Royalty
expenses to the Chief Scientist in 2003, 2002 and 2001 were
$1,443, $1,627 and $ 1,504, respectively.
The refund of the grant is contingent on future sales and the
Company has no obligation to refund these grants, if sufficient
sales are not generated.
2. The Company and its subsidiaries are obligated to pay royalties
to certain parties, based on agreements which allow the Company
to incorporate their products into the Company's products.
Royalty expenses to these parties in 2003, 2002 and 2001 were $
869, $ 1,070 and $ 488, respectively.
CROSS LICENSING AND MARKETING AGREEMENT WITH EDS.
In July 2002 the Company entered into a strategic alliance with UGS
PLM Solution, Inc. (previously named Unigraphics Solutions, Inc.)
("UGS"), a wholly-owned subsidiary of Electronics Data Systems, Inc.
("EDS"), a leading global information technologies service provider
engaged in the development, selling and marketing of Product
Lifecycle Management ("PLM") solutions.
The Cross Licensing and Marketing Agreement (the "Agreement")
establishes a joint development strategy, as well as cooperative
marketing and distribution rights. Under the Agreement, UGS and the
Company will share revenues for all sales of the Company's MPM
products and UGS planner product made by UGS and its distributors. In
large strategic accounts where both UGS and the Company are currently
engaged, selling will be done jointly. In all other UGS accounts, UGS
will sell independently of the Company and provide all pre-sales,
professional service and hot-line support. In non-UGS accounts, the
Company will continue to sell directly to its customers as is
currently practiced. In order to provide UGS with an additional
incentive to sub-license the Company's products and to perform its
obligations under the Agreement, UGS was issued a warrant to purchase
up to 1,592,502 of the Company's ordinary shares. The amount of the
Company's ordinary shares which UGS may acquire through the exercise
of the warrant with respect to each 12-month period during the
four-year term covered by the warrant are based on the achievement by
UGS of certain goals relating to the revenues amounts received by UGS
during each such 12-month period from the licensing of products
developed by the Company. In addition, if at any time during the
four-year term of the warrant UGS reaches certain levels of revenues
from the licensing of such products, it may exercise the warrant with
respect to certain ordinary shares as to which the warrant shall not
have been previously exercised. The exercise price of the ordinary
shares underlying the warrant is based on the revenue amounts
received by UGS from the licensing of products developed by the
Company, with such exercise price increasing based on the increase in
such revenue amounts. Through December 31,2003 no revenue goals have
been achieved.
During 2003 the Company paid or accrued to UGS royalties in the
amount of $2,350 related to this agreement.
-F 22-
TECNOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 12 - COMMITMENTS AND CONTINGENT LIABILITIES (contd.)
LEASE COMMITMENTS
1. The premises of the Company and its subsidiaries are leased under
various operating lease agreements which expire on various dates.
Future aggregate minimum annual rental payments, pursuant to
existing lease commitments in effect at December 31, 2003, are as
follows:
YEAR ENDED DECEMBER 31,
2004 $ 4,694
2005 3,764
2006 1,812
2007 1,545
2008 and thereafter 2,497
---------
Total $ 14,312
=========
2. The Company leases its motor vehicles under cancelable operating
lease agreements for periods through 2007. The minimum payment
under these operating leases, upon cancellation of these lease
agreements, amounted to $138 as of December 31, 2003.
FINANCIAL INSTRUMENTS
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and cash
equivalents, short-term investments and long-term investments,
totaling $33,569 and 41,919 as of December 31, 2003 and 2002,
respectively, and accounts receivable. The Company's cash and cash
equivalents and short-term investments are invested in deposits with
major banks in the U.S., Europe and Israel. Management believes that
the financial institutions holding the Company's cash and cash
equivalents are financially sound. In addition, the marketable
securities held by the Company consist mainly of debt securities of
the Government of Israel and highly-rated corporate bonds. The
accounts receivable are derived from sales to a large number of
customers, mainly large industrial corporations and their suppliers
located mainly in Europe, the United States and Asia. The Company
generally does not require collateral. The Company performs ongoing
credit evaluations of its customers and maintains an allowance for
doubtful accounts which management believes adequately covers all
anticipated losses in respect of trade receivables.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The financial instruments of the Company consist mainly of cash and
cash equivalents, marketable securities, current and non-current
accounts receivable, accounts payable and long-term bank loans. In
view of their nature, the fair value of the financial instruments is
usually identical or close to their carrying amounts.
TRANSACTIONS WITH RELATED PARTIES
The Company is party to a management service agreement with A.T.L.
Management Services Ltd ("A.T.L."), a related party, which provides
for the payment to A.T.L. of an annual management fee of $ 300 and
reimbursement of expenses in consideration for strategic management
and business and financial consulting services, on a basis which the
Company believes represents fair value.
-F 23-
TECNOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 12 - COMMITMENTS AND CONTINGENT LIABILITIES (contd.)
SALE OF TRADE RECEIVABLES
The Company entered into factoring agreements with a financial
institution under which the Company assigned by way of sale certain
amounts of its account receivables subject to the financial
institution inspection and acceptance. The financial institution is
responsible for collecting the receivables with no recourse to the
Company. Upon completion of the sale, the financial institution
remits 90% of the funds to the Company, less discount and service
fees, and remits the balance of the funds upon collection of the
receivables. Upon the sale, the receivables are derecognized from the
Company's records. During 2003 and 2002 the Company sold receivables
in the amount of $6,482 and $ 1,071, respectively, and incurred
related expenses in the amount of $85 and $ 32, respectively.
NOTE 13 - SHAREHOLDERS' EQUITY
SHARE CAPITAL
1. The Company's shares are traded in the United States and are
listed on the Nasdaq National Market.
2. Loans granted to purchase shares
The balance at December 31, 2002 represented loans granted to,
the Chairman of the Company's board of directors and until
recently the Company's Chief Executive Officer, in October 1998
and July 1999 with respect to the exercise of options to purchase
the Company's shares. The loans were in dollars, bore interest at
6.8% per annum and were due on December 31, 2002. The loans were
granted in consideration of recourse notes.
On January 1, 2003 the Company repurchased 110,000 of its shares
from the Chairman and CEO for a total amount of $844 representing
a price per share of $7.67, equal to the average closing price of
the ordinary shares as quoted on the Nasdaq National Market
during the three-month period prior to the date of the
repurchase. The consideration was used to offset the outstanding
balance of the loan. In addition, the CEO repaid $300 of the
outstanding amount of these loans. This repayment was funded by
using the proceeds of a compensatory retention bonus in the
amount of $300 paid to the CEO in connection with his commitment
to continue serving the Company as either CEO or Chairman until
December 31, 2005. In the event that the CEO and Chairman
terminates his service for the Company, he shall be required to
return to the Company one third of the compensatory retention
bonus for each year in which he failed to provide a full year of
service.
EMPLOYEE SHARE PURCHASE PLAN
In December 2000, the Company adopted the Tecnomatix Technologies
Ltd. 2000 Employee Share Purchase Plan ("the Share Purchase Plan"),
pursuant to which the Company's employees may purchase up to 500,000
ordinary shares. Every six months, each employee is entitled to
purchase ordinary shares for an amount up to 10% of his gross salary
at that period, but not more than 750 ordinary shares. The purchase
price under the Share Purchase Plan is the lower of 85% of the fair
market value of an ordinary share at the beginning of such six-month
period or 85% of the fair market value at the end of such six-month
period. As of December 31, 2003, 475,318 shares have been purchased
under the Share Purchase Plan.
-F 24-
TECNOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 13 - SHAREHOLDERS' EQUITY (contd.)
STOCK OPTION PLANS
AS OF DECEMBER 31, 2003, THE COMPANY HAD THE FOLLOWING EMPLOYEES' AND
DIRECTORS' STOCK OPTION PLANS:
1996 PLAN
Under the 1996 Stock Option Plan (the "1996 Plan") for employees of
the Company, options to purchase up to 3,726,600 shares of the
Company may be granted at an exercise price equal to the fair market
value of the share at the date of the grant. The options granted vest
at a rate of 40%, 30% and 30% after two, three and four years,
respectively, from the date of the grant, or in four equal annual
installments, commencing one year from the date of grant. Under the
1996 Plan, options will expire ten years from the date of the grant.
As of December 31, 2003, options to purchase 3,140,960 shares were
outstanding with exercise prices ranging from $ 4.75 to $ 40.385 per
share.
DIRECTORS PLAN
Under the 1996 Directors' Stock Option Plan (the "Directors Plan")
for directors of the Company, options to purchase up to 364,000
shares of the Company may be granted at an exercise price equal to
the fair market value of the share at the date of the grant. The
options granted are exercisable in five equal annual installments,
commencing two years from the date of the grant. Under the Directors
Plan, options will expire on the earlier of the termination of the
service of the director or the tenth anniversary of the date of
grant. As of December 31, 2003 options to purchase 248,000 shares
were outstanding with an exercise price raining from $6.88 to $ 18.38
per share.
2003 PLAN
In December 2002 the Company's Board of Directors approved the
adoption of the Tecnomatix Technologies Ltd. 2003 Global Share Option
Plan (the "2003 Plan"). Under the 2003 Plan options to purchase up to
690,106 shares of the Company may be granted at an exercise price
equal to the fair market value of the share at the date of the grant.
Officers, directors, employees and consultants of the Company are
eligible to participate in the 2003 Plan. The options granted vest in
four equal annual installments, commencing one year from the date of
grant. Under the 2003 Plan, options will expire ten years from the
date of the grant. As of December 31, 2003 options to purchase
681,500 shares were outstanding with an exercise price ranging from
$7.01 to $11.
A summary of the status of the Company's stock option plans as of
December 31, 2003, 2002 and 2001 and changes during the years then
ended, is presented below:
DECEMBER 31,
---------------------------------------------------------------------------------
2 0 0 3 2 0 0 2 2 0 0 1
------------------------- ------------------------- -------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- ----------- ---------- ----------- ---------- -----------
Options outstanding at
beginning of year 3,894,917 $ 12.16 4,204,422 $ 12.16 3,330,231 $ 13.61
Granted during year 681,500 $ 9.03 237,200 $ 8.46 1,297,900 $ 8.76
Exercised during year (112,590) $ 5.34 (69,700) $ 6.52 (20,056) $ 9.41
Forfeited during year (164,125) $ 11.12 (477,005) $ 11.09 (403,653) $ 13.35
---------- ---------- ----------
Outstanding at end of year 4,299,702 $ 11.88 3,894,917 $ 12.16 4,204,422 $ 12.16
========== ========== ==========
Options exercisable at year-end 2,623,745 $ 13.55 1,969,965 $ 13.80 1,233,970 $ 14.64
========== ========== ==========
Weighted average fair value
of options granted during the year $ 4.65 $ 5.14 $ 4.25
========== ========== ==========
-F 25-
TECNOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 13 - SHAREHOLDERS' EQUITY (contd.)
THE FOLLOWING TABLE SUMMARIZES INFORMATION RELATING TO STOCK OPTIONS OUTSTANDING
AT DECEMBER 31, 2003:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- ----------------------------
WEIGHTED
AVERAGE
NUMBER OF SHARES REMAINING WEIGHTED NUMBER OF SHARES WEIGHTED
OUTSTANDING AT CONTRACTUAL AVERAGE EXERCISABLE AT AVERAGE
RANGE OF DECEMBER 31, LIFE (IN EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICES 2003 YEARS) PRICE 2003 PRICE
- ----------------- --------------- ------------ --------- ---------------- ---------
$ 4 - 7.82 1,398,935 7.75 $ 6.42 555,685 $ 5.90
$ 9 - 11.563 873,875 7.04 $ 10.34 430,625 $ 10.39
$ 12 - 13.813 1,268,992 6.57 $ 13.04 911,035 $ 13.14
$ 14 - 18.375 172,250 3.69 $ 17.54 157,250 $ 17.87
$ 20.375 - 25.75 538,150 5.49 $ 21.53 529,150 $ 21.54
$ 28.75 - 40.38 47,500 6.11 $ 40.38 40,000 $ 40.38
--------------- -------------
$ 4 - 40.75 4,299,702 6.79 $ 11.88 2,623,745 $ 13.55
=============== =============
NOTE 14 - TAXES ON INCOME
TAXATION UNDER VARIOUS LAWS
1. The Company and its subsidiaries are assessed for tax purposes on
an unconsolidated basis. The Company and its Israeli subsidiaries
are assessed under the provisions of the Income Tax Law
(Inflationary Adjustments), 1985, pursuant to which the results
for tax purposes are measured in Israeli currency in real terms
in accordance with changes in the Israeli CPI. Each of the
subsidiaries is subject to the tax rules prevailing in the
country of incorporation.
2. "Approved enterprise"
The production facilities of the Company in Israel have been
granted "approved enterprise" status in eleven separate programs
under the Law for the Encouragement of Capital Investments, 1959,
as amended. Under this law, income attributable to each of these
enterprises is fully exempt from tax for either two or four
years, commencing the first year in which each enterprise
generates taxable income and is entitled to a reduced tax rate of
10%-25% (based on the percentage of foreign ownership in each
taxable year), for a further eight or six years, respectively.
The expiration date of the period of benefits is limited to the
earlier of twelve years from commencement of production or
fourteen years from the date of the approval. Through December
31, 2003, the period of benefits of eight enterprises has
commenced.
In the event of a distribution of cash dividends to shareholders
of earnings subject to the exemption, the Company will be liable
to tax at a rate of 10%-25%. The Company has not provided
deferred taxes on future distributions of tax-exempt earnings, as
management and the Board of Directors have determined not to make
any distribution that may result in a tax liability for the
Company. Accordingly, such earnings have been considered to be
permanently reinvested. The tax-exempt earnings may be
distributed to shareholders without subjecting the Company to
taxes only upon a complete liquidation of the Company.
-F 26-
TECNOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 14 - TAXES ON INCOME (contd.)
TAXATION UNDER VARIOUS LAWS (contd.)
2 "Approved enterprise" (contd.)
As of December 31, 2003, the aggregate amount of undistributed
tax-exempt earnings for which deferred taxes had not been
provided was $ 14,093 and the amount of unrecognized deferred
taxes in respect of such earnings amounted to $ 2,114.
Income derived from sources other than the "approved enterprises"
is taxable at the regular corporate tax rate of 36%.
3. "Industrial company"
The Company and one of its Israeli subsidiaries are "industrial
companies" as defined in the Law for the Encouragement of
Industry (Taxes), 1969, and as such, qualify for special
depreciation rates for machinery, equipment and buildings used by
an industrial enterprise. These rates vary based on factors such
as the date of commencement of operation and the number of work
shifts
COMPOSITION OF INCOME TAX BENEFIT (PROVISION):
YEAR ENDED DECEMBER 31,
-----------------------------------
2 0 0 3 2 0 0 2 2 0 0 1
--------- --------- ---------
Loss before taxes on income:
Israel $ (7,456) $ (6,325) $ (3,030)
Non-Israeli (2,569) 3,778 (10,294)
--------- --------- ---------
$ (10,025) $ (2,547) $ (13,324)
========= ========= =========
Income tax benefit (provision):
Current:
Israel $ -- $ (90) $ 198
Non-Israeli (212) 548 (65)
--------- --------- ---------
(212) 458 133
--------- --------- ---------
Deferred:
Israel -- -- (26)
Non-Israeli -- (310) (161)
--------- --------- ---------
-- (310) (187)
--------- --------- ---------
$ (212) $ 148 $ (54)
========= ========= =========
-F 27-
TECNOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 14 - TAXES ON INCOME (contd.)
DEFERRED TAXES
The main components of the Company's deferred tax assets and
liabilities are as follows:
DECEMBER 31,
----------------------
2 0 0 3 2 0 0 2
--------- ---------
Deferred tax assets:
Technology assets of non-Israeli subsidiaries $ 431 $ 2,146
Reserves and accruals not currently deductible 855 732
Credit carryforwards 3,388 3,034
Deferred revenue 571 673
In-process research and development 1,086 --
Net operating loss carryforwards of non-Israeli subsidiaries 13,542 12,502
Net operating loss carryforwards in Israel 340 --
--------- ---------
20,213 19,087
Less - valuation allowance 18,013 16,544
--------- ---------
2,200 2,543
--------- ---------
Deferred tax liabilities:
Software development costs (2,747) (3,188)
Fixed assets and intangible assets (313) (215)
--------- ---------
(3,060) (3,403)
--------- ---------
Net deferred tax liabilities $ (860) $ (860)
========= =========
Under Statement No. 109 of the FASB, deferred tax assets are to be
recognized for the anticipated tax benefits associated with net
operating loss carryforwards and deductible temporary differences,
unless it is more likely than not that some or all of the deferred
tax asset will not be realized. The adjustment is made by a valuation
allowance.
