ATOSS Software AG — Annual Report 2002

Mar 17, 2003

Contents

Let sh hol der ter to are s
Inv Rel ati est or ons	12
Su vis Bo ard Re t per ory por	18
l R An rt nua epo
Con sol ida ted An l R rt nua epo	24
Con sol ida ted ba lan she et ce	38
Con sol ida ted inc tat ent om e s em	40
Con sol ida ted of c ash flo st ate nt me ws	41
No tes	42
Tab le o f as set s	68
Dev elo ent in Gro ita l an d r pm up cap ese rve s	69
Au dit of tifi cat cer e	70
Imp res sum	71

4
12
18
24
38
40
41
42
68
69
70
71

CO RP OR AT E O VE	RV IEW AC	CO RD ING	TO US -GA	AP : 1 2-M	ON TH CO	MP AR ISO	N
			200 2				200 1
	until	until	until	until	until	until	until	until	Cha nges
	Dec emb er	Se ber ptem	Jun e	Mar ch	Dece mbe r	Se ber ptem	Jun e	Mar ch	200 2 to 200 1
Soft war e	12,2 89	8,89 8	5,89 0	3,15 5	11,9 00	8,70 6	6,19 0	3,43 6	3%
Soft e lic war ense	5,49 6	3,82 0	2,50 1	1,45 1	6,28 9	4,52 0	3,43 5	2,25 7	-13%
Soft inten war e ma ance	6,79 3	5,07 8	3,38 9	1,70 4	5,61 1	4,18 6	2,75 5	1,17 9	21%
Serv ices	7,18 5	5,13 0	3,25 9	1,36 9	5,51 8	3,97 5	2,58 1	1,28 9	30%
IT-S ices errv	4,71 5	3,30 0	2,09 8	951	4,45 1	3,32 6	2,31 1	1,17 4	6%
Con sult in g	2,47 0	1,83 0	1,16 1	419	1,06 7	649	270	115	0% >10
Hard war e	2,57 9	1,81 3	1,13 7	615	2,77 1	2,05 7	1,17 5	628	-7%
Othe r	1,19 2	875	570	299	1,04 5	834	565	320	14%
Tota l Sa les	23,2 45	16,7 16	10,8 57	5,43 9	21,2 34	15,5 72	10,5 11	5,67 3	9%
EBIT DA	2,76 6	1,54 4	803	408	-169	-645	-806	129	>10 0%
EBIT	1,29 1	690	237	126	-1,4 12	-1,5 77	-1,4 24	-176	>10 0%
EBT	2,11 9	1,60 6	830	262	-177	-726	-639	89	0% >10
Net Inco me	1,25 6	983	509	165	-206	-568	-507	33	>10 0%
EPS	0.32	0.25	0.13	0.04	-0.0 5	-0.1 4	-0.1 3	0.01	>10 0%
EPS dilu ted	0.31	0.24	0.12	0.04	-0.0 5	-0.1 4	-0.1 2	0.01	>10 0%
Cas h Fl ow	4,13 4	3,59 7	1,41 5	1,05 3	2,81 1	1,18 7	-109	-1,9 89	47%
lo Emp yee s	171	173	165	165	167	170	177	185	2%
Li quid it y	33,7 35	33,4 15	31,7 92	32,3 31	31,6 90	30,3 21	29,3 67	30,2 09

CO RP OR AT E O VE	RV IEW	AC CO RD ING	TO US -GA	AP : Q UA RT ER	LY CO MP AR	ISO N
			200 2				200 1
	Q4	Q3	Q2	Q1	Q4	Q3	Q2	Q1
Soft war e	3,39 2	3,00 8	2,73 5	3,15 5	3,14 9	2,51 6	2,75 4	3,43 6
Soft e lic war ense	1,67 7	1,31 9	1,05 0	1,45 1	1,76 9	1,08 5	1,17 8	2,25 7
Soft inte war e ma nanc e	1,71 5	1,68 9	1,68 5	1,70 4	1,42 5	1,43 1	1,57 6	9 1,17
Serv ices	2,05 5	1,87 1	1,89 0	1,36 9	1,54 3	1,39 4	1,29 2	1,28 9
IT-S ervic es	1,41 5	1,20 2	1,14 8	951	1,12 5	1,01 5	1,13 7	1,17 4
Con sult in g	640	670	742	419	418	379	155	115
Hard war e	766	676	522	615	714	882	547	628
Othe r	317	305	272	299	210	270	245	320
l sa les Tota	6,52 9	5,85 9	5,41 8	5,43 9	5,66 1	5,06 1	4,83 9	5,67 3
EBIT DA	1,22 2	741	395	408	476	161	-936	129
EBIT	601	453	111	126	165	-153	-1,2 48	-176
EBT	512	776	568	262	549	-87	-728	89
Net Inco me	273	474	344	165	362	-61	-540	33
EPS	0.07	0.12	0.09	0.04	0.09	-0.0 2	-0.1 3	0.01
EPS dilu ted	0.07	0.12	0.08	0.04	0.09	-0.0 1	-0.1 3	0.01
Cas h Fl ow	537	2,18 1	362	1,05 3	1,62 3	1,29 6	1,88 0	89 -1,9
Emp lo yee s	171	173	165	165	167	170	177	185
Li quid it y	33,7 35	33,4 15	31,7 92	32,3 31	31,6 90	30,3 21	29,3 67	30,2 09

Dear Shareholders

after the year 2001 had entered years in the history of the IT industry, these negative trends continued throughout the 2002 business year. For the first time to success experienced major personnel cutbacks. All of the dwindling corporate investment volume, the extremely restricted

history as one of the most difficult this branch that has been so used technology branches suffered from financing willingness on the part of banks, and lacking opportunities to raise capital due to the doldrums on the stock markets.

economic research institutes, the growth in our core market Germany

Contrary to the original expectations of a host of renowned general market situation failed to improve. Instead, economic continued to weaken, while gross domestic product increased by a mere 0.2 % in 2002.

Against this extremely difficult backdrop the providers of application software in particular suffered from declining order intake and a virtual complete lack of large

individual orders.

ATOSS has achieved its targets

In spite of the many negative conditions prevailing, ATOSS Software AG has been able to hold its position very well, recording considerable growth both in terms of sales and also performance, thereby achieving the set targets. The decisive factor here is that ATOSS has been able to attain sustained profitability, with earning power improving from quarter to quarter. In 2002, the company improved profit margins on earnings before interest and tax (EBIT) from -7% in the year 2001 to +6% in 2002. On a quarterly level the EBIT sales margin of only 2% in the first and second quarter was boosted past the 8% mark in the third quarter and climbed to the current level of 9% in the past quarter. The sales margin on pre-tax earnings was boosted to +9 % (previous year: -1%). Here, the reversal in trend set in during the third quarter of 2001, and ATOSS has been generating positive operative results since the fourth quarter of 2001. With this return to the black, ATOSS has remained true to the company's

guiding principle since its inception in the year 1987: "Profitability as the foundation of solid growth."

This gratifying development is not only the result of cost cutting measures initiated in a timely manner and stringent cost controlling, but especially reflects the strengths of our business model and the consistent implementation of our corporate philosophy.

The foundation of our success consists of innovative solutions for a central issue of our clients, namely significantly enhancing productivity by intelligent human resources deployment. In this area, the integration of consulting services, software solutions and implementation services, as well as proven expertise in all matters related to intelligent personnel deployment are gaining increasing significance.

The order volume obtained in the year under report documents that companies are also willing to invest in economically challenging times when presented with tailored

Andreas F.J. Obereder President and Chief Executive Officer

Christiane Glöckler Member of the Executive board

Dr. Burkhard Scherf Member of the Executive board

and fine-tuned solutions that also deliver a return on investment within a relatively short period of time. All in all, the development of demand for competence and solution providers is gratifying for ATOSS, and the company's Medical business unit has proved especially successful in this context.

Dear Shareholders,

ATOSS remains a company with sound finances, very high liquidity and capital ratio, a strong cash flow and good opportunities to achieve above average growth. Our strong positioning on a very interesting market – namely the market for solutions revolving around intelligent personnel deployment – holds promising potential. Our leading expert and solution competence focusing on the issues of "intelligent personnel deployment" and the leading position of our software solutions for all company sizes, with regard to both functional and technical aspects and features, will also be expanded in the 2003 business year by additional targeted investments and by a continued focus on our core competencies.

Considerably enhanced performance

During the course of the year under report we succeeded in continuously enhancing our performance, and we achieved the turnaround that had been announced last year. Posting a 9% sales increase to € 23.2 million we not only generated a disproportionately strong leap in operating earnings (EBIT) but

also improved pre-tax earnings by an above average measure. EBIT climbed from € -1.4 million in the previous year to € 1.3 million in 2002. Pre-tax earnings also showed a strong improvement over last year's figures, and rose from € -0.2 million to € 2.1 million, representing an excellent performance by branch comparison. Earnings per share – which exceeded analyst projections several times during the course of the year – also reflect the gratifying performance at € 0.32 (previous year: € -0.05).

Operative cash flow also showed a significant gain from the previous year's figure of € 2.8 million to € 4.1 million, and liquid assets (liquid assets and marketable securities) totaled € 33.7 million as per December 31, 2002 (previous year: € 31.7 million).

Given this performance we have every reason to be very satisfied with our achievements in the 2002 business year. And all the more so, considering the fact that the market upswing anticipated at the beginning of 2002 failed to materialize.

Increased outpayments marking the commencement of a long-term dividend policy

On the basis of our positive business development we want our shareholders to participate in the success of our company. Therefore the Management Board and the Supervisory Board have drawn up and approved a dividend policy with a long-term orientation. In making

these moves we are responding to needs of the capital markets and enhance the appeal of ATOSS shares.

Since the company went public our market environment, but also the demands of the capital markets have undergone dramatic change. Also in the technology sector capital markets are calling for shares that deliver solid profits. By initiating a dividend policy with a long-term focus we are offering our shareholders the opportunity to participate in growth opportunities in our core markets and are linking this with a reliable dividend yield. The introduction of the dividend policy endows ATOSS shares with additional appeal thanks to solid and sustainable dividend yields.

In return for the trust and loyalty of our shareholders that have enabled our business development in the first place, the managing board and supervisory board propose to the General Meeting of Shareholders to introduce a long-term oriented dividend policy and commencing with a higher outpayment of € 1.50 per share.

In order to make this outpayment and underpin a continuous dividend policy in a credible manner, it will be necessary for company law reasons, to increase capital by company assets, followed by a reduction of capital by the same volume. These capital measures are made in order to enable the outpayments on the one hand, as well as create free capital surplus on the other. After carrying out the capital measures the share capital

will be unchanged over the present status. Given the respective adoption of resolutions at the General Meeting of Shareholders on April 30, 2003, the outpayment, depending on the registration of the individual capital adjustment measures, will probably be made at the yearend of 2003 or early in 2004. The comparatively long period until the outpayment is disbursed is due to provisions concerning company law mandating a minimum period of 6 months between the announcement of registration of capital reduction

and the ensuing outpayment.

In this process the increased outpayment gives due consideration to the altered market environment since our going public and, against the backdrop of high liquidity and our very positive cash flow, represents an initial step to bring our endowment with share capital and reserves to an adequate level. Moreover, this will sustainable enhance the income-to-equity ratio, and will in this respect too, represent a substantial enhancement of the appeal of ATOSS shares as investment, but also as means of financing further acquisitions.

Our future dividend policy is geared to ensuring our shareholders' continuous participation in company success. In this respect, company administration envisages that our shareholders will participate to an appropriate measure of between 30% and 50% of net earnings available for payout. At the same time, the formation of adequate, uncommitted capital reserves secures

an annual minimum divi dend largely independent of business developments of € 0.15 per share (for the time being) as well as the possibility to make major stock buybacks. In this way we are sending out a strong signal of our reliability and accountability to our shareholders. These measures too will bolster the appeal of ATOSS shares.

Lastly, we will also be consistently pursuing the further development of our company. Our excellent capital base currently offers an excellent position for organic growth, but also for external growth and reflects our strong position in protecting client investments. This is a basic consideration in our medium term liquidity planning.

In the ongoing 2003 business year we are aiming to continue the focus on core competencies and core markets that we embarked on in 2002. We are confident that we will be able to generate additional competitive advantages and sales opportunities by further enhancing our core products. We are also convinced that the existing core markets of Germany, Austria and Switzerland offer adequate potential for solid growth in the year 2003. Over the medium term, we will be opening up growth opportunities by selectively addressing additional foreign markets, as well as by making additional acquisitions. In the ongoing 2003 business year the course will be set by selecting target markets and developing a medium-term acquisition strategy. We hold adequate capital to go forward with these undertakings.

The strong underpinnings of our business model

The strategy of a consistent positioning of ATOSS Software AG as a solution provider focused on all the issues of intelligent personnel deployment is proving increasingly sound. Our offerings start with consulting services and extend to the provision of software products all the way through to their tailored implementation and their consistent fine tuning and finessing according to our clients' business processes. Although individual sales types showed diverging developments, the progression of our overall sales were completely in line with our expectations.

In the year under report the company scored a new record mark and notched up sales of € 23.2 million. Almost all company divisions showed positive developments and even the hardware and software areas were able to set themselves off from general branch trends.

All in all the software license and software maintenance areas reflected a slight upturn with sales recorded at € 12.3 million (previous year: € 11.9 million) marking a 3% rise. In 2002 software licenses accounted for sales of € 5.5 (previous year € 6.3 million). By comparison, software maintenance performance continued to show steady and positive development. Sales climbed by 21% over the previous year to a total of € 6.8 million. The Services division, comprising Consulting and IT Services, and also the Maintenance segment, were

able to prove that marked growth is possible independent of software sales. Sales generated by the Services division rose by a full 30% over the previous year to € 7.2 million. This success is the result of altered customer orientation and requirements. While the emphasis was formerly more on the sale of software products, there are increasing expectations of and demand for the solution competence that ATOSS is offering (in other words, software plus services).

