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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-30827
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CLICKSOFTWARE TECHNOLOGIES LTD.
(Exact name of registrant as specified in its charter)
Israel Not Applicable
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
34 Habarzel Street Tel Aviv, Israel
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (972-3) 765-9400
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ---------------------------------- -----------------------------------------
Securities registered pursuant to section 12(g) of the Act:
Ordinary Shares, NIS 0.02 par value
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(Title of class)
- --------------------------------------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X Yes No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
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State the aggregate market value of the voting and non-voting common equity held
by non-affiliates of the registrant. The aggregate market value shall be
computed by reference to the price at which the common equity was sold, or the
average bid and asked prices of such common equity, as of a specified date
within 60 days prior to the date of filing. (See definition of affiliate in Rule
405, 17 CFR 230.405.)
The aggregate market value of the Ordinary Shares held by nonaffiliates of the
Registrant, based upon the closing sale price of the Ordinary shares on March
26, 2001, as reported by the Nasdaq National Market, was approximately
$3,377,675. Ordinary Shares held by each executive officer and director and by
each person who owns 5% or more of the outstanding voting stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.
NOTE.--If a determination as to whether a particular person or entity is an
affiliate cannot be made without involving unreasonable effort and expense, the
aggregate market value of the common stock held by non-affiliates may be
calculated on the basis of assumptions reasonable under the circumstances,
provided that the assumptions are set forth in this Form.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
As of March 26, 2001, there were approximately 26,064,539 Ordinary Shares of the
Registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders
for fiscal year ended December 24, 1980).
None.
TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business......................................................................... 5
Item 2. Properties....................................................................... 14
Item 3. Legal Proceedings................................................................ 15
Item 4. Submission of Matters to a Vote of Security Holders.............................. 15
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters...................................................... 15
Item 6. Selected Consolidated Financial Data............................................. 17
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................ 18
Item 7A Quantitative and Qualitative Disclosures About Market
Risk............................................................................. 33
Item 8. Financial Statements............................................................. 37
Item 9. Changes In and Disagreement With Accountants on Accounting
and Financial Disclosure......................................................... 51
PART III
Item 10. Directors and Executive Officers of the Registrant............................... 51
Item 11. Executive Compensation........................................................... 52
Item 12. Security Ownership of Certain Beneficial Owners and
Management....................................................................... 55
Item 13. Certain Relationships and Related Transactions................................... 56
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K.............................................................................. 56
SIGNATURES ................................................................................. 57
PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements (as such term is defined
in Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934) and information relating to us that are based on the
beliefs of our management as well as assumptions made by and information
currently available to our management, including statements related to products,
markets, and future results of operations and profitability, and may include
implied statements concerning market acceptance of our products, and our growing
leadership role in the marketplace. In addition, when used in this report, the
words "likely," "will," "suggests," "may," "would," "could," "anticipate,"
"believe," "estimate," "expect," "intend," "plan," "predict" and similar
expressions and their variants, as they relate to us or our management, may
identify forward-looking statements. Such statements reflect the judgment of the
Company as of the date of this annual report on Form 10-K with respect to future
events, the outcome of which is subject to certain risks, including the risk
factors set forth herein, which may have a significant impact on our business,
operating results or financial condition. Investors are cautioned that these
forward-looking statements are inherently uncertain. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results or outcomes may vary materially from those described
herein. ClickSoftware undertakes no obligation to update forward-looking
statements, whether as a result of new information, future events or otherwise.
ITEM 1. BUSINESS
We provide software for optimizing service operations by improving customer
responsiveness and the utilization of service resources. Our products allow our
clients to respond quickly to customers' demands for service while maximizing
utilization of service personnel and minimizing operational costs.
We offer solutions to support the various levels of management hierarchy,
including execution, operational planning, tactical planning and strategic
planning levels. Our Service Optimization suite of products allows clients to
concentrate on both micro and macro level scheduling, service execution, real
time monitoring, short term resource planning, and long term capacity planning.
Our solution is designed to enable our clients to increase the productivity of
their service resources, resulting in reduced costs and increased revenue
opportunities that would otherwise be lost.
We were incorporated in Israel in 1979. We have a wholly-owned subsidiary
incorporated in California, ClickSoftware, Inc., and a wholly-owned subsidiary
incorporated in the United Kingdom, ClickService Software Limited. Our product
development efforts are conducted primarily in Israel. Our sales and marketing
and implementation efforts in North America are conducted by our California
subsidiary. Our sales and marketing and implementation efforts in Europe are
conducted by our United Kingdom subsidiary.
ClickSoftware began the year under its former name, IET-Intelligent Electronics.
On January 25, 2000 we announced the change of our name to ClickService
Software. Prior to our public offering, we changed our name to ClickSoftware
Technologies Ltd.
On April 26, 2000 we introduced CLICKANALYZE, a new software solution that
enables service organizations to obtain accurate measurements of compliance with
service commitments and levels of resource utilization. On October 5, we
announced the release of CLICKMOBILE, which enables service representatives in
the field to send and receive updated schedule information throughout the day.
At the same time, we announced the release of CLICKPLAN, a Web-based resource
planning tool to be used by service managers for high-level resource allocation
based on their forecasted workload. In January 2001, we introduced FAST TRACK
2.0, the second version of our implementation tool enabling CLICKSCHEDULE to be
integrated within sixty days.
PRODUCTS
We have developed a suite of products that automate and optimize the processes
by which service operations manage internal resources and customer calls. These
solutions work across all management levels and organizational boundaries and
cover the business functions of tactical planning, strategic planning and
analysis, and operational execution. Our products enable enterprises to:
* Efficiently schedule and fulfill service;
* Effectively plan for the optimal workforce according to forecasted workload;
* Intelligently diagnose and troubleshoot equipment;
* Monitor execution via Internet and wireless devices; and
* Accurately measure the business performance of the organization.
5
Our optimization solutions can be used alone or in tandem to enable service
organizations to improve response time, quality of customer service, and
customer satisfaction while maintaining a high level of resource utilization.
Our solutions integrate easily with existing CRM solutions.
SERVICE OPTIMIZATION SUITE OF PRODUCTS
Our Service Optimization suite of products provides an end-to-end solution for
improving the efficiency and cost-effectiveness of service operations by working
across all management levels and organizational boundaries. In addition to our
ClickSchedule and CLICKFIX offerings, our suite of products includes a mobile
client, and solutions for business planning and business performance analysis.
Our Service Optimization suite includes the following products:
* CLICKSCHEDULE is a web-centric software solution that allows organizations
to optimally schedule appointments for delivery, installation, or service by
assigning service personnel and sequencing individual schedules and travel
routes in an economical way. CLICKSCHEDULE automatically considers such
factors as technician skills set, task complexity, planned task duration,
resource and parts availability, overtime, travel time and travel distance,
and contractual obligations of the service provider.
CLICKSCHEDULE performs scheduling functions by integrating with existing
customer relations management (CRM) applications. Using a CRM application,
an online customer or a call center professional provides details regarding
the service request as an XML message to the CLICKSCHEDULE server.
ClickSchedule immediately recommends optimized scheduling options weighing
the parameters of the customer's request against configured parameters of
the service provider. The CRM application then presents the optimized
scheduling options to the customer for choice.
After the CRM application sends the customer appointment selection back to
CLICKSCHEDULE, the data is used to organize and then communicate individual
schedules to service representatives. In addition, the data provides the
basis for ClickSoftware's resource management and analysis applications
further described below.
* CLICKFIX is a troubleshooting solution for equipment-related problem
resolution support. CLICKFIX captures the description of the equipment
problem manually by user interface, automatically from automated event logs,
or remotely via a modem. The CLICKFIX application prompts the user to select
from a list of common or potential problems associated with the particular
symptom and 'walks' the user through the problem resolution process by
proposing additional tests and finally recommending corrective actions.
CLICKFIX works effectively for both trained service technicians and
untrained equipment end-users. CLICKFIX works in a stand-alone mode on a
mobile computer or may be accessed via the web. Information gained by each
diagnostic situation is reincorporated in to the resolution database,
effectively creating an artificial intelligence solution gaining
functionality through experience.
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* CLICKMOBILE integrates with CLICKSCHEDULE to enable the automatic, real-time
wireless communication of the scheduling and rescheduling of field
resources. Using a wireless PDA, field resources communicate the status of
assigned tasks (e.g., "en-route", "onsite", "delayed", "completed", etc.),
providing the necessary information to enable scheduling adjustments.
Dispatchers may then proactively monitor and manage scheduling changes
throughout the day to maintain resource optimization despite unexpected
events such as traffic delays, transportation breakdowns, and jobs in excess
of planned duration. The result is both improved schedule optimization
through earlier problem detection and the ability to better manage customer
expectations through communication. In addition, CLICKMOBILE enables
intra-day, real-time performance measurement of utilization, productivity,
and customer commitment compliance.
* CLICKANALYZE is an advanced management level software solution used to
quickly and accurately measure the business performance of a service
organization. Used in conjunction with CLICKSCHEDULE and CLICKFIX,
CLICKANALYZE users analyze basic and customized business performance
indicators such as service levels, resource utilization, employee load and
operations cost. CLICKANALYZE provides both executive level summary reports
and detailed analysis according to territory, job type, employee skill, time
frame and other configurable factors.
* CLICKPLAN enables service organizations to increase future resource
utilization by identifying and resolving potential workforce shortages,
surpluses, and imbalances. CLICKPLAN compares forecasted work with available
resource capacity grouped by job type, territory, skills, and other
criteria. As future resources are allocated, CLICKPLAN highlights potential
shortages and imbalances in the workforce months and years in advance.
TECHNOLOGY
Our products are based upon our internally developed core technologies, W-6
Service Scheduler and TechMate. These two core technologies were developed over
the last decade and include sophisticated algorithms and business scenario
representation tools. Our research and development personnel have been working
on service technology solutions since 1985, including algorithmic software
solutions, system integration and implementations. Based on these efforts, we
have gained significant experience with the complex optimization and decision
support troubleshooting needs of service organizations. As differentiated from
the needs of supply chain of manufacturing operations, the needs of the service
chain are far more complex. For instance, service scheduling involves scheduling
personnel of different skills in different locations to tasks of different
complexity in constantly changing locations, all coordinated to meet the
scheduling demands of the customer.
Our applications are fully standards-based, allowing complete integration with
related CRM, ERP or supply chain functions. Our applications run on
Windows-based computers or standard web browsers and servers, and support
leading relational database management systems, including Oracle and Microsoft
SQL Server. The multi-tier architecture connects browser-based applications to
Windows NT application servers through local area networks, wide area networks,
intranet or Internet connections. Our technology performs messaging between
clients and the application server in real time over standard communication
protocols, e.g. HTTP and TCP/IP. Our applications are inherently scalable due to
our multi-tier architecture that uses thin clients, multi-threaded application
servers and relational databases.
Specifically, our core technologies include internally developed optimization
algorithms. These algorithms provide efficient solutions for complex problems
arising from, among others, the following:
* the vast number of possible solutions associated with optimized scheduling
of personnel;
* the number of service organization-specific resources and variables;
* the need to instantly respond to concurrent users' service requests;
* the vast number of potential routes within a specific geographic area; and
* various time zone considerations.
Our core technologies also include sophisticated service business scenario
modeling. We have developed models based on a vast number of variables and
resource characteristics common to service organizations. By employing these
models, we can use our algorithms to address the market needs of different
segments of the service industry and broaden the customer base for our products.
7
Our technology contains an open, multi-tiered architecture. Our architecture
incorporates the following key components:
* Application software and web servers capable of performing high-speed
optimization, problem resolution, and Internet access to the application
host system; and
* Extensible Markup Language, or XML, Application Programming Interfaces
(APIs), which enable other applications to integrate and access the data and
services of CLICKSCHEDULE or CLICKFIX.
The CLICKSCHEDULE scheduling engine contains technologies which include not only
business rules and objectives defining the constraints and policies of the
service organization, but also optimization algorithms which schedule the
service resources based on these rules and objectives. These rules and
objectives and optimization algorithms are designed in a generic fashion so that
they can be adaptable to a wide range of service scheduling problems.
The CLICKFIX problem resolution engine contains technologies that include
algorithms for fast problem resolution based on equipment design and field
knowledge, a knowledge base with learning capabilities, and an intelligent
component that creates new trouble shooting solutions based on modeling both
equipment structure and historic data.
Our user customization includes an Industry Segment Layer, which includes data,
algorithms, and Application Program Interfaces (APIs) that are specifically
developed to address the needs of particular industry segments. In addition,
external customization points enable ClickSoftware professional services
personnel and third party system integrators to efficiently configure our
software to provide customization for particular customers.
Our development methodology is based on techniques which facilitate development
of components that can be incorporated in future products. This methodology
enables us to reduce the time required to introduce functionality enhancements
and new products. Our development methodology involves analysis of business
requirements, software module design to meet these requirements, software
development and coding, testing and quality assurance. Our product development
group in Israel is ISO 9000 certified.
PROFESSIONAL SERVICES AND CUSTOMER SUPPORT
Our professional services organization is staffed by professionals with
significant experience in the resource optimization field. We provide our
clients with consulting and deployment services, upgrades, and comprehensive
training and support to help achieve business goals with a quick return on
investment. Our consulting services include:
* Business Analysis. Our consultants assess current or planned scheduling
needs, develop and document the project plan, and deliver the design
specification. We provide a configuration and implementation roadmap to help
meet business goals, including an analysis of return on investment.
* Project Implementations. Our professional services consultants individually,
or as members of our clients' teams, implement and assist in the
configuration of our solutions to accelerate the project deployment schedule
and ensure a successful implementation process.
* CLICKSCHEDULE FAST TRACK. In order to increase the number of our
implementations and facilitate market acceptance of our CLICKSCHEDULE
solution, we introduced CLICKSCHEDULE FAST TRACK to provide accelerated
ClickSchedule implementation. We believe this methodology enables clients to
achieve benefits quickly from rapid implementation. Once the CLICKSCHEDULE
FAST TRACK implementation is completed, we offer enhancements and
customizations that provide additional functionality to our CLICKSCHEDULE
product.
8
Customer support is available by telephone and over the Internet. Customer
support is billed as a percentage of license fees depending upon the level of
support coverage requested by the customer. Support is provided by the technical
support team in our product development group, ensuring detailed product
knowledge and access to experts and testing facilities when required. The
customer support team works closely with the professional services organization
in providing technical support during client project implementations and
transferring completed projects from professional services organization to the
client support team.
CUSTOMERS
We sell our products to a broad base of clients representing a variety of
industries with unique needs, including telecommunications, utilities,
high-technology service providers and home equipment retailers. The following is
a representative list of our clients or end-users using our products. This list
of clients is representative of the geographically dispersed client base, the
various industries utilizing our products and the various stages of deployment
of our product lines. Each of these clients accounted for at least $100,000 of
product and/or service revenues for 2000 and, as a group, these clients
accounted for approximately 37% of our total revenues for 2000:
Crown Castle
Covad Communications
ICL
InstallInc.com
Level 3 Communications
Novellus
Schindler Elevator
Starband Communications
UPC
Swisscom
Vodafone
Watkins
Each of three clients represented between 3% and 7% of our total revenues for
2000.
One customer accounted for greater than 10% of revenues during the year ended
December 31, 2000 and none accounted for the same in 1999. For the year ended
December 31, 1998, sales to each of three customers constituted greater than 10%
of our revenues.
SALES AND MARKETING
We market and sell our products primarily through our direct sales force, which
is located in North America and Europe. Our multi-disciplined sales teams
consist of field sales executives, sales support engineers and internal sales
staff. The internal sales staff is responsible for generating leads and
qualifying prospective clients. Sales support engineers assist the sales
executives in the technical aspects of the sales process, including preparing
demonstrations and technical proposals. Our sales executives are responsible for
completing the sales process and managing the post-sale client relationship,
which consists of ongoing relationship management and the sale of additional
licenses as clients require additional resources. Our management also takes an
active role in our sales efforts. The knowledge gained by our sales and
marketing force is also communicated to our product marketing group which guides
our development team. This enables our organization to align the functionality
of our products with customer needs.
We typically direct our sales efforts to the client's chief executive officer,
the chief information officer, the vice presidents of customer service and other
senior executives responsible for improving customer service at our clients'
organizations. We focus our marketing efforts on identifying potential new
clients, generating new sales opportunities, and creating awareness in our
target markets about the value of our products and their applications. Our
programs target prospective clients across a wide variety of industries,
business relationships and geographies. In order to effectively promote product
awareness, we engage in marketing activities in a wide variety of areas
including public relations and analyst relations, advertising creation and
placement, direct mailings and trade shows. As of December 31, 2000, we employed
over 71 individuals in our sales and marketing department.
9
Our marketing organization also supports joint marketing activities with our
business partners. Our business relationships enable us to use our partners'
market presence and sales channels to create additional revenue opportunities.
We have entered into co-marketing arrangements with leading enterprise resource
planning (ERP) companies, and customer relationship management (CRM) vendors.
With these relationships, we both participate in joint sales efforts as well as
sell our software for resale. These vendors include Nortel, Clarify, i2
Technologies, JD Edwards, Metrix, PeopleSoft/Vantive, Orbital, SAP, Siebel, and
Viryanet. These partners have committed resources depending on the strength of
the relationship, including building an interface for our product, training
their employees, developing co-marketing programs, and incorporating our
products into their marketing strategies. We provide sales materials and
training to resellers on the implementation of our software solutions. With
several of these partners, we also have reseller agreements by which they are
authorized to resell our products to their customers. These agreements generally
provide the parties with the right to use each other's names in marketing and
advertising materials, and to occasionally conduct joint marketing programs.
These agreements are generally for a one-year period and are automatically
renewable. We believe these relationships will extend our presence and brand
name in new and existing markets.
RESEARCH AND DEVELOPMENT
We believe that strong product development capabilities are essential to our
strategy of enhancing our core technology, developing additional products and
maintaining the competitiveness of our product and service offerings. We have
invested significant time and resources in creating a structured process for
undertaking all product development projects. These include documenting product
requirements, specifying product features and workflow, developing the software,
performing quality assurance, and creating documentation and packaging. Our
research and development center in Israel is ISO 9000 compliant and continuously
updates its software development procedures to maintain an ongoing improvement
process and high quality products.
Our future research and development strategies will concentrate on strengthening
our product offerings in decision support, forecasting, resource planning,
capacity planning and monitoring, in enhancing the scalability of our products,
and in continuing the development of packaged offerings for specific vertical
industries.
Our research and development expenses, prior to participation grants from the
Office of the Chief Scientist of the Government of Israel, totaled $5.4 million
for the year ended December 31, 2000, $3.9 million for the year ended December
31, 1999, and $3.1 million for the year ended December 31, 1998. As of December
31, 2000, we employed 47 individuals in our research and development group.
COMPETITION
The market for our products is competitive and rapidly changing. We expect
competition to increase in the future as current competitors expand their
product offerings and new companies enter the market.
Our current and potential competitors include:
* independent systems integrators and in-house information technology
departments;
* traditional ERP and CRM software application vendors;
* software vendors in the utility, telecommunications, Internet access, field
services, home delivery and other markets;
* providers of service scheduling software and components and logistics
solutions providers; and
* providers of supply-chain optimization solutions for manufacturing
organizations.
Some of our current and potential competitors have greater name recognition,
longer operating histories, larger customer bases and significantly greater
financial, technical, marketing, public relations, sales, distribution and other
resources than we do.
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Competition could result in price reductions, fewer customer orders, reduced
gross margin and loss of market share, any of which could cause our business to
suffer. We may not be able to compete successfully, and competitive pressures
may harm our business. In addition, our market is characterized by rapid
technological change, dynamic client needs and frequent introductions of new
products and product enhancements, which can make existing products, including
ours, obsolete or unmarketable.
INTELLECTUAL PROPERTY
Our future success depends in part on legal protection of our intellectual
property. To protect our intellectual property, we rely on a combination of the
following among others:
* preventing access to source code and technical documentation;
* copyright laws;
* patent laws;
* trademark laws; and
* trade secret laws.