Since the realization of the net operating loss carryforwards and
deductible temporary differences is less likely than not, a valuation
allowance has been established for the amounts of the related tax
benefits.
As of December 31, 2003, the Company has approximately $2,000 of
Israeli net operating loss carryforwards. The Israeli loss
carryforwards have no expiration date.
Tax loss carryforwards of a U.S. subsidiary totaling $ 14,800 expires
between 2018 and 2023.
The following is a reconciliation of the theoretical taxes on income
assuming that all income is taxed at the ordinary rate applicable to
Israeli companies and the actual taxes on income:
YEAR ENDED DECEMBER 31,
-----------------------------------
2 0 0 3 2 0 0 2 2 0 0 1
--------- --------- ---------
Loss before taxes on income $ (10,025) $ (2,547) $ (13,324)
========= ========= =========
Theoretical tax on the above amount (36%) $ (3,609) $ (917) $ (4,797)
Tax benefit arising from "approved enterprise" 942 1,981 186
Increase (decrease) in valuation allowance 1,469 (725) 5,056
Carryback of net operating losses of subsidiary -- (636) --
Adjustment arising from the differences between the basis
of measurement for tax purposes and for
financial reporting purposes 1,370 -- --
Other 40 149 (391)
--------- --------- ---------
$ 212 $ (148) $ 54
========= ========= =========
-F 28-
TECNOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 14 - TAXES ON INCOME (contd.)
TAX ASSESSMENTS
The Company and its Israeli subsidiaries received final tax
assessments through the tax year ended December 31, 1999. Certain
subsidiaries of the Company in Europe received tax assessments
through the tax year ended December 31, 1999.
NOTE 15 - TRANSACTIONS WITH RELATED PARTIES
YEAR ENDED DECEMBER 31,
-----------------------------------
2 0 0 3 2 0 0 2 2 0 0 1
--------- --------- ---------
Management fees to related parties $ 300 $ 400 $ 400
--------- --------- ---------
General and administrative expenses, net $ (20) $ (21) $ (161)
--------- --------- ---------
NOTE 16 - SUPPLEMENTARY BALANCE SHEET INFORMATION
OTHER RECEIVABLES AND PREPAID EXPENSES
DECEMBER 31,
----------------------
2 0 0 3 2 0 0 2
--------- ---------
Research and development participation from
the Government of Israel $ 1,247 $ 1,056
Interest receivable 407 623
Employees 194 135
Advances to suppliers 64 106
Prepaid expenses 2,613 2,117
Others 1,222 1,247
--------- ---------
$ 5,747 $ 5,284
========= =========
NON-CURRENT RECEIVABLES
DECEMBER 31,
----------------------
2 0 0 3 2 0 0 2
--------- ---------
Deposits $ 1,021 $ 844
Employees 76 62
Other 11 9
--------- ---------
$ 1,108 $ 915
========= =========
OTHER PAYABLES AND ACCRUED EXPENSES
DECEMBER 31,
----------------------
2 0 0 3 2 0 0 2
--------- ---------
Payroll and related amounts $ 8,426 $ 7,915
Accrued expenses 7,873 4,107
Deferred income taxes 860 860
Interest payable 165 737
Advances from customers 605 212
Value added tax 787 792
Income tax authorities -- 206
Others 447 127
--------- ---------
$ 19,163 $ 14,956
========= =========
-F 29-
TECNOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 17 - SUPPLEMENTARY STATEMENT OF OPERATIONS INFORMATION
A. OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION
The Company develops, sells, markets and supports MPM software
tools for the collaborative development and optimization of
manufacturing processes across the extended enterprise. The
Company's products are used by world-leading automotive,
electronics, and aerospace companies and their suppliers and
other discrete manufacturing companies.
The Company operates in two segments, the Mechanical Division and
the Electronics Division, reflecting the different nature of the
products and the manufacturing processes they address. The
Mechanical Division develops, sells, markets and supports
software products to the automotive, aerospace and heavy
equipment industries, and the Electronics Division develops,
sells, markets and supports software products to the electronics
industry.
The Company evaluates performance based on profit and loss from
operations before income taxes, interest expenses and other
income. The Company does not identify or allocate its assets by
operating segments as part of the assessment of segment
performance; accordingly, assets are not reported by segment.
YEAR ENDED DECEMBER 31,
-----------------------------------
2 0 0 3 2 0 0 2 2 0 0 1
MECHANICAL: --------- --------- ---------
Revenues $ 71,617 $ 64,670 $ 66,454
========= ========= =========
Operating loss $ (6,908) $ (180) $ (1,530)
========= ========= =========
ELECTRONICS:
Revenues $ 14,640 $ 17,335 $ 20,446
========= ========= =========
Operating loss $ (3,796) $ (1,568) $ (12,985)
========= ========= =========
The following table summarizes the Company's revenues and long-lived
assets, by country. Revenue is attributed to geographic region based
on the location of the customers. Long-lived assets include property
and equipment, acquired intangibles (excluding goodwill) and
capitalized software development costs and are attributed to
geographic region based on the country in which the assets are
located.
REVENUES: YEAR ENDED DECEMBER 31,
---------------------------------
2 0 0 3 2 0 0 2 2 0 0 1
--------- --------- ---------
Israel $ 100 $ 37 $ 9
U.S.A 28,754 24,781 24,809
Germany 23,008 24,262 22,665
France 11,466 9,299 10,260
Japan 12,976 9,691 16,393
Other Asian countries 2,205 3,248 2,274
Other European countries 7,748 10,687 10,490
--------- --------- ---------
Total revenues $ 86,257 $ 82,005 $ 86,900
========= ========= =========
-F 30-
TECNOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 17 - SUPPLEMENTARY STATEMENT OF OPERATIONS INFORMATION (contd.)
A. OPERATING SEGMENTS AND GEOGRAPHIC INFORMATION (contd.)
LONG-LIVED ASSETS: DECEMBER 31,
2 0 0 3 2 0 0 2
--------- ---------
Israel $ 8,224 $ 10,079
U.S.A. 7,893 7,472
Germany 3,217 2,903
France 578 571
Japan 617 974
Other countries 111 290
--------- ---------
Total long-lived assets $ 20,640 $ 22,289
========= =========
B. COST OF SOFTWARE LICENSE FEES
IMPAIRMENT OF CAPITALIZED SOFTWARE DEVELOPMENT COSTS
During 2003, the Company wrote off previously capitalized
software development costs, with a net book value of $2,180 after
it was determined that there was no useful life remaining on the
assets. This determination was made as a result of the Company's
analysis comparing the estimated net realizable value of these
assets with the unamortized capitalized costs performed in
accordance with SFAS 86. Of the total, $888 of net capitalized
costs was written off as a result of duplication of product
offerings subsequent to the acquisition of USDATA in the current
year (see note 3a).
C. RESEARCH AND DEVELOPMENT, NET
YEAR ENDED DECEMBER 31,
---------------------------------
2 0 0 3 2 0 0 2 2 0 0 1
--------- --------- ---------
Gross research and development costs $ 22,525 $ 23,491 $ 28,333
Less- software development costs capitalized 3,937 4,097 5,103
Less - participation:
The Government of Israel:
Royalty-bearing grants 1,576 2,418 1,244
Other grants 1,426 1,481 1,724
Non Israeli grants 626 683 1,046
--------- --------- ---------
Research and development, net $ 14,960 $ 14,812 $ 19,216
========= ========= =========
D. RESTRUCTURING PLANS
2003 RESTRUCTURING PLAN
In the first, third and fourth quarters of 2003 the Company's
management approved and implemented plans to restructure its
operations in both business segments of the Company. The actions,
in the first and fourth quarters, included mainly workforce
reductions associated with managing the Company's cost structure
to better align with current business conditions. The third
quarter action included workforce reduction associated with the
identification of overlapping positions relating to the
acquisition of USDATA net assets. The discharged employees were
identified by name and position in advance as part of the plans
and given notice during the relevant quarters.
-F 31-
TECNOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 17 - SUPPLEMENTARY STATEMENT OF OPERATIONS INFORMATION (contd.)
D. RESTRUCTURING PLANS (contd.)
2003 RESTRUCTURING PLAN (cont.)
The $2,659 charge in 2003 (related to the first and the fourth
quarter) was composed of the following:
SEVERANCE BENEFITS AND EXCESS FACILITIES AND
RELATED EXPENSES WRITE-OFF OF FIXED ASSETS TOTAL
---------------------- ------------------------- -------------
First quarter $ 1,082 $ 405 $ 1,487
Fourth quarter 1,172 -- 1,172
---------- --------- ------------
Total $ 2,254 $ 405 $ (1) 2,659
========== ========= ============
(1) An amount of $1,603 was paid through December 31, 2003. The
balance of $1,056.is expected to be paid during 2004.
The $337 charge in the third quarter related to the USDATA
acquisition was recorded as acquisition costs in the consolidated
statements of operations.
PRIOR YEARS RESTRUCTURING PLANS
In the fourth quarter of 2002 following the continuous worldwide
economic recession and slowdown in investments in information
technologies, especially in the Electronics industry in the U.S.,
management resolved to initiate an additional cost reduction plan
aimed at reducing excess personnel and capacity costs. As a
result of such plan, the Company recorded in the fourth quarter
of 2002 restructuring costs of $ 651. The restructuring plan
included the discharge of certain employees mainly in the
Electronics segment. Discharged employees were identified by name
and position in advance as part of the plan, and given notice
during the fourth quarter of 2002. Restructuring costs relating
to such employees represent severance and benefits expenses
incurred by the Company in connection with the lay-off of the
employees, and related legal consulting expenses in connection
with the lay-off process.
The reduction in headcount resulted in utilization of less office
and equipment in certain offices of the Company around the world.
Consequently, the Company wrote-off office equipment for which no
alternative use has been found.
The 2002 restructuring costs are summarized in the following
table:
SEVERANCE BENEFITS
AND RELATED EXPENSES WRITE-OFF OF FIXED ASSETS TOTAL
-------------------- ------------------------- --------
$ 495(1) $ 156 $ 651
========== ======== ========
(1) An amount of $ 240 was paid through December 31, 2002. The
balance of $ 255 was paid during 2003.
In October 2001, in light of the worldwide economic recession and
the slowdown in investments in information technologies,
especially in the U.S., the management of the Company resolved to
initiate a cost reduction plan aimed at reducing excess personnel
and capacity costs, and thus the level of its operating expenses.
As a result of this plan, the Company recorded in the fourth
quarter of 2001 restructuring costs and asset impairment in the
amount of $ 1,843.
-F 32-
TECNOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 17 - SUPPLEMENTARY STATEMENT OF OPERATIONS INFORMATION (CONTD.)
D. RESTRUCTURING PLANS (contd.)
PRIOR YEARS RESTRUCTURING PLANS (cont.)
The reorganization plan included mainly the discharge of certain
employees in both business segments of the Company, Mechanical
and Electronics. The discharged employees were identified by name
and position in advance as part of the plan, and given
termination notice during the fourth quarter of 2001.
Restructuring costs relating to such employees represent
severance and benefits expenses incurred by the Company in
connection with the layoff of the employees, and related legal
consulting in connection with the layoff process. The reduction
in headcount resulted in the utilization of less office space and
office equipment in certain offices of the Company around the
world. Consequently, the Company recorded costs in connection
with payments required under lease contracts and write-off of
office equipment for which no alternative use has been found. The
2001 restructuring costs are summarized in the following table:
SEVERANCE BENEFITS EXCESS FACILITIES AND
AND RESULTED EXPENSES WRITE-OFF OF FIXED ASSETS TOTAL
--------------------- ------------------------- -----------
$ 1,121 $ 406 $ 1,527(1)
======== ======= ==========
(1) An amount of $ 764 was paid through December 31, 2001. The
balance of $ 689 (excluding the non-cost asset impairment and
write-off of fixed assets) was paid during 2002.
E. IMPAIRMENT OF SOFTWARE ACQUIRED
During 2003, the Company recorded a charge of $937 related to the
impairment of a certain software acquired from a third-party for
the purpose of being integrated into the Company's products
offering. Such third-party notified the Company that it will not
provide certain required enhancements and will no longer support
the product. As a result, the Company decided not to integrate
the product into its product offering and not to launch it to the
market. During 2002 the Company recorded a charge of $ 375
related to the impairment of certain software acquired as a
result of technological changes in the platform of the Company's
software products.
F. SELLING AND MARKETING
Selling and marketing expenses include doubtful accounts and bad
debt expenses of $1,833, $1,217 and $1,553 for the years ended
December 31, 2003, 2002 and 2001, respectively.
G. FINANCIAL INCOME (EXPENSES), NET
YEAR ENDED DECEMBER 31,
-----------------------------------
2 0 0 3 2 0 0 2 2 0 0 1
--------- --------- ---------
Interest income from marketable securities $ 1,779 $ 1,889 $ 1,726
Interest expenses and bank fees (909) (160) (118)
Amortization of deferred issuance costs (153) (192) (226)
Interest expenses on convertible notes (1,376) (2,201) (2,466)
Gain from repurchase of convertible notes 156 599 1,393
Gain (loss) from realization and devaluation of
marketable securities -- (153) 933
Gain (loss)on foreign currency transactions, net 877 (217) 872
Exchange differences gains (losses), net 305 (364) (923)
--------- --------- ---------
$ 679 $ (799) $ 1,191
========= ========= =========
-F 33-
TECNOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 18 - UNAUDITED PRO FORMA FINANCIAL INFORMATION
The pro forma unaudited consolidated condensed balance sheet has been
prepared by taking the December 31, 2002 balance sheet of Tecnomatix
Technologies Ltd. (the "Company") and the December 31, 2002 balance
sheet of USDATA Corporation, ("USDATA") and giving effect to the
acquisition of USDATA by the Company as if it had occurred on
December 31, 2002. The pro forma consolidated condensed balance sheet
has been prepared for informational purposes only and does not
purport to be indicative of the financial condition that necessarily
would have resulted had this transaction taken place on December 31,
2002.
The following pro forma unaudited consolidated condensed statements
of operations for the year ended December 31, 2002 give effect to the
Company's acquisition of USDATA as if it had occurred as of the
beginning of 2002. The revenues and results of operations included in
the following pro forma unaudited consolidated condensed statement of
operations is not considered necessarily indicative of the results of
operations for the year 2002 had the transaction actually been
completed at the beginning of that year.
These financial statements should be read in conjunction with the
notes to the pro forma unaudited consolidated condensed financial
statements, which follow, the financial statements of the Company and
related notes thereto, and the financial statements of US DATA and
related notes thereto, included herewith.
-F 34-
TECNOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 18 - UNAUDITED PRO FORMA FINANCIAL INFORMATION (contd.)
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET AS OF
DECEMBER 31, 2002
PRO FORMA
TECNOMATIX USDATA ADJUSTMENTS
TECHNOLOGIES LTD. CORPORATION INCREASE (DECREASE) NOTES PRO FORMA
---------------- ------------ ------------------ ------- ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 10,466 $ 978 $ 2,000 a $ 13,444
Short-term investments 5,981 -- -- 5,981
Accounts receivable
doubtful accounts of $ 2,091 27,671 2,331 -- 30,002
Other receivables and prepaid expenses 5,284 582 -- 5,866
-------- -------- ------- ---------
Total current assets 49,402 3,891 2,000 55,293
-------- -------- ------- ---------
NON-CURRENT ASSETS 26,484 -- -- 26,484
-------- -------- ------- ---------
PROPERTY AND EQUIPMENT, NET 6,108 510 -- 6,618
-------- -------- ------- ---------
OTHER ASSETS, NET 33,823 3,783 12,307 c
(3,783) b 46,130
======== ======== ======= =========
Total assets $115,817 $ 8,184 $10,524 $ 134,525
======== ======== ======= =========
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,950 $ 941 $ -- $ 3,891
Other payables and accrued expenses 14,956 3,917 400 b
2,950 e
722 a 22,945
Deferred revenue 4,659 1,559 (635) i 5,583
-------- -------- ------- ---------
Total current liabilities 22,565 6,417 3,437 32,419
-------- -------- ------- ---------
LONG-TERM LIABILITIES 38,335 1,657 -- 39,992
-------- -------- ------- ---------
SHAREHOLDERS' EQUITY:
Share capital 40 52,728 (52,728) e 40
Additional paid-in capital 71,948 6,653 (6,653)
10,390 a 82,338
Loans granted to purchase shares (1,158) -- -- (1,158)
Deferred shares compensation (481) 481 g --
Retained earnings (Accumulated deficit) 1,633 (50,905) 50,905 g
(3,193) d (1,560)
Treasury shares (13,200) (6,787) 6,787 g (13,200)
Accumulated other comprehensive income
(loss): (4,346) (1,098) 1,098 g (4,346)
-------- -------- ------- ---------
54,917 110 7,087 62,114
======== ======== ======= =========
Total liabilities and shareholders' equity $115,817 $ 8,184 $10,524 $ 134,525
======== ======== ======= =========
-F 35-
TECNOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 18 - UNAUDITED PRO FORMA FINANCIAL INFORMATION (contd.)