The sales developments in the Services division illustrates the advantages of our balanced business model especially in times of weak markets: even given their cautious wielding of investment budgets and the resulting disinclination to invest in major software projects, more and more companies are realizing the benefits and potentials of intelligent staff deployment (Staff Efficiency Management) and are taking the first steps towards optimizing their processes and organizational structures by committing limited investment to respective consulting services.

The Hardware division also developed satisfactorily. A mild upswing set in during the second half of the year and with sales of € 2.6 the previous year's level was undercut by 7%, a figure that was in line with our expectations, however. In the year under report Miscellaneous sales climbed by 14% to € 1.2 million

Medical presents the greatest potential for targeted branch solutions

In view of the complex branch specific requirements and the strong cost pressures in the health care sector we founded the Medical division as an independent business unit in 2001. In the 2002 business year Medical was able to double the number of new customers gained over the previous year and notched up an approximate 10% share of group sales. All in all, this division is now attending to some 80 clinics and hospitals with more than 88,000 employees.

We are especially proud to announce a number of awards we have received, and most notably the "Creativity Prize" awarded by Bund der Steuerzahler e.V. Bayern (Tax Payers' Association of Bavaria). We received the coveted award together with our client, Krankenhauszweckverband Ingolstadt (the Hospital Special-Purpose Association of Ingolstadt) on July 17, 2002. The key achievement was the exemplary commitment of the Hospital Special-Purpose Association of Ingolstadt in creating a new corporate culture in the hospital management area. The essential activities revolved around efficient and effective utilization of personnel resources for the benefit of staff and hospital operators alike, as well as improving patient care. These ambitious demands were not only met without any increase in costs, but also enabled a major clinic in Ingolstadt to staff a total of 28 new physician posts.

Gratifying development of the ATOSS share

During the entire past year the performance of the ATOSS share was considerably above the average developments of markets and/or the respective indexes. And with the exception of a very short period of time, the price movements were always above the level recorded at the beginning of the year. We have undertaken a great deal to bolster or even advance this lead. Never before was ATOSS so positively reported on by so many different analysts and journalists, or recommended as a buy. And although we did not deliver any scandals, a number of leading newspapers were prompted to feature a number of articles, some of which being of considerable length and detail. However, positive media reporting, the numerous buy recommendations and our own press information, ad hoc reports or interim reports were always followed by time windows of only a few weeks, in which our price performance pointed north by a decided measure. The stock markets remained nervous and volatile, but we remained unperturbed in charting our course and will remain strongly committed to pursuing open, transparent and well-timed information policies.

Already in the previous year the appeal of our share rose considerably thanks to the continuous increase in earnings power. During the course of 2002 ATOSS regularly exceeded analysts' performance forecasts on a quarterly basis, as well as

for the overall year. The resolution adopted on the company's dividend policy is also geared to further increasing the appeal of the share. In this context the continuity and accountability of our dividend policy will be significant aspects, but also the improvement of return on equity, as well as the ongoing consistent enhancement of earning power that has set in as of the middle of 2001.

Moreover, the proposed capital adjustment measures will provide the company with a credible foundation for future share buyback activities.

ATOSS implements own corporate governance principles

For you as shareholder it is important to know that the risk management system we have in place has undergone considerable further development in 2002. On the basis of surveys and investigations of potential risks that have already been conducted, we have a single system installed that manages the continuous and systematic identification, analysis, assessment, steering, documentation and communication of risks as well as monitoring and supervising these activities. An extensive internal manual on risk management and the assignment of selected members of staff ensure the consistent implementation throughout the company.

The issues of corporate governance that were in the focus of the media throughout the course of the year are fixed items on our agenda. Since the second quarter

of 2001 we have been reporting regularly on the measures we have implemented in-house. Based on the recommendations of the "Regierungskommission Deutscher Corporate Governance Kodex" ATOSS defined its own set of Corporate Governance principles last October that are partially more far-reaching in scope, while also reporting on deviations arising due to the company's size.

We regard these principles as a matter of course, and you as our shareholders are also well aware of how prudently – also in view of the altered market conditions – we have managed and safeguarded the capital entrusted to us since our company has gone public.

Aiming for increased sales and performance in 2003

Although there are some indications of slight economic recovery outside of Germany, the negative influences are holding sway over the domestic market, and an upswing is not expected to set in before the middle of 2003. Companies, entrepreneurs and consumers are currently in the grip of profound insecurity. In addition to the well known issues that are shaping economic developments abroad, Germany would appear to be suffering from a political climate beset with considerable general insecurity and rigid structures stifling economic growth.

Against this backdrop we are currently unable to perceive any signs of a recovery of investment activities and consequently our

branch environment is unlikely to undergo any growth over the coming months. In our opinion, impulses for rising investments will ensue when the signs of economic recovery emanating from foreign markets increase, and especially the USA.

The situation remains unchanged whereby corporate IT managers are only willing to commit investments to the absolute necessities in hard ware and software, and meticulously scrutinize as to whether and when the deployment of new technologies makes profit contributions. In the 2002 business year we were successful in coping with this intensified competitive situation. We were successful because ATOSS solutions are innovative and deliver additional value in a short period of time. Our success is also rooted in a business model drawing on solid finances, and our ability to offer long term investment security.

For the year 2003 we expect to be once again generating sales growth outpacing the overall market average, in connection with a considerable boost in operating results (EBIT) as well as pre-tax performance (EBT). The performance of the individual quarters of the ongoing business year is expected to exceed the

respective quarters of the previous year.

In concluding, we would like to express our gratitude for the close and trust-based cooperation with the supervisory board. We would also like to take this opportunity to thank our staff for their strong commitment, our clients for their spirit of partnership in our business relations, as well as thanking you – our shareholders – for the trust you have placed in us and our company.

Sincerely yours,

Andreas F.J. Obereder Christiane Glöckler

Dr. Burkhard Scherf

ATOSS was ownered with the creativity price 2002, Bund der Steuerzahler Bayern (Tax Payers Association Bavaria)

Investor Relations

THE SHARE

ISIIN / WKN
Class
Capital stock
Number of shares
Shareholder structur
Listings
Indices
Designated Sponsors
Financial Year
First listing

ISIN / W KN		DE0 / 5 005 104 400 104 40
Clas s		alue bea hare no p ar v rer s s
Ca pita l sto ck		€ 4 ,025 ,667
Num ber of s hare s		4,02 5,66 7
Sha reho lder stru ctur e	28,4 0 % free fl oa t
		0 % foun din g fa mil 55,4 y
		10,4 0 % lo and t emp yees ma nage men
	G (s ) 5,80 % A TOS S So ftwa re A hare back pay
Listi ngs	unti l 31 .12. 02	Neu er M arkt , XET RA
	from 01 .01. 03	rd ( ) Prim e St anda lated rket regu ma
		OTC rket HH ,B,S ,D,H ma
Indic es		Nem ax A ll Sh Nem ax S oftw Inde are, are x
		Prim e St anda rd S oftw are
		Prim e St anda rd T ec A ll Sh are
		Prim e St anda rd A ll Sh are
Des i ed S gnat pons ors	Geb hard & S chus ter W apie rhan dels bank ertp
		HSB C Tr inka us & Bur khar dt K GaA
Fina ncia l Yea r		31.1 2.
First list in g		Mar ch 2 1, 2 000
Stoc k ma rket cod e		AOF
Divid end		( ) € 1 ,50 osal prop
Earn in hare gs p er s		€ 0 ,33
Year l y hi gh/lo w		/ 6,5 € 9 ,66 3
Ave pric e 20 02 rage		€ 7 ,99
O peni rice 02.0 1.02 ng p		€ 7 ,13
Clos in ice 3 0.12 .02. g pr		€ 7 ,45
Mar ket capi taliz atio 30 .12. n as per		€ 3 0.0 millio n

ATOSS SOFTWARE AG SHAREHOLDER STRUCTURE

Stock markets decline for third successive year

The extremely negative trend in share prices since April 2000 persisted in the financial year 2002. The DAX had lost almost 54% of its value at one point, the NEMAX Software Index just under 62% and the NEMAX All Share Index more than 72%. The weak global economic trend, the declines in most companies' earnings and sales trends and the fear of terrorist attacks and a possible war with Iraq put the stock markets under pressure. The markets began to recover in October, which led to a slight reduction in the indices' year-onyear losses. At the end of 2002 the DAX, the NEMAX Software and the NEMAX All Share had declined by 44%, 49% and 63% respectively since the beginning of the year. By way of contrast, the Dow Jones index had fallen by "only" 17% and the S&P-500-Index by "only" 23%.

ATOSS share shows highly positive trend

Although our share price also fluctuated, it showed a far more positive trend than any of the comparable indices over the year as a whole. At the end of 2002, ATOSS was quoted at just under 5% above its previous year's level, with even the yearly low of € 6.53 in September representing a maximum year-on-year decline of only 8%.

Clearly, the investors have paid greater attention to the positive business trend and the impressively solid balance sheet structure than they had in the previous year. We have again been forced to realize, however, that with liquidity per share at € 8.94 the acknowledged and excellently initiated ATOSS business model is hardly reflected in the share price. In this respect, we can assume that our share still has substantial medium-term potential.

Investor relations activities remain at high level

Many conversations with investors and representatives of other stock corporations, as well as our own continuous observations of the media and market developments, gave us the impression that we might as well have "soft-pedaled" with our investor relations activities. Good news went unnoticed, but negative announcements triggered an immediate reaction. We refused to be influenced by this and stepped up our IR efforts still further. ATOSS stands for prompt, comprehensive and open communication and intends to maintain these activities at a consistently high level. In order to achieve this, we are drawing on all of the tools that we regard as appropriate and meaningful. The basis consists of ad hoc announcements and press releases, interim reports,

the Annual Report, our homepage with its comprehensive range of information and our General Meeting of Shareholders. These activities are supplemented by numerous one-on-one conversations on our own premises and those of investors and media representatives. In addition, we held a press conference at the Cebit and presented ATOSS at a very well-attended analysts' and investors' conference in Frankfurt

in November.

Numerous buy recommendations confirm our strategy

The positive development of the company and the diversity of its activities bore fruit during the financial year 2002. For example, the ATOSS share was recommended as a buy in the magazines Börse Online, Wirtschaftswoche, Nebenwerte-Journal, Focus Money, Euro am Sonntag and Computer-Woche. The newspapers Börsen-Zeitung, Handelsblatt, Die Welt and Welt am Sonntag also mentioned us in a positive light. There were also numerous recommendations from analysts, including those at Bayerische Landesbank, GBC German Business Concepts, AC Research, Sunday Market, Aktiencheck.de, Beta Faktor, neue

märkte, Sharper.de and others.

The analysts gave particular emphasis to the continuous improvement in ATOSS' profitability in a difficult business environment and its extremely solid financing. Repeated reference was made to the fact that the prices at which

the share was quoted were below, or only slightly above, the cash value. The analysts' team at GBC German Business Concepts returned to this theme in November 2002 in a comprehensive survey of "Cash values on the Neuer Markt" and upgraded ATOSS from accumulate to buy.

Analysts' consensus estimates repeatedly outperformed during the year

ATOSS has returned to sustained profitability. Earnings per share in the first half of 2002 amounted to € 0.13. On September 17 we issued a press release in which we pointed out that against this background, we would be able to comfortably outperform the prevailing consensus estimates of € 0.18 for the year. By the end of October the average level of the estimates had risen to € 0.24 and on September 30, ATOSS posted earnings of € 0.25 per share. We again pointed out that we had outperformed the estimates. In the fourth quarter we again improved our result significantly, with the earnings per share reaching € 0.32 for the year as a whole (previous year: € -0.05).

Share buybacks continue

We have been repurchasing our own shares on the basis of the authorizations granted by our General Meetings of Shareholders. In the course of 2002, our portfolio of own shares thus increased to 5.8% of shareholders' equity compared with 1.2% in the previous year. We nevertheless

proceeded with deliberate care in these buybacks, which certainly helped to steady the share price. An average purchase price of € 8.09 for the 233,760 shares purchased since 2000 demonstrates that we have not been using the share buyback as a method of price manipulation.

As before, the role of the own shares is to cover the employee participation program. To back a company acquisition with shares, however, the capital market would in our opinion first have to consider not only the valuation of the cash and cash equivalents, but also the successful business model and positive corporate development of ATOSS.

Stock exchange resegmentation: ATOSS switches to the Prime Standard

Within the scope of the resegmentation of the stock markets by the German Stock Exchange (Deutsche Börse AG), we naturally submitted an application for the ATOSS share to be admitted to the Prime Standard as soon as all of the details were published. In the process we meticulously weighed up the higher expenses that will partly result from the listing requirements against the alternative of being listed on the less strictly regulated General Standard segment. ATOSS associates its switch to the Prime Standard, which has now been secured, not least with its firm intention to establish itself permanently on the capital market as a transparent technology

SWISS International Air Lines AG Customer since 2002

company. In this respect, we hope that the resegmentation will help the stock market to recover the trust that it has lost, and also that we succeed in disassociating ourselves from the negative image of the Neuer Markt.

We implemented corporate governance measures at a very early stage

Since its report on the second quarter of 2001, ATOSS has provided information about its own extensive measures in the field of corporate governance. In addition, we have been committing ourselves to greater transparency and professional and prompt reporting. ATOSS Software AG has enhanced its existing guidelines on company management and control and reinforced them on the basis of the German Corporate Governance Code. We provide regular information on such matters on our homepage and in our Annual Reports.