We have two patent applications pending with the Israeli Patent Office. We
intend to file similar applications with United States and other international
patent authorities. As we continue to develop new applications of our products,
we will consider additional patent applications. We can offer no assurance that
patents will issue from any of these pending applications or, if patents do
issue, that the claims allowed will be sufficiently borad to protect our
technology. In addition, we can offer no assurance that any patents issued to us
will not be challenged, invalidated or circumvented, or that the rights granted
thereunder will adequately protect us.
We have filed trademark applications in the United States for the use of
CLICKSOFTWARE, CLICKBROKER, CLICKANALYZE, CLICKPLAN, CLICKFORECAST,
CLICKPERFORMANCE MONITOR, CLICKSCHEDULE, CLICKFIX, CLICKANSWER, CLICKCATALOG and
W-6. However, we may not receive registrations for these trademarks. In 2000, we
settled two legal disputes regarding our current and former names. See "Legal
Proceedings."
Our registered trademarks also include Diagnostic Executive and Aitest. Although
we rely on copyright, trade secret and trademark law to protect our technology,
we believe that factors such as the technological and creative skills of our
personnel, new product developments, frequent product enhancements and reliable
product maintenance are more essential to establishing and maintaining a
technology leadership position. We can give no assurance that others will not
develop technologies that are similar or superior to our technology. See "Risks
Related to Our Business" and "Competition".
We generally enter into nondisclosure agreements with our customers, employees
and consultants and generally control access to and distribution of our
software, documentation and other proprietary information.
Our end-user licenses are designed to prohibit unauthorized use, copying and
disclosure of our software and technology in the United States, Israel and other
foreign countries. However, these provisions may be unenforceable under the laws
of some jurisdictions and foreign countries. Unauthorized third parties may be
able to copy some portions of our products or reverse engineer or obtain and use
information and technology that we regard as proprietary. Third parties could
also independently develop competing technology or design around our technology.
If we are unable to successfully detect infringement and/or to enforce our
rights to our technology, we may lose competitive position in the market. We
cannot assure you that our means of protecting our intellectual property rights
in the United States, Israel or elsewhere will be adequate or that competing
companies will not independently develop similar technology. In addition, some
of our licensed users may allow additional unauthorized users to use our
software, and if we do not detect such use, we could lose potential license
fees.
From time to time, we may encounter disputes over rights and obligations
concerning intellectual property. We also indemnify some of our customers
against claims that our products infringe on the intellectual property rights of
others. We believe that our products do not infringe upon the intellectual
property rights of third parties. However, we cannot assure you that we will
prevail in all future intellectual property disputes. We have not conducted an
exhaustive search for existing patents and other intellectual property
registrations, and we cannot assure you that our products do not infringe any
issued patents. In addition, because patent applications in the United States
and Israel are not publicly disclosed until the patent is issued, applications
may have been filed which would relate to our products.
11
Substantial litigation regarding technology rights exists in the software
industry, and we expect that software products may be increasingly subject to
third-party infringement and ownership claims as the number of competitors in
our industry segment grows and the functionality of products in different
industry segments overlap. In addition, our competitors may file or have filed
patent applications, which are covering aspects of their technology that they
may claim our technology infringes. Third parties may assert infringement or
competing ownership claims with respect to our products and technology. Any such
claims, with or without merit, could be time-consuming to defend, result in
costly litigation, divert management's attention and resources or cause product
shipment delays. In the event of an adverse ruling in any such litigation, we
might be required to pay substantial damages, discontinue the use and sale of
infringing products, expand significant resources to develop non-infringing
technology or obtain licenses to or pay royalties to use a third party's
technology. Such royalty or licensing agreements may not be available on terms
acceptable to us, if at all. A successful claim of patent or copyright
infringement against us could significantly harm our business.
EMPLOYEES
As of December 31, 2000, we had 198 full-time employees, 47 engaged in research
and development, 71 in sales, marketing and business development, 44 in
professional services and technical support and 36 in finance, administration
and operations. None of our employees is represented by a labor union. We
consider our relations with our employees to be good.
84 of our employees are located in Israel. Israeli law and certain provisions of
the nationwide collective bargaining agreements between the Histadrut (General
Federation of Labor in Israel) and the Coordinating Bureau of Economic
Organizations (the Israeli federation of employers' organizations) apply to our
Israeli employees. These provisions principally concern the maximum length of
the work day and the work week, minimum wages, paid annual vacation,
contributions to a pension fund, insurance for work-related accidents,
procedures for dismissing employees, determination of severance pay and other
conditions of employment. We provide our employees with benefits and working
conditions above the required minimums. Furthermore, pursuant to such
provisions, the wages of most of our employees are subject to cost of living
adjustments, based on changes in the Israeli CPI. The amounts and frequency of
such adjustments are modified from time to time. Israeli law generally requires
the payment of severance pay upon the retirement or death of an employee or upon
termination of employment by the employer or, in certain circumstances, by the
employee. We currently fund our ongoing severance obligations for our Israeli
employees by making monthly payments for insurance policies and severance funds.
Severance pay expenses amounted to $272,000 in 1998, $202,000 in 1999 and
$562,000 in the year 2000.
Israeli law provides that employment arrangements with employees not in senior
managerial positions, or whose working conditions and circumstances do not
facilitate employer supervision of their hours of work, must provide for
compensation which differentiates between compensation paid to employees for a
43 hour work week or for maximum daily work hours and compensation for overtime
work. The maximum number of hours of overtime is limited by law. Certain of our
employment compensation arrangements are fixed and do not differentiate between
compensation for regular hours and overtime work. Therefore, we may face
potential claims from these employees asserting that the fixed salaries do not
compensate for overtime work; however, we do not believe that these claims would
have a material adverse effect on us.
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and certain information about them as of
March 15, 2001 are as follows:
12
Name Age Position
- ---- --- --------
Dr. Moshe BenBassat 53 Chief Executive Officer and Chairman of the Board
Shimon M. Rojany 53 Senior Vice President and Chief Financial Office
Corey Leibow 46 Chief Operating Officer
David Schapiro 42 Senior Vice President, Product Development
Ami Shpiro 47 President and General Manager, European Operations
Hannan Carmeli 42 Senior Vice President, Product Services and Operations
Amit Bendov 36 Vice President, Product Marketing
Roni Einav 45 Director
Dr. Israel Borovich 58 Director
Nathan Gantcher 60 Director
Eddy Shalev 53 Director
James W. Thanos 52 Director
DR. MOSHE BENBASSAT co-founded ClickSoftware and has served as Chairman and
Chief Executive Officer since our inception. From 1987 to 1999, Dr. BenBassat
served as a professor of Information Systems at the Faculty of Management of
Tel-Aviv University. Dr. BenBassat has also held academic positions at the
University of Southern California and the University of California at Los
Angeles. From 1996 to January 1999, Dr. BenBassat also served as a board member
of Tadiran Telecommunications Inc., a telecommunications company. From 1990 to
1996, Dr. BenBassat served as a board member of Tadiran Electronic Systems Ltd.,
a defense electronics company. Dr. BenBassat holds Bachelor of Science, Master
of Science and PhD. degrees in Mathematics and Statistics from Tel-Aviv
University.
SHIMON M. ROJANY co-founded ClickSoftware and has served as Senior Vice
President and Chief Financial Officer since November 1999. From 1990 to 1999,
Mr. Rojany served as a Senior Associate with Adizes Institute, Inc., a
consulting company. Mr. Rojany holds a Bachelor of Science degree in Accounting
from California State University at Northridge and a Master of Business
Administration in Management Decision Systems from the University of Southern
California and is a certified public accountant.
COREY LEIBOW has served as our Chief Operating Officer since November 2000.
Beginning in 1999, Mr. Leibow was the Vice President of World Wide Sales for
Ajuba Solutions. Beginning in 1995, Mr. Leibow was the Vice President of Sales
for Cadence Design Systems. From 1992 to 1994, Mr. Leibow was a Senior Manager
for KPMG Peat Marwick in the Sales and Marketing Reengineering and Automation
Practice. Mr. Leibow has a Bachelor of Arts degree from State University of New
York at Courtland in Political Science with a minor in Communications.
DAVID SCHAPIRO has served as Senior VP of Product Development since August 2000.
Prior to this role he served as our Vice President & General Manager of the
Product Development Group since 1999. From October 1996 through 1998 Mr.
Schapiro served as the ClickSchedule Division General Manager and prior to that
in various management and marketing positions at ClickSoftware including Vice
President of Business Development. Since 1984 Mr. Schapiro has served in
positions at Applied Materials, a semiconductor equipment manufacturer, and
Scitex Corporation, a digital printing system company. Mr. Schapiro received a
B.S. in mathematics and computer science from Tel Aviv University, and a M.S.
degree in computer science from Bar Ilan University.
AMI SHPIRO has served as President of European Operations since December 2000.
He had served as Vice President and General Manager of European Operations and
Managing Director of ClickSoftware Europe Limited since October 1996. From 1994
to October 1996, Mr. Shpiro served as Vice President, W-6 division. Prior to
1994, Mr. Shpiro had various roles in developing the W-6 scheduling system. Mr.
Shpiro holds a Bachelor of Science degree in Computer Science and a Master of
Science degree from the Hebrew University of Jerusalem.
HANNAN CARMELI has served as Senior Vice President and General Manager, Products
Services and Operations of the since October 1997. From September 1997 to
October 1997, Mr. Carmeli served as Manager of the TechMate Division. From
December 1994 to September 1996, Mr. Carmeli served as Sales Director for
Surecomp, a software vending company. Mr. Carmeli holds a Bachelor of Science
degree from the Technion Institute and a Master of Science degree in Computer
Science from Boston University.
13
AMIT BENDOV has served as our Vice President of Product Marketing since July
1998. From September 1996 to June 1998, Mr. Bendov served as our Director of
Customer Support and Integration. From August 1994 to August 1996, Mr. Bendov
served as our Research and Development Manager. Mr. Bendov holds a Bachelor of
Science degree in Computer Science and Statistics from Tel Aviv University.
RONI EINAV has served as a director of ClickSoftware since April 2000. From 1983
to April 1999, Mr. Einav served as Chairman of the Board of Directors of New
Dimension Software, Ltd., a software company which he founded. Mr. Einav has
also played a role in founding over ten additional Israeli high-tech companies
including: Liraz Computers, which owns Level 8, Jacada, UDS-Ultimate
Distribution Systems, CreditView, CePost, CeDimension, ComDa and Einav Systems.
Mr. Einav is a Major in the Israeli Defense Forces, serving in the Systems
Analysis Division. Mr. Einav holds a Bachelor of Science degree in Management
and Industrial Engineering and a Master of Science degree in Operations Research
from the Technion Institute.
DR. ISRAEL BOROVICH has served as a director of ClickSoftware since July 1997.
Since 1988, Dr. Borovich has served as President of Arkia Israeli Airlines and
Knafaim-Arkia Holdings Ltd. Dr. Borovich also serves as a director of
Knafaim-Arkia Holdings, Ltd., Maman-Cargo Terminals & Handling Ltd., Issta Lines
Israel Students Travel Company Ltd., Ogen Investments, Ltd., Granit Hacarmel
Investments, Ltd. and Vulcan Batteries Ltd. Dr. Borovich holds Bachelor of
Science, Master of Science and a Doctor of Philosophy degrees in Industrial
Engineering from the Polytechnic Institute in Brooklyn.
NATHAN GANTCHER has served as a director of ClickSoftware since April 2000. From
October 1997 to October 1999, Mr. Gantcher served as Vice Chairman of CIBC World
Markets Corp. From 1983 to November 1997, Mr. Gantcher served as President,
Chief Operating Officer and Co-Chief Executive Officer of Oppenheimer & Co.
Since 1983, Mr. Gantcher has served as Chairman of the Board of Trustees of
Tufts University. Mr. Gantcher is a member of the Board of Overseers at the
Columbia University Graduate School of Business, a director of Mack-Cali Realty
Corp and the Jewish Communal Fund, and a trustee of the Anti-Defamation League
Foundation. Mr. Gantcher holds a Bachelor of Arts degree in Business from Tufts
University and a Master of Business Administration degree from the Columbia
University Graduate School of Business.
EDDY SHALEV has served as a director of ClickSoftware since April 1997. Since
April 1997, Mr. Shalev has also served as a director of Fundtech Corp. Mr.
Shalev has served as Chief Executive Officer of E. Shalev Ltd. since January
1997 and as the Managing General Partner of E. Shalev Management since 1983. Mr.
Shalev holds a Master of Science degree in Management Information Systems from
Tel Aviv University.
JAMES W. THANOS has served as a director of ClickSoftware since May 2000. Since
October 1999, Mr. Thanos has served as Executive Vice President, Worldwide Field
Operations of BroadVision, Inc. From March 1998 to October 1999, Mr. Thanos
served as BroadVision's Vice President and General Manager, Americas. Prior to
working for BroadVision, Mr. Thanos served as Senior Vice President of Worldwide
sales at Aurum Software. Mr. Thanos holds a Bachelor of Arts degree in
International Relations and a Bachelor of Arts degree in Behavioral Sciences
from Johns Hopkins University.
Executive officers serve at the discretion of the Board and are appointed
annually. The employment of each of our officers is at will and may be
terminated at any time, with or without cause. There are no family relationships
between any of the directors or executive officers of ClickSoftware.
ITEM 2. PROPERTIES
ClickSoftware has a seven year lease for approximately 17,130 square feet of
office space in Campbell, California. The office space is leased pursuant to a
lease that expires in June 2003 with an option to extend the lease until April
2008. We also lease approximately 19,720 square feet of office space in Tel
Aviv, Israel. Our U.K. subsidiary currently operates from a leased facility of
approximately 3,000 square feet in Slough, near London. We also lease additional
smaller offices in various sites throughout North America and the European
continent. We consider that our current office space is sufficient to meet our
anticipated needs for the foreseeable future.
14
Anticipated minimum net rents for these facilities are approximately $1,064,000
for the twelve months ending December 31, 2001, $91,128,000 for 2002, $981,000
for 2003 and $1,000,000 for 2004.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently involved in any material legal proceedings. During
2000, we were involved in two legal matters which have been settled.
CLICKSERVICES.COM V. CLICKSERVICE SOFTWARE. On February 28, 2000, a trademark
infringement complaint was filed against us in the United States District Court,
Northern District of California, by Clickservices.com, an unrelated third party.
At the time, we were known as "ClickService Software". The complaint alleged
that our use of the CLICKSERVICE trademark and "clickservice.com" and
"clickservice.net" Internet domain names resulted in trademark infringement and
unfair competition in violation of federal law. The complaint also alleged
unfair competition, false advertising, and false designation of origin in
violation of California's Business and Professions Code, and trademark
infringement in violation of California common law. Additionally,
Clickservices.com demanded damages of an unspecified amount.
On May 2, 2000, the District Court granted Clickservices.com's motion for a
preliminary injunction and enjoined us from using the CLICKSERVICE trademark and
the domain names "clickservice.com" and "clickservice.net". We have complied
with the District Court's order and changed our corporate name to ClickSoftware
Technologies Ltd. and our domain name to clicksoftware.com. On October 19, 2000,
final Stipulated Consent Judgment and Permanent Injunction Order was signed by
the court which permanently restrained us from using the trademarks. Concurrent
with the final order, both parties agreed to withdraw all other claims.
CLICKSOFTWARE TECHNOLOGIES LTD. V. CLICK COMMERCE, INC. After we were contacted
by Click Commerce, Inc., an unrelated third party, alleging that our new company
name, ClickSoftware Technologies Ltd., may infringe upon their company name and
trademark, we responded on June 22, 2000 by filing a complaint for declaratory
relief in the United States District Court, Northern District of California,
seeking a determination that the use of our name and trademarks do not infringe
on Click Commerce, Inc.'s claimed trademarks. Click Commerce, Inc. responded to
our complaint by denying our allegations. In addition, Click Commerce, Inc.'s
response included a cross-complaint alleging that our use of the CLICKSOFTWARE
trademark and our use of other product names resulted in trademark infringement,
unfair competition, and false designation of origin in violation of federal law.
The cross-complaint also alleged unfair competition and false advertising in
violation of California's Business and Professions Code, and trademark
infringement in violation of California common law. Click Commerce, Inc.
demanded damages from us in an unspecified amount.
On December 20, 2000, the parties agreed to a settlement whereby both parties
withdrew their complaints and agreed to allow the continued the use of their
respective trademarks. In addition, the parties agreed to stipulate certain
facts and retain specific rights for future actions should there be future
factual instances of trade name confusion.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our ordinary shares have been quoted on the Nasdaq National Market under the
symbol "CKSW" since June 22, 2000. Prior to that time, there was no public
market for our ordinary shares. The following table sets forth for the periods
indicated, the high and low closing prices of our ordinary shares as quoted by
the Nasdaq National Market:
15
Fiscal year ended December 31, 2000 HIGH LOW
- ----------------------------------- ---- ---
Second Quarter (from June 22, 2000) $ 7.375 $ 5.81
Third Quarter $ 8.750 $ 3.00
Fourth Quarter $ 3.656 $ 1.75
As of March 26, 2001, there were 111 stockholders of record of our Ordinary
Shares.
Our present policy is to retain earnings, if any, to finance future growth. We
have never paid cash dividends and have no present intention to pay cash
dividends.
On June 22, 2000, the Company commenced an initial public offering of its
ordinary shares, NIS 0.02 par value. Ordinary shares sold in the offering were
registered under the Securities Act of 1933, as amended, on a Registration
Statement on Form S-1 (File No. 333-30274) that was declared effective by the
SEC on June 22, 2000.
The offering commenced on June 22, 2000 whereby 4,000,000 shares of ordinary
shares registered under the Registration Statement were sold at a price of $7.00
per share. Underwriters exercised their overallotment option and purchased
600,000 additional ordinary shares at a price of $7.00 per share. The aggregate
price of the offering amount registered was $32,200,000. In connection with the
offering, we paid an aggregate of $2,254,000 in underwriting discounts and
commissions to the underwriters. In addition, the following table sets forth the
expenses incurred in connection with the offering, other than underwriting
discounts and commissions:
SEC Registration fee $ 24,772
NASD filing fee 6,825
Nasdaq National Market listing fee 98,149
Printing and engraving expenses 315,660
Legal fees and expense 727,134
Accounting fees and expenses 207,373
Transfer agent and registrar fees 326,454
Miscellaneous expenses 69,660
----------------
Total $ 1,776,027
================
After deducting the underwriting discounts and commissions and the expenses
related to the offering as described above, we received net proceeds from the
offering of approximately $28,169,973.
As of December 31, 2000, we have used the aggregate net proceeds of $28 million
from our initial public offering of ordinary shares for the following purposes:
* approximately $7 million to expand our international operations including
infrastructure and sales and marketing expenses;
* approximately $7.5 million to expand our domestic operations by hiring
additional employees, leasing additional office space and expanding our
infrastructure; and
* approximately $3 million for domestic sales and marketing.
The remaining proceeds will be used for general corporate purposes, including
working capital, expansion of our sales and marketing capabilities, and
acquisitions of, or investments in, businesses, products and technologies that
are complementary to our business. We have no current plans, agreements or
commitments with respect to any such acquisition, and we are not currently
engaged in any negotiations with respect to any such transaction.
None of our net proceeds of the offering were paid directly or indirectly to any
director, officer, general partner of the Company or their associates, persons
owning 10% or more of any class of our equity securities, or any of our
affiliates.
We have invested the net proceeds of this offering in interest-bearing
short-term investments or bank deposits.
