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, 2001
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ---- EXCHANGE ACT OF 1934
For the transition period from ----------------- to -----------------
Commission file number 0-30827
- --------------------------------------------------------------------------------
CLICKSOFTWARE TECHNOLOGIES LTD.
(Exact name of registrant as specified in its charter)
Israel Not Applicable
- --------------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
34 Habarzel Street
Tel Aviv, Israel 69710
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 972-3) 765-9400
----------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Ordinary Shares, NIS 0.02 par value
-----------------------------------
(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
---- ----
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.
----
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
15, 2002, as reported by the Nasdaq National Market, was approximately
$9,379,225. 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.
As of March 15, 2002, there were approximately 26,251,964 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 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.
None.
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TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business.................................................... 4
Item 2. Properties.................................................. 14
Item 3. Legal Proceedings........................................... 14
Item 4. Submission of Matters to a Vote of Security Holders......... 14
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 14
Item 6. Selected Consolidated Financial Data........................ 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 17
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 32
Item 8. Financial Statements........................................ 34
Item 9. Changes In and Disagreement With Accountants on Accounting
and Financial Disclosure.................................... 52
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 52
Item 11. Executive Compensation...................................... 53
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 56
Item 13. Certain Relationships and Related Transactions.............. 57
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 58
SIGNATURES................................................................ 59
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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 our judgment 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. We undertake 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., a wholly-owned subsidiary
incorporated in the United Kingdom, ClickSoftware Europe, Limited and a
wholly-owned subsidiary in Belgium, ClickSoftware Belgium, N.V. On January 21,
2002 our U.S. subsidiary incorporated a wholly owned subsidiary in Australia,
ClickSoftware Australia Pty 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.
PRODUCTS
We provide solutions for end-to-end service chain optimization that maximize
revenue and customer responsiveness while minimizing costs. Our Service
Optimization suite includes strategic and tactical workforce planning, optimized
service scheduling, intelligent problem resolution, wireless workforce
management, and business analytics, connecting all organizational levels and all
functions from executive strategy to operational execution.
Our service optimization solutions are utilized by leading service organizations
in several service industry segments including: telecommunications, computer and
office equipment, industrial equipment, medical equipment, building automation,
utilities, financial services, aerospace & defense, and home services.
ClickSoftware's solutions deliver rapid improvements in:
* field workforce productivity
* responsiveness to customers
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* quality of service delivered
* profitability of the service operation
* reduction in missed customer commitments
We have achieved our leadership in service chain optimization through years of
experience in a variety of service operations. The result is a highly advanced
technology with the flexibility to model and accommodate varying business types
and processes. The ease with which it can be integrated with leading customer
relationship management (CRM) and enterprise resource planning (ERP) solutions,
often with standard interface adaptors, enables ClickSoftware customers to
accelerate the deployment of the solution.
SERVICE OPTIMIZATION SUITE OF PRODUCTS
Our solution provides an end-to-end solution for improving the efficiency and
effectiveness of service operations. All of our products utilize an advanced
optimization engine to drive decisions within service organizations based on
common business goals and policies from the CEO to the field technician. Our
Service Optimization suite includes:
CLICKPLAN provides interactive and automated workforce planning for optimal
staffing and deployment of the field workforce based on forecasted workload.
ClickPlan enables service organizations to resolve workforce shortages and
surpluses weeks and months in advance. Comparing available resources to
forecasted workloads, ClickPlan determines the best strategy to ensure the right
people are in the right place, at the right time.
CLICKSCHEDULE provides optimized service scheduling and routing for maximizing
workforce productivity and customer loyalty by balancing customer, resource, and
organizational preferences including contractual commitments, priority, drive
time, skills, and resource availability. Easy configuration, very high
scalability and use of standard eXtensible Markup Language (XML) interfaces
enable seamless integration with enterprise systems and rapid deployment
according to organizational business policies and processes.
CLICKFIX provides intelligent diagnostics and problem resolution for minimizing
service costs while increasing customer loyalty. ClickFix enables faster
resolution of customer issues at every level of service contact, from the call
center to the field. Based on an intelligent engine that utilizes specific
knowledge about customers' equipment, ClickFix quickly and accurately diagnoses
and resolves problems independent of the user's skills, experience, and
knowledge. Accessibility via the Web empowers customers to resolve problems
themselves at any time of day, and often without a resource, requiring fewer
onsite visits.
CLICKMOBILE provides wireless workforce management for monitoring field
workforce activities and reducing the labor of dispatching. ClickMobile enables
instant, automatic job detail notification from the field and allows for field
updates even when resources are out of wireless coverage. Assignments created in
ClickSchedule are dispatched to field devices based on configurable workflows
while enabling real-time visibility into workforce activity including job
status, start, and end time.