Outlook for the ATOSS share remains positive, dividend policy formulated

We want to maintain our position as one of the healthy and transparent

companies. In the financial year 2002, ATOSS achieved its goals and, despite the negative economic fundamentals, grew and returned to sustained profitability. Our attention continues to be focused on the consistent strengthening of our business model, selective investment and active cost management. The main pillars thus remain a highly solid balance sheet, high liquidity, continuous growth in earnings power and further sales growth.

In response to the question as to how ATOSS intends to enable its shareholders to participate in this growing income, the Supervisory Board and the Management Board have decided to propose a highly attractive dividend payment of € 1.50 to the shareholders at the next General Meeting of Shareholders on April 30, 2003, based on the formulation of a longer-term dividend policy. What is more, we don't just want to do good; we want to talk about it too. The high level of investor interest that we encountered during the year under review has made us all the more determined to continue pressing ahead with our investor relations activities in 2003.

Supervisory Board Report for the Financial Year 2002

If we had entertained high hopes for 2002 because we believed that the general economic situation could hardly get any worse after 2001, events have unfortunately proved us wrong. The hoped-for economic recovery again failed to materialize in 2002. This also had a negative impact on the propensity of companies to invest, a factor that is of vital significance for our society.

The Management Board recognized this trend at an early stage and reacted to the changed economic and political environment. By strengthening of our business areas, in particular our Consulting and Medical units, overall sales improved even against this trend. Furthermore, the cost reduction measures that the Board initiated, allow ATOSS Software AG to emerge strengthened from this phase. This is also shown by the excellent results that the company achieved in 2002. With this in mind, we would like to express our warmest thanks to the Management Board for its excellent work and for the trusting and open cooperation.

We would also like to thank all of our employees, without whose performance and commitment this result would not have been possible.

General Meeting of Shareholders Confirms Appointment of Mr. Dorn

Mr. Bernhard Dorn, who was appointed by Munich Amtsgericht (Municipal Court) as a member of the Supervisory Board of our company on August 2, 2002 at the request of the Management Board following the resignation of Mr. Wolf, was confirmed in his post by a vote at the Ordinary General Meeting of Shareholders in Munich on May 22, 2002.

Six Supervisory Board Meetings in Year Under Review

In 2002 the Supervisory Board again advised the Management Board and supervised the management of the company. In the process, we held a total of six meetings during the year under review, in which we always held discussions with the Management of business, issues relating to human resources, investment and financing, the progress of the current improvement in risk management and the further strategy of ATOSS Software AG. also provided the Supervisory Board with a continuous flow of information about the course of business outside of the meetings.

Board on the current development In addition, the Management Board

No committees were constituted in the year under review.

Corporate Governance Principles of ATOSS Software AG

The formulation of the corporate governance principles of ATOSS Software AG also accounted for a significant proportion of the Supervisory Board's activities in the year under review. This involved supplementing the existing regulations with the recommendations of the "Government Commission on the Corporate Governance Code", and thus specifying and documenting the cooperation between the Management and Supervisory Boards. This resulted in the corporate governance principles of ATOSS Software AG, some of which go beyond the recommendations of the Code. By means of a resolution circulated by Management Board and Supervisory Board on October 15, 2002, these were adopted and, accompanied by a declaration of compliance in accordance with §161, Stock Corporation Act (AktG) and specification of the exceptions contained therein, placed for public consumption on the homepage of ATOSS Software AG.

Dear Shareholders

meeting, the Financial Statements were discussed in detail with the Management Board and the auditors. The Supervisory Board noted the results of the audit result with approval and approves the Financial Statements, the Consolidated Financial Statements and the Management Board reports.

The Annual Financial Statements and the Consolidated Financial Statements of ATOSS Software AG for 2002 have been approved without any objections and are thus adopted.

Munich, March 2003

Peter Kirn Chairman of the Supervisory Board

Other Topics from the Individual Supervisory Board Meetings:

From the Meeting on January 23, 2002

The main subject matter of this meeting constituted the report and the discussion on the provisional financial statements of ATOSS Software AG for the financial year 2001. Another focal point was the discussion about the plans for the financial year 2002.

From the Meeting on March 11, 2002

The main focal points of this Supervisory Board meeting were the presentation and discussion of the audited Financial Statements and Consolidated Financial Statements of ATOSS Software AG, the Management Reports for the financial year 2001, the audit reports and the reporting by the statutory auditor. In the presence of representatives of the appointed auditors Deloitte & Touche GmbH, Wirtschaftsprüfungsgesellschaft, the audited Financial Statements for 2001 were adopted and the Consolidated Financial Statements for 2001, also audited, were approved.

In addition, the final budget for 2002 was adopted by the Supervisory Board.

Furthermore, the agenda for the Ordinary Shareholders' Meeting to be held in May was discussed with the Management Board.

From the Meeting on May 22, 2002

At this meeting, which took place in the run-up to the Ordinary Shareholders' Meeting, the Management Board reported on the current course of business and the outlook for the rest of the financial year.

From the Meeting on June 12, 2002

Besides the reports by the Management Board on the current course of business and the outlook for the rest of the financial year, the organizational structure in the Consulting and IT Services segments were a major topic of discussion at this meeting. The principal objective in connection with this was to discuss with the Management Board how, among other things, a clear hierarchical organizational structure and a redefined orientation can prevent internal frictional, exploit synergies and increase profitability.

From the Meeting on September 26, 2002

An important item on the agenda at this meeting was the adjustment of the duty allocation plan to future requirements that had been necessitated by the early decision of Ms. Glöckler not to extend her Management Board contract, which will expire on June 30,

1. As a result, the Supervisory Board, with the agreement of the Management Board, decided that Mr. Obereder would assume responsibility for the Sales and Marketing segments in addition to his existing duties and that Ms. Glöckler would be entrusted with a diversity of special strategic assignments.

From the Meeting on December 5, 2002

The central topic of this meeting was the report by the Management Board on the current development of business and the presentation of the budget figures for 2003. Following detailed discussions, the budget plans for the financial year 2003 were approved. The future product strategy was also discussed. The agenda also included the discussion on the current status and the further plans in the development field.

Awarding of the Audit Assignment to Deloitte & Touche GmbH

Deloitte & Touche GmbH Wirtschaftsprüfungsgesellschaft, Munich, was selected as statutory auditor for the financial year 2002 by the shareholders at the Ordinary Shareholders' Meeting held on May 22, 2002.

The Supervisory Board awarded the audit assignment taking particular account of the rules governing the

cooperation of the Supervisory Board with the statutory auditors, which are contained in the corporate governance principles of ATOSS Software AG.

Meeting of the Supervisory Board on March 10, 2003 to Adopt the Balance Sheet

In accordance with their assignment, the auditors audited the Financial Statements, Consolidated Financial Statements and the Management Reports of ATOSS Software AG that were prepared by the Management Board for the financial year 2002. The subject matter of the audit also included the risk early warning system and the declaration issued by the Management Board and the Supervisory Board on the subject

of the Corporate Governance Code.

The audit did not lead to any objections. As a result, the auditor granted the unqualified audit certificate to both the Financial Statements and the Consolidated Financial Statements.

The Supervisory Board was provided with the Financial Statements and Consolidated Financial Statements for the period to December 31, 2002, including the Management Reports, in good time before the Supervisory Board meeting to adopt the balance sheet that was held on March 10, 2003. At the Supervisory Board's balance sheet

Members of the Supervisory Board and Summary of Further Supervisory Board Mandates

Peter Kirn, Management Consultant, Böblingen.

Mr. Kirn holds the following additional Supervisory Board mandates:

• Chairman of the Supervisory Board, AD Solutions AG, Mohnheim
• Chairman of the Supervisory Board, rzw cimdata AG, WeimarVice
• Chairman of the Supervisory Board, businessMart AG, Stuttgart
• Member of the Supervisory Board, spirit/21 AG, Ehningen
• Member of the Supervisory Board, UNILOG Integrata AG, Tübingen

Baron Rolf Vielhauer von Hohenhau, Graduate in Business Administration, Munich.

Baron Vielhauer von Hohenhau holds the following additional Supervisory Board mandates:

• Chairman of the Supervisory Board, ce Consumer Electronic AG, Munich
• Chairman of the Supervisory Board, Por Cura Buchprüfungs AG, Augsburg

Bernhard Dorn, Management Consultant, Leonberg

Mr. Dorn holds the following additional Supervisory Board mandates:

• Vice Chairman of the Supervisory Board, TDS AG, Neckarsulm
• Vice Chairman of the Supervisory Board, Systematics AG, Hamburg (until Dec. 31st, 2002)
• Vice Chairman of the Supervisory Board, ce Consumer Electronic AG, Munich
• Vice Chairman of the Supervisory Board, United Internet AG, Montabaur
• Member of the Supervisory Board, AXA Service AG, Cologne
• Member of the Supervisory Board, DB Systems GmbH, Frankfurt
• Member of the Supervisory Board, twenty4help AG, Dortmund
• Member of the Supervisory Board, 1&1 Internet AG, Montabaur

The members of the Supervisory Board are not members of comparable controlling bodies of business enterprises in Germany or abroad.

I. General

Consolidated Financial Statements

1. General Framework, Economic Fundamentals

Contrary to the expectations of leading economic research institutes, the economic fundamentals failed to improve in the year under review. Germany continued to suffer from a reluctance to invest and a lack of confidence among consumers and companies. As a result, the number of company insolvencies increased by 16% and the number of unemployed by around 200,000 to more than 4 million, accompanied by a level of industrial production that declined to below its previous year's level for the first time since reunification. Indeed, gross investment in plant and machinery suffered its biggest decline since the oil crisis of 1973/74. Private consumption also fell for the first time in ten years. Exports alone increased, reaching a new record level despite the steady rise of the euro.

Although the forecasts made at the beginning of 2002 still generally assumed that there would be an economic upturn, the growth in gross domestic product growth for the year was actually around 0.2%, while GDP in Europe increased by a total of 0.8%. Germany was thus once again among the worst performers in the OECD.

2. Sector Situation

The technology sector suffered from another drop in prices, declining investment, the reluctance of banks to provide finance and the lack of equity-raising possibilities in the aftermath of the stock market slump. The IT sector endured its third highly problematic year and had to make significant staff cutbacks for the first time in its short history.

Important industry associations such as Bitkom (Federal Information Technology, Tele communications and New Media Association – Bundesverband Informationswirtschaft, Telekommunikation und neue Medien) and market researchers such as Dataquest and IDC had repeatedly revised their market development forecasts downwards. The first signs of a slight improvement in the situation appeared in the late autumn when, for example, Gartner Dataquest and IDC ascertained slight growth on the IT market in the third quarter of 2002 after five successive negative quarters. The semiconductor market in Germany also performed rather more positively in the last few months of

the year, although its sales were still more than 10% below those of the previous year.

The first signs of a revival were also evident on the hardware market. Although investment from state organizations continued to decline in the second half of the year, spending by small companies and private individuals increased slightly. In the view of the US market research company IDC, however, worldwide growth in the sector remained extremely low at 1% to 2%, primarily because large companies were still not investing.

With the hardware market already reporting a declining business trend in 2001, software companies and IT service providers were also faced with declining demand in 2002. Sales in the software segment and the IT services segment, according to Bitkom, decreased slightly by -0.8% and -0.3% respectively in 2002. Bitkom estimates that the IT market as a whole posted a decline of -1.3% in 2002; IDC estimates that the decline was even more pronounced at -2.3%. Although a mood of cautious optimism for 2003 prevails in the software segment, sales are still expected to show a marginal decline of 0.3%. A genuine recovery, according to Bitkom, is not expected until 2004.

3. Immediate Market Environment of ATOSS Software AG

Companies and governmental organizations are still faced with the necessity of using their resources more efficiently. The major causes of the low productivity of many companies and governmental organizations are the inadequate planning and management of personnel resources.

This is where the comprehensive product and service range of ATOSS Software AG comes in. With our innovative software tools and services, we enable companies to deploy their human resources selectively; we thus generate competitive advantages for our customers. ATOSS is still the only supplier that, building upon the traditional application areas for the planning and management of personnel resources, enhances these with software solutions and consulting competence in the field of business process optimization and offers them in an integral trial solution for all facets of intelligent personnel deployment. We thus facilitate an unparalleled overall view of personnel deployment. This explains why we continued to register persistently strong interest in our software solutions and services during the last business year, although with the general business climate necessitating tight budgets and personnel levels, particularly in the software segment, this was not reflected in a higher sales volume.

4. Development of the Company

Despite the negative economic environment, ATOSS managed to increase its sales by 9% to € 23.2 million in the financial year 2002. As regards the individual types of sales, software licenses posted a decline while software maintenance, services and miscellaneous income achieved significant growth.

In the field of hardware sales, which analogous to the trend in software licenses suffered from the negative overall climate in the sector, there was a pronounced upturn in sales in the second half of the year, with the result that in 2002 as a whole, this segment posted sales that were only slightly below those of the previous year.

The strategy of rigorously positioning ATOSS as a solution provider for all facets of intelligent human resources deployment, i.e. from consulting services and the provision of software products to their customized implementation and constant refinement along the customers' business processes, thus proved to be right and successful.

The Medical division, which was established in 2001 as an autonomous business unit in view of the complex sector-specific requirements and the high pressure on costs in the public health system, also showed a highly gratifying trend in the year under review. Medical doubled its number of new customers compared with the previous year and accounted for approx. 10% of consolidated

sales in the group. Altogether, the division looked after around 80 clinics and hospitals with more than 88,000 employees as per the end of 2002.