16
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The selected consolidated statement of operations data for the years ended
December 31, 1996, 1997, 1998, 1999 and 2000, and the selected consolidated
balance sheet data as of December 31, 1996, 1997, 1998, 1999 and 2000 have been
derived from our audited financial statements. The consolidated statements of
operations data for the years ended December 31, 1996 and 1997 and the selected
consolidated balance sheet data as of December 31, 1996, 1997 and 1998 are
derived from audited consolidated financial statements that are not included
herein. For the year ended December 31, 1996, the audited financial statements
were adjusted to eliminate the results of operations of two divisions, our
Nester and Systems divisions spun off from our operations in 1997. Therefore the
numbers presented here for 1996 represent unaudited adjusted numbers for these
periods. These financial statements have been prepared in accordance with
accounting principles generally accepted in the United States. The following
selected financial data are qualified by reference to and should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this statement.
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1996 1997 1998 1999 2000
------------ ------------ ------------ ------------- -------------
(in thousands except share and per share data)
Revenues:
Software license $ 1,491 $1,235 $3,932 $5,414 $ 10,500
Service and maintenance 1,893 1,080 2,139 4,912 5,242
------------ ------------ ------------ ------------- -------------
Total Revenues 3,384 2,315 6,071 10,326 15,742
Cost of Revenues:
Software License 14 13 25 71 272
Service and Maintenance 1,458 1,035 2,301 4,299 5,156
------------ ------------ ------------ ------------- -------------
Total cost of revenues 1,472 1,048 2,326 4,370 5,428
------------ ------------ ------------ ------------- -------------
Gross Profit 1,912 1,267 3,745 5,956 10,314
Operating Expenses:
Research and Development
expenses, net 862 1,339 2,284 2,910 4,300
Sales and Marketing expenses 2,184 3,172 6,019 8,274 14,106
General and Administrative 1,025 1,120 1,133 1,759 4,397
expenses
Share based Compensation - - - 738 1,237
============ ============ ============ ============= =============
Total Operating Expenses 4,071 5,631 9,636 13,681 24,040
Loss from Operations (2,159) (4,364) (5,891) (7,725) (13,726)
Interest and other (expenses)
income, net (278) (148) 33 (254) 680
------------ ------------ ------------ ------------- -------------
Net Loss $(2,437) $(4,512) $(5,858) $(7,979) $(13,046)
============ ============ ============ ============= =============
Dividend related to convertible
preferred shares (4,989)
------------ ------------ ------------ ------------- -------------
Net loss attributable to ordinary
shareholders $(2,437) $(4,512) $(5,858) $(12,968) $(13,046)
============ ============ ============ ============= =============
Net loss per ordinary share $(0.47) $(0.80) $(0.99) $(2.18) $(0.58)
Shares used in computing basic and diluted
net loss per share 5,216,705 5,657,728 5,914,735 5,948,816 22,312,554
17
CONSOLIDATED BALANCE SHEET DATA:
DECEMBER 31,
------------------------------------------------------------------
1996 1997 1998 1999 2000
------------ ------------ ------------ ------------- -------------
(in thousands)
Cash and cash equivalents $ 104 $ 301 $ 3,770 $ 7,838 $ 4,438
Short term Investments - - - - 16,878
Working capital (2,770) (604) 4,178 8,007 23,610
Total assets 1,866 2,604 7,983 14,195 31,455
Long-term liabilities, net of current
portion 1,954 1,530 1,254 1,112 1,446
Shareholders' equity (net capital
deficiency) (3,954) (3,177) 4,657 8,821 26,462
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for historical information, the discussion in this report contains
forward-looking statements that involve risks and uncertainties. These
forward-looking statements include, among others, those statements including the
words, "expects," "anticipates," "intends," "believes" and similar language. Our
actual results could differ materially from those discussed herein. Factors that
could cause or contribute to such differences include, but are not limited to
the risks discussed in the section titled "Risk Factors" in this document.
OVERVIEW
Prior to 1996, our operations were primarily related to consulting and custom
software solutions. In late 1996, we engaged in a comprehensive reexamination of
our strategy and changed our strategic focus to concentrate on providing service
optimization software products based on our W-6 Service Scheduler and TechMate
technologies. This change in focus was intended to allow us to license software
products useable by multiple clients, rather than developing customized software
for each client. In connection with this change of strategy, we de-emphasized
our consulting business. At that time we also spun off our textile software
operations to our then existing shareholders and discontinued our defense
application business. Since early 1997, we have invested significant resources
in developing products based on our W-6 Service Scheduler and TechMate
technologies, including increasing the number of our employees involved in
research and development, sales and marketing, and professional services.
We believe that in today's economy successful businesses must constantly
increase the performance of existing service resources. Our products emphasize
the use of optimization tools for performance enhancement in the service
environment and also offer the ability to capture the benefits and efficiencies
of the internet. Accordingly, in September 1999, we began marketing our product
lines under new names, CLICKSCHEDULE and CLICKFIX and in May 2000, we changed
our company name to ClickSoftware Technologies Ltd.
We derive revenues from software licensing and service and maintenance fees. Our
operating history shows that a significant percentage of our quarterly revenues
come from orders placed toward the end of a quarter. Software license revenues
are comprised of perpetual or annual software license fees primarily derived
from contracts with our direct sales clients and our indirect distribution
channels. We recognize revenues in accordance with the American Institute of
Certified Public Accountants Statement of Position 97-2, "Software Revenue
Recognition," or SOP 97-2, as amended by Statement of Position 98-4. Under SOP
97-2, we recognize software license revenues when a software license agreement
has been executed or a definitive purchase order has been received and the
product has been delivered to our clients, no significant obligations with
regard to implementation remain, the fee is fixed and determinable, and
collectability is probable.
Service and maintenance revenues are comprised of revenues from implementation,
consulting, training, release updates and customer service support fees.
Consulting services are billed at an agreed-upon rate plus incurred expenses.
Clients licensing our products generally purchase consulting agreements from us.
Consulting revenues are recognized on a straight-line basis over the life of the
agreement. Customer support is charged as a percentage of license fees depending
upon the level of support coverage requested by the customer. A fee of 18% of
license fees is typically charged for five day a week, eight hour coverage and
24% of license fees is typically charged for seven day a week, twenty-four hour
coverage. Our products are marketed worldwide through a combination of a direct
sales force, consultants and various business relationships we have with
implementation and technology companies and resellers.
18
Cost of revenues consists of cost of software license revenues and cost of
service and maintenance revenues. Cost of software license revenues consists of
expenses related to media duplication and packaging of our products and costs of
software purchased or licensed for resale. Cost of service and maintenance
revenues consists of expenses related to salaries and expenses of our
professional services organizations, costs related to third-party consultants,
and equipment costs.
Operating expenses are categorized into research and development expenses, sales
and marketing expenses, general and administrative expenses, and share based
compensation.
Research and development expenses consist primarily of personnel costs to
support product development, net of grants received from the Chief Scientist. In
return for some of these grants, we are obligated to pay the Israeli Government
royalties as described below which are included in sales and marketing expenses.
Software research and development costs incurred prior to the establishment of
technology feasibility are included in research and development expenses as
incurred.
General and administrative expenses consist primarily of personnel and related
costs for corporate functions, including information services, finance,
accounting, human resources, facilities, legal and costs related to activity as
public company.
Share based compensation represents the aggregate difference, at the date of
grant, between the respective exercise price of stock options and the deemed
fair market value of the underlying stock. Share based compensation is amortized
over the vesting period of the underlying options, generally four years.
Interest and other (expenses) income includes interest income earned on our
cash, cash equivalents and short term investments, offset by interest expense,
and also includes the effects of foreign currency translations.
The functional currency of our operations is the U.S. dollar, which is the
primary currency in the economic environment in which we conduct our business. A
significant portion of our research and development expenses is incurred in New
Israeli Shekels ("NIS") and a portion of our revenues and expenses are incurred
in British Pounds and the European Community Euro. The results of our operations
are subject to fluctuations in these exchange rates which are influenced by
various global economic factors.
The effects of foreign currency exchange rates on our results of operations for
the years ended December 31, 1998, 1999 and 2000 were immaterial.
Our tax rate will reflect a mix of the U.S. statutory tax rate on our U.S.
income and the Israeli tax rate discussed below. Israeli companies are generally
subject to income tax at the rate of 36% of taxable income. The majority of our
income, however, is derived from our company's capital investment program with
"Approved Enterprise" status under the Law for the Encouragement of Capital
Investments, and is eligible therefore for tax benefits. As a result of these
benefits, we will have a tax exemption on income derived during the first two
years in which this investment program produces taxable income, and a reduced
tax rate of 15-25% for the next 5 to 8 years. In the event of a distribution of
a cash dividend out of retained earnings which were exempt from tax due to its
Approved Enterprise status, we would be required to pay 25% corporate income tax
on income from which the dividend was distributed. All of these tax benefits are
subject to various conditions and restrictions. There can be no assurance that
we will obtain approval for additional Approved Enterprise Programs, or that the
provisions of the law will not change.
RESULTS OF OPERATIONS
FISCAL YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
REVENUES. Revenues increased $5.4 million or 52% to $15.7 million in 2000, from
$10.3 million in 1999. In 1999, revenues increased $4.2 million or 70% to $10.3
million from $6.1 million in 1998. In 2000, 62% our revenues were generated in
North America, 32% in Europe, 3% in Israel and 3% in all other geographic
locations ("Rest of the World"). In 1999, 67% of our revenues were generated in
North America, 21% in Europe, 9% in Israel and 3% in Rest of the World. In 1998,
71% of our revenues were generated in North America, 20% in Europe, 8% in Israel
and 1% in Rest of the World. The increase in percentage of revenues from Europe
are largely attributable to an increase in sales by our European subsidiary to
customers in Europe.
19
SOFTWARE LICENSE. Software license revenues were $10.5 million or 67% of
revenues in 2000, $5.4 million or 52% of revenues in 1999, and $3.9 million or
65% of revenues in 1998. The increase in software license revenues was due to
increased average sales per client, growth of our client base, and recurring
sales to our installed base of clients. The variability in software license
revenues as a percentage of total revenues was due to the fact that while many
of our implementations require higher initial service and maintenance, our
average deal size also increased, and these factors changed independently of
each other.
SERVICE AND MAINTENANCE. Service and maintenance revenues were $5.2 million or
33% of revenues in 2000, $4.9 million or 48% of revenues in 1999, and $2.1
million or 35% of revenues in 1998. The relatively small increase in service and
maintenance revenues from 1999 to 2000 was primarily due to an increase in
license distribution through third parties also providing implementation, and
the release of CLICKSCHEDULE FAST TRACK which offers a more rapid implementation
of CLICKSCHEDULE reducing the cost of implementation. The increase in service
and maintenance revenues from 1998 to 1999 was primarily due to an increase in
the number of clients during these periods, and increased sales of services
related to CLICKSCHEDULE implementations that these new clients required.
COST OF REVENUES. Cost of revenues were $5.4 million or 35% of revenues in 2000,
$4.4 million or 42% of revenues in 1999, and $2.3 million or 38% of revenues in
1998. This increase in the cost of revenues on an absolute basis was due to an
increased number of clients which resulted in an increased demand for our
professional services. Gross profit was 66% in 2000 as compared to 58% in 1999
and 62% in 1998. Because our service and maintenance revenues have significantly
lower gross margins than our software license revenues, the change in gross
profit percentages are primarily due to the changing mix of lower margin service
and maintenance revenues compared to higher margin software license revenues.
COST OF SOFTWARE LICENSES. Cost of software license revenues were $272,000 in
2000 $71,000 in 1999, and $25,000 in 1998. Cost of software license revenues
were less than 2% of revenues in 2000 and less than 1% of revenues in 1999 and
1998.
COST OF SERVICE AND MAINTENANCE. Cost of service and maintenance revenues were
$5.2 million or 33% of revenues in 2000, $4.3 million or 42% of revenues in
1999, and $2.3 million or 38% of revenues in 1998. The increase in the cost of
service and maintenance revenues from 1999 to 2000 was due primarily to an
increase in the sale of licenses, which resulted in an increase of $0.1 million
in personnel related costs, an increase of $0.6 million in third party related
costs and an increase of $0.2 million in other expenses. The increase in the
cost of service and maintenance revenues from 1998 to 1999 was due primarily to
an increase in the sale of licenses, which resulted in an increase of $1.4
million in personnel related costs, an increase of $0.3 million in third party
related costs and an increase of $0.3 million in other expenses. The total
number of professional services employees employed by us was 44 on December 31,
2000, 35 on December 31, 1999, and 23 on December 31, 1998.
OPERATING EXPENSES. Total operating expenses were $24.0 million or 153% of
revenues in 2000, $13.7 million or 132% of revenues in 1999,and $9.6 million or
159% of revenues in 1998.
RESEARCH AND DEVELOPMENT EXPENSES, NET. Research and development expenses, net
of related grants, were $4.3 million or 27% of revenues in 2000, $2.9 million or
28% of revenues in 1999, and $2.3 million or 38% of revenues in 1998. We
received or accrued grants from the Chief Scientist in the amount of $1.1
million in 2000, $1.0 million in 1999, and $0.9 million in 1998. The increase in
research and development expenses on an absolute basis from 1998 to 1999 and
1999 to 2000 was primarily due to an increase of $1.3 million in personnel
related costs related to improvements of our CLICKSCHEDULE and CLICKFIX product
lines and development of CLICKPLAN and CLICKANALYZE as part of our introduction
of a complete suite of service optimization management products. We are
continuing to invest substantially in research and development, and we expect
that research and development expenses will increase on an absolute basis in the
future.
20
SALES AND MARKETING EXPENSES. Sales and marketing expenses were $14.1 million or
90% of revenues in 2000, $8.3 million or 80% of revenues in 1999, and $6.0
million or 99% of revenues in 1998. The increase in 2000 was primarily due to
additional sales and marketing efforts related to the new marketing focus for
our ClickSoftware product line and the expansion of our sales and marketing
efforts worldwide during 2000. Personnel related costs increased $3.3 million
from 1999 to 2000 and other expenses increased $2.6 million. Personnel related
costs increased $1.4 million from 1998 to 1999 and other expenses increased $0.9
million. We expect that sales and marketing expenses will increase on an
absolute basis in future periods, as we hire additional sales and marketing
personnel, continue to promote our brand and establish sales in additional
geographic areas. The total number of sales and marketing employees employed by
us was 71 on December 31, 2000, 44 on December 31, 1999, and 25 on December 31,
1998.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses were
$4.4 million or 28% of revenues in 2000, $1.8 million or 17% of revenues in
1999, and $1.3 million or 22% of revenues in 1998. General and administrative
expenses included $1.1 million in bad debt charges in 2000, $0.1 million in 1999
and none in 1998. We expect that the absolute dollar amount of general and
administrative expenses exclusive of bad debt charges will continue to increase
as we expand our operations and incur incremental costs of being a public
company.
SHARE BASED COMPENSATION. Share based compensation for the year ended December
31, 2000 amounted to $1.2 million. Deferred compensation at December 31, 2000
amounted to $1.1 million which will be amortized over the period during which
the options vest, generally four years. Share based compensation for the year
ended December 31, 1999 amounted to $0.7 million. Deferred compensation at
December 31, 1999 amounted to $2.7 million.
INTEREST AND OTHER (EXPENSES) INCOME, NET. Interest income net of interest
expenses, were $0.7 million or 4% of revenues in 2000, ($0.3) million or 2% of
revenues in 1999, and $33,000 or less than 1% of revenues in 1998.
INCOME TAXES. As of December 31, 2000, we had approximately $11.6 million of
Israeli net operating loss carryforwards, approximately $17.5 million of U.S.
federal net operating loss carryforwards and approximately $3.4 million of
British net operating loss carryforwards available to offset future taxable
income. The Israeli and British net operating loss carryforwards have no
expiration date. The U.S. net operating loss carryforwards will expire in
various amounts in the years 2008 to 2014.
PREFERRED SHARE DIVIDEND. During the quarter ended December 31, 1999, we
recorded a preferred share dividend of approximately $5.0 million representing
the value of the beneficial conversion feature on the issuance of convertible
preferred shares in December 1999. The beneficial conversion feature was
calculated at the commitment date based on the difference between the conversion
price of $6.277 per share and the estimated fair value of the ordinary shares at
that date.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2000 we had cash and cash equivalents of $4.4 million and
short term investments of $16.9 million.
From inception through our IPO on June 22, 2000, we financed our operations
primarily through the private placement of equity securities which through
December 31, 1999 totaled approximately $32.0 million, net of issuance costs.
Our initial public stock offering of ordinary shares realized $28.3 million, net
of underwriter discount and other issuance costs.
Net cash used in operating activities for each of these years primarily
consisted of net losses in addition to increases in trade receivables and
prepaid expenses, partially offset by increases in accounts payable, accrued
liabilities, amortization of deferred compensation, non-cash compensation
expenses, depreciation and amortization, as applicable. For the year ended
December 31, 2000, cash used in operations was $13.5 million, comprised of our
net loss of $13.0 million, an increase in trade receivables of $0.4 million,
increase in other receivables of $1.0 million, increase in accounts payable of
$0.5 million, decrease in deferred revenue of $1 million, partially offset by
non-cash charges of $1.9 million. For the year ended December 31, 1999, cash
used in operations was $6.5 million, comprised of our net loss of $8.0 million,
an increase in trade receivables of $1.9 million, increase in accounts payable
of $1.1 million, increase in deferred revenue of $1 million, partially offset by
non-cash charges of $1.3 million. For the year ended December 31, 1998, cash
used in operations was $6.7 million, comprised of the net loss of $5.9 million,
an increase in trade receivable of $1.1 million, partially offset by non-cash
charges of $0.4 million.
21
Net cash used in investing activities was $19.5 million in 2000, of which $16.6
million was used to invest in short term investments and $2.9 million invested
primarily in leasehold improvements and purchases of equipment and systems,
including computer equipment and fixtures and furniture. Net cash used in
investing activities for 1999 and 1998 was $0.7 million and $1.0 million
respectively, which was primarily invested in leasehold improvements and
purchases of equipment and systems, including computer equipment and fixtures
and furniture.
Net cash provided by financing activities was $29.1 million in 2000, $11.3
million in 1999 and $11.1 million in 1998. In June 2000, the Company completed
an initial public offering of 4,000,000 ordinary shares at a price of $7.00 per
share. In July 2000, the Underwriters exercised their overallotment option and
purchased 600,000 additional ordinary shares at a price of $7.00 per share. The
proceeds to the Company from the offering were approximately $28.3 million (net
of underwriters discount and issuance expenses). Net cash from financing
activities during 1999 and 1998 included proceeds from the issuance of preferred
shares of $11.4 million and $11.7 million respectively.
As of December 31, 2000 we had outstanding trade receivables of approximately
$4.4 million which represented approximately 28% of 2000 total revenues. As of
December 31, 1999, we had outstanding trade receivables of approximately $4.0
million which represented approximately 38% of 1999 total revenues. Our trade
receivables typically have 30 to 60 day terms, although we also negotiate longer
payment plans with some of our clients.
Since inception, we have received aggregate payments from the Government of the
State of Israel in the amount of $4.2 million related to research and
development and $0.7 million related to marketing activities. As of December 31,
2000, we have paid or accrued royalties related to these funds in the amount of
$1.3 million. See Note 11 to our Consolidated Financial Statements.
We have a $1.0 million unsecured line of credit with an Israeli bank. No amounts
were outstanding under this line of credit as of December 31, 2000.
The Company also has an aggregate of $249,000 in term loans relating to
borrowings for working capital. We have a loan in US Dollars bearing an interest
rate of LIBOR plus 1% and a loan in New Israeli Shekels linked to the Israeli
CPI, currently bearing an interest rate of 5.4%. Additional loans are in British
Pounds bearing an average interest rate of 5.5%
Our bank in Israel has issued two standby letters of credit on our behalf. One
is for $125,000 for tenant improvements related to our facilities in Israel. The
other is for $575,000 and secures our performance pursuant to projects with the
Government of Israel. Additionally, Silicon Valley Bank has issued a letter of
credit on our behalf in the amount of $205,560 to assure performance under the
terms of our Campbell, CA lease.