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2002
PRO FORMA
TECNOMATIX USDATA ADJUSTMENTS
TECHNOLOGIES LTD. CORPORATION INCREASE (DECREASE) NOTES PRO FORMA
--------------- ----------- ------------------ ------- ---------
REVENUES : $ 82,005 $ 10,344 $ -- $ 92,349
COSTS AND EXPENSES:
Cost of revenues 23,067 4,591 (3,256) 24,402
Amortization of acquired intangibles 2,491 118 542 h 3,151
Impairment of capitalized software
development costs -- 3,336 (3,336) j --
Research and development, net 14,812 1,468 -- 16,280
Selling and marketing 36,887 4,123 -- 41,010
General and administrative 5,013 3,089 -- 8,102
Write-off of long-term investment 457 -- -- 457
Restructuring and asset impairment 651 730 -- 1,381
Impairment of software acquired 375 -- -- 375
-------- -------- ------- ---------
Total costs and expenses 83,753 17,455 (6,050) 95,158
-------- -------- ------- ---------
OPERATING LOSS (1,748) (7,111) 6,050 (2,809)
Financial expense, net (799) (97) -- (896)
-------- -------- ------- ---------
LOSS BEFORE TAXES ON INCOME (2,547) (7,208) 6,050 (3,705)
Taxes on income 148 -- -- 148
-------- -------- ------- ---------
LOSS AFTER TAXES ON INCOME (2,399) (7,208) 6,050 (3,557)
Company's share in loss of affiliated company (431) -- -- (431)
Income from discontinued operation -- 98 -- 98
-------- -------- ------- ---------
NET LOSS $ (2,830) $(7,110) $ 6,050 $ (3,890)
======== ======== ======= =========
Loss per ordinary share
Basic and diluted $ (0.27) $ (0.37)
======== =========
-F 36-
TECNOMATIX TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 18 - UNAUDITED PRO FORMA FINANCIAL INFORMATION (contd.)
NOTES TO THE PRO FORMA UNAUDITED CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS
The accompanying pro forma unaudited consolidated condensed balance
sheet and statement of operations present the financial position and
results of operations of the Company giving effect to the acquisition
on September 19,2003 of USDATA in consideration of 1,085,571 ordinary
shares of the Company (see Note 3a).
The adjustments below were prepared based on estimates or
approximations. It is possible that the actual amounts recorded may
have an impact on the results of operations and the balance sheet
different from that reflected in the accompanying pro forma unaudited
consolidated condensed financial statements. It is therefore possible
that the entries below will not be the amounts actually at the
closing date.
(a) To record the acquisition of USDATA for a purchase price of
$11,112 (including acquisition costs of $722) as follows:
Issuance of 945,807 ordinary shares to USDATA and 139,764
ordinary shares to SCP, the primary shareholder of USDATA in
consideration of $2,000 in cash and to accrue for acquisition
costs of $722.
(b) To eliminate USDATA existing capitalized intangible assets.
(c) To record intangible assets and goodwill related to the
acquisition.
(d) To record the $3,193 allocated to in-process research and
development assumed to be written off at the acquisition date.
(e) To record liabilities to exit activities in USDATA of $2,950.
(f) To record an adjustment to book value of assumed liability to a
third party software supplier in the amount of $400.
(g) To eliminate shareholders equity of USDATA.
(h) To eliminate the amortization and impairment of capitalized
software development costs of USDATA in 2002.
(i) To reduce deferred revenue of USDATA based on estimated costs
and an appropriate profit margin.
(j) To amortize intangible assets based on their useful life.
-F 37-
SCHEDULE VIII
TECNOMATIX TECHNOLOGIES LTD.
VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED DECEMBER 31,
--------------------------------
2 0 0 3 2 0 0 2 2 0 0 1
-------- -------- --------
Allowance for doubtful accounts at beginning of year $ 2,091 $ 2,000 $ 2,617
Provision 1,833 1,217 1,553
Translation adjustments 566 (656) (304)
Accounts receivable written off (418) (470) (1,866)
-------- -------- --------
Allowance for doubtful accounts at end of year $ 4,072 $ 2,091 $ 2,000
======== ======== ========
-F 38-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
Tecnomatix Technologies Inc.:
We have audited the accompanying consolidated balance sheets of Tecnomatix
Technologies Inc. (the Company), an indirect, wholly owned affiliate of
Tecnomatix Technologies, Ltd. (TTL), as of December 31, 2003 and 2002, and the
related consolidated statements of operations, shareholders' deficit and
comprehensive income, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States) generally accepted in the United
States of America. 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.
As described in notes 1 and 3 to the consolidated financial statements, the
Company conducts a significant amount of business with its affiliates and
receives support from TTL to fund its operations.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Tecnomatix
Technologies Inc. as of December 31, 2003 and 2002, and the results of its
operations and its cash flows for the years then ended, in conformity with U.S.
generally accepted accounting principles.
As discussed in note 2(e) to the consolidated financial statements, the Company
changed the estimated useful lives of certain capitalized software development
costs in 2002 and as discussed in note 2(g), the Company adopted the provisions
of SFAS No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS, as of January 1, 2002.
/s/ KPMG LLP
Detroit, Michigan
January 23, 2004
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors
Tecnomatix Technologies Inc.:
We have audited the accompanying consolidated balance sheets of Tecnomatix
Technologies Inc. (the Company), a wholly owned affiliate of Tecnomatix
Technologies, Ltd. (TTL), as of December 31, 2002 and 2001, and the related
consolidated statements of operations, shareholders' deficit and comprehensive
income (loss), and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 financial position of Tecnomatix
Technologies Inc. as of December 31, 2002 and 2001, and the results of their
operations and their cash flows for the years then ended, in conformity with
U.S. generally accepted accounting principles.
As described in notes 1 and 3 to the consolidated financial statements, the
Company conducts a significant amount of business with its affiliates and
receives advances from TTL to guarantee future operations of the Company.
As discussed in Note 2(e) to the financial statements, the Company changed the
estimated useful lives of certain capitalized software development costs in
2002.
As discussed in Note 2(f) to the financial statements, The Company adopted the
provisions of SFAS No. 142, Goodwill and Other Intangible Assets, as of January
1, 2002.
/s/ KPMG LLP
Detroit, Michigan
January 24, 2003
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Stockholders and Board of Directors of
USDATA Corporation:
We have audited the accompanying consolidated balance sheets of USDATA
Corporation and subsidiaries as of December 31, 2002 and 2001, and the related
consolidated statements of operations, stockholders' equity (deficit) and
comprehensive loss, and cash flows for each of the years in the three-year
period ended December 31, 2002. In connection with our audits of the
consolidated financial statements, we also have audited the financial statement
schedule as listed in the accompanying index. The consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
consolidated financial statements and financial statement schedule 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 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 financial position of USDATA Corporation
and subsidiaries as of December 31, 2002 and 2001, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2002, , in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
/s/ KPMG LLP
Dallas, Texas
February 3, 2003, except for note 6,
which is as of March 17, 2003
F1
USDATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, DECEMBER 31,
2002 2001
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 978 $ 1,844
Accounts receivable, net of allowance for doubtful
accounts of $82 and $279, respectively 2,331 2,573
Other current assets 582 557
-------- --------
Total current assets 3,891 4,974
-------- --------
Property and equipment, net 510 1,212
Computer software development costs, net 1,093 6,443
Software held for resale, net 1,313 426
Customer relationships 1,301 --
Other assets 76 23
-------- --------
Total assets $ 8,184 $ 13,078
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 941 $ 694
Deferred revenue 1,559 1,248
Accrued compensation and benefits 698 468
Notes payable and current portion of long-term debt 1,327 1,837
Other accrued liabilities 1,699 717
Net liabilities of discontinued operation 193 339
-------- --------
Total current liabilities 6,417 5,303
-------- --------
Other noncurrent liabilities 1,550 985
Long-term debt, less current portion 107 590
-------- --------
Total liabilities 8,074 6,878
-------- --------
Commitments and contingencies (Note 14)
Stockholders' equity:
Series A cumulative convertible preferred stock, $.01 par value; liquidation
preference $100 per share; 100,000 shares authorized;
50,000 shares issued and outstanding in 2002 and 2001 6,368 5,968
Series B cumulative convertible preferred stock; $.01 par value;
liquidation preference $100 per share; 800,000 shares authorized;
281,800 shares issued and outstanding in 2002 and 265,000 shares
issued and outstanding in 2001 33,096 29,262
Series C-1 cumulative convertible preferred stock; $.01 par value;
liquidation preference $80 per share; 125,000 shares authorized;
75,000 shares issued and outstanding in 2002 and 53,750 shares
issued and outstanding in 2001 13,229 10,442
Series C-2 cumulative convertible preferred stock; $.01 par value;
liquidation preference $120 per share; 125,000 shares authorized;
0 shares issued and outstanding in 2002 and 2001 -- --
Common stock, $.01 par value, 40,000,000 shares authorized;
3,485,624 shares issued in 2002 and 3,264,872 shares issued in 2001 35 33
Additional paid-in capital 6,653 12,815
Deferred stock compensation (481) --
Accumulated deficit (50,905) (43,795)
Treasury stock at cost, 396,292 shares in 2002 and 438,247
shares in 2001 (6,787) (7,522)
Accumulated other comprehensive loss (1,098) (1,003)
-------- --------
Total stockholders' equity 110 6,200
-------- --------
Total liabilities and stockholders' equity $ 8,184 $ 13,078
======== ========
See accompanying notes to consolidated financial statements.
F2
USDATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
-----------------------
2002 2001 2000
---- ---- ----
Revenues:
Product license $ 8,287 $ 11,477 $ 13,019
Services 2,057 2,095 3,015
-------- -------- --------
Total revenues 10,344 13,572 16,034
-------- -------- --------
Operating expenses:
Selling and product materials 8,714 9,088 12,812
Product development 1,468 1,694 6,402
General and administrative 3,089 3,222 6,521
Customer relationships amortization 118 - -
Severance and other restructuring charges 730 1,068 2,518
Write off of capitalized software 3,336 391 1,781
-------- -------- --------
Total operating expenses 17,455 15,463 30,034
-------- -------- --------
Loss from operations (7,111) (1,891) (14,000)
Interest expense (119) (213) (388)
Other income, net 22 37 114
-------- -------- --------
Loss from continuing operations before
preferred stock dividends of subsidiary (7,208) (2,067) (14,274)
Preferred stock dividends of subsidiary - - (642)
-------- -------- --------
Loss from continuing operations (7,208) (2,067) (14,916)
Discontinued operations:
Income (loss) from discontinued operation 98 182 (28,324)
Loss on disposal of discontinued operation,
including operating losses of $360 for 2001 - - (1,193)
-------- -------- --------
Net loss (7,110) (1,885) (44,433)
Dividends on preferred stock, preferred stock
warrant and beneficial conversion (4,491) (10,812) (401)
-------- -------- --------
Net loss applicable to common stockholders $(11,601) $(12,697) $(44,834)
======== ======== ========
Net loss per common share:
Basic:
Loss from continuing operation $ (4.02) $ (4.57) $ (5.60)
Income (loss) from discontinued operation 0.03 0.07 (10.79)
-------- -------- --------
Net loss per common share - basic $ (3.99) $ (4.50) $ (16.39)
======== ======== ========
Diluted:
Loss from continuing operation $ (4.02) $ (4.57) $ (5.60)
Income (loss) from discontinued operation 0.03 0.07 (10.79)
-------- -------- --------
Net loss per common share - diluted $ (3.99) $ (4.50) $ (16.39)
======== ======== ========
Weighted average shares outstanding: {a}
Basic 2,908 2,820 2,735
Diluted 2,908 2,820 2,735
======== ======== ========
{a} As of December 31, 2002, total shares outstanding on an as converted
basis was 8,192,000 shares.
See accompanying notes to consolidated financial statements.
F3
USDATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
AND COMPREHENSIVE LOSS
(IN THOUSANDS)
Accumulated Total
Additional Deferred Other Stockholders'
Preferred Common Paid-in Stock Retained Treasury Comprehensive Equity
Stock Stock Capital Compensation Earnings Stock Loss (Deficit)
-------- ------ --------- ------------ -------- -------- ------------- -------------
Balance, at December 31, 1999 $ - $26 $ 22,082 $(1,278) $ 2,523 $(8,434) $ (832) $ 14,087
Exercise of stock options 56 330 386
Exercise of common stock
warrants 7 2,102 2,109
Issuance of common stock 206 259 465
Amortization of deferred
compensation 1,278 1,278
Acquisition of common stock 116 (116) -
Preferred stock (Note 9) 5,167 (164) 5,003
Preferred stock dividends 401 (401) -
Acceleration of stock
option vesting 25 25
Comprehensive loss:
Net loss (44,433) (44,433)
Foreign currency
translation adjustment (132) (132)
--------
Total comprehensive loss (44,565)
------- --- -------- ------- -------- ------- ------- --------
Balance, at December 31, 2000 5,568 33 24,022 - (41,910) (7,961) (964) (21,212)
Issuance of common stock (382) 439 57
Issuance of common stock
warrant 87 87
Issuance of preferred stock 2,150 (100) 2,050
Conversion of eMake
Series A-1 and A-2
preferred stock into
Series B preferred
stock 27,142 27,142
Preferred stock dividends 2,662 (2,662) -
Series C-2 warrant
beneficial conversion 6,000 (6,000) -
Series C-1 beneficial
conversion 2,150 (2,150) -
Comprehensive loss:
Net loss (1,885) (1,885)
Foreign currency
translation adjustment (39) (39)
--------
Total comprehensive loss (1,924)
------- --- -------- ------- -------- ------- ------- --------
Balance, at December 31, 2001 45,672 33 12,815 - (43,795) (7,522) (1,003) 6,200
Issuance of common stock (712) 735 23
Issuance of common
stock warrant 32 32
Issuance of preferred stock 850 (40) 810
Preferred stock dividends 2,791 (2,791) -
Series C-2 warrant beneficial
conversion 850 (850) -
Series C-1 beneficial
conversion 850 (850) -
Series B issued for
acquisition 1,680 2 (1,453) 229
Deferred stock compensation -
related to acqusition 502 (502) -
Amortization of deferred
compensation 21 21
Comprehensive loss: -
Net loss - (7,110) (7,110)
Foreign currency
translation adjustment (95) (95)
--------
Total comprehensive loss (7,205)
------- --- -------- ------- -------- ------- ------- --------
Balance, at December 31, 2002 $52,693 $35 $ 6,653 $ (481) $(50,905) $(6,787) $(1,098) $ 110
======= === ======== ======= ======== ======= ======= ========
See accompanying notes to the consolidated financial statements.