The earnings achieved by ATOSS Software AG improved during the financial year 2002 as a consequence of the positive sales trend and the cost reduction measures that the company initiated as early as the second half of 2000.

4.1. Sales Trends in Software Development and Maintenance

The software licensing and maintenance segment increased its sales by a modest 3 per cent to € 12.3 million (previous year: € 11.9 million). In the first six months of 2002 sales of software licenses, in an extremely negative environment for the sector, declined by 27%. In the second half of the year, however, ATOSS managed to revive its sales in this area despite the persistently difficult market conditions. In the third quarter, for example, sales increased by 26% compared with the second quarter, and in the fourth quarter software license sales increased again by 27% to € 1.7 million compared with the third quarter of 2002. Past experience, at least with certain customer groups (e.g. in the Medical division), was thus reconfirmed in the last financial year: companies invest in the necessary IT infrastructure towards the end of the year, since the approaching year-end means that they can assess their budget situation safely.

Total software license sales amounted to € 5.5 million in 2002, a decline of 13% compared with the previous year (€ 6.3 million). As a consequence of this development and the significant growth in other fields of business, software license earnings accounted for approx. 24% of overall sales (previous year: 30%).

Sales in the maintenance field, as follow-up business from the sale of software solutions, particularly in the large-volume preceding years, increased by 21% to € 6.8 million – with a time lag in relation to software sales – and thus managed to overcompensate for the decline in software license sales. The proportion of aggregate sales accounted for by maintenance increased from 26% to 29% compared with the previous year.

Due to their long-term nature, the maintenance contracts represent a solid sales basis for ATOSS Software AG.

4.2. Sales Trend in Services

The Services division, which comprises consulting and IT services, proved successfully that significant growth can be achieved independently of software sales. Compared with the previous year, services sales increased by 30% to € 7.2 million. The proportion of total sales generated by this business field rose to almost 31% (previous year: 26%). In the process, the services segment, having shown a consistently positive trend in the financial year 2002, achieved its highest ever quarterly sales of € 2.1 million in the fourth quarter.

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4.3. Hardware Sales Trend

Hardware sales revived in the third and fourth quarters, despite the persistently strong reluctance of companies to invest. Indeed, in the last quarter of the year under review sales in this segment, at € 0.8 million, represented the highest quarterly figure for more than two years. In overall terms this division, as expected, posted lower sales, although their decline to € 2.6 million represented only a 7% decrease compared with the previous year. The proportion of total sales accounted for by hardware amounted to approx. 11% (previous year: 13%).

4.4. Miscellaneous Sales

Miscellaneous sales increased by 14% to € 1.2 million in the year under review. These sales consist of customer-specific programming services and hardware-related sales.

4.5. Income Trend

Positive effects from the continued cost reduction measures, which were focused on marketing and administration costs, and the pleasing sales trend led to the significant increase in earnings that had been expected in the year under review. ATOSS returned to profitability in the fourth quarter of 2001 and since then, throughout the entire financial year 2002, has reported nothing but positive earnings ratios. In five successive quarters, with stringent cost control, the company has worked successfully on improving its profitability with the result that, among other things, it can

create the foundation for strong earnings growth even without stimulus from the overall business cycle. We therefore expect that any improvement in the general economic conditions will lead to above-average earnings growth for the company.

Earnings before interest and taxes (EBIT) improved substantially to € 1.3 million in the year under review, an increase of € 2.7 million compared with the previous year (€ -1.4 million). Results from ordinary activities (EBT) increased by € 2.4 million to € 2.2 million (previous year: € -0.2 million). The EBIT margin increased steadily, reaching 9% in the fourth quarter and averaging 6% over the year as a whole. The return on sales from pre-tax earnings (EBT) was 9% in 2002.

Net income for the year amounted to € 1.3 million in 2002, thus considerably exceeding the previous year's figure (€ -0.2 million).

Earnings per share increased steadily over the course of the year and ultimately amounted to € 0.32 (previous year: € -0.05); diluted by convertible bonds in circulation, they amounted to € 0.31 (previous year: € -0.05).

4.6. Business Activities Abroad

In the last financial year, ATOSS Software AG focused its foreign activities on the German-speaking core markets of Austria and Switzerland. The proportion of consolidated sales accounted for by foreign activities increased from 11% to 15% compared with the previous year.

5. Assets, Financial and Earnings Position

The balance sheet total amounted to € 41.5 million as per Dec. 31, 2002, compared with € 40.6 million as per Dec. 31, 2001.

Although the company invested in the development of its products, investment in plant and machinery again decreased. Fixed assets thus decreased further, amounting to € 1.9 million as per Dec. 31, 2002, compared with € 2.8 million at the end of the previous year.

The increase in current assets to € 39.6 million (previous year: € 37.9 million) can be attributed mainly to the larger holdings of bank deposits and securities. These increased from € 31.7 million in the previous year to € 33.7 million as per Dec. 31, 2002. The proportion of total sales accounted for by these resources was 81%, compared with 78% in the previous year. The solid foundation for continued long-term growth was thus strengthened further. Due to the year-end sales, receivables amounted to € 4.5 million (previous year: € 3.8 million).

The equity of ATOSS Software AG amounted to € 36.3 million as per Dec. 31, 2002 (previous year: € 36.4 million), which represented a capital ratio of 87% (compared with 90% as per Dec. 31, 2001). The debt capital increased largely as a result of the increase in accruals from € 4.2 million as per Dec. 31, 2001 to € 5.2 million as per Dec. 31, 2002. These primarily involve personnel obligations.

Cash flow from business activity amounted to € 4.1 million as per Dec. 31, 2002, compared with

€ 2.8 million in the previous year. Cash flow from investment activity amounted to € -4.0 million, having been € -18.1 in the previous year; the figure from 2001 is attributable to the purchasing of securities. Cash flow from financing activity amounted to € -1.3 million, compared with € -2.5 million in the previous year.

6. Segments

The service products segment developed in extremely gratifying manner in the year under review. Operating earnings were increased substantially, from € 0.2 million to € 1.4 million, in comparison with the previous year. The soft ware products segment showed far greater stability than in the previous year. Following an operating loss of € 1.6 million, the segment achieved a break-even result.

7. Subsidiaries

Altogether, the sales and earnings trend in the subsidiaries showed a pronounced improvement during the financial year 2002. As a result, the subsidiaries – with the exception of the French subsidiary – are posting positive results according to both the cost sharing agreement concluded with the parent company and the internal income statement that assesses the performance of operating activities.

With sales increasing, ATOSS CSD Software GmbH achieved a distinctly positive operating result. ATOSS Software GmbH, Vienna, and ATOSS Software AG, Zürich, also improved their earnings as well as increasing their sales.

Sales Development in Mio €

2001 2002 2001 2002 The operating activities of the French subsidiary were discontinued in the first quarter of the financial year as a result of the inadequate development of its business and the change in strategy for the group's foreign activities. One of the tasks for the coming year will be to adjust the previous internationalization strategy in such a way that it will also achieve long-term success in the non-German-speaking countries.

The over-indebtedness of the foreign subsidiaries, which accrued over the preceding years, continued to be averted by means of letters of subordination from the parent company.

8. Research and Development

The investment in research and development was continued in the financial year 2002, despite the deliberate policy of cost control, with the specific aim of safeguarding the leading technological position of ATOSS. The expenses thereby incurred increased by 17%, from € 3.0 million to € 3.5 million, in 2002. By far the largest part of this sum, € 2.9 million (previous year: € 2.4 million), was accounted for by the personnel costs represented by the 42 software developers.

In the year under review, ATOSS Software AG deliberately focused on the further development and completion of its software portfolio in the key thematic areas of working time management and personnel deployment planning. The existing sector solutions in the

fields of call centers and retailing, for example, were enhanced with the development of a software module for ascertaining personnel demand. Similarly, the creation of shift models was optimized by integrating a third-party product (XIMES). As a result, ATOSS ranks as the first supplier that is in a position to support the entire process for efficient staff deployment (ascertaining demand – calculating suitable shift models – automated deployment planning – working time management) in a manner that is automated and integrated.

With the aim of facilitating the smooth integration of ATOSS software solutions, we have developed another certified interface, in addition to the longestablished SAP interfaces, on the basis of the latest BAPI technology. ATOSS, as a provider of special solutions in the field of intelligent personnel deployment, is underlining the significance of simple integration into the SAP environment. We have realized an OEM version for our partner Bosch, thereby creating another distribution channel for our software.

Besides our key products in the fields of working time management and personnel deployment planning, we have also pressed ahead with the further development of the software solution AENEIS in the process management field.

Having rounded off our application spectrum in the key areas of working time management and

personnel deployment planning to the point where our products support the entire process, we are now aiming to refine this integrated solution continuously by exchanging experience with our customers and, if necessary, using further sectorspecific functions. In the project management field, the extensive range of functions is expanded continuously and systematically by means of selective product enhancements. In the knowledge management field, we are now concentrating on enhancing the ATOSS applications in a portalenabled manner. This provides the employee with process-oriented access to all of the relevant information and documentation that he needs to carry out his tasks. In these areas we work with standard technologies and thus make it possible to integrate ATOSS software modules into existing portals. Account is thus taken of the growing need for employee self-service.

In addition, we have rigorously enhanced our solution for the transparent preparation of critical company ratios (ATOSS Decision Support) in 2002. ATOSS Decision Support facilitates the selective analysis of all of the data gathered in ATOSS applications and thus makes it possible for the company management to systematically recognize and implement optimization and savings potential in the human resources field.

In addition to that, ATOSS will continue to invest in the enhancement of its base technologies so that its technological advantage over its

competitors can also be maintained and extended.

In keeping with the market trend whereby companies are seeking integrated, complete solutions that generally consist of consulting services and software products (instead of buying pure software products), ATOSS is increasingly presenting itself as a provider of solutions. This means that we are deepening and expanding our range of consulting services along the entire process chain of intelligent personnel deployment. This comprises process consul ting, the development and implementation of flexible working time models, comprehensive project management services and general guidance during the installation of the ATOSS solutions. The proportion of the overall business volume accounted for by services will thus continue to show an upward trend.

9. Employees, Personnel Trend

Thanks to the early cost reduction program and the use of processoptimized IT systems, personnel capacities were reduced as early as 2001, particularly in the administration field. Altogether, the number of employees decreased from 197 to 167 during the year to Dec. 31, 2001. Despite the continuation of the cost saving measures, the workforce increased slightly in 2002, reaching 171 as per Dec. 31, 2002. 44 (46) of these employees worked in product development, 51 (46) in the IT services and consulting fields and 38 (45) in sales and marketing. The average number of staff employed throughout the year was 169 (pre-

vious year: 175).

At € 12.0 million, personnel expenses in 2002 were 2% below those of the previous year.

Altogether there were 7 training positions for aspiring office administrators or office communications specialists as per Dec. 31, 2002, compared with 4 such positions in the previous year.

In the financial year 2002 it was evident that with the employees at its disposal, ATOSS is capable of achieving profitable growth even in a very difficult economic environment. Having returned to profitability, the company now aims to strengthen its earnings power and its sales growth still further in the year ahead. The Management Board thanks all of the employees for their successful efforts in 2002.

II. Individual Facts and Circumstances

1. Executive Organs of the Company

1.1. Management Board

There were no changes in the Management Board in the financial year 2002. This body still comprises Christiane Glöckler, Andreas F.J. Obereder and Dr. Burkhard Scherf. Christiane Glöckler, however, made an early declaration to the effect that she will be leaving ATOSS Software AG as per Jun. 30, 2003. In anticipation of the departure of Ms. Glöckler, the allocation of duties was adjusted by the Supervisory Board in the fourth quarter of 2002 with the result that operational responsibility for sales and marketing was assigned to Mr. Obereder. Ms. Glöckler, on the other hand, was given responsibility for various operational duties.

Since ATOSS received very early notification from Ms. Glöckler, the company was able to deal with the matter of succession calmly and rule out any negative impact on sales activities.

1.2. Supervisory Board

The Supervisory Board consisted of three members as per Dec. 31, 2002: Peter Kirn (Chairman), Bernhard Dorn (Vice Chairman) and Rolf Baron Vielhauer von Hohenhau. There were thus no changes in the

composition of the Supervisory Board. However, Bernhard Dorn, following his court appointment as member of the Supervisory Board on Aug. 02, 2001, was confirmed in his position by a vote of the shareholders at the General Meeting of Shareholders on May 05, 2002 at the suggestion of the management.

2. Events of Particular Significance since the Balance Sheet Date

After the balance sheet date there were no reportable events of particular significance.

3. Corporate Governance: Principles of ATOSS Software AG

Since its report on the second quarter of 2001, ATOSS has provided information about its own extensive measures in the field of corporate governance. In October 2002, on the basis of the recommendations made by the "Government Commission on the German Corporate Governance Code", ATOSS adopted its own, sometimes further-reaching, corporate governance principles, the prevailing version of which is published on the company's homepage. The Management Board and the Supervisory Board declared that the contents of the Corporate Governance Code of ATOSS Software AG are binding. In this Code, the behavioral

recommendations of the Commission are complied with in all except a few points that, from the point of view of the company, are rather insubstantial. In accor dance with the declaration of compliance according to § 161, Stock Corporation Act (AktG) that was adopted and signed by the Management Board and the Supervisory Board on Okt. 15, 2002, all members of both organs declared that the behavioral recommendations of the Code Commission on company management and supervision, appointed by the Federal Govern ment, were complied with and will continue to be complied with, with the exception of the points described below.