Our capital requirements depend on numerous factors, including market acceptance
of our products, the resources we devote to developing, marketing, selling and
supporting our products, the timing and extent of establishing additional
international operations and other factors. We intend to continue investing
significant resources in our sales and marketing and research and development
operations in the future. We believe that our current cash balances will be
sufficient to fund our expenses until we reach profitability. However, we cannot
assure you that we will attain sufficient revenues to achieve or maintain
profitability, particularly given current economic conditions and potential
reductions in information technology spending by our current and prospective
customers. We may need to raise additional capital to finance our operations or
for strategic purposes, and we may do so by selling additional equity or debt
securities or by increasing the size of our credit facility. If additional funds
are raised through the issuance of equity or debt securities, these securities
could have rights, preferences and privileges senior to those of holders of
ordinary shares, and the terms of these securities could impose restrictions on
our operations. The sale of additional equity or convertible debt securities
could result in additional dilution to our shareholders. In addition, we cannot
be certain that additional financing will be available in amounts or on terms
acceptable to us, if at all. If we are unable to obtain this additional
financing, we may be required to reduce the scope of our planned product
development and marketing efforts, which could harm our business, financial
condition or operating results.
22
RISKS RELATED TO OUR BUSINESS
THE ECONOMIC OUTLOOK FOR THE BEGINNING OF THE YEAR 2001 MAY ADVERSELY AFFECT THE
DEMAND FOR OUR PRODUCTS AND THE COMPANY'S RESULTS OF OPERATIONS. Predictions for
the general economy for the first part of 2001 indicate uncertain economic
conditions. Weak economic conditions may cause a reduction in information
technology spending generally. Consequently, there may be an adverse impact on
the demand for our products, which would adversely affect our results of
operations. In addition, predictions regarding economic conditions have a low
degree of certainty, and further predicting the effects of the changing economy
is even more difficult. We may not accurately gauge the effect of the general
economy on our business. As a result, we may not react to such changing
conditions in a timely manner which may result in an adverse impact on our
results of operations. Any such adverse impacts to our results of operations
from a changing economy may cause the price of our ordinary shares to decline.
WE HAVE NOT ACHIEVED PROFITABILITY AND WE EXPECT TO CONTINUE TO INCUR NET LOSSES
FOR THE IMMEDIATE FUTURE. We expect to continue to incur significant sales and
marketing and research and development expenses, and such expenses may increase
in the future. Some of our expenses, such as administrative and management
payroll and rent and utilities, are fixed in the short term and cannot be
quickly reduced to respond to decreases in revenues. As a result, we will need
to generate significant revenues to achieve and maintain profitability, which we
may not be able to do.
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO FLUCTUATIONS AND IF WE FAIL TO
MEET THE EXPECTATIONS OF SECURITIES ANALYSTS OR INVESTORS, OUR SHARE PRICE MAY
DECREASE. Our quarterly operating results are difficult to predict and are not a
good measure for comparison. Our operating history shows that a significant
percentage of our quarterly revenues come from orders placed toward the end of a
quarter. For example, in the year ended December 31, 2000, an average of 62% of
realized revenue was recognized in the last two weeks of each quarter.
From time to time, we anticipate a sale of significant size to a single
customer. A delay in the completion of any sale past the end of a particular
quarter could negatively impact results for that quarter, and such negative
impact could be significant for the delay of a sale of significant size. Even
without the delay of a significant sale, our future quarterly operating results
may fluctuate significantly and may not meet the expectations of securities
analysts or investors. If this occurs, the price of our ordinary shares may
decrease. The factors that may cause fluctuations in our quarterly operating
results include the following:
* the volume and timing of customer orders;
* internal budget constraints of our current and prospective clients;
* the length and unpredictability of our sales cycle;
* the mix of revenue generated by product licenses and professional services;
* the mix of revenue between domestic and foreign sources;
* announcements or introductions of new products or product enhancements by us
or our competitors;
* changes in prices of and the adoption of different pricing strategies for
our products and those of our competitors;
* timing and amount of sales and marketing expenses;
* changes in our business and partner relationships;
* technical difficulties or "bugs" affecting the operation of our software;
* foreign currency exchange rate fluctuations; and
* general economic conditions.
23
FAILURE OF THE MARKET TO ACCEPT OUR TECHNOLOGY WOULD ADVERSELY AFFECT DEMAND FOR
OUR PRODUCTS AND THE PRICE OF OUR ORDINARY SHARES COULD DECLINE. Our products
are based on complex technologies, including sophisticated algorithms and models
which we have developed to address complex scheduling and troubleshooting issues
in the service industry. Although our products are currently being used in the
service industry, and we believe our technologies address these issues, the
methods we have chosen have not yet been widely accepted by the service
industry. We cannot predict whether our products will be widely accepted by the
service industry. Failure of the market to accept our technology would adversely
affect demand for our products. In addition, we participate in an industry with
an inherently high failure rate and we cannot assure you that our clients will
achieve success when using our products and services. Any publicized performance
problems relating to our products or those of our competitors could also slow
client adoption of our products. Moreover, to the extent that we are associated
with unsuccessful client projects, even if due to factors beyond our control,
our reputation and competitive position in our industry could be materially and
adversely affected.
OUR PRODUCT SUITE ACCOUNTS FOR ALL OF OUR LICENSE REVENUE. IF THE DEMAND FOR
THIS PRODUCT FALLS, OUR SALES COULD BE SIGNIFICANTLY REDUCED AND OUR FINANCIAL
PERFORMANCE COULD BE SERIOUSLY DAMAGED. Historically, all of our operating
revenue has come from sales of, and services related to, our CLICKSCHEDULE
product and our CLICKFIX product, to clients seeking application software that
enables efficient provisioning of services in enterprise environments. As we
pursue our business strategy and continue to integrate new products with the
product suite, we anticipate that revenues from sales of our CLICKSCHEDULE and
CLICKFIX product lines, together with related professional services fees, will
account for a substantial portion of our operating revenue for the foreseeable
future. Accordingly, the widespread market acceptance of these products is
critical to our future success. Competition, technological change or other
factors could decrease demand for, or market acceptance of, these products or
make these products obsolete. Any decrease in demand or market acceptance would
have a material adverse effect on our business and operating results.
During the year ended December 31, 2000, we introduced three new products that,
together with our existing products, constitute a suite of products that offers
a more comprehensive solution to our customers. The growth of our company
depends on the development of market acceptance of these new products. We have
no guarantee that the sales of these new products will develop as quickly as we
anticipate, or at all. Lack of long-term demand for our new products would have
a material adverse effect on our business and operating results.
OUR LONG AND UNPREDICTABLE SALES AND IMPLEMENTATION CYCLES DEPEND ON FACTORS
OUTSIDE OUR CONTROL, WHICH MAY CAUSE QUARTERLY LICENSE AND SERVICE FEES REVENUES
TO VARY SIGNIFICANTLY FROM PERIOD TO PERIOD. To date, our customers have taken a
long time, typically ranging from three months to one year, to evaluate our
products before making their purchase decisions. In addition, depending on the
nature and specific needs of a client, the implementation of our products can
take up to three to twelve months. Sales of licenses and implementation
schedules are subject to a number of risks over which we have little or no
control, including clients' budgetary constraints, clients' internal acceptance
reviews, the success and continued internal support of clients' own development
efforts, the efforts of businesses with which we have relationships, the nature,
size and specific needs of a client and the possibility of cancellation of
projects by clients. The uncertain outcome of our sales efforts and the length
of our sales cycles could result in substantial fluctuations in license
revenues. If sales forecasted from a specific client for a particular quarter
are not realized in that quarter, we are unlikely to be able to generate
revenues from alternate sources in time to compensate for the shortfall. As a
result, and due to the relatively large size of some orders, a lost or delayed
sale could have a material adverse effect on our quarterly revenue and operating
results. Moreover, to the extent that significant sales occur earlier than
expected, revenue and operating results for subsequent quarters could be
adversely affected.
24
FAILURE TO EXPAND OUR SALES AND MARKETING ORGANIZATIONS COULD LIMIT OUR ABILITY
TO SELL ADDITIONAL PRODUCTS AND SERVICES, WHICH WOULD IMPAIR OUR ABILITY TO GROW
OUR BUSINESS AND INCREASE REVENUES. We are expanding our direct and indirect
sales operations to increase market awareness of our products and generate
increased revenues. We cannot be certain that we will be successful in these
efforts. In addition to normal turnover of personnel, we are attempting to
expand our direct sales force in North America. As of December 31, 2000, we
employed 71 individuals in our sales and marketing organizations. Because 27 of
these sales and marketing personnel joined us within the last twelve months, we
will be required to devote significant resources to the training of these new
sales personnel. In addition, we might not be able to hire or retain the kind
and number of sales and marketing personnel we are targeting because competition
for qualified sales and marketing personnel in our market is intense.
WE DEPEND ON KEY PERSONNEL, AND THE LOSS OF ANY KEY PERSONNEL COULD AFFECT OUR
ABILITY TO COMPETE AND OUR ABILITY TO ATTRACT ADDITIONAL KEY PERSONNEL MAY BE
IMPAIRED. We believe our future success will depend on the continued service of
our executive officers and other key sales and marketing, product development
and professional services personnel. Dr. Moshe BenBassat, our Chief Executive
Officer, has individually participated in and has been responsible for
overseeing much of the research and development of our core technologies. Mr.
Shimon Rojany, our CFO, recently announced his upcoming retirement. Mr. Rojany
is committed to continuing his services for as long as required to ensure a
smooth transition. The services of Dr. BenBassat and other members of our senior
management team and key personnel would be very difficult to replace and the
loss of any of these employees could harm our business significantly. We have
employment agreements with, among others, Dr. BenBassat, Mr. Rojany, and Mr.
Corey Leibow, our Chief Operating Officer. Although these agreements request
sixty days notification prior to departure, relationships with these officers
and key employees are at will. The loss of any of our key personnel could harm
our ability to execute our business strategy and compete. In addition, given the
decline in our share price and the volatility of the stock market, we believe
that the prospective employees that we target may perceive that the share option
component of our compensation packages is not valuable. Consequently, we may
have difficulty hiring our desired numbers of key personnel. Moreover, even if
we are able to attract key personnel, the resources required to attract and
retain such personnel may adversely affect our operating results.
IF WE FAIL TO EXPAND OUR PROFESSIONAL SERVICES ORGANIZATION, WE MAY NOT BE ABLE
TO SERVICE ADDITIONAL CLIENTS AND INSTALL ADDITIONAL LICENSES. We cannot be
certain that we can attract or retain a sufficient number of highly qualified
professional services personnel to meet our business needs. Clients that license
our software typically engage our professional services organization to assist
with the installation and operation of our software applications. Our
professional services organization also provides assistance to our clients
related to the maintenance, management and expansion of their software systems.
Growth in licenses of our software will depend in part on our ability to provide
our clients with these services. In addition, we will be required to expand our
professional services organization to enable us to continue to support our
existing installed base of customers. As a result, we plan to increase the
number of our service personnel in order to meet these needs. Competition for
qualified services personnel with the relevant knowledge and experience is
intense, and we may not be able to attract and retain necessary personnel. If we
are not able to grow our professional services organization, our ability to
expand our service business would be limited. In addition, we could experience
delays in recognizing revenue if our professional services group fails to
complete implementations in a timely manner.
IF WE FAIL TO EXPAND OUR RELATIONSHIPS WITH THIRD PARTIES THAT CAN PROVIDE
IMPLEMENTATION AND PROFESSIONAL SERVICES TO OUR CLIENTS, WE MAY BE UNABLE TO
INCREASE OUR REVENUES AND OUR BUSINESS COULD BE HARMED. In order for us to focus
more effectively on our core business of developing and licensing software
solutions, we need to continue to establish relationships with third parties
that can provide implementation and professional services to our clients.
Third-party implementation and consulting firms can also be influential in the
choice of resource optimization applications by new clients. If we are unable to
establish and maintain effective, long-term relationships with implementation
and professional services providers, or if these providers do not meet the needs
or expectations of our clients, we may be unable to grow our revenues and our
business could suffer. As a result of the limited resources and capacities of
many third-party implementation providers, we may be unable to attain sufficient
focus and resources from the third-party providers to meet all of our clients'
needs, even if we establish relationships with these third parties. If
sufficient resources are unavailable, we will be required to provide these
services internally, which could limit our ability to meet other demands. Even
if we are successful in developing relationships with third-party implementation
and professional services providers, we will be subject to significant risk, as
we cannot control the level and quality of service provided by third-party
implementation and professional services partners.
25
OUR ABILITY TO ATTRACT AND RETAIN QUALIFIED DEVELOPERS IS CRUCIAL TO OUR FUTURE
GROWTH AND RESULTS OF OPERATIONS. As a company focused on the development of
software products, our research and development personnel is one of our most
valued assets. Our future success depends in large part on our ability to hire,
train and retain software developers, systems architects, project managers,
business process experts, systems analysts, trainers, consultants and sales and
marketing professionals of various experience levels. Personnel possessing the
skills needed to contribute to our research and development efforts are in short
supply, and this shortage is likely to continue. As a result, competition for
these people is intense, and the industry turnover rate for them is high.
Although the location of our development team in Israel protects us from this
risk to some extent, any inability to hire, train and retain a sufficient number
of qualified development employees could hinder the research and development
activities and growth of our business.
OUR MARKET IS HIGHLY COMPETITIVE AND ANY REDUCTION IN DEMAND FOR, OR PRICES OF,
OUR PRODUCTS COULD NEGATIVELY IMPACT OUR REVENUES, REDUCE OUR GROSS MARGINS AND
CAUSE OUR SHARE PRICE TO DECLINE. The market for our products is competitive and
rapidly changing. We expect competition to increase in the future as current
competitors expand their product offerings and new companies enter the market.
Because the market for service and delivery optimization software is evolving,
it is difficult to determine what portion of the market each competitor
currently controls. However, competition could result in price reductions, fewer
customer orders, reduced gross margin and loss of market share, any of which
could cause our business to suffer. We may not be able to compete successfully,
and competitive pressures may harm our business.
Some of our current and potential competitors have greater name recognition,
longer operating histories, larger customer bases and significantly greater
financial, technical, marketing, public relations, sales, distribution and other
resources than us. In addition, some of our potential competitors are among the
largest and most well capitalized software companies in the world. See Part 1,
Competition.
FAILURE TO FULLY DEVELOP OR MAINTAIN KEY BUSINESS RELATIONSHIPS COULD LIMIT OUR
ABILITY TO SELL ADDITIONAL LICENSES WHICH COULD DECREASE OUR REVENUES AND
INCREASE OUR SALES AND MARKETING COSTS. We believe that our success in
penetrating our target markets depends in part on our ability to develop and
maintain business relationships with software vendors, resellers, systems
integrators, distribution partners and customers. If we fail to continue
developing these relationships, our growth could be limited. We have entered
into agreements with third parties relating to the integration of our products
with their product offerings, distribution, reselling and consulting. We are
only beginning to derive revenues from these agreements but we may not be able
to derive significant revenues in the future from these agreements. In addition,
our growth may be limited if prospective clients do not accept the solutions
offered by our strategic partners.
OUR MARKET MAY EXPERIENCE RAPID TECHNOLOGICAL CHANGES THAT COULD CAUSE OUR
PRODUCTS TO FAIL OR REQUIRE US TO REDESIGN OUR PRODUCTS, WHICH WOULD RESULT IN
INCREASED RESEARCH AND DEVELOPMENT EXPENSES. Our market is characterized by
rapid technological change, dynamic client needs and frequent introductions of
new products and product enhancements. If we fail to anticipate or respond
adequately to technology developments and client requirements, or if our product
development or introduction is delayed, we may have lower revenues. Client
product requirements can change rapidly as a result of computer hardware and
software innovations or changes in and the emergence, evolution and adoption of
new industry standards. For example, we offer Windows NT versions of our
products due to the market acceptance of Windows NT over the last several years.
While we interface smoothly with UNIX systems, we currently do not provide Unix
versions of our software. The actual or anticipated introduction of new products
has resulted and will continue to result in some reformulation of our product
offerings. Technology and industry standards can make existing products obsolete
or unmarketable or result in delays in the purchase of such products. As a
result, the life cycles of our products are difficult to estimate. We must
respond to developments rapidly and continue to make substantial product
development investments. As is customary in the software industry, we have
previously experienced delays in introducing new products and features, and we
may experience such delays in the future which could impair our revenue and
operating results.
26
OUR PRODUCTS COULD BE SUSCEPTIBLE TO ERRORS OR DEFECTS THAT COULD RESULT IN LOST
REVENUES, LIABILITY OR DELAYED OR LIMITED MARKET ACCEPTANCE. Complex software
products such as ours often contain errors or defects, particularly when first
introduced or when new versions or enhancements are released. In the past, some
of our products have contained errors and defects which have delayed
implementation or required us to expend additional resources to correct the
problems. Despite internal testing and testing by current and potential clients,
and despite the history of use by our installed base of customers, our current
and future products may contain as yet undetected serious defects or errors. Any
such defects or errors could result in lost revenues, liability or a delay in
market acceptance of these products, any of which would have a material adverse
effect on our business, operating results and financial condition.
The performance of our products also depends in part upon the accuracy and
continued availability of third-party data. We rely on third parties that
provide information such as street and address locations and mapping functions
that we incorporate into our products. If these parties do not provide accurate
information, or if we are unable to maintain our relationships with them, our
reputation and competitive position in our industry could suffer and we could be
unable to develop or enhance our products as required.
OUR INTELLECTUAL PROPERTY COULD BE USED BY THIRD PARTIES WITHOUT OUR CONSENT
BECAUSE PROTECTION OF OUR INTELLECTUAL PROPERTY IS LIMITED. Our success and
ability to compete are substantially dependent upon our internally developed
technology, which we protect through a combination of copyright, trade secret
and trademark law. However, we may not be able to adequately protect our
intellectual property rights, which may significantly harm our business.
Specifically, we may not be able to protect our trademarks for our company name
and our product names, and unauthorized parties may attempt to copy or otherwise
obtain and use our products or technology. Policing unauthorized use of our
products and technology is difficult, particularly in countries outside the
U.S., and we cannot be certain that the steps we have taken will prevent
infringement or misappropriation of our intellectual property rights.
Our end-user licenses are designed to prohibit unauthorized use, copying or
disclosure of our software and technology in the United States, Israel and other
foreign countries. However, these provisions may be unenforceable under the laws
of some jurisdictions and foreign countries. Unauthorized third parties may be
able to copy some portions of our products or reverse engineer or obtain and use
information and technology that we regard as proprietary. Third parties could
also independently develop competing technology or design around our technology.
If we are unable to successfully detect infringement and/or to enforce our
rights to our technology, we may lose competitive position in the market. We
cannot assure you that our means of protecting our intellectual property rights
in the United States, Israel or elsewhere will be adequate or that competing
companies will not independently develop similar technology. In addition, some
of our licensed users may allow additional unauthorized users to use our
software, and if we do not detect such use, we could lose potential license
fees.
OUR TECHNOLOGY AND OTHER INTELLECTUAL PROPERTY MAY BE SUBJECT TO INFRINGEMENT
CLAIMS. Substantial litigation regarding technology rights and other
intellectual property rights exists in the software industry both in terms of
infringement and ownership issues. A successful claim of patent, copyright or
trademark infringement or conflicting ownership rights against us could cause us
to make changes in our business or significantly harm our business. We are one
of the pioneers in our field and we believe that our products do not infringe
the intellectual property rights of third parties. However, we cannot assure you
that we will prevail in all future intellectual property disputes.
We expect that software products may be increasingly subject to third-party
infringement or ownership claims as the number of competitors in our industry
segment grows and the functionality of products in different industry segments
overlaps. Third parties may make a claim of infringement or conflicting
ownership rights against us with respect to our products and technology. Any
claims, with or without merit, could:
27
* be time-consuming to defend;
* result in costly litigation;
* divert management's attention and resources; or
* cause product shipment delays.