F4
USDATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
-----------------------
2002 2001 2000
---- ---- ----
Cash flows from operating activities:
Net loss $ (7,110) $ (1,885) $(44,433)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
(Income) loss from discontinued operations (98) (182) 28,324
Loss on disposal of discontinued operations - - 1,193
Furniture and equipment transfer in lease negotiation 135 - -
Depreciation and amortization 3,978 3,586 2,527
Non-cash stock compensation 53 87 -
Write off of capitalized software development costs 3,336 391 1,781
Write off of fixed assets - - 81
Non-cash interest expense - - 313
Preferred stock dividends of subsidiary - - 642
Changes in operating assets and liabilities, net of working
capital from acquisition:
Accounts receivable, net 804 1,500 2,134
Other assets, net 191 140 (51)
Accounts payable and other accrued liabilities (396) (1,678) 1,977
Accrued compensation and benefits 152 (340) (1,112)
Deferred revenue (153) 30 (636)
-------- -------- --------
Net cash provided by (used in) continuing operations 892 1,649 (7,260)
Net cash used in discontinued operations (48) (1,892) (16,204)
-------- -------- --------
Net cash provided by (used in) operating activities 844 (243) (23,464)
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (579) (60) (1,114)
Capitalized software development costs (668) (1,317) (4,120)
Acquisition (304) - -
Refund of leasehold improvement costs - 209 -
-------- -------- --------
Net cash used in continuing operations (1,551) (1,168) (5,234)
Net cash used in discontinued operations - - (2,783)
-------- -------- --------
Net cash used in investing activities (1,551) (1,168) (8,017)
-------- -------- --------
Cash flows from financing activities:
Proceeds from stock warrant exercise - - 2,109
Proceeds from stock option exercises - - 386
Proceeds from issuance of common stock 23 57 -
Proceeds from issuance of preferred stock, net 810 2,050 6,937
Proceeds from issuance of demand notes payable - - 26,750
Payments on demand notes payable - - (7,500)
Borrowing under revolving line of credit 1,229 1,657 750
Other borrowings 139 710 -
Payments on revolving line of credit and debt (2,360) (1,892) (126)
-------- -------- --------
Net cash provided by (used in) financing activities (159) 2,582 29,306
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (866) 1,171 (2,175)
Cash and cash equivalents, beginning of period 1,844 673 2,848
-------- -------- --------
Cash and cash equivalents, end of period $ 978 $ 1,844 $ 673
======== ======== ========
Supplemental disclosures of non-cash operating, investing
and financing activities:
In conjunction with the acquisition:
Series B preferred and common stock issued $ 229 $ - $ -
Accrued liability related to software held for resale 920 - -
Furniture and equipment transfer in lease negotiation 135 - -
Conversion of accrued liabilities to long-term
notes payable - 232 -
Conversion of notes payable and accrued interest
to preferred stock - - 19,563
Property and equipment acquired by capital lease - - 645
Cash paid for interest 91 181 75
See Notes 3, 6, and 8 for other non-cash financing activities
======== ======== ========
See accompanying notes to consolidated financial statements
F5
USDATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
USDATA Corporation is an independent, global supplier of industrial
automation software tools, applications and consulting services designed to
provide businesses with the knowledge and control needed to perfect the products
they produce and the processes they manage. During the 1980s, USDATA evolved its
software research and engineering to focus on supervisory control and data
acquisition. As a result, we developed FactoryLink(R), our main industrial
automation software product, which has become one of the manufacturing and
process industry's most widely used automation products. FactoryLink(R) was
launched in 1986 and to date has shipped more than 79,000 copies to more than
110 countries around the world.
As manufacturing continued to evolve, so did the need to create new
solutions that would assist companies to better manage their production
processes. In 1998, USDATA launched Xfactory(R). Building on its expertise on
the shop floor, USDATA's Xfactory(R) product is designed to track all aspects of
discrete manufacturing production in real time. Xfactory(R) maintains
historically accurate records, provides defect tracking, and complete product
genealogy. Data gathered and analyzed by this powerful product gives companies
the insight needed to improve production performance and meet the changing
requirements of customers dynamically, while generating enhanced competitive
advantage.
Our software solutions span a wide range of manufacturing and
automation processes, from monitoring equipment to tracking product flow, and
are designed to integrate seamlessly with customers' existing manufacturing and
business software. This combination of product breadth and ease of integration
is intended to provide a total plant solution that defines new levels of
manufacturing performance and gives customers a distinct competitive advantage.
Our products and services are designed to help customers manage their business
in real time, reduce operating costs, shorten cycle times and improve quality in
their manufacturing operations. We provide this knowledge through software
products and services and deliver it through a community of business partners.
We have channel support locations in the United States and Europe and we have a
global network of distribution and support partners.
Our family of software products provides a powerful set of software
tools and applications designed for users who are technically competent but who
may not be experienced software programmers.
LIQUIDITY
Our financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business.
At December 31, 2002, we had a working capital deficit of $2.5 million,
an accumulated deficit of $50.9 million and have incurred losses from continuing
operations in each of the years ended December 31, 2002, 2001 and 2000.
Based upon anticipated levels of operations, we anticipate that our
ongoing working capital requirements will continue to be funded through
internally generated funds, our net borrowings from our working capital line of
credit and the $1.5 million equity financing we received on January 15, 2003
(See Note 17). We anticipate that such sources of funds will be sufficient to
satisfy our operating and debt service cash needs throughout 2003 and for the
foreseeable future; however, there can be no assurance that these funds will be
sufficient. Our working capital line of credit requires us to maintain
compliance with certain financial covenants each quarter. Certain of these
covenants require us to maintain increasingly higher amounts of earnings before
interest, taxes, depreciation and amortization ("EBITDA") and tangible net worth
during 2003. In order to meet such requirements throughout 2003, we will be
required to achieve sales levels, which are above those that have currently been
attained. There is no assurance we will be able to reach such sales levels and
maintain compliance with the financial covenants contained in the working
capital line of credit. Based on the conditional financing arrangements of our
working capital line of credit, there can be no assurance we will be able to
obtain any additional funding on acceptable terms, if at all. In the event of a
default under our working capital line of credit and in the event the lending
bank does not waive the default, our operations could be materially adversely
affected. In that event, we would be required to delay or abandon certain
operating activities and capital expenditures, which would further adversely
affect our operations.
USE OF ESTIMATES
Management has made a number of estimates and assumptions related to
the reporting of assets and liabilities and the disclosure of contingent assets
and liabilities in preparation of these consolidated financial statements in
conformity with accounting principles generally accepted in the United States of
America. Actual results could differ from those estimates.
F6
USDATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of USDATA
and its wholly-owned subsidiaries. All intercompany accounts and transactions
have been eliminated.
RECLASSIFICATIONS
Certain reclassifications have been made to 2001 and 2000 to conform to
the presentation in 2002.
CASH EQUIVALENTS
USDATA considers all highly liquid investments purchased with
maturities of three months or less at the time of purchase to be cash
equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at original cost. Maintenance and
repairs are charged to expense as incurred, and the costs of additions and major
betterments and replacements are capitalized. Depreciation is provided in
amounts, which amortize costs over the estimated useful lives of the related
assets, generally three to five years, utilizing the straight-line method.
Leasehold improvements are amortized over the lesser of the term of the
respective leases or estimated useful life of the improvement.
INTANGIBLE ASSETS
Computer Software Development Costs. Software development costs
incurred prior to establishing technological feasibility are charged to
operations and included in product development costs. Software development costs
incurred after establishing technological feasibility, and purchased software
costs, are capitalized and amortized on a product-by-product basis when the
product is available for general release to customers. Annual amortization,
charged to selling and product materials, is the greater of the amount computed
using the ratio that current gross revenues for a product bear to the total of
current and anticipated future gross revenues for that product, or the
straight-line method over the remaining estimated economic life of the product.
The total computer software development costs capitalized for 2002, 2001 and
2000 were $668 thousand, $1.3 million, and $2.3 million (net of a write-off of
$1.8 million), respectively. The total costs amortized and charged to operations
for 2002, 2001 and 2000 were $2.7 million, $2.3 million, and $1.1 million,
respectively, and is included in selling and product materials expense.
Accumulated amortization at December 31, 2002 and 2001 was $5.5 million and $3.3
million, respectively.
Software Held for Resale. Purchased software or the purchase of
underlying source code for a certain software product that is held for resale in
the ordinary course of business is capitalized and amortized on a straight-line
basis over the estimated economic useful life, generally three to five years.
Total costs amortized and charged to operations for all software held for resale
were $572 thousand, $398 thousand and $480 thousand for 2002, 2001 and 2000,
respectively. Accumulated amortization at December 31, 2002 and 2001 was $1.6
million and $1.0 million, respectively.
Customer Relationships. The cost of acquired companies is allocated to
the assets acquired and liabilities assumed based on estimated fair values at
the date of acquisition. Costs allocated to identifiable intangible assets,
other than intangible assets with definite lives, are generally amortized on a
straight-line basis over their remaining estimated useful life. Our identifiable
intangible asset is comprised of the customer relationships resulting from the
2002 acquisition described in Note 2.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 144 "Accounting for the Impairment or Disposal of Long-Lived
Assets," effective January 1, 2002. SFAS No. 144 supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets to be Disposed of." Both of
these standards require that long-lived assets and certain intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to the future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the net asset exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
F7
USDATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
REVENUE RECOGNITION
Revenue from the licensing of software products is recognized in
accordance with Statement of Position 97-2, Software Revenue Recognition ("SOP
97-2"), as amended by SOP 98-9, Modification of SOP 97-2, With Respect to
Certain Transactions ("SOP 98-9"), and we generally recognize revenue when all
of the following criteria are met as set forth in paragraph 8 of SOP 97-2: (1)
persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the
fee is fixed or determinable; and (4) collectibility is probable. Each of the
four criteria above is defined as follows:
Persuasive evidence of an arrangement exists. It is customary practice
to have a written contract, which is signed by both the customer and us or, in
situations where a contract is not required, a customer purchase order has been
received.
Delivery has occurred. Our software may be either physically or
electronically delivered to the customer. Delivery is deemed to have occurred
upon the delivery of the electronic code or the shipment of the physical product
based on standard contractual committed shipping terms, whereby risk of loss
passes to the customer when shipment is picked up by the carrier. If undelivered
products or services exist in an arrangement that is essential to the
functionality of the delivered product, delivery is not considered to have
occurred until these products or services are delivered as described above.
The fee is fixed or determinable. Our customers generally pay a
per-license fee that is based on the number of servers on which the software is
installed, the size of the application that they will develop for the software,
the options provided for those servers, and the number of client workstations
that access the server. Additional license fees are due when the total number of
subscribers using our products increases beyond the specified number for which a
license was purchased or when additional options are added. License fees are
generally due within 30-45 days from product delivery in the United States and
within 30 - 90 days from product delivery internationally.
Collectibility is probable. Collectibility is assessed on a
customer-by-customer basis. We typically sell to customers with high credit
ratings and solid payment practices. New customers are subjected to a credit
review process, in which we evaluate the customers' financial position and
ultimately their ability to pay. If it is determined from the outset of an
arrangement that collectibility is not probable based upon our credit review
process, revenue is recognized as cash payments are received.
We allocate revenue on software arrangements involving multiple
elements to each element based on the relative fair value of each element. Our
determination of fair value of each element in multiple element arrangements is
based on vendor-specific objective evidence ("VSOE"). We limit our assessment of
VSOE to the price charged when the same element is sold separately. We have
analyzed all of the elements included in our multiple-element arrangements and
determined that we have sufficient VSOE to allocate revenue to maintenance and
support services and professional service components of our license
arrangements. We sell our professional services separately, and have established
VSOE on this basis. VSOE for maintenance and support services is based on the
customer's annual renewal rates for these elements. Accordingly, assuming all
other revenue recognition criteria are met, revenue from licenses is recognized
on delivery using the residual method in accordance with SOP 98-9, and revenue
from maintenance and support services is recognized ratably over the respective
term.
Professional services generally are not essential to the functionality
of the software. Our software products are fully functional upon delivery and
implementation and do not require any significant modification or alteration.
Customers purchase these professional services to facilitate the adoption of our
technology and dedicate personnel to participate in the services being
performed, but they may also decide to use their own resources or appoint other
professional service organizations to provide these services. Software products
are typically billed separately and independently from professional services,
which are generally billed either on a time-and-materials or a
milestone-achieved basis. We generally recognize revenue from professional
services as the services are performed.
SOFTWARE LICENSE AGREEMENT WARRANTIES AND INDEMNIFICATIONS
We typically provide our customers a warranty on our software products
for a period of 90 days. Such warranties are accounted for in accordance with
SFAS No. 5, "Accounting for Contingencies." To date, we have not incurred any
costs related to warranty obligations. Under the terms of substantially all of
our software license agreements, we have agreed to indemnify our customers for
all costs and damages arising from claims against such customer based on, among
other things, allegations that our software infringes the intellectual property
rights of a third party. In most cases, in the event of an infringement claim,
we retain the right to (i) procure for the customer the right to continue using
the software; (ii) replace or modify the software to eliminate the infringement
while providing substantially equivalent functionality; or (iii) if neither (i)
nor (ii) can be reasonably achieved, we may terminate the license agreement and
refund to the customer the license fee paid to us. Such indemnification
provisions are accounted for in accordance with SFAS No. 5. Through December 31,
2002, there have been no claims under such indemnification provisions.
STOCK-BASED COMPENSATION
We apply the intrinsic value method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and related interpretations, in accounting for stock
options and other stock based awards under our stock option plan. The difference
between the quoted market price as of the date of the grant and the contractual
purchase price of shares is charged to operations over the vesting period. No
compensation cost has been recognized for fixed stock options with exercise
prices equal to the market price of the stock on the dates of grant and shares
acquired by employees under the USDATA 1994 Equity Compensation Plan. Pro forma
net income and earnings per share disclosures as if we recorded compensation
expense based on the fair value for stock-based awards have been presented in
accordance with the provisions of SFAS No. 148, Accounting for Stock-Based
Compensation-Transition
F8
USDATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
and Disclosure, and are as follows for the years ended December 31, 2002, 2001
and 2000:
(in thousands, except per share data) 2002 2001 2000
---------------------------------------
Net loss:
As reported $(11,601) $(12,697) $(44,834)
Stock-based employee compensation cost included in reported net income,
net of related tax effects -- -- --
Total stock-based employee compensation expense determined under fair
value-based method for all awards, net of related tax effects (505) (140) (1,156)
-------- -------- --------
Proforma $(12,106) $(12,837) $(45,990)
======== ======== ========
Basic and diluted net loss per common share
As reported $ (3.99) $ (4.50) $ (16.39)
Pro forma (4.16) (4.55) $ (16.82)
======== ======== ========
The weighted-average fair value of options granted was $1.64, $3.09 and
$53.95 for 2002, 2001, and 2000, respectively. The fair value of each option is
estimated at the date of grant using a modified Black-Scholes option pricing
model, with the following weighted-average assumptions for 2002, 2001 and 2000,
respectively: dividend yields of 0% for all three years; expected volatility of
150%, 100% and 121%; risk-free interest rate of 2.9% to 4.7%, 4.7% to 6.0%, and
5.0% to 6.3%; and expected lives of 5 years.
ACCOUNTING CHANGES
In July 2001, the Financial Accounting Standards Board issued SFAS No.
141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 141 requires that the purchase method of accounting be used and
establishes new standards for the recognition of certain identifiable intangible
assets, separate from goodwill for all business combinations initiated after
June 30, 2001. SFAS No. 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually. SFAS No. 142 also requires that intangible assets
with definite useful lives be amortized over their respective estimated useful
lives to their estimated residual values. We adopted the provisions of SFAS No.
141 effective July 1, 2001 and fully adopted SFAS No. 142 effective January 1,
2002. The acquisition discussed in Note 2 was accounted for in accordance with
both SFAS No. 141 and SFAS No. 142.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
This method results in the recognition of deferred tax liabilities and assets
for the expected future tax consequences of temporary differences between the
carrying amounts and the tax basis of assets and liabilities.
FINANCIAL INSTRUMENTS
The carrying values of cash equivalents, accounts receivable and
accounts payable approximate fair value due to their short maturities. The
carrying value of our bank note payable and revolving line of credit at December
31, 2002 and 2001 approximates fair value as these notes payable bear interest
at market rates.
NET LOSS PER SHARE OF COMMON STOCK
Net loss per share of common stock is presented in accordance with the
provisions of SFAS No. 128, "Earnings Per Share." Under SFAS No. 128, basic loss
per share excludes dilution for potentially dilutive securities and is computed
by dividing income or loss available to common stockholders by the weighted
average number of common shares outstanding during the period. Diluted earnings
(loss) per share reflect the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into common
stock. Potentially dilutive securities are excluded from the computation of
diluted earnings (loss) per share when their inclusion would be antidilutive to
the results of continuing operations.