In the financial year 2002 there were departures from the recommendations of the Code in the following areas:

Due to existing insurance contracts pertaining to D&O insurance with no deductible, the relevant recommendation of the Commission could not be complied with after a deductible was established.

In accordance with the legal standards for convertible bonds, the convertible bonds that have already been issued to the Supervisory Board and Management Board members are not linked to any special performance criteria that must be fulfilled for the conversion rights

to be exercised. Convertible bonds, however, have other bonding effects as a result of the capital commitment for the term of the convertible bond that is inherent in this instrument; in the view of the company, these effects are equally significant.

In other respects, the Supervisory Board, in accordance with the margin of discretion granted by the recommendations of the Commission, declines to establish separate committees, particularly an audit committee, on the grounds of the specific conditions and especially the size of the company.

4. Risks of Future Development and Risk Management

In its business activities, ATOSS Software AG is exposed to a variety of risks that must be seen in connection with, in particular, entrepreneurial activities. Changes in the company's environment thus involve both risks and opportunities for future development. In all of its activities, then, the company aims to take advantage of the opportunities and minimize or avoid possible risks.

As planned, the further development of the risk management system for the early recognition of risks that could endanger the further existence of the company was continued in the financial year 2002, the integration of the system into the planning and control systems was extended and the link with the existing management systems was

improved. Specific risks are now depicted in a systematic risk management system based on threshold values, and this system was formally set down in a risk manual.

When it adopted the risk management system, the Management Board expressed its firm conviction that the risk management system of ATOSS Software AG is a comprehensible system that encompasses all of the activities of the company and facilitates and safeguards a systematic and permanent procedure on the basis of a defined risk strategy.

As an enhancement to the existing system, further improvements have now been made on the basis of the surveys of potential risks that have been conducted continuously over the past few years. In the process, the possibilities of systematically identifying, analyzing and evaluating risks and monitoring these activities were enhanced. In addition, appropriate threshold values are assigned to companyspecific risks and the possible extent of damage is ascertained in each case. The competent Risk Managers in the respective divisions draw up risk reports, which are summarized by the risk management committee and forwarded to the Management Board. The regulations and measures in the risk management principles are updated by the risk management committee, with changes being put into force solely by the Management Board. The comprehensive internal manual

on the risk management system, which ATOSS has now completed, is a detailed and practicable tool for the company's employees.

On this basis, a risk report was submitted to the ATOSS Management Board in the fourth quarter of the financial year 2002 and the Management Board dealt with the report.

The increased competition with complete solution suppliers (e.g. ERP suppliers) in the key account segment is seen in the light of existing market and environment risks. ATOSS is countering this trend with increased efforts to improve the integrability of its own software solutions into the systems of third-party suppliers and by continuing to implement measures designed to further extend its competitive advantages over its competitors in the key themes relating to intelligent personnel deployment.

In the corporate strategy field, risks continue to be seen in the dependency on the ATOSS Time Solution and the ATOSS Resource Allocation within the ATOSS Staff Efficiency Suite. ATOSS takes this risk into account by pressing on rigorously with the development of its product portfolio. To prevent itself from being decoupled from market trends and new technological developments, the company carries out regular studies on – among other things – the registration of customer satisfaction.

The company counters the financial management risk of lasting impairment of the assets position as a result of strong depreciations in its securities holdings essentially by pursuing a conservative investment strategy in which the maximum proportion of shares is 5%. In respect of bonds, moreover, the company invests only in bonds with a good credit standing and a single A rating.

Personnel risks were identified by ATOSS as the continued dependency on key persons.

ATOSS will continue to observe risks continuously and examine the effectiveness of individual countermeasures. Despite constant adjustments to the risk management system, the identified risks cannot be quantified completely, reliably and usefully with regard to the probability of their occurrence and their financial impact.

III. Outlook

1. Future Economic and Sector Situation

Although there are at least various signs of an economic upturn in other European countries and, in particular, the USA, the mood and the economic data in Germany remain at rock bottom. So far there has been a lack of impetus from financial policy, necessary structural reforms are not being implemented and companies and consumers are still being given highly confusing signals.

The rise in the value of the euro is highly detrimental to the export opportunities of European, and especially German, companies. To this can be added immense uncertainty, caused by the fear of war, violent conflict and possible terrorist attacks. The only thing that can be foreseen is that economic growth in Germany will have to be triggered by foreign demand. The forecasts, which have recently been subjected to repeated downward revisions, are correspondingly negative. Domestic growth of 0.6% is forecast for 2003, and even in 2004 the rate is expected to be little more than 1%.

In the IT sector too, companies – as in 2002 – will largely confine their investments to replacement equipment, with their budget restrictions probably being lifted only in the event of a significant

improvement in the general economic climate. Rapid growth in the software and hardware segments is therefore improbable.

According to the estimates of the market researchers, global spending on IT services, hardware and software in 2003 will increase by an average of between 2 and 3 per cent compared with 2002. Germany, on the other hand, will see its sales in this sector increase by only 0.4% according to the industry association Bitkom. These estimates, however, are based on the assumption that following initial stagnation, there will be a worldwide revival in investment in the second half of the year. In addition, widely differing trends are being forecast for the technology segments.

The outlook for the software market is comparatively positive. A current market survey by IDC for 2003, for example, predicts that demand will grow by 4%. IDC asserts that company software and operating systems, in particular, are high on shopping lists and that companies, despite the prevailing mood of extreme caution, are prepared to buy technology that they regard as necessary. In this context, companies are relying particularly on the integration and optimization of their existing systems to achieve further cost reductions.

2. Future Situation of the Company

During the last financial year, ATOSS established itself as a provider of solutions for all facets of intelligent personnel deployment. In this niche, ATOSS has not only further improved its positions in individual sectors, e.g. the Medical segment; it has also enhanced its positioning as a socalled full-range supplier (i.e. as a supplier of solutions for companies of all sizes) by broadening its distribution channels – such as the expansion of the partner network – for, in particular, the products designed for small and mediumsized companies. Furthermore, its position as a competent solution supplier in the area of intelligent personnel deployment was underpinned with the further expansion of the Consulting division.

Throughout its product and service range, ATOSS is positioned as a competent solution supplier for increasing the productivity and thus the profitability of its customers. We are therefore certain that, even if the general economic environment remains as unfavorable as it is at present, we will be able to report a stable business trend.

3. Future Investment

ATOSS continues to focus on in vestments that safeguard its technical lead over its competitors, and is thus continuing to increase its investment in the advancement of its product portfolio.

4. Orders Situation

In January, the company already had orders amounting to € 0.4 million, compared with € 0.7 million in the previous year. These orders are new contracts concluded between ATOSS and customers who are not already covered by framework agreements or longterm supply commitments.

5. Future Sales and Income Trend

Forecasting commercial trends continues to be beset with great uncertainty. We are assuming that there will not be any positive momentum in Germany over the next few months. If, however, the signs of an economic upturn become stronger during the course of the current financial year, this would also have a positive impact on the investment activity of our customers.

With its products and solutions, ATOSS occupies a highly promising position in an interesting niche. Increasingly, companies regard the flexibilization of work, the

optimization of business processes involving personnel deployment and other forms of intelligent staff deployment as good opportunities to improve their productivity. We therefore regard the current financial year with cautious optimism and, despite the generally difficult market conditions, will continue to improve our sales and earnings with organic growth in the new financial year 2003. In the process, we intend to achieve another pronounced increase in our earnings power and sales growth in excess of the market as a whole.

CONSOLIDATED BALANCE SHEET

AS SET S
	Dec . 31 , 20 02	Dec . 31 , 20 01
	€	€
A. F ixed As set s
I. Int angi ble fi xed ets ass
1. C erci al pate nt r i gts and simi lar r i ghts and rth omm wo	1,08 0,02 4	1,57 1,42 3
2. G oodw ill	22,2 14	22,2 14
3. P ents unt aym on acco	0	0
	1,10 2,23 8	1,59 3,63 7
II. Ta ngib le fi x ed a sset s
echn ical plan d m achi 1. T t an nes	106 ,718 ,00	140 ,054
2. O ther pla nd o ffi ce chin nt a ma es	691 ,826	1,02 2,43 8
	798 ,544	1,16 2,49 2
	1,90 0,78 2	2,75 6,12 9
B. C As ent set urr s
I. Inv ries ento
Unfi nish ed prod and rcha ndis ucts me e	21,8 53	35,3 72
II. A ivab le an d ot her nts ts ccou rece asse
1. A nts ivab le ccou rece	4,45 2,58 7	3,76 3,42 6
2. O ther ets ass	,834 774	1,07 0,27 5
	5,22 7,42 1	4,83 3,70 1
III. S ities ecur
Othe curi ties r se	26,1 49,9 42	22,9 17,7 44
IV. C ash at b anks h in hand	0	3
, che ques , cas	7,58 4,61 26	8,77 2,74 60
	38,9 83,8	36,5 59,5
C. P aid nd d efe d ch	158 ,81 8	206 ,02 8
rep exp ens es a rre arg es
efe d ta D. D rre xes	477 ,42 2	1,1 08, 844
Tot al a ts sse	41,5 20,8 48	40,6 30,5 61

CO NS OL IDA TED BA LAN CE SH EET
EQ S UIT Y A ND LI AB ILI TIE
	Dec . 31 , 20 02	Dec . 31 , 20 01
	€	€
A. C apit al a nd res erv es
I. Ca pita l sub scri bed	2,13 4,33 7	3,60 4,58 1
II. C apit al re serv e	31,7 22,5 82	33,1 72,8 08
III. U iated plus napp ropr sur	2,59 3,47 5	-146 ,523
IV. V aria tion in ca pita l and s wi th n al ef fect atin sult eutr res erve on oper g re	-177 ,064	-196 ,447
	36,2 73,3 30	36,4 34,4 19
B. P rovi sion s fo r lia bilit ies and cha rges
1. P rovis ions for ion a nd s imila mmi tme nts pens r co	276 ,067	242 ,804
2. P rovis ion f or t axes	270 ,823	54,2 03
3. O ther visio pro ns	2,51 8,47 5	1,97 3,37 8
	3,06 5,36 5	2,27 0,38 5
C. L iabi litie s
1. B onds	313 ,767	173 ,777
iabil ities bank 2. L to s	1,91 7	3,19 6
3. A ble nts ccou paya	542 ,969	833 ,286
4. O ther liab ilitie s	602 ,034	584 ,386
	0,68 1,46 7	1,59 4,64 5
efe d nd a uals D. D ts a rre pay men ccr	721 ,466	331 ,112
Tot al e qui ty a nd liab iliti es	41,5 20,8 48	40,6 30,5 61

CONSOLIDATED INCOME STATEMENT

	Dec . 31 , 20 02	Dec . 31 , 20 01
	€	€
Sale s re venu es	23,2 45,3 04	21,2 33,5 39
Cos t of sale s	-8,5 10,3 21	-7,9 68,8 69
Gro rofi les t on ss p sa	34,9 83 14,7	13,2 70 64,6
Sale sts s co	-6,3 91,2 40	-7,1 68,9 87
Rese arch and dev elo nt c osts pme	-3,5 39,2 22	-3,0 34,9 67
Gen eral adm inist rativ sts e co	-3,5 84,5 17	-4,3 87,1 31
Othe in g inc erat r op ome	297 ,278	453 ,776
Othe in erat r op g ex pens es	-157 ,719	-297 ,978
O atin sult per g re	1,35 9,56 3	-1,1 70,6 71
Othe r int cei and simi lar i t re pts eres ncom e	1,11 4,60 9	1,02 9,00 1
Writ e-do lon nd s hort m in g-te -ter vest ts wns on rm a men	0	0
nd s imila Inte rest ts a pay men r ex pens es	-355 ,430	-34, 915
Fina ncia l re sult	759 ,179	994 ,086
Pro fit o dina ctiv itie n or ry a s	2,11 8,74 2	-17 6,53 1
Taxe inco nd e arni s on me a ngs	-855 ,621	-34, 004
Othe r tax es	-6,6 87	4,53 3
	-86 2,30 8	-29 ,471
fit / Net los pro s	1,25 6,43 4	-20 6,00 2
es / Prio riod mula ted loss in gs b ht fo rd r pe accu earn roug rwa	-146 ,522	59,4 79
sfer fro pita l res Tran m ca erve	1,48 3,56 4	0
Una iate d su rplu ppr opr s	2,59 3,47 5	-14 6,52 3

CONSOLIDATED STATEMENT OF CASH FLOWS

	Dec . 31 , 20 02	Dec . 31 , 20 01
	€	€
t / Net profi loss	1,25 6,43 4	-206 ,002
recia tion and rtisa tion Dep Amo	1,47 5,45 4	1,24 2,93 6
Loss sale of fi xed ets on ass	37,1 18	24,2 74
Defe rred tax es	785 ,205	-132 ,327
Cha in c d lia biliti nt a sset nges urre s an es
ceiv able Acc ount s re	-689 ,161	2,76 2,09 6
Othe and t as sets ents r cu rren pre paym	356 ,171	-336 ,029
Acc ount yabl s pa e	-290 ,317	-375 ,376
Prov ision s fo r tax es	216 ,620	-339 ,634
Othe r lia biliti es	17,6 48	-207 ,364
Defe rred nd a als ts a pay men ccru	390 ,353	-158 ,266
Othe ovis ions r pr	545 ,097	510 ,578
Pens ions visio pro ns	33,2 63	25,6 80
Cas h fl fro atin tivi ties ow m o per g ac	4,13 3,88 5	2,81 0,56 4
Acq uisit ion o f fi xe d as sets	-265 ,188	-300 ,237
Reve fro m th e dis l of fi xed ets nues posa ass	41,2 30	118 ,132
Acq uisit ion o f int angi ble a sset s	-92, 572	,786 -159
Acq uisit ion o f sec uriti es	-53, 228 ,381	-28, 496 ,146
Dis l of s ities posa ecur	49,5 54,4 25	10,6 83,3 50
Cas h fl fro m in tme nt a ctiv itie ow ves s	-3,9 90,4 85	-18 ,154 ,687
Dec e in shor rm b win t-te reas orro g	-1,2 78	-2,1 97,7 00
Vari atio n in shar ehol ders uit ' eq y	-1,4 70,2 44	-402 ,617
Incr in b onds ease	139 ,990	128 ,323
Cas h fl fro m f inan cin tivi ties ow g ac	-1,3 31,5 33	-2,4 71,9 94
Net inc se i n li quid fun ds rae	-1,1 88,1 33	-17 ,816 ,117
Li quid fun ds a t be ginn in g of the year	8,77 2,74 3	26,5 88,8 60
Li quid fun ds a d of the t en year	7,58 4,61 0	8,77 2,74 3
Add itio nal disc losu h fl res re cas ow
Inco paid me t axes	1,36 2	1,99 3
Inte paid rest	5,53 0	26,5 73

Notes to Consolidated Financial Statements 2002

I. General Information

1. General

ATOSS Software AG, Munich, as a leading provider, develops and sells software for the electronic support of all corporate processes involving the efficient deployment of personnel in companies and public institutions. Each of the ATOSS product lines consists of software modules that are used on the premises of large numbers of customers.