Further, if an infringement or ownership claim is successfully brought against
us, we may have to pay damages or royalties, enter into a licensing agreement,
and/or stop selling the product or using the technology at issue. Any such
royalty or licensing agreements may not be available on commercially reasonable
terms, if at all. From time to time, we may encounter disputes over rights and
obligations concerning intellectual property. We also indemnify some of our
customers against claims that our products infringe the intellectual property
rights of others. We have only conducted a partial search for existing patents
and other intellectual property registrations, and we cannot assure you that our
products do not infringe any issued patents. In addition, because patent
applications in the United States and Israel are not publicly disclosed until
the patent is issued, applications may have been filed which would relate to our
products.
ANY FUTURE ACQUISITIONS OF COMPANIES OR TECHNOLOGIES MAY RESULT IN DISTRACTION
OF OUR MANAGEMENT AND DISRUPTIONS TO OUR BUSINESS. Although not currently under
consideration, we may acquire or make investments in complementary businesses,
technologies, services or products if appropriate opportunities arise. From time
to time we may engage in discussions and negotiations with companies regarding
our acquiring or investing in such companies' businesses, products, services or
technologies. We cannot make assurances that we will be able to identify future
suitable acquisition or investment candidates, or if we do identify suitable
candidates, that we will be able to make such acquisitions or investments on
commercially acceptable terms or at all. Our management has limited experience
in acquiring companies or technologies. If we acquire or invest in another
company, we could have difficulty assimilating that company's personnel,
operations, technology or products and service offerings. In addition, the key
personnel of the acquired company may decide not to work for us. These
difficulties could disrupt our ongoing business, distract our management and
employees, increase our expenses and adversely affect our results of operations.
Furthermore, we may incur indebtedness to pay for any future acquisitions. As of
the date of this statement, we have neither begun discussions nor entered an
agreement to make any such material investment or acquisition transaction.
FUTURE ACQUISITIONS MAY RESULT IN DILUTION TO OUR CURRENT SHAREHOLDERS. In the
future we may acquire complementary business through the issuance of additional
ordinary shares. Additional issuances of ordinary shares could decrease the
value of our ordinary shares and reduce the net tangible book value per share.
Consequently, an acquisition in which we issue additional shares could actually
decrease the value of your investment in ClickSoftware. As of the date of this
statement, we have neither begun discussions nor entered an agreement to make
any material acquisition which would result in the issuance of additional
shares.
OUR BUSINESS MAY BECOME INCREASINGLY SUSCEPTIBLE TO NUMEROUS RISKS ASSOCIATED
WITH INTERNATIONAL OPERATIONS. A significant portion of our operations occur
outside the United States. Our facilities are located in North America, Israel,
the European continent, and the United Kingdom, and our executive officers and
other key employees are dispersed throughout the world. This geographic
dispersion requires significant management resources that may place us at a
disadvantage compared to our locally-based competitors. In addition, our
international operations are generally subject to a number of risks, including:
* foreign currency exchange rate fluctuations;
* longer sales cycles;
* multiple, conflicting and changing governmental laws and regulations;
* expenses associated with customizing products for foreign countries;
* protectionist laws and business practices that favor local competition;
* difficulties in collecting accounts receivable; and
* political and economic instability.
28
We expect international revenues to continue to account for a significant
percentage of total revenues and we believe that we must continue to expand our
international sales and professional services activities in order to be
successful. Our international sales growth will be limited if we are unable to
expand our international sales management and professional services
organizations, hire additional personnel, customize our products for local
markets and establish relationships with additional international distributors,
consultants and other third parties. If we fail to manage our geographically
dispersed organization, we may fail to meet or exceed our business plan and our
revenues may decline.
THE RATE OF INFLATION IN ISRAEL MAY NEGATIVELY IMPACT OUR COSTS IF IT EXCEEDS
THE RATE OF DEVALUATION OF THE NIS AGAINST THE DOLLAR. Substantially all of our
revenues are denominated in dollars or are dollar-linked, but a significant
portion of our research and development expense is incurred in New Israeli
Shekels ("NIS") and a portion of our revenues and expenses is incurred in
British Pounds and the European Community Euro. The results of our operations
are subject to fluctuations in these exchange rates which are influenced by
various global economic factors, including inflation rates and economic growth
within each nation. In 1999, 34%, and in 2000, 27% of our costs were incurred in
NIS. As a result, we are exposed to the risk that the rate of inflation in
Israel will exceed the rate of devaluation of the NIS in relation to the dollar
or that the timing of this devaluation will lag behind inflation in Israel. In
that event, the dollar cost of our operations in Israel will increase and our
dollar-measured results of operations will be adversely affected. In 1998, the
rate of devaluation of the NIS against the dollar exceeded the rate of inflation
in Israel, which benefited us. However, we cannot assure you that this reversal
will continue or that we will not be materially adversely affected in the future
if the rate of inflation in Israel exceeds the devaluation of the NIS against
the dollar or if the timing of this devaluation lags behind increases in
inflation in Israel.
The effects of foreign currency exchange rates on our results of operations for
the years ended December 31, 1998, 1999 and 2000 were immaterial.
WE ARE INCORPORATED IN ISRAEL AND HAVE IMPORTANT FACILITIES AND RESOURCES
LOCATED IN ISRAEL WHICH COULD BE NEGATIVELY AFFECTED DUE TO MILITARY OR
POLITICAL TENSIONS. We are incorporated under the laws of the State of Israel
and our research and development facilities as well as significant executive
offices are located in Israel. Although a substantial portion of our sales
currently are to customers outside of Israel, political, economic and military
conditions in Israel could nevertheless directly affect our operations. Since
the establishment of the State of Israel in 1948, a number of armed conflicts
have taken place between Israel and its Arab neighbors and a state of hostility,
varying in degree and intensity, has led to security and economic problems for
Israel. Since September 2000, a continuous armed conflict with the Palestinian
authority has been taking place.
Despite our history of avoiding adverse effects, in the future we could be
adversely affected by any major hostilities involving Israel, the interruption
or curtailment of trade between Israel and its trading partners, a significant
increase in inflation, or a significant downturn in the economic or financial
condition of Israel. Despite the progress towards peace between Israel and its
Arab neighbors, the future of these peace efforts is uncertain. Several Arab
countries still restrict business with Israeli companies which may limit our
ability to make sales in those countries. We could be adversely affected by
restrictive laws or policies directed towards Israel or Israeli businesses.
CERTAIN OF OUR OFFICERS AND EMPLOYEES ARE REQUIRED TO SERVE IN THE ISRAEL
DEFENSE FORCES AND THIS COULD FORCE THEM TO BE ABSENT FROM OUR BUSINESS FOR
EXTENDED PERIODS. David Schapiro, our Senior Vice President of Product
Development, and Hannan Carmeli, our Senior Vice President of Product Services
and Operations, as well as other male employees located in Israel are currently
obligated to perform up to 39 days of annual reserve duty in the Israel Defense
Forces and are subject to being called for active military duty at any time. The
loss or extended absence of any of our officers and key personnel due to these
requirements could harm our business.
WE ARE SUBJECT TO A RECENTLY ADOPTED NEW COMPANIES LAW WHICH HAS NOT YET BEEN
INTERPRETED. Because we are incorporated under the laws of the State of Israel,
your rights as a shareholder will be governed by the Companies Law of Israel
which became effective on February 1, 2000. Certain obligations and fiduciary
duties of directors, officers and shareholders under the new Companies Law are
new and have not been interpreted or reviewed by the Israeli courts. In
addition, not all of the regulations have been promulgated to date. As a result,
our shareholders may have more difficulty and uncertainty in protecting their
interests in the case of actions by our directors, officers or controlling
shareholders or third parties than would shareholders of a corporation
incorporated in a state or other jurisdiction in the United States.
29
WE ARE AN INTERNATIONAL COMPANY AND OUR INTERNATIONAL OPERATIONS ARE EXPANDING.
OUR RISK EXPOSURE TO FOREIGN CURRENCY FLUCTUATIONS IS INCREASING, AND WE MAY NOT
BE ABLE TO FULLY MITIGATE THE RISK. For the year 2000, our expenses incurred in
the UK were 26% of our total expenses. For the year of 1999, these expenses
represented 15% of our total expenses. Our revenue from the UK has grown. We are
expanding operations in other areas of Europe, and income and expenses
recognized in the European Community Euro will increase. We incur a portion of
our expenses, principally salaries and related personnel expenses in Israel, in
NIS. In 1999 34%, and in 2000 27% of our costs were incurred in NIS. We are also
experiencing a growth in revenue and expenses in Israel, and we anticipate
recognizing revenue from other international sources. For 2000, our DSO (days
sales outstanding) was 101 days reflecting the necessity to extend longer terms
for larger deals. Presently our risk to foreign currency fluctuations is
minimal, but if our foreign accounts receivable balances increase, the risk will
increase. We cannot assure that we will be able to adequately protect ourselves
against such risk.
THE GOVERNMENT PROGRAMS IN WHICH WE CURRENTLY PARTICIPATE AND TAX BENEFITS WHICH
WE CURRENTLY RECEIVE REQUIRE US TO SATISFY PRESCRIBED CONDITIONS AND MAY BE
DELAYED, TERMINATED OR REDUCED IN THE FUTURE. THIS WOULD INCREASE OUR COSTS AND
TAXES. We receive grants from the Government of the State of Israel through the
Office of the Chief Scientist of the Ministry of Industry and Trade, or the
Chief Scientist, for the financing of a significant portion of our research and
development expenditures in Israel, and we may apply for additional grants in
the future. In 1998, 1999, and 2000, we received or accrued grants from the
Chief Scientist totaling approximately $0.9 million, $1.0 million and
approximately $1.1 million respectively. We cannot assure that we will continue
to receive grants at the same rate or at all. The Chief Scientist budget has
been subject to reductions which may affect the availability of funds for Chief
Scientist grants in the future. The percentage of our research and development
expenditures financed using grants from the Chief Scientist may decline in the
future, and the terms of such grants may become less favorable. In connection
with research and development grants received from the Chief Scientist, we must
make royalty payments to the Chief Scientist on the revenues derived from the
sale of products, technologies and services developed with the grants from the
Chief Scientist. The amount of the grants received since inception is
approximately $4.2 million in respect of which we have already paid $1.3 million
out of a total of $4.3 million due to the Chief Scientist in the form of
royalties. We expect to pay or accrue additional royalties for the year 2000 at
a rate equal to 3.5% of our total revenues. We expect to pay or accrue
additional royalties for the year 2001 at a rate equal to 3.5% of our total
revenues. From time to time, the Government of Israel changes the rate of
royalties without our possibility accurately predict the change. In addition,
our ability to manufacture products or transfer technology outside Israel
without the approval of the Chief Scientist is restricted under law. Any
manufacture of products or transfer of technology outside Israel will also
require the company to pay increased royalties to the Chief Scientist up to
300%. We currently conduct all of our manufacturing activities in Israel and
intend to continue doing so in the foreseeable future and therefore do not
believe there will be any increase in the amount of royalties we pay to the
Chief Scientist. Currently the licensing of our software in the ordinary course
of business is not considered a transfer of technology by the Office of the
Chief Scientist and we do not intend to transfer any technology outside of
Israel. Consequently, we do not anticipate having to pay increased royalties to
the Chief Scientist for the foreseeable future. In connection with our grant
applications, we have made representations and covenants to the Chief Scientist
regarding our research and development activities in Israel. The funding from
the Chief Scientist is subject to the accuracy of these representations and
covenants. If we fail to comply with any of these conditions, we could be
required to refund payments previously received together with interest and
penalties and would likely be denied receipt of these grants thereafter.
30
WE ANTICIPATE RECEIVING TAX BENEFITS FROM THE GOVERNMENT OF THE STATE OF ISRAEL,
HOWEVER THESE BENEFITS MAY BE DELAYED, REDUCED OR TERMINATED IN THE FUTURE.
Pursuant to the Law for the Encouragement of Capital Investments, the Government
of the State of Israel through the Investment Center has granted "Approved
Enterprise" status to three of our existing capital investment programs.
Consequently, we are eligible for certain tax benefits for the first several
years in which we generate taxable income. We have not, however, begun to
generate taxable income for purposes of this law and we do not expect to utilize
these tax benefits for the near future. Once we begin to generate taxable
income, our financial condition could suffer if our tax benefits were
significantly reduced. The benefits available to an approved enterprise are
dependent upon the fulfillment of certain conditions and criteria. If we fail to
comply with these conditions and criteria, the tax benefits that we receive
could be partially or fully canceled and we could be forced to refund the amount
of the benefits we received, adjusted for inflation and interest. From time to
time, the Government of Israel has discussed reducing or limiting the benefits.
We cannot assess whether these benefits will be continued in the future at their
current levels or at all.
PROPOSED TAX REFORM IN ISRAEL MAY REDUCE OUR TAX BENEFITS. On May 4, 2000, a
committee chaired by the Director General of the Israeli Ministry of Finance
issued a report recommending a sweeping reform in the Israeli system of
taxation. The proposed reform would significantly alter the taxation of
individuals and would also affect corporate taxation. In particular, the
proposed reform would reduce but not eliminate the tax benefits available to
approved enterprises such as ours. The Israeli cabinet has approved the
recommendation in principle, but implementation of the reform requires
legislation by Israel's Knesset. We cannot be certain whether the proposed
reform will be adopted, when it will be adopted or what form any reform will
ultimately take or what effect it will have on our company.
IT MAY BE DIFFICULT TO ENFORCE A U.S. JUDGMENT AGAINST US, OUR OFFICERS AND
DIRECTORS AND THE ISRAELI ACCOUNTANTS NAMED AS EXPERTS IN THIS STATEMENT OR TO
ASSERT U.S. SECURITIES LAWS CLAIMS IN ISRAEL OR SERVE PROCESS ON SUBSTANTIALLY
ALL OF OUR OFFICERS AND DIRECTORS AND THESE ACCOUNTANTS. We are incorporated in
Israel and maintain significant operations in Israel. Some of our executive
officers and directors and the Israeli accountants named as experts in this
statement reside outside of the United States and a significant portion of our
assets and the assets of these persons are located outside the United States.
Therefore, it may be difficult for an investor, or any other person or entity,
to enforce a U.S. court judgment based upon the civil liability provisions of
the U.S. federal securities laws in an Israeli court against us or any of those
persons or to effect service of process upon these persons in the United States.
Additionally, it may be difficult for an investor, or any other person or
entity, to enforce civil liabilities under U.S. federal securities laws in
original actions instituted in Israel. We have appointed ClickSoftware Inc., our
U.S. subsidiary, as our agent to receive service of process in any action
against us arising out of our original June 22, 2000 initial public offering. We
have not given our consent for our agent to accept service of process in
connection with any other claim. Furthermore, if a foreign judgment is enforced
by an Israeli court, it will be payable in NIS.
OUR OFFICERS, DIRECTORS AND AFFILIATED ENTITIES OWN A LARGE PERCENTAGE OF OUR
COMPANY AND COULD SIGNIFICANTLY INFLUENCE THE OUTCOME OF ACTIONS. As of December
31, 2000, our executive officers, directors and entities affiliated with them
beneficially owned approximately 33.5% of our outstanding ordinary shares. These
shareholders, if acting together, would be able to significantly influence all
matters requiring approval by our shareholders, including the election of
directors. This concentration of ownership may also have the effect of delaying
or preventing a change of control of our company, which could have a material
adverse effect on our stock price. These actions may be taken even if they are
opposed by our other investors.
WE ARE SUBJECT TO ANTI-TAKEOVER PROVISIONS THAT COULD DELAY OR PREVENT AN
ACQUISITION OF US, EVEN IF AN ACQUISITION WOULD BE BENEFICIAL TO OUR
SHAREHOLDERS. Provisions of Israeli corporate and tax law and of our articles of
association may have the effect of delaying, preventing or making more difficult
merger or other acquisition of us, even if doing so would be beneficial to our
shareholders. In addition, any merger or acquisition of us will require the
prior consent of the Chief Scientist.
Israeli law regulates mergers, votes required to approve a merger, acquisition
of shares through tender offers and transactions involving significant
shareholders. In addition, our articles of association provide for a staggered
board of directors and for restrictions on business combinations with interested
shareholders. Any of these provisions may make it more difficult to acquire our
company. Accordingly, an acquisition of us could be delayed or prevented even if
it would be beneficial to our shareholders.
31
OTHER ORDINARY SHARES MAY BE SOLD IN THE FUTURE. THIS COULD DEPRESS THE MARKET
PRICE FOR OUR ORDINARY SHARES. As of December 31, 2000, we had 26,064,539
ordinary shares outstanding, including shares held by a trustee for issuance
under outstanding options. In addition, as of December 31, 2000, we had
1,848,821 ordinary shares issuable upon exercise of outstanding options, and
3,385,383 additional ordinary shares reserved for issuance pursuant to our stock
option plans and employee share purchase plan. If we or our existing
shareholders sell a large number of our ordinary shares, the price of our
ordinary shares could fall dramatically. Restrictions under the securities laws
limit the number of ordinary shares available for sale by our shareholders in
the public market. We have filed a Registration Statement on Form S-8 to
register for resale the ordinary shares reserved for issuance under our stock
option plans.
OUR NEED FOR ADDITIONAL FINANCING IS UNCERTAIN, AS IS OUR ABILITY TO RAISE
FURTHER FINANCING IF REQUIRED. We believe that our current cash balances will be
sufficient to fund our expenses until we reach profitability. However, we cannot
assure you we will attain sufficient revenues to achieve or maintain
profitability, particularly given current economic conditions and potential
reductions in information technology spending by our current and prospective
customers. We may need to raise additional capital to finance our operations or
for strategic purposes, and we may do so by selling additional equity or debt
securities or by increasing the size of our credit facility. If additional funds
are raised through the issuance of equity or debt securities, these securities
could have rights, preferences and privileges senior to those of holders of
ordinary shares, and the terms of these securities could impose restrictions on
our operations. The sale of additional equity or convertible debt securities
could result in additional dilution to our shareholders. In addition, we cannot
be certain that additional financing will be available in amounts or on terms
acceptable to us, if at all. If we are unable to obtain this additional
financing, we may be required to reduce the scope of our planned product
development and marketing efforts, which could harm our business, financial
condition or operating results. If the economy continues to weaken or, for any
other reason, we are unable to meet our business goals, we may have to raise
additional funds to respond to business contingencies and may include the need
to:
* fund additional marketing expenditures;
* develop new or enhance existing products and services;
* enhance our operating infrastructure;
* hire additional personnel;
* respond to competitive pressures;
* acquire complementary businesses or necessary technologies; or
* fund more rapid expansion.
If additional funds are raised through the issuance of equity or convertible
debt securities, the percentage ownership of our shareholders will be reduced,
and these newly issued securities may have rights, preferences or privileges
senior to those of existing shareholders. We cannot assure you that additional
financing will be available on terms favorable to us, or at all. If adequate
funds are not available or are not available on acceptable terms, our ability to
fund our operations, take advantage of unanticipated opportunities, develop or
enhance our products and services or otherwise respond to competitive pressures
would be significantly limited. Additionally, prior to the issuance of
additional equity or convertible debt securities to entities outside of Israel,
we will need to obtain approval from the Chief Scientist of the State of Israel
and there can be no assurance that we will be able to obtain this consent in the
future.
IF WE ARE CHARACTERIZED AS A PASSIVE FOREIGN INVESTMENT COMPANY, OUR UNITED
STATES SHAREHOLDERS WILL BE SUBJECT TO ADVERSE TAX CONSEQUENCES. If, for any
taxable year, our passive income, or our assets which produce passive income,
exceeds specified levels, we may be characterized as a passive foreign
investment company for United States federal income tax purposes. We do not
currently anticipate that this will happen, but, if it does, our shareholders
will be subject to adverse United States tax consequences. Prospective investors
should consult with their own tax advisors with respect to the tax consequences
applicable to them of investing in our ordinary shares.