Options to purchase 437,000; 294,000; and 301,000 shares of common
stock for 2002, 2001 and 2000, respectively, were not included in the
computation of diluted earnings per share as their impact would be antidilutive.
In addition, the following common stock equivalents were not included in the
computation of diluted earnings per share for 2002 due to their impact being
antidilutive: (1) warrants to purchase 1,712,500, 50,000 and 243,902 shares of
common stock; and (2) 2,907,566 equivalent common shares that would be issued
upon the conversion of our issued and outstanding
F9
USDATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Series A Preferred, Series B Preferred, and Series C-1 Preferred.
FOREIGN CURRENCY TRANSLATION
The balance sheets of our foreign subsidiaries are translated using
year-end exchange rates and we translate our statement of operations amounts
using the average exchange rates in effect during the year. The gains and losses
resulting from the change in exchange rates from year to year have been reported
separately as a component of accumulated other comprehensive loss in
stockholders' equity. Gains and losses resulting from foreign currency
transactions are included in the statements of operations and such amounts have
not been significant.
CONCENTRATION OF CREDIT RISK
We license software and provide services to established companies. We
perform credit evaluations of our customers and generally do not require
collateral. We maintain reserves for estimated credit losses. At December 31,
2002, we had one customer with an outstanding accounts receivable balance of
approximately $0.5 million. This customer represented approximately 28% of our
revenues for 2002. At December 31, 2001, we had two customers with outstanding
accounts receivable balances of approximately $0.6 million and $0.3 million,
respectively. These customers represented approximately 21% and 7%,
respectively, of our revenues for 2001.
2. ACQUISITION
On October 1, 2002, USDATA acquired all the issued and outstanding
stock of Wizard Information Systems, Ltd ("Wizard"), pursuant to the terms of an
Agreement for the Purchase of Wizard Information Systems Limited ("Acquisition
Agreement"), dated October 1, 2002 ("Completion Date"), by and among USDATA and
John Adrian Wise and David John Moody (each a "Seller" and together the
"Sellers"). We acquired Wizard primarily to secure direct access to end-users.
Wizard is a privately held company located in the United Kingdom and is one of
USDATA's largest European distributors. Wizard is an independent automation
solutions provider founded in 1995 and has offices in the United Kingdom, France
and the Netherlands.
In connection with the acquisition, USDATA paid consideration of
$140,000 in cash, 220,752 unregistered shares of USDATA common stock, and 16,800
shares of USDATA Series B Preferred, each of which is convertible into 3.28
shares of USDATA common stock. The Series B Preferred and common stock was
valued at an aggregate fair market value of $229 thousand. We also incurred $164
thousand in acquisition costs. In addition, the Sellers are entitled to receive
additional consideration in the aggregate; (i) a maximum of 257,544 shares of
unregistered USDATA common stock and 19,600 shares of Series B Preferred
("Performance Shares") contingent upon Wizard achieving a certain target gross
revenue level by March 31, 2003, and (ii) a maximum of 257,544 shares of USDATA
common stock and 19,600 shares of Series B Preferred ("Retention Shares")
contingent upon continued employment with Wizard for three years, under the
terms and conditions of an Executive Service Agreement entered into by and among
Wizard and the Sellers. The Performance Shares and Retention Shares, if earned,
shall be granted in equal installments on each of the first three anniversaries
of the Completion Date; and, to the extent not yet granted, shall be forfeited
in the event that the Seller's employment with USDATA terminates as set forth in
the Acquisition Agreement. The Performance Shares and Retention Shares, if
earned, will be recognized as non-cash compensation expense in our statement of
operations. We recorded $21 thousand in non-cash stock compensation in
connection with the earned portion of the Retention Shares during the year ended
December 31, 2002.
The acquisition has been accounted for under the purchase method of
accounting in accordance with SFAS No. 141. The purchase price has been
allocated to the assets acquired and liabilities assumed based on estimated fair
values at the date of acquisition. The purchase price allocations are subject to
adjustment resulting from the finalization of those estimated fair values. The
excess purchase price over the estimated fair value of net tangible assets of
$1.4 million has been allocated to customer relationships and is being amortized
on a straight-line basis over its remaining estimated useful life of 3 years. We
recorded $118 thousand in amortization expense for the three months and year
ended December 31, 2002. The results of the acquired business have been included
in the consolidated financial statements since the date of acquisition of
October 1, 2002. A summary of the total purchase price and purchase price
allocation of the acquisition is as follows:
F10
USDATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(in thousands)
Accounts receivable, net $ 543
Customer relationships 1,419
Other assets, net 234
Accounts payable (547)
Deferred revenue (464)
Other accrued liabilities (652)
-------
Total purchase price $ 533
=======
Unaudited pro forma operating results as though the acquisition had
occurred on January 1, 2001, with adjustments primarily to give effect to
amortization of customer relationships, is as follows:
Year Ended December 31,
-----------------------
(in thousands, except per share data) 2002 2001
--------- --------
(unaudited)
Revenues $ 11,776 $ 15,822
Loss from operations (8,140) (2,663)
Net loss applicable to common stock (12,631) (13,470)
Net loss per share:
Basic and diluted $ (4.34) $ (4.78)
======== ========
3. DISCONTINUED OPERATION
In February 2001, management of USDATA determined that the market
adoption rate of the technology around our eMake subsidiary was not progressing
in a manner to support the resources needed to continue eMake's newly developed
operating plan. As a result, our Board of Directors approved a plan on February
26, 2001 to terminate the operations of eMake as of March 31, 2001 as part of a
strategy to commit our resources to our core business. At December 31, 2000, we
recorded an estimated loss on disposal of $1.2 million, including operating
losses of $360 thousand expected to be incurred through the disposal date of
March 31, 2001. eMake is reported as a discontinued operation, and the
consolidated financial statements have been reclassified to segregate the net
assets and operating results of the business. Summarized financial data of the
discontinued operation are as follows:
(in thousands) 2002 2001 2000
-------- -------- --------
Financial position:
Net liabilities of discontinued operation (a) $ (193) $ (339) $ (2,413)
======== ======== ========
Discontinued operation:
Revenues $ -- $ -- $ 1,075
-------- -------- --------
Operating (income) expense before severance and
other restructuring and acquisition related charges -- -- 18,087
Amortization of intangible assets (b) -- -- 1,078
Non-cash stock compensation (b) -- -- 1,278
Severance and other restructuring charges (a) (c) (98) (182) 1,861
Asset impairment charge (d) -- -- 7,095
-------- -------- --------
Income (loss) from discontinued operation $ 98 $ 182 $(28,324)
======== ======== ========
(a) In December 2002, we reversed $98 thousand in estimated legal fees that were
accrued as a result of terminating the operations of eMake. The balance at
December 31, 2002 represents $119 thousand in accounts payable and $74 thousand
in other accrued liabilities.
(b) Acquisition
On August 6, 1999, we completed the acquisition of substantially all of
the assets and certain liabilities of Smart Shop Software, Inc. ("Smart Shop")
for $6.4 million in cash, plus transaction costs of $0.2 million. The eMake
segment
F11
USDATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
operations were built around the Smart Shop operations and assets acquired. This
acquisition was accounted for under the purchase method of accounting. The
excess purchase price over the estimated fair value of net tangible assets was
allocated to various intangible assets, consisting of developed technology of
$1.8 million, assembled work force of $251 thousand and goodwill of $5.2
million, all of which were being amortized to expense on a straight-line basis
over 5 years. We recorded $1.1 million to expense for the period ended December
31, 2000.
In connection with the acquisition, we issued 500,000 shares of USDATA
common stock to certain former shareholders of Smart Shop who became employees
of eMake. The shares of common stock were held in escrow as collateral for
performance under the purchase agreement to be released from escrow to the
shareholders in six tranches, each six months following the closing date of
August 6, 1999. As a result, we recorded deferred stock compensation of $1.9
million to stockholders' equity in 1999. The deferred stock compensation was
recognized as compensation expense over 36 months, as the restrictions lapsed.
Due to the restructuring plan described in (b) below, the remaining shares were
released from escrow and we accelerated the amortization of the compensation
charge in full and recorded a non-cash stock compensation charge of $1.3 million
for the period ended December 31, 2000.
(c) Severance and Other Restructuring Charges
During the year 2000, we implemented a restructuring plan designed to
reduce our cost structure by reducing our workforce and other operating
expenses. We recorded a one-time charge for eMake of $1.9 million primarily
consisting of employee severance and other employee-related costs of $1.2
million. Other charges included in the $1.9 million are early lease termination
and facility shutdown costs of $112 thousand, write-downs of redundant property
and equipment of $308 thousand, lease costs associated with vacated office space
of $242 thousand and $10 thousand for legal and other related costs.
Severance costs were determined based upon employees' years of service
as well as level within the organization. The reduction in workforce included
approximately 93 employees, or approximately 67%, and affected all functions of
eMake. Of the total amount charged to expense for the year ended December 31,
2000, approximately $603 thousand was paid during 2000 and the remaining $549
thousand was paid during 2001. All affected employees were terminated as of
December 31, 2000.
Of the total lease termination and facility shutdown costs charged to
expense for the year 2000 of $354 thousand, $54 thousand were paid by December
31, 2000 and $168 thousand were paid by December 31, 2001. We settled the
remaining $132 thousand accrual related to lease costs associated with vacated
office space and reversed this accrual in 2001. The reversal is included in
income from discontinued operations in the consolidated statement of operations,
in addition to $50 thousand received related to a royalty agreement with eMake
and one of its competitors, for the year ended December 31, 2001. $10 thousand
was paid related to legal and other costs through December 31, 2000.
At December 31, 2001, $14 thousand other employee-related costs
remained in accrued liabilities, which was paid in 2002. As of December 31,
2002, no employee-related costs were outstanding.
(d) Asset Impairment Charge
As a result of our restructuring plan described in Note 8, we
re-evaluated eMake's business model during the fourth quarter of 2000. A revised
operating plan was developed to restructure and stabilize the business. Based on
the forecasted undiscounted cash flows from the revised operating plan, it was
determined that certain intangible assets of eMake were impaired and we recorded
an asset impairment charge of $7.1 million. The amount of the impairment was
measured based upon projected discounted future cash flows from the revised
operating plan. The asset impairment charge includes a write-off of goodwill and
intangible assets of $4.0 million, net and $1.5 million, net, respectively. Also
included in the impairment charge were capitalized website development costs and
capitalized software costs of $1.2 million, net and $365 thousand, net,
respectively. The acquired intangible assets were written off in 2000.
F12
USDATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. PROPERTY AND EQUIPMENT
The components of property and equipment at December 31, 2002 and 2001
were as follows:
(in thousands) 2002 2001
- ------------------------------------------------------
Equipment $ 2,096 $ 2,083
Purchased software 1,315 1,301
Furniture and fixtures 381 381
Leasehold improvements 84 83
Vehicles -- --
Assets under capital leases 305 605
------- -------
4,181 4,453
Accumulated depreciation
and amortization (3,671) (3,241)
------- -------
Net property and equipment $ 510 $ 1,212
======= =======
5. INTANGIBLE ASSETS
Intangible assets with definite useful lives are amortized over their
respective estimated useful lives to their estimated residual values. The
following is a summary of intangible assets at December 31, 2002 and 2001:
2002 2001
-------------------------------------- --------------------------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
(in thousands) Amount Amortization Total Amount Amortization Total
---------- ---------- ---------- ---------- ---------- ----------
Definite Useful Lives
Computer software development costs $ 6,557 $ 5,464 $ 1,093 $ 9,721 $ 3,278 $ 6,443
Software held for resale 2,896 1,583 1,313 1,436 1,010 426
Customer relationships 1,419 118 1,301 -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Total $ 10,872 $ 7,165 $ 3,707 $ 11,157 $ 4,288 $ 6,869
========== ========== ========== ========== ========== ==========
Amortization expense related to intangible assets was $3.4 million,
$2.7 million and $1.6 million for the years ended December 31, 2002, 2001, and
2000, respectively. Estimated amortization expense related to intangible assets
subject to amortization at December 31, 2002 for each of the years in the five
year period ending December 31, 2007 and thereafter is: 2003 - $2.230 million;
2004 - $960 thousand; 2005 - $517 thousand; 2006 - $0; 2007 - $0 and thereafter
- - $0.
On March 20, 2002 (the "Effective Date"), we entered into a source code
license agreement with the developer of the client graphics used within our
FactoryLink(R) software product. We have a nonexclusive right to reproduce,
modify and incorporate the licensed software into other computer software. In
addition, the licensed software shall be marketed, distributed and sublicensed
under one or more of our and/or third party's trademarks, trade names or service
marks. The purchase price of the licensed software was $900,000 payable over
three years as follows: (a) $200,000 within 10 business days of the Effective
Date; (b) $200,000 six months after the Effective Date; (c) $250,000 on April
30, 2003; and (d) $250,000 on March 20, 2004. As of December 31, 2002, $250,000
of the remaining amount due is included in other accrued liabilities with the
balance of $250,000 included in other non-current liabilities. We capitalized
the original purchase price of $900,000 of the licensed software as software
held for resale and it is being amortized on the straight-line method over the
estimated economic life of three years.
On July 9, 2002, we acquired the rights to certain source code related
to value added products that are currently bundled into our FactoryLink(R)
software product for $560,000. Under the license agreement we were granted a
worldwide, non-exclusive, perpetual, irrevocable, assignable and transferable
license to use the source code, design documentation, user documentation, setups
and related materials. The $560,000 is payable over three years in annual
payments of $140,000 beginning in 2002. The first payment was made on July 9,
2002 upon receipt of the source code. Each additional payment is due on each of
the first, second and third anniversary of the effective date, June 30, 2002. As
of December 31, 2002, $140,000 of the remaining amount due is included in other
accrued liabilities with the balance of $280,000 included in other non-current
liabilities. We capitalized the original purchase price of $560,000 as software
held for resale and it is being amortized on the straight-line method over the
estimated economic life of three years.
The $1.4 million excess purchase price over the estimated fair value of
net tangible assets of the acquired business described in Note 2 has been
allocated to customer relationships and is being amortized on a straight-line
basis over its remaining estimated useful life of 3 years. We recorded $118
thousand in amortization expense for the three months and year ended December
31, 2002.
F13
USDATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Due to lower than expected future revenue from the S2K software product
and due to our decision to re-direct our sales and development efforts to our
core software products, FactoryLink(R) and Xfactory(R), we determined that the
carrying amount of the capitalized software development costs for S2K may not be
recoverable. We compared the carrying amount of the capitalized software
developments costs for S2K to future net cash flows expected to be generated by
the asset and determined that the asset was impaired. As a result, we wrote off
the entire carrying value of $3.3 million to expense in December 2002.
As a result of strategy changes from two of our suppliers, we
determined that the carrying amount of capitalized software development costs
related to two of our software products were not recoverable and as a result
deemed to be impaired during the third quarter of 2001. We wrote off $355
thousand related to our Analyzer software product and $36 thousand related to
our Connector software product, totaling $391 thousand.
In 2000, we wrote off $1.8 million of capitalized software costs due to
impairment of certain software products.
6. DEBT
Our borrowings at December 31, 2002 and 2001 consisted of:
(in thousands) 2002 2001
------ ------
Revolving line of credit $ 663 $1,145
Bank promissory note 79 143
Non-interest bearing note payable 74 174
Capital leases 169 414
Note payable 449 468
Financed insurance -- 83
------ ------
Total debt 1,434 2,427
Less current portion 1,327 1,837
------ ------
$ 107 $ 590
====== ======
A wholly-owned subsidiary of USDATA, United States Data Corporation,
our operating entity, maintains a revolving credit facility with JPMorgan Chase
Bank (the "Lending Bank") to provide us with working capital assistance relating
to timing of our cash flow (the "Credit Facility"). The Credit Facility
originated on January 15, 2001 and on January 15, 2002, it was amended to extend
the Credit Facility to January 31, 2003 and increase the commitment fee from
1.0% to 1.5% per annum on the total commitment of up to $3.0 million. Effective
January 31, 2003, we renewed the Credit Facility through January 31, 2004,
increased the interest rate to the prime rate plus 3.0% and increased the
commitment fee from 1.5% to 2.0% per annum on the total commitment of up to $3.0
million. At December 31, 2002 and 2001, the interest rate was 5.75% and 6.25%,
respectively. The Credit Facility is collateralized by certain of our foreign
accounts receivable, and is guaranteed by USDATA and Export-Import Bank of the
United States ("EXIM Bank"). EXIM Bank guarantees 90% of the principal and
interest. At December 31, 2002 and 2001, $663 thousand and $1.1 million,
respectively, was drawn under the Credit Facility and is included in current
liabilities. Based on the qualifying borrowing base arrangement, total remaining
availability at December 31, 2002 and 2001 was $97 thousand and $309 thousand,
respectively. Due to the nature of the qualifying borrowing base arrangement,
our borrowing capability varies each month depending on billings and cash
collections.