The Consolidated Financial Statements, making use of the exemption provision contained in § 292a HGB (German Commercial Code), were prepared in accordance with the provisions of the United States Generally Accepted Accounting Principles (US-GAAP).

2. Accounting, Valuation and Consolidation Methods

In these Consolidated Financial Statements, all of the business transactions are recorded in their entirety and in standardized form.

2.1. Consolidated Entity

Besides the Financial Statements of ATOSS Software AG, Munich, the Consolidated Financial Statements comprise the Financial Statements of: ATOSS CSD Software GmbH, Cham ATOSS Software Ges.mbH, Vienna ATOSS Software AG, Zurich ATOSS Software S.A.R.L., Paris

2.2. Information on the Companies Included in the StatementsThe following subsidiaries are incorporated into the Consolidated Financial Statements of ATOSS Software AG, Munich by means of full consolidation:

Com pany	Sha f re o	Equi ty	lt fo Resu r
	subs cribe d ca pital	Dec. 31, 200 2	200 2
	%	€	€
ATO SS S oftw Ges . mb H, V ienn are a	100	-299 ,924 ,80	171 ,698 ,53
ATO SS S oftw AG, Zuri ch are	100	-30, 499 ,32	43,8 37,9 3
ATO SS S oftw S.A. R.L. , Pa ris are	100	-157 ,960 ,91	10,4 52,4 3
ATO SS C SD S oftw Gmb H, C ham are	100	137 ,776 ,97	85,4 59,3 8

2.3. Consolidation Principles

The capital consolidation is carried out in accordance with the revaluation method by setting off the acquisition costs against the group's share of the consolidated subsidiaries' equity at the time of acquisition.

In respect of the consolidation of debts, reciprocal claims and obligations of the integrated companies are set off against each other.

Sales, expenses and income generated between the consolidated companies were eliminated.

3. Accounting and Valuation Principles

All of the annual financial statements included in these Consolidated Financial Statements were, on principle, drawn up in accordance with the accounting and valuation principles applied at the parent company ATOSS Software AG, Munich.

Divergences between the provisions of US-GAAP and the provisions of the HGB and the Stock Corporation Act (AktG) are explained under Item IV.11.

The fixed assets are valued at acquisition cost minus scheduled straightline depreciation. Leasehold improvements are depreciated over the term of the tenancy, or over the estimated useful life if this is shorter.

Purchased software is stated at acquisition cost and depreciated over the probable useful life of three to five years.

Inventories are valued at acquisition cost or at their market value, whichever is lower.

The receivables are trade receivables and are stated at their nominal value. Itemized valuation allowances for discernible risks and global valuation allowances for the general credit risk are deducted in permissible amounts from the receivables.

The other assets and cash and cash equivalents are capitalized at nominal value.

Fixed-income securities and current shares are stated at their market values. If the changes in stated values are attributable to unrealized profits or losses, these are taken account of immediately as other comprehensive income.

Cash and cash equivalents are assessed at their nominal value.

The prepaid and deferred items refer to outlays and income before the balance sheet date that represent, respectively, expenses and income pertaining to the subsequent financial year.

The company reports the impact of deferred taxes that result from temporary differences between financial statements prepared under commercial law and under tax law and from tax loss carryforwards. Deferred tax assets and liabilities are, in view of the prevailing the tax rates and tax laws, assessed as per the date when the differences were reversed. If the expected future results of a company render the tax reduction improbable, appropriate valuation allowances are made for deferred tax assets.

The pension obligations were valued in accordance with SFAS No. 87.

The tax accruals and other accruals take account of all discernible risks and contingent liabilities in the light of a prudent commercial assessment.

Earnings per share are calculated by dividing the result for the year by the weighted average number of outstanding shares. In order to calculate the diluted earnings per share, the average number of shares was increased by adding the potential shares issued in the form of convertible bonds.

Convertible bonds are valued using the intrinsic value method in accordance with APB 25. The resulting expenses are reported in the period in question.

The valuation principles have not been changed since the previous year.

4. Foreign Currency Translation Principles

Balance sheet items in foreign currencies are valued at the exchange rate on the balance sheet date, expenses and income at the respective transaction rate.

Financial statements of foreign companies that are not prepared in € are translated into €. In the process, the rates prevailing on the balance sheet date were used to translate the balance sheets and the exchange rates on the transaction date were used for the Income Statement.

5. Estimates made in Preparing the Consolidated Financial Statements

The preparation of the Financial Statements in accordance with generally accepted principles of proper accounting (US-GAAP) necessitates estimates and assumptions that influence the amounts shown in the assets and liabilities, the information in the Notes and the Income Statement. The actual results can diverge from the estimates.

1. Fixed Assets

The development of fixed assets is depicted in a grid chart at the end of these Notes.

The intangible assets developed as follows during the financial year:

FIXED ASSETS

Boo k va lue	1,10 2	1,59 4
minu ortiz atio n in the ious s am prev yea r	0	11
Goo dwil l	22	33
minu ortiz atio s am n	563	588
Inta ngib le as that rtize d ets are mo	3 1,64	2,16 0
	T €	T €
	Dec . 31 , 20 02	Dec . 31 , 20 01

2. Market Values of Financing Instruments

Due to their short maturities, the book values of the financing instruments such as cash and cash equivalents, receivables and payables roughly correspond to their market values. Current investments are valued at market price. Unrealized profits and losses from the securities valued at market prices are posted in equity in a manner not affecting income.

3. Inventories

The inventories largely refer to hardware components from ATOSS CSD Software GmbH that are stocked in small quantities. In addition, software licenses from IBM are held in stock until they are installed on the premises of the customer.

4. Receivables

The receivables are trade receivables and are stated at nominal value. Itemized valuation allowances for discernible risks and global valuation allowances for the general credit risk are deducted in permissible amounts from the receivables.

The valuation allowances developed as follows:

REC EIV AB LES
	Dec . 31 , 20 02	Dec . 31 , 20 01
	T €	T €
Gros ceiv able s re s	4,65 1	4,11 6
minu luat ion a llow s va ance s	198	353
Net ivab les rece	4,45 3	3,76 3

Dec . 31 , 20 02	Dec . 31 , 20 01
T €	T €

The other assets consist mainly of tax refund claims.

5. Short-term Cash Investments

The short-term cash investments are fixed-income securities, investment fund units and shares.

The short-term cash investments consist of the following:

SH OR T-T ER M CA SH IN VE ST ME NT	S
	Dec . 31 , 20 02	Dec . 31 , 20 01
	T €	T €
Sha and ck-f und sto res s
Acq uisit ion c or lo ribu ted valu ost att wer e	1,63 8	2,01 6
alize d profi ts unre	2	68
alize d los unre ses	-533	-350
Mar ket valu e of the sha res	1,10 7	1,73 4
Fixe d-in curi ties and bon d fu nds com e se
uisit ion c or lo ribu ted valu Acq ost att wer e	24,7 64	21,2 09
alize d profi ts unre	282	14
alize d los unre ses	-3	-39
Mar ket valu e of the fixe d-in curi ties com e se
and bon d fu nds	25,0 43	21,1 84
Mar ket valu tota l es,	26,1 50	22,9 18

Dec . 31 , 20 02	Dec . 31 , 20 01
T €	T €

The terms of the fixed-income securities were as follows as per Dec. 31, 2002:

FIX ED -IN CO ME SE CU RIT IES
	T €	%
nths up t o 12 mo	13,9 35	55,6 4
13 t o 24 nths mo	2,26 6	9,05
25 t o 36 nths mo	763	3,05
37 t o 60 nths mo	1,77 4	7,08
Mor e th an 6 0 m onth s	1,82 0	7,27
xpir y da No e te	4,48 5	17,9 1
Tota l	25,0 43	100 ,00

6. Prepaid and Deferred Items

The prepaid and deferred items refer to outlays and income before the balance sheet date that represent, respectively, expenses and income pertaining to the subsequent financial year.

7. Deferred Taxation

The company is subject to trade tax, corporate income tax and the solidarity surcharge.

The following deferred tax assets allocated to tax carryforwards and temporary differences between HGB and US-GAAP are reported under prepaid and deferred items:

DE FER RE D T AX AS SET S
	Dec . 31 , 20 02	Dec . 31 , 20 01
	T €	T €
(dom c) Trad x los rryfo rds esti e ta s ca rwa	242	472
(dom c) Cor te in x los rryfo rds esti e ta pora com s ca rwa	91	685
Fore i gn in e ta x los rryfo rds com s ca rwa	225	33
Defe rred x lo forw ards tax n ta es o ss c arry	558	1,19 0
Valu atio n all defe rred tax ets owa nces on ass	-81	-81
Sub tota l	477	1.10 9
(liab s) Defe rred ilitie tax ets ass
nt d iver es f US -GAA P on c urre genc rom	0	0
Tota l	477	1,10 9

The tax loss carryforwards that are posted by the companies based in Germany and Austria can be carried forward for an unlimited period. The losses posted by the Swiss company can be utilized only to a limited extent; T€ 14 will lapse after 2007, T€ 10 after 2008. The possibilities of utilizing the losses of the French company are also limited in time; T€ 59 will lapse after 2006.

In the previous years, in compliance with the assessment of the extent to which loss carryforwards can be used for tax purposes, valuation allowances for capitalized deferred tax assets had to be carried out for losses carried forward by the Swiss company and the French company.

Up to the financial year 2001, the earnings of the company were subject to a corporate income tax rate of 40% and a solidarity surcharge of 5.5% on the corporate income tax due. This resulted in a corporate income tax burden of 42.2%. The difference between the arithmetical and actual income tax on consolidated earnings results mainly from the trade tax of 14.5% that was due in Germany in 2001 and the divergent tax rates for the foreign companies.

Starting with the assessment period 2002, the earnings of the company will be subject to a corporate income tax rate of 25% initially, followed by a non-recurring rate of 26.5% and then 25% again.

8. Changes in Equity

The development of equity can be found in the Statement of Shareholders' Equity.

9. Own Shares

In December 2000, the company repurchased 27,285 shares at a price of € 10.00. This price was slightly lower than the market price of € 11.00 that prevailed at the time.

Having been authorized by the General Meeting of Shareholders on May 20, 2001, 21,715 shares in ATOSS Software AG were repurchased at prices between € 4.50 and € 10.00 in the financial year 2001. In the fi - nancial year 2002, the company continued to repurchase its own shares. Between January and September, 184,760 shares in ATOSS Software AG were purchased. The acquisition costs of all of the shares purchased in the financial year under review amounted to T€ 1,470. The company holds 233,760 of its own shares as per Dec. 31, 2002.

The own shares were reported as a separate item under equity.

10. Accruals for Pensions

A pension commitment exists for the benefit of the Chief Executive Officer of ATOSS Software AG, who is also the majority shareholder of the parent company. The pension accrual was calculated using an accounting interest rate of 5.0% (previous year: 5.0%) and wage and pension increases of 2.0% (previous year: 2.0%) in accordance with SFAS No. 87.

The pension expenses consist of the following:

AC CR UA LS FOR PE NS ION S
	Dec . 31 , 20 02	Dec . 31 , 20 01
	T €	T €
Cos ts o f ent adde d du rin g th e fi s cal paym year	19	14
Inte rest exp ense s	14	12
sion Pen exp ens es	33	26

The composition of the change in the pension commitments and a rollover of the pension obligations to the company balance sheet developed as follows:

SIO CC S PEN N A RU AL
	Dec . 31 , 20 02	Dec . 31 , 20 01
	T €	T €
Expe cted h va lue a Jan . 01 s at cas	273	190
Cos add ed d ts o f ents urin g th e fi n anci al paym year	19	14
Inte rest exp ense s	14	12
Actu aria l profi t	11	57
cted h va lue a Expe s at Dec . 31 cas	317	273
Rollo unts ver amo	-41	-30
Pen sion rual acc s	276	243

11. Tax Accruals

The accrual was accounted for mainly by deferred taxation for deferred tax liabilities.