32
BUSINESS INTERRUPTIONS COULD ADVERSELY AFFECT OUR BUSINESS. Our operations are
vulnerable to interruption by fire, earthquake, power loss, telecommunications
failure and other events beyone our control. In particular, we have operations
in the San Francisco Bay Area, an area that is known to be susceptible to the
risk of earthquakes. We do not have a detailed disaster recovery plan. Our
facilities in the State of California are currently subject to electrical
blackouts as a consequence of a shortage of available electrical power. In the
event these blackouts continue or increase in severity, they could disrupt the
operations of our affected facilities. In addition, we do not carry sufficient
business interruption insurance to compenesate us for losses that may occur and
any losses or damages incurred by us could have a material adverse effect on our
business.
OUR STOCK PRICE COULD BE VOLATILE AND COULD DECLINE SUBSTANTIALLY. The stock
market has experienced significant price and volume fluctuations, and the market
prices of technology companies have been highly volatile. The price at which our
ordinary shares trades is likely to be volatile and may fluctuate substantially
due to factors such as:
* announcements of technological innovations;
* announcements relating to strategic relationships;
* conditions affecting the software and Internet industries;
* trends related to the fluctuations of stock prices of companies such as
ours;
* our historical and anticipated quarterly and annual operating results;
* variations between our actual results and the expectations of investors or
published reports or analyses of ClickSoftware;
* announcements by us or others affecting our business, systems or expansion
plans; and
* general conditions and trends in technology industries.
In the past, securities class action litigation has often been instituted
against companies following periods of volatility in the market price of their
securities. This type of litigation could result in substantial costs and a
diversion of management's attention and resources.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN CURRENCY EXCHANGE RATE RISK. We develop products in Israel and sell them
primarily in North America and Europe. As a result, our financial results could
be affected by factors such as changes in foreign currency exchange rates or
weak economic conditions in foreign markets. As most of our sales are currently
made in U.S. dollars, a strengthening of the dollar could make our products less
competitive in foreign markets. Our interest income is sensitive to changes in
the general level of U.S. interest rates, particularly since the majority of our
investments are in short-term instruments. We regularly assess these risks and
have established policies and business practices to protect against the adverse
effects of these and other potential exposures. As a result, we do not
anticipate material losses as a result of foreign exchange rate fluctuations.
Due to the short-term nature of our term investments, we have concluded that
there is no material market risk exposure. Therefore, no quantitative tabular
disclosures are required. Additionally, although we do not presently participate
in hedging contracts related to foreign currency exchange rates, we may do so in
the future to protect against rate fluctuations affecting our foreign currency
accounts receivable balances. We do not participate in any speculative
investments.
INTEREST RATE RISK. As of December 31, 2000, we had cash and cash equivalents of
$21.3 million which consist of cash and highly liquid short-term investments.
Our short-term investments will decline in value by an immaterial amount if
market interest rates increase, and, therefore, our exposure to interest rate
changes has been immaterial. Declines of interest rates over time will, however,
reduce our interest income from our short-term investments.
As of December 31, 2000, we had total short term debt of $0.1 million and
long-term debt net of current maturities of $0.1 million which bear interest at
rates that are linked to LIBOR or the Israeli consumer price index. We also have
a revolving, accounts receivable-based, secured credit facility of up to $2.5
million for working capital purposes. Amounts outstanding bear interest at the
U.S. prime rate plus 1%. As of December 31, 2000, there were no amounts
outstanding under this facility.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements (as such term is defined
in Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934) and information relating to us that are based on the
beliefs of our management as well as assumptions made by and information
currently available to our management, including statements related to products,
markets, and future results of operations and profitability, and may include
implied statements concerning market acceptance of our products, and our growing
leadership role in the marketplace. In addition, when used in this report, the
words "likely," "will," "suggests," "may," "would," "could," "anticipate,"
"believe," "estimate," "expect," "intend," "plan," "predict" and similar
expressions and their variants, as they relate to us or our management, may
identify forward-looking statements. Such statements reflect the judgment of the
Company as of the date of this annual report on Form 10-K with respect to future
events, the outcome of which is subject to certain risks, including the risk
factors set forth herein, which may have a significant impact on our business,
operating results or financial condition. Investors are cautioned that these
forward-looking statements are inherently uncertain. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results or outcomes may vary materially from those described
herein. ClickSoftware undertakes no obligation to update forward-looking
statements, whether as a result of new information, future events or otherwise.
33
ITEM 8. FINANCIAL STATEMENTS
The following consolidated financial statements, and the related notes
thereto, of ClickSoftware Technologies Ltd. and the Report of Independent
Auditors are filed as a part of this Form 10-K.
Independent Auditors' Report................................ 35
Consolidated Balance Sheets................................. 36
Consolidated Statements of Operations and Comprehensive
Loss...................................................... 37
Consolidated Statements of Shareholders' Equity............. 38
Consolidated Statements of Cash Flows....................... 39
Notes to Consolidated Financial Statements.................. 40
34
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
ClickSoftware Technologies Ltd.
We have audited the accompanying consolidated balance sheets of
ClickSoftware Technologies Ltd. (an Israeli Corporation) as of December 31, 1999
and 2000, and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2000. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these1
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States and in Israel, including those prescribed under
the Auditors' Regulations (Auditor's Mode of Performance), 1973. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
ClickSoftware Technologies Ltd. as of December 31, 1999 and 2000, and the
consolidated results of operations, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
/s/ LUBOSHITZ KASIERER
------------------------------
Member Firm of Arthur Andersen
Tel-Aviv, Israel
January 29, 2001
35
CLICKSOFTWARE TECHNOLOGIES LTD.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
DECEMBER 31,
1999 2000
----------------- ----------------
ASSETS
Current Assets:
Cash and cash equivalents (note 3) $ 7,838 $ 4,438
Short-term investments (note 4) - 16,878
Trade receivables, net of allowance of $130 and $742 as
of December 31, 1999 and 2000, respectively 3,966 4,375
Other receivables and prepaid expenses (note 5) 465 1,466
----------------- ----------------
Total current assets 12,269 27,157
Property and equipment, net (note 6) 1,498 3,772
Severance pay deposits (note 10) 428 526
----------------- ----------------
Total assets $ 14,195 $ 31,455
================= ================
LIABILITIERS AND SHAREHODERS' EQUITY
CURRENT LIABILITIES:
Short-term debt (note 7) $ 320 $ 146
Accounts payable and accrued expenses (note 8) 2,799 3,274
Deferred revenues 1,143 127
----------------- ----------------
Total current liabilities 4,262 3,547
----------------- ----------------
LONG-TERM LIABILITIES
Long-term debt (note 9) 213 103
Accrued severance pay (note 10) 899 1,343
----------------- ----------------
Total long-term liabilities 1,112 1,446
----------------- ----------------
Total liabilities 5,374 4,993
----------------- ----------------
Commitments and contingencies (note 11)
SHAREHOLDERS' EQUITY: (NOTE 12)
Convertible Preferred shares of NIS 0.02par value:
Authorized -- 17,330,238 as of December 31, 1999 and 5,000,000 as of
December 31, 2000; Issued and outstanding -- 13,499,898 as of December 31,
1999 and none as of December 31, 2000 60 -
Ordinary shares of NIS 0.02 par
value:
Authorized -- 8,314,801 as of December 31, 1999 and 100,000,000 as of
December 31, 2000; Issued and outstanding -- 7,208,816 shares as of
December 31, 1999 and 26,064,539 as of December 31, 2000 13 100
Additional paid-in capital 40,052 69,169
Deferred compensation (2,663) (1,120)
Accumulated deficit (28,641) (41,687)
----------------- ----------------
Total shareholders' equity 8,821 26,462
----------------- ----------------
Total liabilities and shareholders' equity $ 14,195 $ 31,455
================= ================
The accompanying notes are an integral part of these consolidated financial
statements.
36
CLICKSOFTWARE TECHNOLOGIES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
YEAR ENDED DECEMBER 31,
1998 1999 2000
----------------- --------------- --------------
Revenues: (note 13)
Software license $ 3,932 $ 5,414 $ 10,500
Service and maintenance 2,139 4,912 5,242
----------------- --------------- --------------
Total revenues 6,071 10,326 15,742
Cost of revenues:
Software license 25 71 272
Service and maintenance 2,301 4,299 5,156
Total cost of revenues 2,326 4,370 5,428
----------------- --------------- --------------
Gross profit 3,745 5,956 10,314
----------------- --------------- --------------
Operating expenses:
Research and development expenses 3,150 3,935 5,408
Less - participation by the Chief Scientist
of the Government of Israel (note 11) 866 1,025 1,108
----------------- --------------- --------------
Research and development expenses, net 2,284 2,910 4,300
Sales and marketing expenses (note 11) 6,019 8,274 14,106
General and administrative expenses 1,333 1,759 4,397
Share-based compensation - 738 1,237
----------------- --------------- --------------
Total operating expenses 9,636 13,681 24,040
----------------- --------------- --------------
Operating loss (5,891) (7,725) (13,726)
Interest and other (expenses) income, net 33 (254) 680
----------------- --------------- --------------
Net loss $ (5,858) $ (7,979) $ (13,046)
----------------- --------------- --------------
Dividend related to convertible preferred shares
$ - $ (4,989) $ -
----------------- --------------- --------------
Net loss attributable to ordinary shareholders $ (5,858) $(12,968) $ (13,046)
================= =============== ==============
Basic and diluted net loss per share (note 2) $ (0.99) $ (2.18) $ (0.58)
================= =============== ==============
Shares used in computing basic and diluted net loss per share
5,914,735 5,948,816 22,312,554
================= =============== ==============
The accompanying notes are an integral part of these consolidated financial
statements.
37
CLICKSOFTWARE TECHNOLOGIES LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands, except share data)
NUMBER OF
NUMBER OF CONVERTIBLE ADDITIONAL
ORDINARY PREFERRED SHARE PAID-IN DEFERRED ACCUMULATED
SHARES SHARES AMOUNT CAPITAL COMPENSATION DEFICIT TOTAL
----------- ------------- -------- ----------- ------------- ------------ -----------
Balance as of December 31, 1997 7,208,816 5,109,862 $36 $ 6,602 $ - $(9,815) $ (3,177)
Shares issued net of
issuance costs of $155 - 6,557,950 29 13,663 - - 13,692
----------- ------------- -------- ----------- ------------- ------------ -----------
Balance as of December 31, 1998 7,208,816 11,667,812 65 20,265 - (15,673) 4,657
Shares issued net of
issuance costs of $126 - 1,832,086 8 11,366 - - 11,374
Dividend related to
convertible preferred shares - - - 4,989 - (4,989) -
Employee options exercised - - - 31 - - 31
Deferred compensation - - - 3,401 (3,401) - -
Amortization of deferred
compensation - - - - 738 - 738
Net loss - - - - - (7,979) (7,979)
----------- ------------- -------- ----------- ------------- ------------ -----------
Balance as of December 31, 1999 7,208,816 13,499,898 73 40,052 (2,663) (28,641) 8,821
Shares issued net of
issuance cost of 4,030 4,600,000 - 23 28,147 - - 28,170
Conversion of preferred shares 12,499,898 (12,499,898) - - - - -
Warrants exercised 459,439 - 2 577 - - 579
Employee options exercised 273,098 - 2 638 - - 640
Expired options - - - (306) 306 - -
Employee Stock purchase plan 23,288 - - 61 - - 61
Amortization of deferred
compensation - - - - 1,237 - 1,237
Net loss - - - - - (13,046) (13,046)
----------- ------------- -------- ----------- ------------- ------------ -----------
Balance as of December 31, 2000 26,064,539 - $ 100 $69,169 $(1,120) $ (41,687) $26,462
=========== ============= ======== =========== ============= ============ ===========
The accompanying notes are an integral part of these consolidated financial
statements.
38
CLICKSOFTWARE TECHNOLOGIES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
YEAR ENDED DECEMBER 31,
1998 1999 2000
----------------- --------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,858) $ (7,979) $ (13,046)
Adjustments to reconcile net loss to net cash used
in operating activities
Expenses not affecting operating cash flows:
Depreciation 323 484 654
Amortization of deferred compensation - 738 1,237
Unrealized gain from investments - - (258)
Severance pay 15 40 346
Other 37 (8) -
Changes in operating assets and liabilities:
Trade receivables (1,074) (1,925) (409
Other receivables (189) (26) (1,001)
Accounts payable and accrued expenses 398 1,112 475
Deferred revenues (315) 1,057 (1,016)
---------------- ----------------- ----------------
Net cash used in operating activities (6,663) (6,507) (13,018)
---------------- ----------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments - - (16,620)
Purchases of equipment (1,039) (732) (2,928)
---------------- ----------------- ----------------
Net cash used in investing activities (1,039) (732) (19,548)
---------------- ----------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (133) 14 (174)
Proceeds from long-term debt - 35 -
Repayments of long-term debt (368) (147) (110)
Net proceeds from issuance of Convertible Preferred shares
11,672 11,374 -
Net proceeds form issuance of Ordinary
shares - - 28,170
Net proceeds from warrants exercised - - 579
Employee and ESPP options exercised - 31 701
---------------- ----------------- ----------------
Net cash provided by financing activities 11,171 11,307 29,166
---------------- ----------------- ----------------
Increase (decrease) in cash and cash
Equivalents 3,469 4,068 (3,400)
Cash and cash equivalents at beginning of
Period 301 3,770 7,838
---------------- ----------------- ----------------
Cash and cash equivalents at end of period $ 3,770 $ 7,838 $ 4,438
================ ================= ================
Supplemental cash flow information
Cash paid for interest $ 152 $ 137 $ 86
================ ================= ================
Non-cash transactions
Loans converted into shares $ 2,020 $ - $ -
================ ================= ================
The accompanying notes are an integral part of these consolidated financial
statements.
39
CLICKSOFTWARE TECHNOLOGIES LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF DECEMBER 31, 2000 AND
FOR THE YEAR ENDED DECEMBER 31, 1999 AND 2000)
(IN THOUSANDS OF DOLLARS)
NOTE 1 -- GENERAL
ClickSoftware Technologies Ltd. (formerly I.E.T. Intelligent Electronics
Ltd. and formerly ClickService Software Ltd.) (the "Company" or
"ClickSoftware"), was incorporated in Israel and provides application software
that enables companies to efficiently provide service and product delivery in
enterprise environments and over the Internet. The CLICKSCHEDULE product line
enables clients to optimize the delivery of scheduled services and product to
their customers. The CLICKFIX product facilitates automated diagnosis and
troubleshooting of equipment. CLICKSCHEDULE and CLICKFIX enable clients to
optimize resource allocation, offering their customers ease of use and
convenience while procuring services and products. ClickSoftware customers come
from a wide variety of industries, including aerospace, defense, semi-conductor
and communications, software, and automotive industry.
The Company has incurred net operating losses since inception and, as of
December 31, 2000, had an accumulated deficit of $41.7 million. The Company is
subject to various risks associated with companies in a comparable stage of
development, including competition from substitute products and larger
competitors, dependence on key individuals, and the potential necessity to
obtain adequate financing to support its growth.
On June 22, 2000, ClickSoftware completed the initial public offering of
its ordinary shares (the "IPO"). A total of 4,000,000 shares of ClickSoftware
ordinary shares were sold to the public at a price of $7.00 per share. Cash
proceeds to ClickSoftware net of $1.96 million in underwriting discounts before
expenses, were approximately $26.04 million. Concurrent with the IPO, all of the
shares of the Company's Series A, Series B, Series C and Series D convertible
preferred stock ("Preferred Stock") were converted into shares of the Company's
ordinary shares on a share for share basis.
On July 20, 2000 ,the IPO Underwriters exercised their overallotment option
and purchased 600,000 additional ordinary shares from ClickSoftware at a price
of $7.00 per share. Cash proceeds to ClickSoftware net of $0.3 million in
underwriting discounts before expenses, were approximately $3.9 million.
The Company, originally named I.E.T. Intelligent Electronics Ltd., changed
its name from ClickService Software Ltd. in January 2000 after a U.S. trademark
infringement claim had been filed against the Company. The Company changed its
name to ClickSoftware Technologies Ltd. and discontinued use of prior domain
names.
The consolidated financial statements include the financial statements of
the Company and its wholly-owned subsidiaries in the U.S. (ClickSoftware, Inc.,
a California corporation) and in the U.K. (ClickSoftware Europe Limited). The
subsidiaries are primarily engaged in the sale and marketing of the Company's
products within North America, Europe and the rest of the world.
The accompanying financial statements have been prepared in U.S. dollars,
as the currency of the primary economic environment in which the operations of
the Company are conducted is the U.S. dollar. Most of the Company's sales are
made outside Israel in non-Israeli currencies (mainly the U.S. dollar). A
majority of the purchases of materials and components are made outside Israel in
non-Israeli currencies. In addition, most marketing expenses are incurred
outside Israel, primarily in U.S. dollars. Thus, the functional currency of the
Company is the U.S. dollar.
Transactions and balances originally denominated in U.S. dollars are
presented at their original amounts. Transactions and balances in other
currencies are remeasured into U.S. dollars in accordance with principles set
forth in Statements of Financial Accounting Standards (SFAS) No. 52 of the
Financial Accounting Standards Board of the United States ("FASB"). Accordingly,
items have been remeasured as follows:
40
- - Monetary items -- at the current exchange rate in effect at balance sheet
date.
- - Non-monetary items -- at historical exchange rates.
- - Revenue and expense items -- at exchange rates in effect as of date of
recognition of those items (excluding depreciation and other items deriving
from non monetary items).
All exchange gains and losses from the aforementioned remeasurement (which
are immaterial for each reported period) are reflected in the statements of
operations.
The representative rate of exchange of the U.S. dollar in relation to the
New Israeli Shekel ("NIS") at December 31, 2000 -- U.S.$1.00 = NIS 4.04
(December 31, 1999 - 4.15).
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared in conformity with accounting
principles generally accepted in the U.S. The significant accounting policies
followed in the preparation of the financial statements, applied on a consistent
basis, are as follows:
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of the Company and its
wholly-owned subsidiaries. Material intercompany balances and transactions have
been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For the purpose of the statements of cash flows, the Company considers all
highly liquid investments purchased with a maturity of three months or less to
be cash equivalents.
SHORT TERM INVESTMENTS
Short-term securities are classified as "trading" and stated at market
value. Gains and losses are included in interest and other income (expense) in
accordance with the principles set forth in SFAS No.115 .
CONCENTRATION OF CREDIT RISK
The Company provides credit to its customers in the normal course of
business, performs ongoing credit evaluations of its customers and maintains
allowances for potential credit losses.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets, ranging
from 3 to 16 years. Leasehold improvements are amortized using the straight-line
method, over the shorter of the lease term, including renewal options, or the
useful lives of the improvements.
41
SOFTWARE RESEARCH AND DEVELOPMENT COSTS
Software research and development costs incurred prior to the establishment
of technological feasibility are included in research and development expenses.
The Company defines establishment of technological feasibility as the completion
of a working model. Software development costs incurred subsequent to the
establishment of technological feasibility through the period of general market
availability of the products are capitalized, if material, after consideration
of various factors, including net realizable value. To date, software
development costs that are eligible for capitalization have not been material
and have been expensed.
REVENUE RECOGNITION
Software license revenues are recognized in accordance with the American
Institute of Certified Public Accountants Statement of Position 97-2, "Software
Revenue Recognition," or SOP 97-2, as amended by Statement of Position 98-9.
Under SOP 97-2, we recognize software license revenues when a software license
agreement has been executed or a definitive purchase order has been received and
the product has been delivered to our clients, no significant obligations with
regard to implementation remain, the fee is fixed and determinable, and
collectability is probable. Revenue related to post-contract support (PCS)
arrangements are recognized ratably over the term of the arrangements. Revenues
related to services are recognized as the services are rendered.
BASIC AND DILUTED NET LOSS PER SHARE
Basic and diluted net loss per share are presented in conformity with SFAS
No. 128 "Earnings per Share" for all years presented. Basic and diluted net loss
per share have been computed using the weighted-average number of ordinary
shares outstanding during the year, excluding ordinary shares held by a trustee
reserved for allocation against employee options granted but not yet exercised
(see note 12).