We were not in compliance with the tangible net worth debt covenant for
the months ended March 31, April 30, and May 31, 2002. In addition, we did not
comply with the EBITDA debt covenant for the quarter ended March 31, 2002. On
April 15, 2002 and July 12, 2002, we received two separate waivers from the
Lending Bank waiving these defaults under the Credit Facility. In connection
with the April 15, 2002 waiver, the interest rate under the Credit Facility was
increased by 75 basis points to the prime rate plus 2.25% per annum. On July 12,
2002, the Lending Bank amended both debt covenants going forward beginning in
June 2002 to be consistent with our most recent operating plan. We complied with
both debt covenants as of June 30, 2002, but due to lower than expected revenue
for the third quarter of 2002 and an unexpected asset impairment charge in the
fourth quarter of 2002, we failed to comply with the EBITDA debt covenant for
both quarters and the tangible net worth debt covenant for the fourth quarter.
On October 24, 2002 and at renewal on January 31, 2003, we received waivers from
the Lending Bank waiving these defaults under the Credit Facility. The EBITDA
and tangible net worth covenants for the three months ended December 31, 2002
was $900 thousand and ($2.3) million, respectively. Actual EBITDA and tangible
net worth for this period was ($3.0) million and ($3.6) million. The debt
covenant defaults are attributed to lower than anticipated fourth quarter
revenues and for EBITDA the $3.3 million write down of impaired assets described
in Note 5. The EBITDA and tangible net worth covenants to be met for the first,
second, third and fourth quarters
F14
USDATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
of 2003, respectively, are as follows: (a) EBITDA - ($564) thousand, ($50)
thousand, ($25) thousand and $1.3 million; and (b) tangible net worth - ($3.4)
million, ($3.7) million, ($3.9) million and ($2.5) million.
In conjunction with the Smart Shop acquisition, we, through our wholly
owned subsidiary, assumed a promissory note with a bank in the amount of $297
thousand of which $79 thousand and $143 thousand was outstanding at December 31,
2002 and 2001, respectively. The note agreement requires monthly installments of
$7 thousand including interest at the bank prime rate plus 1.5%, or 5.75% at
December 31, 2002 and 6.25% for the same period in 2000. The note is
collateralized by all accounts receivable, inventory, general intangibles,
equipment and fixtures of the wholly-owned subsidiary. The promissory note is
guaranteed by USDATA and the final payment of the outstanding balance is due in
August 2003. Interest paid in 2002, 2001 and 2000 totaled $4 thousand, $17
thousand and $24 thousand, respectively.
Also, in connection with the 1999 acquisition of Smart Shop, we assumed
a $174 thousand noninterest-bearing note payable to a former Smart Shop
shareholder. The note was due in its entirety on August 5, 2002. As of December
31, 2002, $74 thousand was outstanding on the loan. The final payment was made
on January 17, 2003 settling the debt in full.
In December 2000, we entered into a development and commercialization
agreement with an OEM and one of our customers. On May 11, 2001, the agreement
was amended to include a loan agreement ("Loan") between a wholly-owned
subsidiary of USDATA and the OEM in connection with a co-coordinated development
program to co-develop what was to be the next major release of our software
product FactoryLink(R), or S2K. During 2001, the OEM advanced to USDATA $467,500
in three separate advances. The Loan bears interest at 10.5% per annum and is
repayable in eight equal quarterly installments of principal and interest with
the first installment due on April 15, 2002. As of December 31, 2002 and
December 31, 2001, $446 thousand and $468 thousand was outstanding on the Loan
with the entire balance being included in current liabilities for 2002 and $172
thousand included in current liabilities for 2001. We have not paid the
quarterly loan payments due for the third and fourth quarters of 2002 or the
first quarter of 2003, totaling $212 thousand. In October 2002, we contacted the
OEM and requested delaying the loan payments, as a result of their significantly
lower than forecasted purchases from USDATA. A key provision of the development
and commercialization agreement was that our software products were to be a
preferred solution of the OEM and that they were to actively promote and sell
our software products. On March 17, 2003, we entered into an amendment to the
development and commercialization agreement, whereby USDATA granted to the OEM a
license to the S2K source code as it existed on that date and the OEM forgave
the $446 thousand outstanding balance of the Loan. USDATA retains the
intellectual property rights to the existing S2K software product. In addition,
we have an obligation to provide 192 hours of support over the next twelve
months.
In November 2001, we renewed our Directors and Officers Liability
insurance. We financed the $125 thousand premium under a premium finance
agreement, which bears interest at 5.74% per annum. Monthly installments of $12
thousand were payable during 2001 and $83 thousand was outstanding at December
31, 2001. These amounts were paid in 2002. No such amounts were outstanding at
December 31, 2002
7. INCOME TAXES
Loss from continuing operations before dividends on preferred stock,
preferred stock warrant and beneficial conversion was ($7.2) million, ($2.1)
million and ($14.3) million for the years ended December 31, 2002, 2001 and
2000, respectively. The benefit (provision) for income taxes differed from the
amounts computed by applying the United States Federal statutory income tax rate
of 34% to income (loss) before taxes as a result of the following for the years
ended December 31, 2002, 2001 and 2000:
(in thousands) 2002 2001 2000
-------- -------- --------
Expected tax benefit $ 2,417 $ 703 $ 5,071
State taxes, net of federal impact (373) -- --
Change in valuation allowance (2,038) (246) (15,323)
Change in prior year estimate -- (377) --
Discontinued operations -- (62) 10,036
Other (6) (18) 216
-------- -------- --------
Income tax (provision) benefit $ -- $ -- $ --
======== ======== ========
F15
USDATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The components of deferred taxes at December 31, 2002 and 2001 were as follows:
(in thousands) 2002 2001
-------- --------
Deferred tax assets:
Net operating loss $ 21,940 $ 15,835
Impairment and restructuring 525 4,024
Allowance for doubtful accounts 36 104
Accrued benefits 40 74
Credits 1,075 1,075
Intangible assets 1,187 155
Compensation 247 247
Other 272 666
Valuation allowance (20,152) (18,114)
-------- --------
$ 5,170 $ 4,066
======== ========
Deferred tax liabilities:
Depreciation 616 851
Capitalized software 4,025 2,920
Other 529 295
-------- --------
$ 5,170 $ 4,066
======== ========
At December 31, 2002, we had net operating loss carryforwards of
approximately $64.4 million, which will expire beginning in 2018.
In assessing the realizability of deferred tax assets, we consider
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets
depends on the generation of future taxable income during the periods in which
those temporary differences become deductible. We consider the scheduled
reversal of deferred tax liabilities, projected future taxable income, and tax
planning strategies in making this assessment. Based upon these considerations,
we have fully reserved all deferred tax assets to the extent such assets exceed
deferred tax liabilities.
We believe as a result of common stock issuances in 2001 and 2002, we
have undergone an ownership change within the meaning of Section 382 of the
Internal Revenue Code ("IRC"). As a result, our ability to utilize our operating
loss carryforwards incurred prior to the ownership changes are limited on an
annual basis to the amount equal to the value of USDATA, as defined by the IRC,
as of the date of change in ownership, multiplied by the long-term exempt bond
rate.
No taxes have been provided on undistributed earnings of foreign
subsidiaries, as they are considered permanently reinvested.
8. SEVERANCE AND OTHER RESTRUCTURING CHARGES
During the fourth quarter of 2000, we implemented a restructuring plan
designed to reduce our cost structure by reducing our workforce and other
operating expenses. We recorded a charge of $2.5 million primarily consisting of
employee severance and other employee-related costs of $1.1 million. This charge
excludes the restructuring associated with eMake. See Note 3 for discussion on
eMake. Severance costs were determined based upon employees' years of service as
well as level within the organization. The reduction in workforce included
approximately 56 employees, or approximately 41% of the workforce, and affected
all functions within our organization. All affected employees were terminated as
of December 31, 2000. Other charges included in the $2.5 million are early lease
termination and facility shutdown costs of $200 thousand, write-downs of
redundant property, plant and equipment of $81 thousand, lease costs associated
with vacated office space of $1.0 million and $91 thousand for legal and other
related costs. These charges provide for future streamlining of operations
related to cost reduction initiatives. Of the total amount expensed in 2000,
approximately $827 thousand was paid during the year ended December 31, 2000 and
approximately $1.5 million was paid during the year ended December 31, 2001. The
remaining $76 thousand was paid during 2002.
The continuing deterioration of the real estate market affected our
ability to sublease approximately 44,400 square feet of excess office space at
our headquarter facilities. As a result, we accrued an additional $1.1 million
in restructuring charges related to lease costs associated with vacated office
space in the third quarter of 2001, representing an estimated one full year of
lease costs associated with the excess office space. In October 2001, we
initiated negotiations with Crescent Real Estate Funding VIII, L.P. (the
"Landlord") whereby the Landlord would remove the 44,400 square feet of excess
office space under the facility lease. On March 19, 2002, we entered into a
Fourth Amendment to the Office Lease Agreement (the
F16
USDATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
"Fourth Amendment") with the Landlord to reduce our lease payment commitment
obligations and our excess leased office space. Pursuant to the Fourth
Amendment, the Landlord reacquired approximately 44,400 rentable square feet,
reducing our headquarters' space to 34,982 rentable square feet ("Existing
Premises"). We sublease approximately 14,802 square feet of the Existing
Premises. The Fourth Amendment extended the lease term four months to December
31, 2010, and increased the base rental rate per square foot on the Existing
Premises by $1.00 each year beginning in 2003 and ending in 2005. In year 2006,
the base rental rate per square foot increases by $1.75 from year 2005 and
remains constant through year 2010. In addition, we owed $444 thousand at March
31, 2002 to the Landlord representing rents due on the excess leased space for
five months. The Landlord agreed to waive any claim to such amount owed
contingent upon timely payment of all rent to be paid on the Existing Premises.
The $444 thousand will be reduced by $51 thousand per year over the remaining
term of the lease. We also transferred to the Landlord our right, title and
interest in excess office furniture, with a carrying value of approximately $135
thousand. In connection with the Fourth Amendment, we issued a Warrant, dated
March 19, 2002, to the Landlord for the purchase of up to 243,902 shares of our
common stock at an exercise price per share of $2.05, the closing market price
on the date of the Warrant. The Warrant is exercisable by the Landlord, in whole
or in part, at any time commencing on March 19, 2002 and ending on March 18,
2007. In addition, under the Fourth Amendment, we released certain rights, such
as our right to terminate the Lease in 2005, certain preferential rights to
lease additional space and the right to extend the Lease. By implementing the
provisions of the Fourth Amendment, we realized a cash savings of approximately
$1.0 million in lease costs during 2002. In connection with the Fourth Amendment
we recorded a $356 thousand restructuring charge for the consultant who assisted
us in the negotiations. At December 31, 2002, $67 thousand of the remaining
accrual was included in other current liabilities and $119 thousand was included
in other non-current liabilities.
We compute rent expense to be recognized under the Lease, as amended,
considering the increasing rent over the rent term and all amounts previously
accrued for as rent expense, including the $1.1 million recorded in the third
quarter of 2001 for unoccupied excess lease space, $135 thousand for the excess
office furniture transferred to the Landlord and $383 thousand for the value of
the Warrant issued on March 19, 2002. The remaining accrual will be amortized
over the remaining lease term as an offset to rent expense, and the carrying
value of the excess office furniture and value of the Warrant will be amortized
as an increase to rent expense. At December 31, 2002, $129 thousand of the
remaining accrual was included in other current liabilities and $901 thousand
was included in other non-current liabilities.
For the nine months ended September 30, 2002, revenues declined by 31%
when compared to the same period in 2001 and declined by 25% when compared to
the second quarter of 2002. As a result, in November 2002 we implemented a 23%
reduction in our workforce in an effort to streamline and reduce our overhead
costs. The reductions included approximately 17 employees and were primarily
from general and administrative, quality assurance, and documentation. The
quality assurance functions will be outsourced at a lower cost. A portion of the
cost savings from the general and administrative reductions will be offset by
newly established sales positions and sales and marketing programs. All affected
employees were terminated as of December 31, 2002. We recorded $374 thousand in
severance and other employee related costs associated with this reduction and
related to the resignation of our former president and chief executive officer
in October of 2002. Our board of directors appointed an interim president and
chief executive officer to serve in this capacity for a considerable amount of
time and who is with a turnaround management firm. As of December 31, 2002, $280
thousand was outstanding and is included in accrued compensation and benefits on
the balance sheet. The severance costs were determined based upon employees'
years of service as well as level within the organization.
9. STOCKHOLDERS' EQUITY AND CONVERTIBLE PREFERRED STOCK
STOCK SPLIT
On July 10, 2001, our board of directors approved and recommended that
the stockholders approve an amendment to our Certificate of Incorporation to
affect a one-for-five reverse stock split (the "Reverse Split") of our issued
and outstanding common stock (the "Existing Common"). On July 10, 2001, the
holders of a majority of the outstanding shares of Existing Common approved the
amendment by written consent. Approval by the board of directors and by the
holders of a majority of the outstanding shares of common stock is required
under Delaware law to effect the amendment. The amendment became effective upon
the filing of the amendment to our Certificate of Incorporation with the
Delaware Secretary of State on August 20, 2001. The Reverse Split became
effective August 21, 2001 the ("Effective Date").
Pursuant to the terms of the Reverse Split, each five shares of
Existing Common outstanding immediately prior to the Effective Date was
reclassified as, and exchanged for, one share of newly issued common stock, par
value $0.01 per share ("New Common"). No fractional shares of New Common were
issued. If the conversion resulted in a fraction of a share, then we rounded up
such fraction of a share and the holder received a whole share for such
fraction. The per share amounts reported herein have been adjusted to give
effect to the Reverse Split for all periods presented.
PREFERRED STOCK
F17
USDATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The board of directors is authorized, subject to certain limitations
and without stockholder approval, to issue up to 2.2 million shares of preferred
stock in one or more series and to fix the rights and preferences of each
series. In 1999, the board of directors designated 100,000 shares of authorized
preferred stock as Series A Preferred, of which 50,000 shares were issued and
outstanding at December 31, 2002 and 2001. In September 2000, we executed an
amendment to the Certificate of Designation for our Preferred Stock which
changed the terms of the Series A Preferred and designated 800,000 shares of
authorized preferred stock as Series B Preferred, of which 281,800 shares and
265,000 shares were issued and outstanding at December 31, 2002 and 2001,
respectively. The amended terms included that neither the Series A Preferred nor
Series B Preferred are redeemable and that the cumulative dividends are no
longer interest bearing. In March 2001, we executed a Certificate of Designation
for Series C-1 Preferred and Series C-2 Preferred which designated 125,000
shares of authorized preferred stock as Series C-1 Preferred and designated
125,000 shares of authorized but unissued preferred stock as Series C-2
Preferred. As of December 31, 2002 and 2001, 75,000 and 53,750 shares,
respectively, of Series C-1 Preferred were issued and outstanding.