It consists of the following:

TAX ACCRUALS

Dec . 31 , 20 02	Dec . 31 , 20 01
T €	T €

Tax rual acc	271	54
Defe rred tax es	265	54
Curr ent taxe s	6	0
	T €	T €
	Dec . 31 , 20 02	Dec . 31 , 20 01

12. Other Accruals

The other accruals basically consist of the following sums:

OT HE R A CC RU AL S
	Dec . 31 , 20 02	Dec . 31 , 20 01
	T €	T €
Acc rual s fo larie d co mmi ssio r sa s an ns	1,49 5	963
Acc rual s fo cati r va ons	194	200
Acc rual s fo ties r wa rran	169	156
Othe ls r ac crua	660	654
Tota l ac ls crua	2,51 8	1,97 3

T €	T €
Dec . 31 , 20 02	Dec . 31 , 20 01

The company gives accommodation warranties without entering into contractual guarantees for them.

The accrual for warranties developed as follows:

AC CR UA L F OR W AR RA NT IES
	Dec . 31 , 20 02	Dec . 31 , 20 01
	T €	T €
Acc rual for w nties 01.0 1. arra as per	156	119
Con ptio sum n	156	119
Alloc atio n	168	156
Stat r 31 .12. us a s pe	168	156

14. Accounts Payable

The inflow of funds resulting from the issuance of 313,767 convertible bonds at a price of €1 each is reported under bonds. The obligation has a residual time to maturity of between one and four years.

The accounts payable basically comprise trade payables and other obligations.

There are non-secured credit lines amounting to € 2.01.5 million with the main banks of the companies incorporated into the Financial Statements. Borrowings (current account credit) within the scope of this arrangement are required as operating capital and for other general group purposes and are paid back at an interest rate of 7.75%. These amounted to T€ 2 as per the balance sheet date.

There are no long-term amounts due to banks.

15. Authorized Capital, Contingent Capital

15.1. Authorized Capital

The Management Board, as a result of a decision by the General Meeting of Shareholders on Jan. 24, 2000, entered in the Commercial Register of Munich Amtsgericht (Municipal Court) on Feb. 01, 2000, changed by a decision of the General Meeting of Shareholders on Feb. 16, 2000 and entered in the Commercial Register of Munich Amtsgericht (Municipal Court) on March 17, 2000, is authorized to increase the capital stock of the company with the approval of the Supervisory Board on one or more occasions up to January 24, 2005 up to a maximum of € 1,958,288, (also) by issuing 1,958,288 new bearer shares in return for contributions in cash or kind, with the possibility of excluding the pre-emptive right of the shareholders.

53 Notes

15.2. Contingent Capital

As the result of a decision by the General Meeting of Shareholders on Feb. 16, 2000, entered in the Commercial Register of Munich Amtsgericht (Municipal Court) on March 10, 2000, the capital stock of the company was increased conditionally by € 280,000 (Contingent Capital 2000/I).

As the result of a resolution of the General Meeting of Shareholders on May 22, 2002, the capital stock of the company was conditionally increased by € 360,000 (Conditional Capital 2002/I) to service conversion rights of members of the Management Board of the company, the managements of affiliated companies and other key individuals and was conditionally increased by € 50,000 (Conditional Capital 2002/II) to service conversion rights of members of the Supervisory Board.

16. Recent Opinions on Financial Accounting

In June 2002, the FASB published SFAS No. 146 "Accounting for Costs with Exit or Disposal Activities". In October 2002, SFAS No. 147 "Acquisitions of Certain Financial Institutions" was published.

Both standards must be applied for the company from the financial year 2003 onwards. The application of these standards will have no impact on the assets, financial and earnings position of the company.

In November 2002, the FASB published Interpretation No. 45 "Guarantor's Accounting and Disclosure". The required disclosures can be found under II.13.

In December 2002, the FASB published SFAS No. 148 "Accounting for Stock-Based Compensation – Transition and Disclosure" containing adjustments to the disclosure obligations for the balance sheet accounting of convertible bonds. The appropriate information can be found under I.3.

1. Sales Recognition

The company generates sales revenues by issuing licenses for software products to end users and retailers. The company also generates sales with services such as IT services and consulting.

Sales from the issuance of licenses are deemed to be realized after the software has been handed over if their receipt is probable, if all license payments are due within one year, if the license fees are fixed or closely determined by contractual means and if the licensor can allocate the license fee to each and every performance under the contract.

The company has signed retail contracts according to which the amounts payable to the company constitute a certain percentage of the license fee that the customer pays the retailer. The license fees are always deemed to be realized when the product has been sold to the customer by the retailer.

Consulting sales have a direct connection with services (IT services and consulting) that are rendered under separate service contracts. These sales are realized when the services are rendered.

Maintenance sales are amortized over the term of the maintenance service.

2. Cost of Sales

Besides the cost of sales for hardware amounting to T€ 2,397, the expenses incurred in the rendering of services are also recorded under cost of sales. These expenses are depicted under Segmental Reporting (III.8.).

3. Software Development Costs

In consideration of SFAS No. 86 "Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed", the mandatory capitalization of software development costs begins when the software becomes technically usable and ends when the latest version is launched on the market. The company has equated technological usability with the completion of a new release or interim release status. Since the period between this completion and availability on the market is very short, these costs are insubstantial and are credited to expenses.

4. Personnel Expenses

	, 20 01
Dec . 31 , 20 02 Dec . 31
T €	T €
Wa and Sala ries 10,3 83 10,4 ges	39
Soc ial S it ensi nd ecur y, p on a
othe r be nefi t 1,63 4 s	1,81 7
l Tota 12,0 17 12,2	56

Dec . 31 , 20 02	Dec . 31 , 20 01
T €	T €

5. Other Operating Income

Under other operating income, the company basically reports income from the disposal of fixed assets and the sale of securities.

OT HE R O PER AT ING IN CO ME
	Dec . 31 , 20 02	Dec . 31 , 20 01
	T €	T €
Proc eeds fro sale set m as s	41	118
Proc eeds from the dis al of rent inve stm ents poss cur	92	241
Othe r	164	95
Othe in g in erat r op com e	297	454

6. Taxes on Income

The company calculates the taxes on income using the liability method in accordance with SFAS No. 109 "Accounting for Income Taxes". The liability method provides for the balance sheet accounting of deferred taxes so that account is taken of the tax effects of time-limited divergences between book values in the commercial and tax balance sheets and those of tax loss carryforwards.

XES ON CO TA IN ME
	Dec . 31 , 20 02	Dec . 31 , 20 01
	T €	T €
Curr ent tax expe nses	44	0
Defe rred tax es	811	34
Othe r tax es	7	-4
Tax exp ens es	862	30

In June 1997, the Financial Accounting Standard Board published Statement No. 131 (SFAS No. 131) on segmental reporting and the disclosure of similar information. The Statement requires the rollover of the figures from the segmental reports to the figures in the financial statements. In addition, Statement No. 131 specifies model presentations for the connected reports on products, services, the geographical distribution of sales and the most important customers.

The company makes a distinction between product-related activities (sale of software, hardware and maintenance contracts) and services. These activities cover Germany and other European countries.

SEG ME NT AL RE PO RT ING
	Dec . 31 , 20 02	Dec . 31 , 20 01
	T €	T €
Prod ucts inte , ma nan ce
Sale s	14,9 28	80 14,7
EBIT	-66	-1,6 13
recia tion Dep	900	818
Serv ices
Sale s	8,31 7	6,45 4
EBIT	1,35 7	201
recia tion Dep	225	425
Dom esti les c sa	19,7 42	18,5 59
Fore i sale gn s	3,50 3	2,67 5
Tota l sa les	23,2 45	21,2 34

The geographical distribution of sales refers to the customer's head office. The company does not make a distinction between assets in different segments.

To depict earnings before interest and taxes, results from ordinary activities are adjusted to take account of the impact of securities ownership on earnings.

EARNINGS BEFORE INTEREST AND TAXES (EBIT) T € Results from ordinary activities 2,119 -176plus interest and similar income 356 34minus other interest and similar income 1,115 1,029minus income from the sale of current investments 69 241

Dec . 31 , 20 02	Dec . 31 , 20 01
T €	T €

Earnings before interest and taxes (EBIT) 1,291 -1,412

8. Statement of Comprehensive Income

The comprehensive income consists of the following:

19,3 83	-230 ,101
T €	T €
Dec . 31 , 20 02	Dec . 31 , 20 01

CO NS CO MP RE HE IVE IN ME
	Dec . 31 , 20 02	Dec . 31 , 20 01
	T €	T €
Net inco me	1,25 6,43 4	-206 ,002
Othe ehen sive inco r co mpr me
Unre alize d los ities ses on s ecur
alize d los aris in g du rin g th riod Unre ses e pe	-174 ,039	-209 ,256
Recl assifi ion a d just t for loss cat men es
inclu ded in th t inc e ne ome	206 ,791	0
Othe r	-13, 369	-20, 845
	19,3 83	-230 ,101
Com preh ive inco ens me	1,27 5,81 7	-43 6,10 3

1. Financial Commitments

The future rental and lease payments for the subsequent financial years consist of the following:

IV. Other Information

FIN AN CIA L C OM MI TM EN TS
	Ren tal ents paym	Leas nts e pa yme
	T €	T €
200 3	856	359
200 4	724	125
200 5	39	49
afte r 20 05	0	0

The total expenses from all of the rental and lease agreements amounted to T€ 1,460 in the financial year under review (previous year T€ 1,384). There is a surety amounting to T€ 102 from the parent company vis-à-vis Sparkasse Cham for the benefit of ATOSS CSD Software GmbH, Cham. ATOSS Software AG is also standing surety for T€ 307 for ATOSS Software Ges.m.b.H., Vienna vis-à-vis Creditanstalt AG, Vienna.

2. Employees

The group employed an average of 169 staff during the year (previous year 175).

3. Customers

The company has customers from all branches of industry and from the public sector. In the financial years 2002 and 2001, no customer accounted for more than 10% of aggregate sales.

4. Supervisory Board

The members of the Supervisory Board are:

r Ki Pete rn	Con sult Cha irma Man ent ant, agem n
Ber nha rd D orn	Man Con sult ent ant, agem
	Cha Vice irma n
Rolf Bar on V ielh n Ho hen hau aue r vo
	(Bun ns) d de r St zahl er B euer ayer

President of the Bavarian Taxpayers' Association

The members of the Supervisory Board hold further supervisory board mandates at the following companies as per Dec. 31, 2002:

Pete r Kir n	AD S olut ions , Mo nhei m
	cimd AG, Wei ata rzw mar
	Bus ines sMa rt A G, S tutt gart
	it/21 spir AG , Eh nin gen
	Unilo g Int ta A G, T übin egra gen
hard Bern Dor n	TDS AG ckar sulm , Ne
	(unt ) S ics A G, H amb il De c. 3 1, 2 002 yste mat urg
	AXA Ser vice AG , Kö ln
	Con er E lect roni c AG , Mu nich sum
	DB S ms G mbH , Fra nkfu m M ain yste rt a
	ed I AG, taba Unit nter net Mon ur
	Inte AG , Mo ntab 1&1 rnet aur
	Twe nty4 hel p AG , Do rtm und
Rolf Baro n Vie lhau on H ohen hau er v	CE C Elec ic AG , Mü nche tron onsu mer n
	Pro Cura Buc h prüf AG , Au gsbu ungs rg

Mr. Bernhard Dorn, Nürnberg, was appointed to the Supervisory Board by Munich Amtsgericht (Municipal Court) at the request of ATOSS Software AG on Aug. 22, 2001. His appointment was confirmed at the General Meeting of Shareholders on May 22.

Andreas F.J. Obereder Chief Executive Offi cerDr. Burkhard Scherf Christiane Glöckler

5. Management Board

Christiane Glöckler was appointed to the Management Board on Juli 01, 2001, assuming responsibility for the Sales and Marketing divisions. Besides her Management Board mandate at ATOSS, Christiane Glöckler holds a mandate as chair of the Supervisory Board at Kaspar Consulting AG, Haimburg. Her appointment to the Management Board will lapse on June 30, 2003.

6. Information on the Emoluments of the Management Board and the Supervisory Board

The total remuneration paid to the Management Board amounted to T€ 1,027 (T€ 419 of this amount was paid on the achievement of company goals). The Management Board was also issued with 45,000 convertible bonds at an exercise price of € 8.21.

The total remuneration of the Supervisory Board amounted to T€ 75. In addition, the members of the Supervisory Board were issued with 36,000 convertible bonds at an exercise price of € 8.09.

7. Shareholdings and Convertible Bond Holdings of the Members of the Executive Organs

The members of the executive organs had the following holdings of ATOSS shares on the respective balance sheet dates:

SH AR ES
	Dec . 31 , 20 02	Dec . 31 , 20 01
And , Ob ered F,J reas er	1,96 7,90 5	1,96 7,90 5
Dr, Burk hard Sch erf	78,1 08	78,3 08
Chri stia ne G löck ler	0	0
Pete r Kir n	11,2 60	11,2 60
Bern hard Dor n	1,00 0	1,00 0
Rolf n Vie lhau ohen hau Baro on H er v	0	0

On the respective balance sheet dates, the ATOSS stock options held by the members of the executive organs through subscription to convertible bonds were as follows:

CO NV ERT IBL E B ON DS
	Dec . 31 , 20 02	Dec . 31 , 20 01
And F,J , Ob ered reas er	15,8 64	864
Dr, Burk hard Sch erf	15,8 64	864
Chri stia ne G löck ler	65,0 00	50,0 00
r Kir Pete n	12,0 00	0
Bern hard Dor n	12,0 00	0
Rolf Baro n Vie lhau on H ohen hau er v	12,0 00	0

8. Business Relationships with Related Companies or Persons The company awards consulting assignments to Peter Kirn, the Supervisory Board Chairman. The total fee for these activities amounted

to T€ 53 in 2002 (previous year T€ 73).