FOR THE YEAR ENDED DECEMBER 31,
1998 1999 2000
---------------- -------------- ---------------
(in thousands except share data and share numbers)
Net loss attributable to ordinary shareholders $ (5,858) $ (12,968) $ (13,046)
Basic and diluted:
Weighted averages shares used in computing
basic and diluted net loss per ordinary share 5,914,735 5,948,816 22,312,554
================ ============== ===============
Basic and diluted net loss per Ordinary share $ (0.99) $ (2.18) $ (0.58)
================ ============== ===============
All Convertible Preferred shares, warrants for Convertible Preferred
shares, outstanding share options and shares issued and reserved for outstanding
share options have been excluded from the calculation of basic and diluted net
loss per share because all such securities are antidilutive for all years
presented. The total number of shares excluded from the calculations of basic
and diluted net loss per share were 13,340,290, 16,577,409 and 2,487,677 as of
December 31, 1998, 1999 and 2000 respectively.
SHARE-BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation" permits the use of
either a fair value based method of accounting or the method prescribed in
Accounting Principles Board Opinion 25 ("APB 25"), "Accounting for Stock Issued
to Employees" to account for stock-based compensation arrangements. Companies
that elect to employ the method prescribed by APB 25 are required to disclose
the pro forma net loss that would have resulted from the use of the fair value
based method. The Company has elected to account for its share-based
compensation arrangements under the provisions of APB 25, including the FASB
interpretation No. 44, "Accounting for certain transactions involving Stock
Compensation - an interpretation of APB 25", and accordingly, has included in
note 12 the pro forma disclosures required under SFAS No. 123.
42
FAIR VALUE OF FINANCIAL INSTRUMENTS
Unless otherwise noted, the carrying amount of financial instruments
approximates fair value.
INCOME TAXES
The Company accounts for income taxes, in accordance with the provisions of
SFAS 109 "Accounting for Income Taxes," under the liability method of
accounting. Under the liability method, deferred taxes are determined based on
the differences between the financial statement and tax basis of assets and
liabilities at enacted tax rates in effect in the year in which the differences
are expected to reverse. Valuation allowances are established, when necessary,
to reduce deferred tax assets to amounts expected to be realized.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet at its fair value. SFAS No. 133
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement. The Company must adopt the
principles of SFAS No. 133, as amended by SFAS No.137 and 138, effective January
1, 2001. The Company believes that the adoption of SFAS No. 133 will not have a
material effect on its financial statements.
NOTE 3 -- CASH AND CASH EQUIVALENTS
DECEMBER 31,
1999 2000
--------------- -----------
(in thousands)
In NIS $ - $ 532
In British Pounds - 436
In U.S. dollars 7,838 3,470
--------------- -----------
$ 7,838 $ 4,438
=============== ===========
NOTE 4 - SHORT-TERM INVESTMENTS
DECEMBER 31,
1999 2000
---------- -------------
(in thousands)
Taxable Securities (average annual interest rate of 6.8%) $ - $ 4,026
Corporate Bonds (average annual interest rate of 6.6%) - 2,291
Euro Dollar Bonds (average annual interest rate of 6.7%) - 5,121
Asset-backed Securities (average annual interest rate of 6.7%) - 5,440
---------- -------------
$ 0 $ 16,878
========== =============
NOTE 5 -- OTHER RECEIVABLES AND PREPAID EXPENSES
DECEMBER 31,
1999 2000
---------- -------------
(in thousands)
Government participations and other government receivables $ 142 $ 421
Employees 60 78
Other receivables and prepaid expenses 263 967
---------------- ------------
$ 465 $ 1,466
================ ============
43
NOTE 6 -- PROPERTY AND EQUIPMENT
DECEMBER 31,
1999 2000
---------- ----------
(in thousands)
COST
Computers and office equipment $ 2,747 $ 4,264
Leasehold improvements 357 1,551
Motor vehicles 363 580
---------- ----------
$ 3,467 $ 6,395
Accumulated Depreciation 1,969 2,623
---------- ----------
NET BOOK VALUE $ 1,498 $3,772
========== ==========
For the years ended December 31, 1999 and 2000 depreciation expense was
$484,000, and $654,000, respectively.
The net book value of the Company's property and equipment located in
Israel was in the amount of $1,052,000 and $1,216,000 as of December 31, 1999
and 2000, respectively.
NOTE 7 -- SHORT-TERM DEBT
DECEMBER 31,
1999 2000
------ ------
(in thousands)
Short-term debt $ 15 $ -
Current maturities on long-term debt (note 9) 173 146
Shareholder loan on demand 132 -
------ ------
$ 320 $ 146
====== ======
In 1999 the Company established a revolving, trade receivable based, credit
facility of up to $2.5 million for working capital purposes. The line of credit
is limited to 80% of eligible trade receivables and the amount outstanding under
this facility as of December 31, 1999 and December 31, 2000 was nil.
NOTE 8 -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES
DECEMBER 31,
1999 2000
------- -------
Suppliers $ 805 $ 1,335
Employee and related expenses 1,173 1,075
Accrued royalties 330 389
Other 491 475
------- -------
$2,799 $ 3,274
======= =======
NOTE 9 -- LONG-TERM DEBT
DECEMBER 31,
1999 2000
------- -------
Bank Loans
In U.S. dollars $ 150 $ 113
Linked to the Israeli CPI 111 47
In British Pounds 68 89
Other 57 -
------- -------
$ 386 $ 249
Less - current maturities (note 7) 173 146
------- -------
$ 213 $ 103
======= =======
A U.S. dollar loan in the amount of $90,000 bears annual interest of LIBOR
plus 1% (7% as of December 31, 2000). The loan, linked to the Israeli CPI, bears
interest at 5.4% per annum. The loans in British Pounds bear an average annual
interest rate of 5.5%.
44
Long-term debt as of December 31, 2000 net of current maturities, is repayable
as follows:
DECEMBER 31,
1999 2000
------- --------
(in thousands)
2000 $ 148 $72
2003 54 26
2004 10 5
2005 1 -
------- --------
$ 213 $ 103
======= ========
NOTE 10 -- SEVERANCE PAY
Under Israeli law and labor agreements, the Company is required to make
severance payments to its dismissed employees and employees leaving its
employment in certain other circumstances. The Company's severance pay
obligation to its employees, which is calculated on the basis of the salary of
each employee for the last month of the reported period multiplied by the years
of such employee's employment, is reflected by the accrual presented in the
balance sheet and is partially funded by deposits with insurance companies and
provident funds.
Severance pay expenses amounted to $272,000, $202,000 and $562,000 for the
years ended December 31, 1998, 1999 and 2000 respectively.
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
In connection with its research and development, the Company received
participation payments from the State of Israel in the total amount of
$4,178,000. In return for the Government of Israel participation, the Company is
committed to pay royalties at a rate of 3% to 5% of sales of the developed
product, up to 100% -- 150% of the amount of grants received. The Company has
paid or accrued royalties through December 31, 2000 of $1,251,000.
In connection with its export marketing activities, until December 31,
1996, the Company received participation payments from the Government of Israel
through the Fund for the Encouragement of Marketing Activities in the amount of
$707,000. The Company is committed to pay royalties at a rate of 3% of the
increase in export sales over a base amount, up to the amount of the
participations received. The Company has paid or accrued royalties through
December 31, 2000 in the amount of $425,000.
Long-term bank debt and liabilities to banks in respect of guarantees given
for the benefit of the Company are secured by fixed charges on vehicles and on
amounts receivable from certain major customers.
The Company operates from leased facilities in Israel, the United States
and the U.K., for periods expiring in the years 2001 through 2004 (some with a
renewal option ending in May 2008) at annual rent in the amount of approximately
$1,279,000. Minimum rental payments, as of December 31 are as follows:
(in thousands)
----------------------
2001 $ 1,126
2002 903
2003 981
2004 1,000
----------------------
$ 4,010
======================
- --------------------
Rent expense amounted to $563,000, $722,000, and $1,039,000 for the years ended
December 31, 1998, 1999, and 2000 respectively.
45
NOTE 12 -- SHAREHOLDERS' EQUITY
A. SHARE CAPITAL -- COMPRISES OF SHARES OF NIS 0.02 PAR VALUE.
NUMBER OF SHARES
-------------------------------------------------------------
AUTHORIZED ISSUED AND OUTSTANDING
DECEMBER 31, DECEMBER 31,
1999 2000 1999 2000
--------------- ---------------- ------------- --------------
Ordinary shares 6,474,801 100,000,000 5,468,816 26,064,539
Ordinary A shares - non-voting 840,000 - 840,000(*) -
Ordinary B Convertible shares - non-voting
1,000,000 - 900,000(*) -
--------------- ---------------- ------------- --------------
8,314,801 100,000,000 7,208,816 26,064,539
=============== ================ ============= ==============
Preferred A-1 Convertible shares 4,750,000 - 2,810,424 -
Preferred A Convertible shares 3,750,000 - 2,299,438 -
Preferred B Convertible shares 4,000,000 - 3,826,809 -
Preferred C Convertible shares 3,000,000 - 2,731,141 -
Preferred D Convertible shares (see note 12B)
1,830,238 - 1,832,086 -
Special preferred shares - 5,000,000 - -
--------------- ---------------- ------------- --------------
17,330,238 5,000,000 13,499,898 -
=============== ================ ============= ==============
- ----------------
(*) Includes shares reserved for allocation against employee options granted but
not yet exercised, held by a trustee. The total number of Ordinary shares held
by the trustee are 1,206,920 as of December 31, 1999, and 911,230 as of December
31,2000.
On March 20, 2000 the shareholders of the Company approved a 1 for 2
reverse share split and thereafter a share dividend of 1 share for every 5
outstanding ordinary shares and Preferred convertible shares. All references to
per share amounts and number of shares in these financial statements have been
retroactively restated to reflect this reverse share split and share dividend.
The combined reversed share split and share dividend is the equivalent of a 3
for 5 reverse share split.
Concurrent with the IPO, all of the shares of the Company's Series A,
Series B, Series C, Series D and Series A1 convertible preferred stock
("Preferred Stock") were converted into shares of the Company's ordinary shares
on a share for share basis.
B. ISSUANCES
In December 1999, the Company signed an agreement to issue, in a private
placement, 1,832,086 Preferred D Convertible shares in consideration for
$11,500,000. As of December 31, 1999, the shares are reflected, as issued and
outstanding, however the shares were issued subsequent to year end. As of
December 31, 1999, the issue exceeded authorized share capital by 1,848 shares.
On March 20, 2000, the shareholders of the Company approved an increase in
authorized share capital of Preferred D Convertible shares by reclassifying
Ordinary shares to Preferred D Convertible shares. Subsequent to this approval
the unissued shares were issued.
The Company has recorded a preferred share dividend of approximately $5.0
million representing the value of the beneficial conversion feature on the
issuance of Series D in December 1999. The beneficial conversion feature was
calculated at the commitment date based on the difference between the conversion
price of $6.277 per share and the estimated fair value of the ordinary shares at
that date.
In addition, in December 1999, certain employees exercised their options to
acquire 53,080 Ordinary shares. These shares had been previously issued and held
by the trustee and were included in the number of issued and outstanding
Ordinary shares.
In March 2000 the Company granted a warrant to purchase 76,200 ordinary
shares at an exercise price of $0.01 per share to an investor in connection with
the issuance of Preferred D Convertible shares in December 1999. This warrant
was exercised in March 2000.
46
In February 2000, 15,329 Ordinary A shares were allocated to a consultant
in accordance with an agreement for services provided in 1997 valued at $15,000.
These shares were released from Ordinary A shares held in reserve by a trustee.
In March 2000, a shareholder exercised a warrant to acquire 18,926 Ordinary
shares at an exercise price of $0.58 per share.
In June 2000, prior to the IPO, the March 1998 warrants were exercised as
follows: 289,131 shares at exercise price of $1.96 and 75,182 shares without
cash consideration.
On June 22, 2000, the Company completed the initial public offering of its
ordinary shares (the "IPO"). A total of 4,000,000 shares of ClickSoftware
ordinary shares were sold to the public at a price of $7.00 per share. Cash
proceeds to ClickSoftware net of $1.96 million in underwriting discounts before
expenses, were approximately $26.04 million.
On July 20, 2000 the IPO Underwriters exercised their overallotment Option
and purchased 600,000 additional ordinary shares from ClickSoftware at a price
of $7.00 per share. Cash proceeds to ClickSoftware net of $0.3 million in
underwriting discounts before expenses, were approximately $3.9 million.
In addition, during the year ended December 31, 2000, certain employees
exercised their options to acquire 631,091 Ordinary shares. Of the Ordinary
shares 357,474 had been previously issued and held by the trustee and were
included in the number of issued and outstanding Ordinary shares, whereas
273,617 represented newly issued shares.
In November 2000, certain employees purchased 23,288 ordinary shares at a
price $2.6 per share according to the 2000 Employee Share Purchase Plan.
C. WARRANTS
Warrants to purchase 393,552 Preferred B Convertible shares were issued on
March 31, 1998 in conjunction with the conversion to Preferred B Convertible
shares of a convertible subordinated promissory note. The warrants were recorded
at their fair market value and included in additional paid-in capital. The
exercise price for the purchase of 393,552 shares is $1.96.
A total of 364,313 shares were exercised prior to the Company's IPO.
D. EMPLOYEE, DIRECTORS, AND CONSULTANT OPTION PLANS
The Company adopted an Employees' Share Option Plan (1996 Option Plan)
according to which options for the purchase of up to 360,000 Ordinary A shares
may be granted to employees. The options have an exercise price of $0.58 per
share and shall vest over a four year period beginning with 25% vesting after
one year and continuing at the rate of 33% per year for the remaining vesting
period, commencing in the second year from the date of the grant. In 1997, the
Company adopted an Employees' Share Option Plan (1997 Option Plan) according to
which options for the purchase of up to 900,000 Ordinary B shares may be granted
to employees. The options are exercisable at a price of $0.58 per share and vest
over a four year period, with monthly vesting after two years. The options
issued to U.S. employees vest after 1 year. Employees' compensation in respect
of options granted under these plans is immaterial.
In 1999 the Company adopted new option plans according to which options for
the purchase of 660,810 Ordinary B shares may be granted to employees. The
options have an exercise price of $0.83 per share and vests over a four year
period.
On November 30, 1999 a warrant to purchase 75,000 Ordinary shares was
issued to a consultant that vests immediately with an exercise price of $3.67.
The Board of Directors has approved the grant of a stand-alone option to
purchase 720,000 ordinary shares to the Company's CEO and stand-alone options to
purchase 95,000 ordinary shares to directors.
The Company has adopted new option plans in 2000 under which they have
granted 1,015,213 options at a weighted average exercise price of $5.75 per
share.
47
In connection with the grant of certain options to employees during fiscal
1999, the Company recorded deferred compensation of approximately $3,401,000,
representing the difference between the estimated fair value of the Ordinary
shares and the exercise price of these options at the date of grant. Such amount
is presented as a reduction of shareholders' equity and amortized over the
vesting period of the applicable options. The Company recorded amortization of
deferred compensation of approximately $1,237,000 and $738,000 during the years
ended December 31, 2000 and 1999, respectively.
During 2000, a total of 91,571 options expired which reduced deferred
compensation by approximately $306,000. As of December 31, 2000, the remaining
deferred compensation of approximately $1,120,000 will be amortized as follows:
$664,000 $344,000,and $112,000 during the years ended 2001, 2002 and 2003,
respectively. The amortization expense relates to options awarded to employees
in all operating expense categories. The amount of deferred compensation expense
to be recorded in future periods could decrease if options for which accrued but
unvested compensation has been recorded, are forfeited.
If deferred compensation had been determined under the alternative fair
value accounting method provided for under SFAS No. 123, "Accounting for
Stock-Based Compensation", using the "Black-Scholes option pricing" method with
the following weighted average assumptions used for grants in all reported
periods: (1) average expected life of the options is 1.31; (2) dividend yield of
0%; (3) expected volatility of 0% for 1998 and 1999 and expected volatility of
152% for December 31, 2000; and (4) risk-free interest rate of 5%, the effect on
the Company's net loss and net loss per share would have been immaterial for all
reported periods.
Transactions related to the above discussed options and warrants granted to
employees and consultants during the years ended 1998, 1999 and 2000, and the
weighted average exercise prices per share and weighted average fair value of
the options at the date of grant are summarized as follows:
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
OPTIONS EXERCISE FAIR
AVAILABLE OUTSTANDING PRICE PER VALUE OF
FOR GRANT OPTIONS(*) SHARE OPTION
--------------- ------------------ -------------- --------------
Outstanding January 1, 1998 898,470 661,530 0.58
Granted (627,810) 627,810 0.58 $ 1.14
Forfeited 65,035 (65,035) 0.58
--------------- ------------------ --------------
Outstanding December 31, 1998 335,695 1,224,305 0.58
Authorized 1,493,809
Granted (1,493,809) 1,493,809 1.64 $ 2.62
Exercised - (53,080) 0.58
--------------- ------------------ --------------
Outstanding December 31, 1999 335,695 2,665,034 1.16
Authorized 3,800,000
Granted (1,015,213) 1,015,213 5.75 $ 1.57
Forfeited 288,189 (288,107) 2.99
Exercised - (631,091) 1.01
Exercised Employee Stock Purch plan (23,288) -
--------------- ------------------ --------------
Outstanding December 31, 2000 3,385,383 2,761,049 2.65
=============== ================== ==============
- -----------------
(*) As of December 31, 1998, 1999, and 2000, 1,260,000, 1,206,920 and 912,228
Ordinary shares are held by a trustee and have been reserved for allocation
against certain employee options granted but not yet exercised.
48
The following table summarizes information about options outstanding and
exercisable as of December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------- ------------------
NUMBER WEIGHTED- NUMBER
OUTSTANDING AVERAGE WEIGHTED- OUTSTANDING WEIGHTED-
AT REMAINING AVERAGE AT AVERAGE
DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICE 2000 LIFE PRICE 2000 PRICE
- --------------------------- ---------------- ----------------- ---------------- ---------------- ---------------
$ 0.58 778,788 4.09 0.58 547683 $ 0.58
$ 0.83 435,858 6.91 0.83 67,598 0.83
$ 1.83 514,390 5.96 1.83 92,928 1.83
$ 3.67 90,000 4.85 3.67 32,500 3.67
$ 8.50 280,200 8.08 8.50 - -
$10.00 65,000 9.25 10.00 - -
$ 8.00 15,000 9.41 8.00 2,917 8.00
$ 4.375 306,813 8.85 4.375 - -
$ 3.065 275,000 9.86 3.065 - -
---------------- ----------------
2,761,049 743,626
================ ================
On February 9, 2001, the Company granted options to acquire 809,500 shares
to employees at an exercise price of $1.69 per share. The shares vests over a
two year period.
On February 9, 2001, the Company granted options to acquire 120,000 shares
to four directors at an exercise price of $1.69 per share. The shares vest over
a two-year period. Such grants are subject to shareholder approval.
NOTE 13 -- SEGMENT REPORTING
In accordance with SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information", the Company is organized and operates as
one business segment, the design, development, and marketing of software
solutions.
The Company's revenue by geographic area is as follows:
YEAR ENDED DECEMBER 31,
1998 1999 2000
------------ ------------ ------------
Sales (in thousands)
North America $ 4,293 $ 6,978 $ 9,766
Europe 1,193 2,163 5,027
Israel 493 905 440
Rest of the World 92 280 509
------------ ------------ ------------
$ 6,071 $ 10,326 $ 15,742
============ ============ =============
Sales to a single customer exceeding 10%
% % %
------------ ------------ ------------
Customer A 13 (*) (*)
Customer B 12 (*) (*)
Customer C 11 (*) (*)
Customer D - (*) (*)
- ----------------
(*) Under 10%
NOTE 14 -- TAXES ON INCOME
The Company is subject to the Israeli Income Tax Law (Inflationary
Adjustments), 1985, measuring income on the basis of changes in the Israeli
Consumer Price Index.