SERIES A CONVERTIBLE PREFERRED STOCK
On August 6, 1999, we issued through a private placement 50,000 shares
of our Series A Preferred for $5.0 million to a wholly-owned subsidiary of
Safeguard, which was one of our primary stockholders. The Series A Preferred has
a par value of $0.01 per share and a liquidation preference of $100 per share,
plus cumulative dividends. Dividends on the Series A Preferred are cumulative
and payable in additional shares of Series A Preferred or in cash at a rate of
$8.00 per share per annum and in preference to any dividends on our common
stock. The preferred stock is convertible at any time into shares of our common
stock at a conversion rate of $23.25 per share of common stock. The preferred
stock is also convertible into shares of common stock of any majority owned
subsidiary of USDATA through the earliest of the following events: (a) June 1,
2006; (b) the commencement of the liquidation or winding up of the business of
eMake; (c) the sale of all or substantially all of the assets and properties of
eMake; (d) a merger, consolidation or other similar transaction involving eMake
in which eMake is not the surviving entity or eMake is the surviving entity but
after which the holders of the outstanding voting securities of eMake before the
transaction hold less than 50% of eMake's outstanding voting securities after
the transaction; (e) the sale by eMake of its securities in a public offering;
or (f) a decrease in the ownership percentage of USDATA's voting securities of
eMake to the extent that eMake would cease to be a consolidated subsidiary of
USDATA. The Series A Preferred was mandatorily redeemable according to the
original terms, however in September 2000, the Series A designation was amended
to remove the mandatory redemption provision. At December 31, 2002 and 2001, the
aggregate liquidation preference was $6.4 million and $6.0 million, including
cumulative dividends of $1.4 million and $968 thousand, respectively. The
holders of the Series A Preferred are subordinated to the holders of the Series
B Preferred and Series C-1 and C-2 Preferred. Dividends of $400 thousand, $400
thousand and $401 thousand have been recorded for the years ended December 31,
2002, 2001 and 2000, respectively.
SERIES A-1 AND A-2 REDEEMABLE CONVERTIBLE PREFERRED STOCK OF EMAKE
On August 7, 2000, USDATA and eMake executed a Securities Purchase
Agreement to provide $26.5 million in financing in the form of eMake preferred
stock. The transaction was approved by our stockholders on September 11, 2000
and the transaction was completed on September 12, 2000.
On September 12, 2000, SCP and Safeguard each purchased through a
private placement 5,300,000 shares, for a total of 10,600,000 shares, of eMake
Series A-1 Preferred and Series A-2 Preferred and warrants to purchase up to an
additional 5,300,000 shares each of eMake Series A-1 and Series A-2 Preferred,
respectively. The aggregate purchase price of $26,500,000 was comprised of
$6,936,754 in cash and cancellation of $19,250,000 of the notes payable and the
related accrued interest of $313,246.
On January 31, 2001, SCP and Safeguard elected to exercise their right
to acquire 132,500 shares each of USDATA Series B Preferred in exchange for
5,300,000 shares in eMake Series A-1 Preferred and 5,300,000 shares of eMake
Series A-2 Preferred, respectively. As a result, no series of eMake preferred
stock remains outstanding.
SERIES B CONVERTIBLE PREFERRED STOCK
The Series B Preferred has a par value of $0.01 per share and a
liquidation preference of $100 per share, plus cumulative dividends. Dividends
on the Series B Preferred are cumulative and payable in additional shares of
Series B Preferred at a rate of $8.00 per share per annum. The holders of the
Series B Preferred rank senior to the holders of the Series A Preferred with
respect to dividend rights, rights on liquidation, dissolution and winding up
and preference to any dividends on the common stock. The preferred stock is
convertible at any time into our shares of common stock at a conversion rate of
$30.45 per share of common stock. At December 31, 2002 and 2001, the aggregate
liquidation preference was $33.2 million and $29.3 million, respectively,
including cumulative dividends of $4.3 million in 2002 and
F18
USDATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
$2.1 million in 2001 and cumulative preferred stock dividends of subsidiary of
$642 thousand in 2000. Dividends of $2.154 million and $2.120 million have been
recorded for the years ended December 31, 2002 and 2001.
Pursuant to the acquisition described in Note 2, we issued 16,800
shares of Series B Preferred to the Sellers and recorded $1,680,000 to Series B
Preferred stock.
SERIES C CONVERTIBLE PREFERRED STOCK
On March 30, 2001, we secured an equity infusion of $1.5 million from
SCP through the issuance of 37,500 shares of USDATA Series C-1 Preferred and a
warrant to purchase up to 75,000 shares of Series C-2 Preferred. In addition,
SCP committed to purchase an additional 37,500 shares of Series C-1 Preferred
("Option Stock") at the purchase price of $40 per share or $1.5 million. We had
the right to exercise our right to sell the Option Stock on or before the
expiration of nine months after March 30, 2001 ("Closing Date"), but not before
May 30, 2001, and we were required to be in compliance with specified monthly
targets as defined in the Series C Preferred Stock Agreement. As an additional
condition to this equity financing, SCP and Safeguard 2000 agreed not to convert
upon exercise of eMake warrants to acquire Series A-1 and A-2 Preferred,
respectively, which are convertible into USDATA Series B Preferred.
On July 20, 2001, we exercised our right to sell 16,250 shares of the
Option Stock to SCP. We received $635,596, net of transaction costs, in exchange
for issuing 16,250 shares of our Option Stock to SCP.
USDATA and SCP entered into a First Amendment to the Series C Preferred
Stock Purchase Agreement (the "Agreement"). The Agreement amends that certain
Series C Preferred Stock Purchase Agreement dated March 30, 2001 (the "Original
Agreement") to extend our right to sell the remaining 21,250 shares of our
Series C-1 Preferred ("Remaining Option Preferred Stock") at $40 per share or
$850,000 to December 31, 2002. In addition, the Agreement provides SCP with
warrant coverage for 50% of the Remaining Option Preferred Stock issued if we
exercise our right to sell the Remaining Option Preferred Stock (up to 10,625
shares). The Agreement deleted the provision that we had to be in compliance
with specified monthly targets in order to exercise our right to sell the
Remaining Option Preferred Stock. On March 8, 2002, the Agreement was
unanimously approved by the disinterested members of our Board of Directors.
On September 30, 2002, we exercised our right to sell the remaining
21,250 shares of the Remaining Option Preferred Stock to SCP. We received
$809,867 in cash, net of transaction costs, in exchange for the shares. In
connection with issuing the remaining 21,250 shares of Remaining Option
Preferred Stock to SCP, we issued a warrant to SCP granting them the right to
purchase up to an additional 10,625 shares of Series C-2 Preferred at a purchase
price of $40 per share. As of December 31, 2002, SCP held two warrants granting
them the right to purchase in the aggregate 85,625 shares of our Series C-2
Preferred at a purchase price of $40 per share.
As of December 31, 2002 and 2001, 75,000 and 53,750 shares of Series
C-1 Preferred were issued and outstanding. The total proceeds were $2.9 million,
net of transaction costs.
The Series C-1 Preferred has a par value of $0.01 per share and a
liquidation preference of $80 per share, plus cumulative dividends and interest.
The preferred stock is convertible into our common stock at a conversion rate of
20 shares of common stock for each share of preferred stock and the cumulative
dividends are payable at $4.00 per share per annum in the form of additional
shares of Series C-1 Preferred. The Series C-1 Preferred ranks senior to all
other classes and series of our capital stock with respect to dividend rights,
rights on liquidation, dissolution and winding up. The excess of the liquidation
preference over the purchase price of the preferred stock has been reflected as
a $3.0 million and $2.150 million dividend on preferred stock for the year ended
December 2002 and 2001, respectively, increasing the loss applicable to common
stockholders and decreasing additional paid-in capital. At December 31, 2002 and
2001, the aggregate liquidation preference was $13.2 million and $10.4 million,
including cumulative dividends of $378 thousand for 2002 and $142 thousand for
2001, dividends related to the beneficial conversion feature of the liquidation
preference of $3.0 million and dividend on the Series C-2 Preferred warrant of
$6.9 million (see below). Dividends of $236 thousand and $142 thousand have been
recorded for the years ended December 31, 2002 and 2001. Dividends related to
the beneficial conversion feature of the liquidation preference of $850 thousand
and $2.150 million have been recorded for the years ended December 31, 2002 and
2001.
WARRANT TO PURCHASE SERIES C-2 PREFERRED STOCK
The Series C-2 Preferred warrants issued to SCP by USDATA grants SCP
the right to purchase up to 85,625 shares of USDATA Series C-2 Preferred at a
purchase price of $40 per share. The Series C-2 Preferred has a par value of
$0.01 per share and a liquidation preference of $120 per share, and is
convertible into our common stock at a conversion rate of 20 shares of common
stock for each share of preferred stock. The right to purchase the shares of
Series C-2 Preferred
F19
USDATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
under the warrant are exercisable on any business day on or before March 30,
2011. On exercise, the warrant provides the holder a liquidation preference of
three times the exercise price per share. The excess of the liquidation
preference of the Series C-2 Preferred to be acquired on warrant exercise over
the warrant exercise price of $3.4 million has been reflected as additional
return to the Series C-1 preferred stockholder, increasing loss applicable to
common stockholders of $850 thousand and $6.0 million for the years ended
December 31, 2002 and 2001, respectively, and decreasing additional paid-in
capital by $6.9 million.
WARRANTS TO PURCHASE SERIES A-1 AND A-2 PREFERRED STOCK
The eMake Series A-1 and eMake Series A-2 Preferred warrants grant to
the holder the right to purchase up to an additional 5,300,000 shares of eMake
Series A-1 Preferred and up to an additional 5,300,000 shares of eMake Series
A-2 Preferred at an exercise price of $0.01 per share. The holder of the eMake
Series A-1 and Series A-2 Preferred warrants agreed not to convert upon exercise
of eMake warrants to acquire Series A-1 and A-2 Preferred, respectively, which
are convertible into USDATA Series B Preferred. These warrants expire on June
30, 2006.
WARRANTS TO PURCHASE COMMON STOCK
In 1994, we issued warrants to Safeguard and a director of USDATA to
purchase our common stock. The warrants entitled Safeguard and the director to
purchase 698,238 and 77,582 shares, respectively, of USDATA common stock at an
exercise price of $3.02 per share. In December 1999, the director exercised his
warrant to purchase 77,582 shares of USDATA common stock and in June 2000
Safeguard exercised its warrant to purchase 698,238 shares of USDATA common
stock for $2.1 million in cash.
The changes in the number of issued and outstanding shares of our
preferred and common stock are summarized as follows:
Preferred Stock Common Stock
--------------------------------------------------------------------------------
Held In
Series A Series B Series C Issued Treasury Outstanding
--------- --------- --------- --------- --------- -----------
BALANCE AT DECEMBER 31, 1999 -- -- -- 3,125,224 490,463 2,634,761
Series A Preferred Stock 50,000 -- -- -- -- --
Common shares issued or purchased -- -- -- 139,648 (27,061) 166,709
--------- --------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 2000 50,000 -- -- 3,264,872 463,402 2,801,470
Series B Preferred Stock -- 265,000 -- -- -- --
Series C-1 Preferred Stock -- -- 53,750 -- -- --
Common shares issued or purchased -- -- -- -- (25,155) 25,155
--------- --------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 2001 50,000 265,000 53,750 3,264,872 438,247 2,826,625
Series B Preferred Stock -- 16,800 -- -- -- --
Series C-1 Preferred Stock -- -- 21,250 -- -- --
Common shares issued or purchased -- -- -- 220,752 (41,955) 262,707
--------- --------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 2002 50,000 281,800 75,000 3,485,624 396,292 3,089,332
========= ========= ========= ========= ========= =========
On October 1, 2002, SCP entered into a Stock Purchase Agreement with
Safeguard Delaware, Inc., Safeguard Scientifics (Delaware), Inc. and Safeguard
2000, pursuant to which SCP acquired for an aggregate purchase price of
$300,000, (1) 1,003,182 shares of USDATA common stock; (2) 50,000 shares of the
USDATA Series A Preferred; (3) 132,500 shares of USDATA Series B Preferred; and
(3) warrants to purchase 5,300,000 shares of Series A-1 Preferred of eMake. Upon
a sale, transfer or other disposition of such shares and warrants purchased by
SCP, or any portion thereof, or sale of all or substantially all of the assets
or stock of USDATA, on or before December 31, 2003, Safeguard shall receive an
aggregate of 25% of the excess that SCP receives over the $300,000 in the same
form and on the same terms and conditions, received by SCP in such transaction.
As of December 31, 2002, SCP held warrants exercisable for 10,600,000 shares of
eMake Series A-1 and A-2 Preferred, which are convertible into a total of
265,000 shares of USDATA Series B Preferred.
10. EQUITY COMPENSATION PLAN
In 1994, we adopted the 1994 Equity Compensation Plan (the 1994 Plan),
which provides for stock options to be granted to employees, independent
contractors and directors. The 1994 Plan was amended in 2000 to provide for the
issuance of up to 600,000 shares of common stock pursuant to the grant of
incentive stock options (ISO), non-qualified stock options (NSO), stock
appreciation rights (SARs) and restricted stock awards. Options issued under the
1994 Plan generally vest over a four-year period and are exercisable up to eight
years from the date of grant at a price per share equal to the fair market value
of the underlying stock on the date of grant. The 1994 Plan also authorizes an
automatic grant of options to purchase 4,000 shares of common stock to certain
eligible directors upon initial election to the board of directors,
F20
USDATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
which vest over four years, and a further grant of options to purchase 1,000
shares of common stock as an annual service grant, which fully vest as of the
grant date. Options granted to directors have an eight-year term. At December
31, 2002 and 2001, there were 25,000 and 168,000 shares, respectively, available
for future grant under the 1994 Plan. All share and per share amounts have been
adjusted to reflect the one for five reverse stock split effective August 21,
2001.
Option activity under our 1994 Plan is summarized as follows:
(in thousands, except share prices) 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------- ------- ------- ------- ------- -------
Outstanding at beginning of period 294 $ 18.76 301 $ 24.45 330 $ 20.10
Options granted 191 1.64 80 3.09 85 53.95
Options exercised -- -- -- -- (19) 20.65
Options forfeited (48) 13.95 (87) 29.61 (95) 35.60
------- ------- ------- ------- ------- -------
Outstanding at end of period 437 $ 10.77 294 $ 18.76 301 $ 24.45
------- ------- ------- ------- ------- -------
Options exercisable at year-end 193 $ 18.60 164 $ 20.86 166 $ 20.15
Shares available for future grant 25 168 161
======= ======= =======
The following summarizes information about our stock options outstanding at
December 31, 2002 (in thousands, except share prices):
Options Outstanding Options Exercisable
------------------------------------------------ -----------------------------
Weighted Avg.
Remaining
Number Contractual Life Weighted Avg. Number Weighted Avg.
Range of Exercise Prices Outstanding (in years) Exercise Price Exercisable Exercise Price
- -----------------------------------------------------------------------------------------------------------------------
$ 0.34 -- $ 1.90 172 7.3 $ 1.61 4 $ 1.25
$ 2.50 -- $ 4.69 75 6.2 3.08 21 3.02
$ 12.50 -- $ 17.50 42 2.8 15.38 36 15.49
$ 18.44 -- $ 22.50 121 3.0 19.74 116 19.74
$ 28.13 -- $ 44.38 17 5.1 30.02 11 31.00
$ 55.00 -- $ 85.00 10 5.2 66.21 5 66.11
------- -------
437 5.3 $ 10.77 193 $ 18.60
======= =======
11. RETIREMENT PLAN
We maintain a discretionary defined contribution plan covering
substantially all employees. During the years ended December 31, 2002, 2001 and
2000, we made contributions of approximately $48 thousand, $62 thousand and $200
thousand, respectively, to this plan.
12. NASDAQ COMPLIANCE NOTICES
On February 14, 2002, we received a letter from The Nasdaq Stock Market
notifying us that over the previous 30 consecutive trading days, our common
stock had not maintained a minimum market value of publicly held shares
("MVPHS") of $5.0 million as required for continued listing on The Nasdaq
National Market under Marketplace Rule 4450(a)(2) (the "Rule"). In accordance
with Nasdaq Marketplace Rule 4450(e)(1), we were provided 90 calendar days, or
until May 15, 2002, to regain compliance.
F21
USDATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
As of May 8, 2002, we had not regained compliance with the Rule and
applied to transfer our securities to The Nasdaq SmallCap Market. On June 11,
2002, our application was approved and our securities were transferred to The
Nasdaq SmallCap Market at the opening of business on June 12, 2002.
On July 23, 2002, we received a notice from The Nasdaq SmallCap Market
that for the last 30 consecutive trading days, the price of our common stock had
closed below the minimum $1.00 per share requirement for continued inclusion
under Marketplace Rule 4310(c)(4). In accordance with Marketplace Rule
4310(c)(8)(D), we had 180 days, or until January 21, 2003, to regain compliance.
On September 10, 2002, we received notice from The Nasdaq SmallCap Market that
the closing bid price of our common stock has been at $1.00 per share or greater
for at least 10 consecutive trading days. Accordingly, we regained compliance
with the minimum $1.00 per share requirement. However, on November 12, 2002, we
received notice that our common stock again fell below the minimum $1.00 per
share requirement for the last 30 consecutive trading days. We have 180 calendar
days, or until May 12, 2003, to regain compliance. There can be no assurance
that we will be able to regain compliance by May 12, 2003.