Customer relationships exist with some companies for which members of the Advisory Board work.

The company rents business premises from the spouse of Andreas F.J. Obereder, the Chief Executive Officer.

The rental expenses for these premises amount to T€ 229 (previous year: T€ 230).

The terms for all transactions with related persons are customary in the market and correspond to those of third parties.

9. Employee Stock Option Program

In the spring of 2000, the company launched an employee participation program by issuing convertible bonds. On the occasion of the IPO and during the year, the employees were given the opportunity to subscribe to convertible bonds with a nominal value of € 1.00. A conversion price was fixed at the time the bonds were issued. The conversion price for the issued convertible bonds was fixed as the average from the last five trading days before issuance. On the expiry of two, three and four years, the employee can on each occasion convert one-third of his/her bonds into shares in the company if he/she makes up the difference from the conversion price.

In the last financial year, at the General Meeting of Shareholders on May 22, 2002, the company adopted two convertible bond programs for Supervisory Board members and company employees.

In the new convertible bond program for Supervisory Board members, the Supervisory Board members were each granted the right to subscribe to 12,000 convertible bonds at a nominal value of € 1.00 each. A conversion price was fixed at the time the offer was made. The offer was made within two weeks of the publication of the semi-annual figures for the financial year 2002, and the conversion price corresponds to the average from the last five trading days before the offer was made. On the expiry of two and three years, the Supervisory Board member can on each occasion convert half of his/her bonds into shares in the company if he/she makes up the difference from the conversion price. The term of the convertible bonds is seven years from the date of the offer.

In the new convertible bond program for the Management Board and the employees, the authorized persons are granted the right to subscribe to convertible bonds at a nominal value of € 1.00. A conversion price was fixed at the time the offer was made. The offer was made within two weeks of the publication of the semi-annual figures for the financial year 2002 and the conversion price corresponds to the average from the last five trading days before the offer was made. On the expiry of two and three years, the bond holder can on each occasion convert half of his/her bonds into shares in the company if he/she makes up the difference from the conversion price. The term of the convertible bonds is seven years from the date of the offer.

CO NV ERT IBL E B ON DS
	Num ber of	Wei ghte d av erag e
	ertib le bo nds conv	cise price exer
Outs tand in Jan . 01 , 20 00 g as per	0
Issu ed in 200 0	56,7 50	29,1 1
Rede d in 200 0 eme	10,2 96	30,9 4
Outs tand in Dec . 31 , 20 00 g as per	45,4 54
Issu ed in 200 1	181 ,400	8,85
Rede d in 200 1 eme	53,0 77	19,9 0
Outs tand in Dec . 31 , 20 01 g as per	173 ,777
Issu ed in 200 2	148 ,900	8,19
Rede d in 200 2 eme	8,91 0	10,1 6
Outs tand in Dec . 31 , 20 02 g as per	313 ,767

The following table summarizes the information about outstanding convertible bonds as per Dec. 31, 2002

OUTSTANDING CONVERTIBLE BONDS

Exer cise pric e in €	Outs tand in tions g op	Con tual trac	Poss ible e ise xerc
		valid it y in year s	ri ghts
Mem bers of e utiv xec e or gan s
30,0 0	1,72 8	2,2	0 1,14
8,56	50,0 00	3,4	0
8,21	45,0 00	4,3	0
8,09	36,0 00	4,6	0
Emp lo yee s
30,0 0	12,9 39	2,2	4,31 3
28,7 0	3,00 0	2,4	1,00 0
9,11	88,5 00	2,9	0
11,0 6	2,00 0	3,0	0
5,51	6,50 0	3,8	0
8,21	61,1 00	4,3	0
8,17	7,00 0	4,3	0
	313 ,767		6,45 3

The company reports the issued convertible bonds in accordance with the intrinsic value method. Were they to be evaluated at their market values in accordance with SFAS No. 123 "Accounting for Stock-Based Compensation", the pro-forma result would be T€ 1,289 (previous year: T€ -801). The pro-forma result per share would be € 0.33, with the diluted pro-forma result per share amounting to € 0.31. During the financial year, the company accounted T€ 33 from the issuing of convertible bonds as personnel expenses (previous year: T€ 14)

The weighted market value of all convertible bonds issued since 2000 is T€ 284. The market value was calculated using the Black-Scholes method on the basis of the following assumptions:

CO NV ERT IBL E B ON DS , V AL UE
	Dec . 31 , 20 02	Dec . 31 , 20 01
Expe cted vola tilit y	31%	39%
Risk -free inte rest rat e	3,8	4,5%
Expe cted m of the ions ter opt	5 Ye ars	5 Ye ars

The Black-Scholes method for evaluating options was developed to determine the fair value of options that are not subject to any obligations and are fully transferable. If valuation models for options are based on subjective assumptions, real divergences from these assumptions can have lasting influence on the value of the options. In addition, the convertible bonds are subject to the ATOSS Software AG restrictions that can be compared only approximately with traded options, with the result that the valuation model does not necessarily produce a reliable value for the options.

10. Earnings per share

EA RN ING S P ER SH AR E
	Dec . 31 , 20 02	Dec . 31 , 20 01
(€ ) Net inco me f or t he year	1.25 6.43 4	-206 .002
Wei ghte d av mbe r of tand in g sh outs erag e nu ares	3.87 1.83 5	3.98 7.56 2
Earn in hare gs p er s	0,32	-0,0 5
Dilut ion e ffect sed b tible bon ds cau y co nver	228 .590	166 .646
Wei ghte d av mbe r of tand in g sh outs erag e nu ares
if dilu tion is as ed sum	4.10 0.42 5	4.15 4.20 8
(di d) Earn in hare lute gs p er s	0,31	-0,0 5

11. Explanatory Notes on the Accounting, Valuation and Consolidation Methods that Diverge from German Commercial Law

11.1. IPO Costs

In the financial year 2000, the IPO costs amounting to €3.6 million were treated in a manner neutral to earnings for US-GAAP purposes, notwithstanding the crediting to income provided for by the provisions of the HGB. These costs – reduced by the taxation effect of € 1.8 million – were offset against the premium from the shares issued on the occasion of the IPO.

11.2. Deferred Taxes

Notwithstanding the provisions of the HGB, deferred taxes on tax loss carryforwards amounting to T€ 900 were capitalized in the financial year 2000. Further deferred taxes on losses carried forward amounting to T€ 290 were capitalized in the financial year 2001. A valuation allowance of T€ 81 was made in accordance with the estimation of their tax usability.

As a result of the affiliated companies› positive net income for the year, deferred taxes amounting to T€ 632 were released to expenses in the financial year 2002.

11.3. Securities

Current investments were reported in the balance sheet at their market values, provided that their market values were higher or lower than their acquisition costs on the balance sheet date. The unrealized profits or losses that were thus generated were offset against equity in a manner neutral to earnings. Under the provisions of the HGB, they would be reported at acquisition cost, the lower stock market or market price or the lower attributed value.

11.4. Capital Reserve

In the financial year 2000, in contrast to the provisions of the HGB, the capital reserve was reduced by the IPO costs of € 3.6 million, minus the tax effect of € 1.8 million thus incurred.

In the financial year 2002, T€ 1.483 was taken from the capital reserve and T€ 33 transferred to it.

67

11.5. Own Shares

The own shares that were purchased in December 2000 and during the course of 2001 were openly deducted from equity in the Consolidated Financial Statements. According to the provisions of the HGB, these shares would have to be reported as the group's own shares.

11.6. Pension Accruals

The valuation of the accruals for pensions was based on a discount rate of 5.0%, a pension adjustment of 2.0% and an increase of 2.0% in wage and salary costs.

12. German Corporate Governance Code

The Management Board and the Supervisory Board of ATOSS Software AG made the required declaration issued a statement on the German Corporate Governance Code and opened it up to the shareholders. on Oct. 15, 2002. The full wording of the declaration can be found on the Internet under www.atoss.com/unternehmen/ir/Corporate Governance/ index.html. In the future, the Management Board and the Supervisory Board will issue an annual statement on the compliance with the German Corporate Governance Code and the recommendations contained therein and report on the subject in the Annual Report.

Munich, Feb. 12, 2003 ATOSS Software AG

Andreas F.J. Obereder Dr. Burkhard Scherf Christiane Glöckler

CHANGES IN CONSOLIDATED ASSETS

		Gross values					Valuation allowances			Book values
	Jan 01, 02	Additions	Disposals	Dec. 31, 02	Jan 01, 02	Additions	Disposals	Dec. 31, 02	Dec. 31, 02	Dec. 31, 01
	€	€	€	€	€	€	€	€	€	€
I. Intangible assets
1. Industrial property rights
and similar rights	2,487,998	92,572	256,895	2,323,675	925,779	562,721	244,849	1,243,651	1.080.024	1.571.423
2. Goodwill	44,428	0	0	44,428	22,214	0	0	22,214	22.214	22,214
	2,532,426	92,572	256,895	2,368,103	947,993	562,721	244,849	1,265,865	1,102,238	1,593,637
II. Tangible fixed assets
1.Technical equipement,
leasehold improvements	310,469	22,136	0	332,605	170,415	55,472	0	225,887	106,718	140,054
2. Other equipement, factory
and offi ce equipement
Factory and
offi ce equipement	2,185,405	221,410	411,071	1,995,744	1,249,541	448,872	362,886	1,335,527	660,217	935,864
Vehicle fl eet	266,384	0	109,873	156,511	179,815	36,846	91,755	124,906	31,605	86,569
Low-cost assets	260,168	21,642	21,280	260,531	260,165	21,642	21,280	260,527	4	4
	3,022,426	265,188	542,224	2,745,391	1,859,936	562,832	475,921	1,946,847	798,544	1,162,491
Total	5,554,852	357,760	799,119	5,113,494	2,807,929	1,125,553	720,770	3,212,712	1,900,782	2,756,128

CHANGES IN CONSOLIDATED EQUITY
	Shares	Subscribed	Acquisition of	Capital	Earnings	Unappropriated	Other com-	Total
		Capital	own shares	reserve	reserve	surplus	prehensive income	Equity
	€	€	€	€	€	€	€	€
Jan. 01, 2001	4,025,667	4,025,667	-272,850	33,197,087	0	59,479	33,654	37,043,038
Result for the year						-206,002		-206,002
Withdrawal from capital reserve				-24,280				-24,280
Acquisition of own shares			-148,236					-148,236
Other comprehensive income
Unrealized losses from securities						-209,256	-209,256
Other							-20,845	-20,845

Status Dec. 31, 2001	4,025,667	4,025,667	-421,086	33,172,807	0	-146,522	-196,447	36,434,419
Result for the year						1,256,434		1,256,434
Acquisition of own shares			-1,470,244					-1,470,244
Withdrawal from capital reserve								0
Allocation from convertible bonds			33,338					33,338
Other comprehensive income
Unrealized losses from securities							-101,061	-101,061
Other							120,444	120,444
Status Dec. 31, 2002	4,025,667		4,025,667 -1,891,330 31,722,582		0	2,593.476	-177,064	36,273,330

Unqualified auditor's report for statutory audits of annual financial statements

I m pr es su m
-------------------------------

ATO SS So ftw AG are
Am Mo osf eld 3
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Fon 49 . 89 . 4 27 71 - 0 +
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Chr ibe isto f Le r
Fon 49 . 89 27 - 26 . 4 71 5 +
Fax 49 . 89 . 4 27 71 - 10 0 +
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Representations

AG
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71-0 71-100
AG
1 71-265 1 71-100
toss.com
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Ge rm any	ATO SS Dü ldo rf sse
	+ 4 9. 2 1 5 0. 9 65 - 0
	ATO SS Fr ank fur t
	+ 4 9. 6 9. 6 56 77 - 0
	ATO SS Ha mb urg
	+ 4 9. 4 0. 2 7 8 1 6 3 - 0
	ATO SS St utt t gar
	+ 4 9. 7 11 . 7 28 73 20 - 0
	ATO SS CS D C ham
	9. 99 . 8 8-0 +4 71 5 1
ia Au str	ATO SS Vie nna
	+ 4 3. 1 . 7 96 42 22 - 0
Sw itze rla nd	ATO SS Zu rich
	+ 4 1. 1 . 3 08 39 12

We have audited the annual financial statements, together with the bookkeeping system, and the management report of the ATOSS Software AG for the business year from January, 1 to December 31, 2002. The maintenance of the books and records and the preparation of the annual financial statements and management report in accordance with the United States-Generally Accepted Accounting Principles (US GAAP) are the responsibility of the Company's management. Our responsibility is to express an opinion on the annual financial statements, together with the bookkeeping system, and on the management report based on our audit.

We conducted our audit of the annual financial statements in accordance with the generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the annual financial statements in accordance with US GAAP and in the management report are detected with reasonable assurance. Knowledge of the nomic and legal environment of the Company and evaluations of possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting related internal control system and the evidence supporting the disclosures in the books and records, the annual financial state ments and the management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the annual financial statements and management report. We believe that our audit provides a reasonable basis for our opinion.

Our audit has not led to any reservations.

In our opinion, the annual financial statements give a true and fair view of the net assets, financial position and results of operations of the ATOSS Software AG in accordance with US GAAP. On the whole the management report provides a suitable understanding of the Company's position and suitably presents the risks of future development.

Munich, Feb. 14th, 2003 Deloitte & Touche GmbH Wirtschaftsprüfungsgesellschaft

(Dr. Plendl) Wirtschaftsprüfer

(Lehnhardt) Wirtschaftsprüfer