Part of the Company's investment in equipment has received approvals in
accordance with the Law for the Encouragement of Capital Investments, 1959
("approved enterprise" status). The Company has chosen to receive its benefits
through the "Alternative Benefits" track, and, as such, is eligible for various
benefits. These benefits include accelerated depreciation of fixed assets used
in the investment program, as well as a full tax exemption on undistributed
income in relation to income derived from the first plan for a period of 2 years
and for the second and third plans for a period of 4 years. Thereafter a reduced
tax rate of 25% will be applicable for an additional period of up to 5 years for
the first plan and 3 years for the second and third plans, commencing with the
date on which taxable income is first earned but not later than certain dates.
In the case of foreign investment of more than 25%, the tax benefits are
extended to 10 years, and in the case of foreign investment ranging from 49% to
100% the tax rate is reduced on a sliding scale to 10%. The benefits are subject
to the fulfillment of the conditions of the letter of approval. The benefit
periods of the second and third plans have not yet commenced. The regular tax
rate applicable to the Company is 36%.
49
In the event of distribution by the Company of a cash dividend out of
retained earnings which were tax exempt due to its approved enterprise status,
the Company would have to pay a 25% corporate tax on the income from which the
dividend was distributed. A 15% withholding tax may be deducted from dividends
distributed to the recipients.
Final tax assessments in Israel have been received up to and including the
1998 tax year.
The Company has net operating loss carryforwards in Israel of approximately
$11.6 million as of December 31, 2000. In addition losses of approximately $17.5
million are attributable to the U.S. subsidiary which will expire between 2008
and 2013. The UK subsidiary has carryforward tax losses of approximately $3.4
million as of December 31, 2000. The carryforward tax losses for Israel and the
UK have no expiration date.
The Company expects that during the period in which these tax losses are
utilized, its income would be substantially tax exempt. Accordingly there will
be no tax benefit available from such losses and no deferred income taxes have
been included in these financial statements. Deferred taxes in respect of other
temporary differences are immaterial.
NOTE 15 -- BALANCES AND TRANSACTIONS WITH RELATED PARTIES
On January 1, 1997, the Company transferred its "Nester" division to a
company under common control. The majority of the following balances and
transactions are with that affiliated company.
DECEMBER 31,
1999 2000
---- ----
(in thousands)
Balances:
Other Receivables (Accounts Payable) $ (139) $ 121
Loan from shareholder on demand $ 132 -
YEAR ENDED DECEMBER 31,
1998 1999 2000
---- ---- ----
(in thousands)
Transactions:
Management fee income from Nester $ 89 $ 48 $ 48
50
NOTE 16 - UNAUDITED CONSOLIDATED FINANCIAL DATA
The following table presents the quarterly information for fiscal 2000 and
1999:
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------------- ------------ ------------- --------------
--------------------------------------------------------
(in thousands except per share amounts)
(Unaudited)
2000
Net sales $ 3,511 $ 4,308 $ 4,789 $ 3,134
Gross margin $ 2,188 $ 2,934 $ 3,319 $ 1,873
Net Loss $(3,352) $(2,737) $(1,851) $(5,106)
- ----------------------------------------------------------------------------------------------------------------
Basic and diluted net loss per share: $ (0.17) $ (0.14) $ (0.07) $ (0.20)
Shares used in computing basic and
diluted net loss per share 19,502 20,266 24,699 24,928
Price per ordinary share - high N/A $ 7.375 $ 8.750 $ 3.656
Price per ordinary share - low N/A $ 5.813 $ 3.000 $ 1.750
1999
Net sales $ 2,029 $ 2,341 $ 2,759 $ 3,197
Gross margin $ 1,097 $ 1,372 $ 1,600 $ 1,887
Net Loss $(1,821) $(1,578) $(2,177) $(2,403)
Dividend Related to preferred shares - - - $(4,989)
Net loss attributed to ordinary
shareholders $(1,821) $(1,578) $(2,177) $(7,392)
- ----------------------------------------------------------------------------------------------------------------
Basic and diluted net loss per share $ (0.10) $ (0.09) $ (0.12) $ (0.13)
Basic and diluted net loss per share attributed to $ (0.10) $ (0.09) $ (0.12) $ (0.41)
ordinary shareholders
Shares used in computing basic and
Diluted net loss per share 17,617 17,617 17,617 17,922
Price per ordinary share - high N/A N/A N/A N/A
Price per ordinary share - low N/A N/A N/A N/A
The company's ordinary shares are traded on the NASDAQ. As of December 31,
2000, there were approximately 107 registered holders of ordinary shares.
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors - See the section entitled "Executive Officers and Directors" in
Part I, Item 1 hereof.
(b) Executive Officers - See the section entitled "Executive Officers and
Directors" in Part I, Item 1 hereof.
(c) Significant employees - None.
(d) Family relationships - None.
(e) Business experience - See the section entitled "Executive Officers and
Directors" in Part I, Item 1 hereof.
(f) Legal proceedings - See the section entitled "Legal Proceedings" in Part I,
Item 3 hereof.
(g) Promoters and control persons - None.
Section 16(a) Beneficial Ownership Reporting Compliance - Based solely on its
review of copies of filings under Section 16(a) of the Securities Exchange Act
of 1934, as amended, received by it, or written representations from certain
reporting persons, the Company believes that during the year ending December 31,
2000, all Section 16 filing requirements were met, with the following
exceptions:
51
* For Shimon Rojany, CFO, late filing of Form 4 for the month of June
2000 indicating a single indirect acquisition of 3,000 shares of
Company stock.
* For James Thanos, Director, late filing of Form 4 for the month of
June 2000 indicating a single direct acquisition of 5,000 shares of
Company stock.
* For Corey Leibow, COO, late filing of Form 3 due November 25, 2000.
* For Timothy Spence, VP of Business Affairs and Controller, late filing
of Form 3 due September 25, 2000.
* For Corey Leibow, COO, late filing of Form 5 due February 14, 2001.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION ARRANGEMENTS
We have entered into employment agreements with Dr. Moshe BenBassat, our Chief
Executive Officer, Shimon M. Rojany, our Chief Financial Officer, and Corey
Leibow, our Chief Operating Officer. The agreements provide that the executives'
employment relationships are "at-will" and may be terminated at any time by
either us or the executive with or without cause or notice. The agreements
provide that in the event the executive is terminated by us without cause, the
executive shall be entitled to severance payments (to be paid in a lump sum or
monthly at the executive's discretion) in amounts equal to twelve months of
annual base salary as of the date of termination for Dr. BenBassat, six months
of the annual base salary as of the date of termination for Mr. Rojany, and
three months of the annual base salary as of the date of termination for Mr.
Leibow. Dr. BenBassat is entitled to full acceleration of option vesting in the
event of a change in control, and Mr. Leibow is entitled to 50% vesting or 100%
vesting depending on the conditions of a change of control. The executive's
right to receive the benefits set forth above will immediately terminate if the
executive competes with us during the six or twelve months following termination
of employment with us.
COMPENSATION COMMITTEE
The Compensation Committee (the "Committee") is comprised of Mr. Eddie Shalev
and, prior to his resignation from the board of directors, Mr. Fredrick Harman.
Both have been independent, non-employee members of the Board of Directors. No
interlocking relationship exists between our board of directors or compensation
committee and the board of directors or compensation committee of any other
company, nor has such an interlocking relationship existed in the past. The
Committee is responsible for setting and administering the policies governing
annual compensation of executive officers, considers their performance and makes
recommendations regarding their cash compensation and stock options to the full
Board of Directors. As the Company only recently established the Committee in
connection with its initial public offering, there is a limited history; however
the Committee expects, pursuant to its charter, to periodically review the
approach to executive compensation and make changes as competitive conditions
and other circumstances warrant.
COMPENSATION PHILOSOPHY
In July 2000, the Company completed the initial public offering of its ordinary
shares. In reviewing the compensation for the upcoming fiscal year, the
Committee addressed two distinct areas in order to meet the needs of the Company
as it continues to grow and mature. The Committee recognizes that in order for
the Company to develop new products and scale the business, the ability to
attract, retain and reward executive officers who will be able to operate
effectively in a high growth complex environment is vital. In that regard, the
Company must offer compensation that (a) is competitive in the industry; (b)
motivates executive officers to achieve the Company's strategic business
objectives; and (c) aligns the interests of executive officers with the
long-term interests of stockholders.
The Company currently uses salary, a management incentive plan and stock options
to meet these requirements. For incentive-based compensation, the Committee
considers the desirability of structuring such compensation arrangements so as
to qualify for deductibility under Section 162(m) of the Internal Revenue Code.
As the Committee applies this compensation philosophy in determining appropriate
executive compensation levels and other compensation factors, the Committee
reaches its decisions with a view towards the Company's overall performance.
52
COMPENSATION
The following table sets forth all compensation received for services rendered
to the Company and the Company's subsidiaries in all capacities during the last
three years by (i) the Company's Chief Executive Officer and (ii) the Company's
four other most highly compensated executive officers (collectively, the "Named
Executive Officers"):
COMPENSATION TABLE
NAME
- ---- ANNUAL COMPENSATION LONG TERM COMPENSATION AWARDS
POSITION SECURITIES ALL OTHER
-------- OTHER ANNUAL UNDERLYING COMPENSATION
YEAR SALARY BONUS COMPENSATION OPTIONS ($)
---- ------ ----- ------------ ------- ---
Moshe BenBassat,
CEO
1998 67,418 - - - -
1999 178,989 189,112 - 720,000 -
2000 225,000 239,709 83,594 (1) - -
Shimon Rojany
CFO
1998 41,667 - - 30,000 -
1999 88,333 32,083 - 73,227 -
2000 185,833 68,083 4,362 (2) 30,000 -
Robert Spina (3)
VP Sales
1998 91,875 79,705 - 27,000 -
1999 83,916 66,484 - 21,000 -
2000 120,000 128,996 706 (2) 7,200 -
Ami Shpiro
President, European Operations
1998 116,396 18,703 3,009 (4) 6,000 -
1999 130,500 92,389 7,221 (4) 6,781 -
2000 130,500 83,692 6,528 (4) 18,000 -
David Schapiro
Sr. VP, Product Development
1998 96,201 7,650 21,400 (5) 90,000 -
1999 103,080 12,397 23,142 (5) 31,036 -
2000 131,858 14,714 29,006 (5) 30,000 -
- -----------------------------
(1) Other compensation to Dr. BenBassat includes $75,000 housing allowance.
(2) Executive disability insurance.
(3) Mr. Spina resigned effective December 31, 2000.
(4) Pension contributions.
(5) Contributions to employee benefit programs.
OPTION GRANTS IN YEAR 2000
The following table sets forth information concerning grants of stock options to
each of the Named Executive Officers during the year ended December 31, 2000.
All such options were granted under our various option plans approved during
2000, and generally vest over four years.
53
Number of % of Total
Shares Options Granted
Underlying to Employees in Exercise Price Expiration Grant Date Present
Options Granted 2000 ($/sh) Date Value (1)
--------------- ---- ------ ---- ---------
Moshe BenBassat - 0.00% - - -
Robert Spina (2) 7,200 0.71% $ 8.50 3/20/10 $ 3,432
Shimon Rojany 30,000 2.96% $ 8.50 3/20/10 $ 14,299
Ami Shpiro 18,000 1.77% $ 8.50 3/20/10 $ 10,469
David Schapiro 30,000 2.96% $ 8.50 3/20/10 $ 17,448
- ----------------------------
(1) Computed using the Black-Scholes option pricing model. Full vesting of
options is four years from grant date. Assumes the average expected life of the
option is 1.31 years, a volatility of 116%, an annual dividend yield of 0.0%,
and interest risk free interest rate of 5%.
(2) Mr. Spina resigned effective December 31, 2000.
AGGREGATE OPTION EXERCISES IN LAST YEAR AND YEAR-END OPTION VALUES
The following table sets forth certain information concerning options exercised
by the Named Executive Officers in year 2000, and exercisable and unexercisable
stock options held by each of the Named Executive Officers as of December 31,
2000.
Number of Securities Value of Unexercised
Underlying Unexercised Options In-the-Money Options at
Value as of December 31, 2000 December 31, 2000 (1)
Shares Acquired ----------------------------- -------------------------
on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
------------ ------------ ------------ ------------- ------------ -------------
Moshe BenBassat 205,608 $574,640.57 75,372 439,020 $ - $ -
Robert Spina (2) 23,249 $ 69,097.77 1,563 - $ 1,714 $ -
Shimon Rojany 36,920 $130,724.31 15,942 77,365 $ 31,199 $45,726
Ami Shpiro - $ - 23,527 30,735 $ 20,165 $20,447
David Schapiro - $ - 136,963 121,036 $159,794 $98,453
- ----------------------------
(1) Based upon the Closing Price of the ordinary shares on December 29, 2000 of
$1.75 less the exercise price per share.
(2) Mr. Spina resigned effective December 31, 2000.
COMPARISON OF TOTAL CUMULATIVE STOCKHOLDER RETURN
The following graph compares the quarterly share price of the Company's ordinary
shares with the index return of the NASDAQ National Market Index and with the
NASDAQ Index of Computer Stocks for the period from June 23, 2000 (the date on
which the Company's ordinary shares began trading on the NASDAQ) through
December 31, 2000. The Company has paid no dividends on its Ordinary shares.
Historical stock price performance should not be relied upon as indicative of
future stock price performance:
54
6/23/00 6/30/00 9/29/00 12/29/00
------- ------- ------ --------
CKSW 0% -5% -46% -76%
NASDX 0% 2% - 3% -36%
NASD:COMPUTER 0% 3% - 6% -43%
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
OWNERSHIP OF ORDINARY SHARES
The following table sets forth information with respect to the beneficial
ownership of our ordinary shares as of December 31, 2000 for:
* each of our Named Executive Officers;
* each of our directors;
* each person or group known by us to beneficially own more than 5% of our
outstanding ordinary shares; and
* all of our executive officers and directors as a group.
Beneficial ownership of ordinary shares is determined in accordance with the
rules of the Securities and Exchange Commission and generally includes any
ordinary shares over which a person exercises sole or shared voting or
investment powers, or of which a person has a right to acquire ownership at any
time within 60 days of December 31, 2000. Except as otherwise indicated, and
subject to applicable community property laws, the persons named in this table
have sole voting and investment power with respect to all ordinary shares held
by them. Applicable percentage ownership in the following table is based on
26,064,539 shares outstanding as of December 31, 2000.
Unless otherwise indicated below, the address of each of the principal
shareholders is c/o ClickSoftware Technologies Ltd., 34 Habarzel Street, Tel
Aviv, Israel.
ORDINARY SHARES
BENEFICIALLY OWNED
NAME AND ADDRESS NUMBER PERCENTAGE
- ---------------- ------ ----------
NAMED EXECUTIVE OFFICERS AND DIRECTORS
Moshe BenBassat(1) 4,812,874 18.39%
Shimon Rojany (2) 341,063 1.31%
David Schapiro(3) 157,296 0.60%
Ami Shpiro(4) 194,924 0.75%
Robert Spina (5) 24,812 0.10%
Israel Borovich(6) 8,750 0.03%
Nathan Gantcher 50,000 0.19%
Roni Einav - -
James W. Thanos 5,000 0.02%
Eddy Shalev 2,871,270 11.02%
SHAREHOLDERS
Worldview Technology International I, L.P. ("WVTI I") 745,612 2.9%
Worldview Technology Partners I, L.P. ("WVTP I") 1,913,029 7.3%
Worldview Strategic Partners I, L.P. ("WVSP I") 164,780 0.6%
------------- ---------------
Total, Entities associates with Worldview 2,823,421 10.8%
435 Tasso Street, Suite 120
Palo Alto, CA 94301
Entities affiliated with Genesis Partners 2,871,270 11.0%
50 Dizengoff Street
Tel-Aviv 64332, Israel
Entities affiliated with Oak Investments Partners 4,724,027 18.1%
525 University Avenue, Suite 1300
Palo Alto, CA 94301
Meritech Capital Associates LLC 1,828,629 7.0%
90 Middlefield Road, Suite 201
Menlo Park, CA 94025
Liberty Wanger Asset Management 1,660,000 6.4%
227 West Monroe Street, Suite 3000
Chicago, IL 60606-5016
All executive officers and directors as a group (14 persons) 8,727,274 33.39%
- ---------------------
(1) Includes 2,246,887 shares held by Dr. BenBassat's spouse, Idit BenBassat. Also includes options to purchase 110,490
ordinary shares.
(2) Includes options to purchase 12,448 Ordinary Shares exercisable within 60 days of March 31, 2000 held by Mr. Rojany.
(3) Includes options to purchase 145,296 Ordinary Shares exercisable within 60 days of March 31, 2000 held by Mr. Schapiro.
(4) Includes options to purchase 24,516 Ordinary Shares exercisable within 60 days of March 31, 2000 held by Mr. Shpiro.
(5) Includes options to purchase 1,563 Ordinary Shares exercisable within 60 days of March 31, 2000 held by Mr. Spina. Mr.
Spina resigned effective December 31, 2000.
(6) Includes options to purchase 6,250 Ordinary Shares exercisable within 60 days of March 31, 2000 held by Borovich.
55
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fiscal year ended December 31, 2000, members of the board of
directors and executive officers of the Company received grants of options for
the Company's ordinary shares as set forth under "Item 11 - Executive
Compensation".
56
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
3.1* Articles of Association of ClickSoftware Technologies Ltd.
4.1* Specimen of Ordinary Share Certificate
4.2* Fourth Amended and Restated Registration Rights Agreement, dated December 15, 1999
10.1* Form of 2000 Share Option Plan
10.2* Form of 2000 Employee Share Purchase Plan
10.3* Employment Agreement between ClickSoftware Technologies Ltd.
and Moshe Ben-Bassat
10.4* Employment Agreement between ClickSoftware Technologies Ltd. and Shimon Rojany
10.5* Form of Indemnification Agreement
10.6* Form of 1996 Option Plan
10.7* Form of 1997 Option Plan
10.8* Form of 1998 Option Plan
10.9* Form of 1999 Option Plan
10.10* Form of 1999 Option Plan
10.11* Form of 2000 U.S. Option Plan
10.12* Form of 2000 Israeli Plan
10.13* Form of 2000 Unapproved U.K. Share Scheme
10.14* Form of 2000 Approved U.K. Share Scheme
10.15 Employment Agreement between ClickSoftware Technologies Ltd. and Corey Leibow
21.1* Subsidiaries of the Registrant
23.1 Consent of Luboshitz Kasierer, a member firm of Arthur Andersen
24.1 Powers of Attorney
- -------------------------
* Incorporated by reference from the Registrant's Registration Statement on Form S-1 (file no. 333-30274), as amended.
(b) REPORTS ON FORM 8-K:
None.
57
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized, in Campbell, California, on March 30,
2001.
CLICKSOFTWARE TECHNOLOGIES LTD.
By: /s/ Shimon M. Rojany
----------------------------
Shimon M. Rojany
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this report has been
signed by the following persons on behalf of the Registrant in the capacities
and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- -------
/s/ Moshe BenBassat Chief Executive Officer and March 30, 2001
- --------------------------- Chairman of the Board of Directors
Moshe BenBassat (Principal Executive Officer)
/s/ Shimon M. Rojany Chief Financial Officer March 30, 2001
- --------------------------- (Principal Financial and Accounting
Shimon M. Rojany Officer)
/s/ Roni Einav Director March 30, 2001
- ---------------------------
Roni Einav
/s/ Dr. Israel Borovich Director March 30, 2001
- ---------------------------
Dr. Israel Borovich
/s/ Nathan Gantcher Director March 30, 2001
- ---------------------------
Nathan Gantcher
/s/ Eddy Shalev Director March 30, 2001
- ---------------------------
Eddy Shalev
/s/ James W. Thanos Director March 30, 2001
- ---------------------------
James W. Thanos
58