13. RELATED PARTY TRANSACTIONS
As of December 31, 2002, SCP beneficially owns approximately 68%, or
5,593,718 shares of our common stock by purchasing convertible preferred stock
and common stock as described below.
At various times throughout 2000, a subsidiary of Safeguard and SCP
provided $19.250 million in bridge financings to USDATA or eMake in exchange for
seven demand notes ranging from $1.5 million to $6.0 million. On September 12,
2000, USDATA and eMake secured $26.5 million in financing from Safeguard and SCP
through the issuance of eMake Series A-1 and A-2 Preferred. In connection with
this transaction, we received $6,936,754 in cash and Safeguard and SCP cancelled
the then outstanding notes payable balance due them of $19.250 million plus
accrued interest of $313,246.
On January 31, 2001, SCP and Safeguard elected to exercise their right
to acquire 132,500 shares each of USDATA Series B Preferred in exchange for
5,300,000 shares in eMake Series A-1 Preferred and 5,300,000 shares of eMake
Series A-2 Preferred, respectively. As a result, no series of eMake preferred
stock remains outstanding.
On March 30, 2001, we secured an equity infusion of $1.5 million from
SCP through the issuance of 37,500 shares of Series C-1 Preferred of USDATA and
a warrant to purchase up to 75,000 shares of Series C-2 Preferred. In addition,
SCP committed to purchase an additional 37,500 shares of Series C-1 Preferred
("Option Stock") at a purchase price of $40 per share or $1.5 million. On July
20, 2001, we exercised our right to sell 16,250 shares of the Option Stock to
SCP and on September 30, 2002, we exercised our right to sell 21,250 shares of
the Remaining Option Preferred Stock to SCP. We received $635,596 in cash, net
of transaction costs, in exchange for issuing the 16,250 shares and $809,867 in
cash, net of transaction costs, in exchange for issuing the 21,250 shares. See
Note 9 for further details.
On October 1, 2002, SCP acquired Safeguard's interest in USDATA by
entering into a Stock Purchase Agreement with Safeguard Delaware, Inc.,
Safeguard Scientifics (Delaware), Inc. and Safeguard 2000, pursuant to which SCP
acquired for an aggregate purchase price of $300,000, (1) 1,003,182 shares of
USDATA common stock; (2) 50,000 shares of the USDATA Series A Preferred; (3)
132,500 shares of USDATA Series B Preferred; and (3) warrants to purchase
5,300,000 shares of Series A-1 Preferred of eMake. Upon a sale, transfer or
other disposition of such shares and warrants purchased by SCP, or any portion
thereof, or sale of all or substantially all of the assets or stock of USDATA,
on or before December 31, 2003, Safeguard shall receive an aggregate of 25% of
the excess that SCP receives over the $300,000 in the same form and on the same
terms and conditions, received by SCP in such transaction.
In March 2000, USDATA, through its wholly-owned subsidiary, eMake,
entered into a master agreement with CompuCom Systems, Inc. ("CompuCom"), a
Safeguard partnership company. The master agreement engaged CompuCom to assist
USDATA with the planning, development, implementation and support of eMake. This
agreement was subsequently terminated in December 2000 due to our restructuring
plan. Total payments to CompuCom during 2000 were approximately $1.0 million.
14. COMMITMENTS AND CONTINGENCIES
LEASES
We lease office space, equipment and automobiles under non-cancelable
capital and operating lease agreements, which expire at various dates through
the year 2010. Assets recorded under capital leases were $0.3 million and $0.6
million at December 31, 2002 and 2001, respectively, and the related accumulated
amortization was $142 thousand and
F22
USDATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
$231 thousand at December 31, 2002 and 2001, respectively. Amortization of
capital lease assets of $15 thousand and $158 thousand was included in
depreciation expense for the years ended December 31, 2002 and 2001,
respectively.
Future minimum lease payments at December 31, 2002 under capital and
operating leases were as follows (in thousands):
Capital Operating
Leases Leases
- --------------------------------------------------------------------------------
2003 67 $ 922
2004 67 922
2005 44 938
2006 -- 932
2007 -- 875
2008 and thereafter -- 2,623
----- ------
Total minimum lease commitments 178 $7,212
----- ------
Less amounts representing interest 9
-----
Present value of net minimum lease payments 169
Less current portion 62
-----
$107
=====
Total rent expense was approximately $0.6 million; $0.8 million and
$1.1 million during the years ended December 31, 2002, 2001 and 2000,
respectively.
OTHER
USDATA has other contingent liabilities resulting from litigation,
claims and commitments incident to the ordinary course of business. Management
believes that the ultimate resolution of such contingencies will not have a
materially adverse effect on the financial position or results of operations of
USDATA.
15. OTHER ACCRUED LIABILITIES
Other accrued liabilities were comprised of the following components at
December 31, 2002 and 2001:
(in thousands) 2002 2001
------ ------
Lease costs associated with vacated office space $ 129 $ 129
Source code license agreements 390 --
Taxes other than income 213 --
Accrued costs associated with software license
purchases and billable services 199 --
Professional services 141 110
Other accrued expenses 627 478
------ ------
$1,699 $ 717
====== ======
16. SEGMENT AND GEOGRAPHIC DATA
We operate predominantly in one line of business: the development,
marketing and supporting of component-based software products for customers
requiring enterprise-wide, open systems solutions for the manufacturing and
production markets. The following table presents the pertinent data relating to
foreign operations:
F23
USDATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Year Ended December 31,
- --------------------------------------------------------------------------------
(in thousands) 2002 2001 2000
- ------------------------------- ------- ------- -------
Revenues to external customers:
United States $ 2,793 $ 4,479 $ 5,230
France 3,000 2,852 3,235
United Kingdom 1,034 950 1,450
Italy 621 814 802
Germany 517 679 481
Canada 414 948 703
Others 1,965 2,850 4,133
------- ------- -------
$10,344 $13,572 $16,034
======= ======= =======
The basis for grouping revenues from external customers is based on the
physical location of the customer. Long-lived assets, primarily property and
equipment and capitalized computer software development costs, are principally
located in the United States.
17. SUBSEQUENT EVENTS
USDATA and SCP entered into a Series C Preferred Stock Purchase
Agreement dated as of January 14, 2003, pursuant to which SCP acquired on
January 15, 2003, for an aggregate purchase price of $1.5 million, (1) 37,500
shares of Series C-1 Preferred; (2) a warrant to purchase 18,750 shares of
Series C-2 Preferred at an initial exercise price of $40.00 per shares, subject
to adjustment upon the occurrence of certain events; and (3) 619,186 shares of
USDATA common stock. We received $1.486 million in cash, net of transaction
costs. As of March 31, 2003, SCP beneficially owned approximately 74%, or
7,337,904 shares of our common stock
F24
USDATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
18. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(in thousands, except per share data)
FIRST SECOND THIRD FOURTH
2002 QUARTER QUARTER QUARTER QUARTER
- -------- ------- ------- ------- -------
Revenues $ 2,602 $ 2,709 $ 2,032 $ 3,001
------- ------- ------- -------
Income (loss) from continuing operations (892) (463) (1,066) (4,787)
Income from discontinued operation -- -- -- 98
------- ------- ------- -------
Net loss (892) (463) (1,066) (4,689)
Dividends on preferred stock (684) (684) (2,384) (739)
------- ------- ------- -------
Net loss applicable to common stockholders $(1,576) $(1,147) $(3,450) $(5,428)
======= ======= ======= =======
Net loss per common share (Basic and Diluted):
Loss from continuing operations $ (0.56) $ (0.40) $ (1.20) $ (1.79)
Income from discontinued operation -- -- -- 0.03
------- ------- ------- -------
Net loss per common share $ (0.56) $ (0.40) $ (1.20) $ (1.76)
======= ======= ======= =======
Weighted average shares outstanding:
Basic and diluted 2,836 2,836 2,868 3,089
======= ======= ======= =======
(in thousands, except per share data)
FIRST SECOND THIRD FOURTH
2001 QUARTER QUARTER QUARTER QUARTER
- -------- ------- ------- ------- -------
Revenues $ 3,468 $ 3,843 $ 3,261 $ 3,000
------- ------- ------- -------
Income (loss) from continuing operations (539) 31 (1,771) 212
Income from discontinued operation -- -- 132 50
------- ------- ------- -------
Net loss (539) 31 (1,639) 262
Dividends on preferred stock (8,130) (668) (1,330) (684)
------- ------- ------- -------
Net loss applicable to common stockholders $(8,669) $ (637) $(2,969) $ (422)
======= ======= ======= =======
Net loss per common share (Basic and Diluted):
Loss from continuing operations $ (3.08) $ (0.23) $ (1.10) $ (0.17)
Income from discontinued operation -- -- 0.05 0.03
------- ------- ------- -------
Net loss per common share $ (3.08) $ (0.23) $ (1.05) $ (0.14)
======= ======= ======= =======
Weighted average shares outstanding:
Basic and diluted 2,814 2,815 2,826 2,826
======= ======= ======= =======
(in thousands, except per share data)
FIRST SECOND THIRD FOURTH
2000 QUARTER QUARTER QUARTER QUARTER
- -------- -------- -------- -------- --------
Revenues $ 3,545 $ 3,761 $ 4,275 $ 4,453
-------- -------- -------- --------
Loss from continuing operations (2,626) (5,321) (3,583) (3,386)
Loss from discontinued operations (4,438) (7,254) (5,848) (10,784)
Loss on disposal of discontinued operation -- -- -- (1,193)
-------- -------- -------- --------
Net loss (7,064) (12,575) (9,431) (15,363)
Dividends on preferred stock (108) (108) (108) (77)
-------- -------- -------- --------
Net loss applicable to common stockholders $ (7,172) $(12,683) $ (9,539) $(15,440)
======== ======== ======== ========
Net loss per common share (Basic and Diluted):
Loss from continuing operations $ (1.06) $ (1.97) $ (1.33) $ (1.24)
Loss from discontinued operation (1.73) (2.65) (2.13) (4.28)
-------- -------- -------- --------
Net loss per common share $ (2.79) $ (4.62) $ (3.46) $ (5.52)
======== ======== ======== ========
Weighted average shares outstanding:
Basic and diluted 2,558 2,739 2,747 2,801
======== ======== ======== ========
Earnings per share calculations are based on the weighted average
number of shares outstanding in each period; therefore, the sum of the earnings
per share amounts for the quarters does not necessarily equal the year-to-date
earnings per share.
F25
USDATA Corporation and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
For the Years Ended December 31, 2002, 2001 and 2000
Balance at
Description beginning of Charged to Accounts Balance at end
year expense Written Off of year
--------- --------- --------- ---------
December 31, 2002
Allowance for doubtful accounts $ 279,000 $ (8,000) $(189,000) $ 82,000
December 31, 2001
Allowance for doubtful accounts $ 224,000 $ 55,000 $ -- $ 279,000
December 31, 2000
Allowance for doubtful accounts $ 453,000 $ 6,000 $(235,000) $ 224,000
33
EXHIBITS INDEX
1 (1) Articles of Association (incorporated by reference to Exhibit 1 to the
Annual Report on Form 20-F for the year ended December 31, 2000).
(2) An English translation of the Hebrew original which is the official
version of the Memorandum of Association (incorporated by reference to
Exhibit 3.1 to Amendment No. 2 to the registration statement on Form F-1
(File No. 33-56152) filed on February 25, 1993).
4(a) (1) An English translation of the Hebrew original, which is the official
version of the Letter of Intent dated April 27, 2003 among Bank Hapoalim,
Tecnomatix Technologies Ltd. and Tecnomatix Ltd. (incorporated by reference
to Exhibit 4(b)(1) to the Annual Report on Form 20-F for the year ended
December 31, 2002).
(2) An English translation of the Hebrew original which is the official
version of the Debenture between Tecnomatix Technologies Ltd. and Bank
Hapoalim B.M. (incorporated by reference to Exhibit 4(b)(2) to the Annual
Report on Form 20-F for the year ended December 31, 2002).
(3) Asset Purchase Agreement dated July 29, 2003 by and between USDATA
Corporation, Tecnomatix Technologies Ltd. and certain other parties
specified therein (incorporated by reference to Exhibit A to Schedule 13D
of Tecnomatix Technologies Ltd. describing certain holding in the
securities of USDATA Corporation, filed with the Securities and Exchange
Commission on August 7, 2003).
(4) Share Purchase Agreement dated July 29, 2003, by and between SCP
Private Equity Partners II, L.P. and Tecnomatix Technologies Ltd.
(incorporated by reference to Exhibit C to the Schedule 13D of Tecnomatix
Technologies Ltd. describing certain holding in the securities of USDATA
Corporation, filed with the Securities and Exchange Commission on August 7,
2003).
(5) Services Agreement between Tecnomatix Ltd. and Hewlett Packard (Israel)
Ltd. dated October 30, 2003, as amended by Amendment No. 1 thereto dated
December 29, 2003 and Amendment No. 2 thereto dated February 25, 2004.
(Portions of this exhibit have been omitted pursuant to a request for
confidential treatment).
4(b) (1) Share Purchase and Buy Back Agreement dated January 1, 2003 between
Tecnomatix Technologies Ltd. and Harel Beit-On, our Chairman of the Board
of Directors (incorporated by reference to Exhibit 4(b)(3) to the Annual
Report on Form 20-F for the year ended December 31, 2002).
(2) First Amendment dated January 26, 2003 to Letter of Agreement dated
January 16, 2001 between Tecnomatix Technologies Ltd. and Amir Livne,
Executive Vice President of Business Development and Strategy (incorporated
by reference to Exhibit 4(b)(4) to the Annual Report on Form 20-F for the
year ended December 31, 2002).
(3) Second Amendment dated December 1, 2003 to Letter of Agreement dated
January 16, 2001 between Tecnomatix Technologies Ltd. and Amir Livne,
Executive Vice President of Business Development and Strategy (incorporated
by reference to Exhibit 4(b)(3) to the Annual Report on Form 20-F for the
year ended December 31, 2003).
(4) An English translation of the Hebrew original, which is the official
version of the Lease Agreement dated June1, 2003 between Tecnomatix
Technologies Ltd. and Intergama Assets (1961) Ltd. and exhibits thereto
(incorporated by reference to Exhibit 4(b)(5) to the Annual Report on Form
20-F for the year ended December 31, 2002).
4(c) (1) Tecnomatix Technologies Ltd. 1994 Stock Option Plan (incorporated by
reference to Exhibit 10.8 to the registration statement on Form F-1 (File
No. 333-3540)).
(2) Tecnomatix Technologies Ltd. 1996 Stock Option Plan (incorporated by
reference to Exhibit 4(c) to the Annual Report on Form 20-F for the year
ended December 31, 2000).
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(3) 1996 Directors Stock Option Plan (incorporated by reference to Exhibit
4(c) to the Annual Report on Form 20-F for the year ended December 31,
2000).
(4) Robcad Technologies (1980) Ltd. Stock Option Plan (incorporated by
reference to Exhibit 4(c) to the Annual Report on Form 20-F for the year
ended December 31, 2000).
(5) Performance Based Stock Option Plan (incorporated by reference to
Exhibit 4(c) to the Annual Report on Form 20-F for the year ended December
31, 2000).
(6) Tecnomatix Technologies Ltd. 2000 Employee Share Purchase Plan
(incorporated by reference to Exhibit 4(c) to the Annual Report on Form
20-F for the year ended December 31, 2000).
(7) Tecnomatix Technologies Ltd. 2003 Global Share Option Plan and United
States and Israel Appendixes (incorporated by reference to Exhibit 4(c) to
the Annual Report on Form 20-F for the year ended December 31, 2003).
8. List of subsidiaries (incorporated by reference to Exhibit 8 to the Annual
Report on Form 20-F for the year ended December 31, 2003).
12.1 Certificate of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule
15d-14(a)
12.2 Certificate of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule
15d-14(a)
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
14.1 Consent of Independent Public Accountants of Tecnomatix Technologies Ltd.
14.2 Consent of Independent Registered Public Accounting Firm of Tecnomatix
Technologies, Inc.
14.3 Consent of Independent Registered Public Accounting Firm of USDATA
Corporation.
- 2 -