CLICKANALYZE provides service business analytics for workforce performance
measurement and strategic decision support. ClickAnalyze enables drill-down
analysis of key performance indicators including resource productivity,
operational costs, and responsiveness to customers. Integrated within the
Service Optimization suite, ClickAnalyze provides executive level summaries as
well as detailed analysis by territory, job type, time frame and other criteria.
SERVICEMARKETPLACE provides inter-enterprise service optimization for
streamlining communication with service contractors and subsidiaries.
ServiceMarketPlace overcomes organizational boundaries, enabling immediate and
reliable customer commitments via automated and Internet-based communication.
Contractors can be scheduled based on capacity, skills, coverage and other
configurable criteria. Control over service delivery for contracted work is
further improved with online monitoring and performance measurement.
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TECHNOLOGY
The Service Optimization suite utilizes a foundation of core technologies that
we developed over a period of more than 10 years in the service industry.
Originally brought to market as W-6 Service Scheduler and TechMate, these
technologies include sophisticated algorithms and business process
representation tools. Our research and development personnel have been working
on service optimization technology solutions since 1985, including algorithmic
software solutions, system integration and implementations. The Service
Optimization suite, with its unique depth and breadth, reflects our experience
and investment into the complex optimization and decision support
troubleshooting needs of service organizations.
Analogous to, but more complex than the supply chain, the service chain involves
far more variables and challenges including the scheduling of personnel with
varying skills in different locations to simple and complex tasks. All of these
variables must be considered in constantly changing conditions to meet the fast
pace typical of service-level and profit driven organizations.
Our applications are standards-based, facilitating rapid integration with
related Customer Relationship Management (CRM), Enterprise Resource Planning
(ERP) or supply chain functions. Service Optimization client applications run on
standard web browsers and Windows-based computers. The application server
supports leading database management systems, including Oracle (Windows and
non-Windows) and Microsoft SQL Server. The stateless server architecture of
Service Optimization enables web-based applications to work effectively through
local and wide area networks, over standard Internet communication protocols.
Scalable enough to meet the demands of the world's largest service
organizations, Service Optimization delivers inherent scalability based on a
dynamic load balancing architecture that uses thin clients, a stateless server
model, multi-threaded application servers and relational databases.
our proprietary optimization algorithms provide efficient solutions for complex
problems arising from, among others, the following:
* the vast number of possible solutions for evaluation when optimizing
the scheduling of personnel;
* the number of service organization-specific resources and variables
including skills, availability, location, customer preference,
workload balancing, contractual commitments, employee preferences,
customer priority, and others;
* the need to instantly respond to concurrent users' service requests in
a highly dynamic decision-making environment;
* the vast number of potential routes within a specific geographic area,
each having an impact on the cost of service; and
* various time zone considerations in large service organizations.
Service Optimization also includes sophisticated service business scenario
modeling power. We have developed models based on a vast number of variables and
resource characteristics common to service organizations. By employing these
models, Service Optimization addresses the market needs of different segments of
the service industry and broadens the customer base for our products.
Service Optimization incorporates several critical technologies to provide
intelligent decision support in a scalable and open architecture:
* Application software and web servers capable of performing high-speed
optimization, problem resolution, and Internet access to the
application host system; and
* Application Programming Interfaces (APIs) based on eXtensible Markup
Language (XML), enable other application to integrate and access
Service Optimization data and services without additional training or
applications for users to adopt.
our optimization merges mathematical disciplines and experience with real-life
service operations. The result is a powerful algorithm that combines the best
traits of several optimization disciplines including adaptive learning, genetic
algorithms, taboo search, and geographic clustering. Our optimization overcomes
the challenge of a vast number of possible schedules by first rapidly
identifying all feasible schedules, and then selecting the best schedules. The
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best schedule is selected by evaluating each feasible schedule by weighted cost
of service, job revenue, and customer satisfaction to create a business value
for the schedule. The business value is then used to compare the quality of all
schedules, constantly maintaining an optimized schedule. ClickFix's diagnostic
and problem resolution engine includes algorithms for fast problem resolution
based on equipment design and field knowledge, a knowledge base with
self-learning capabilities, and an intelligent component that creates new
trouble shooting solutions based on modeling both equipment structure and
historic data.
Our development methodology is based on techniques that facilitate development
of components that can be incorporated in future products. This methodology
enables us to reduce the time required to introduce functional enhancements and
new products. The development methodology involves direct analysis of customers'
business requirements, software module design to meet these requirements,
software development and coding, testing, and quality assurance. Our research
and development group and their processes are ISO 9001 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.
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.
7
SALES AND MARKETING
We market and sell our products primarily through our direct sales force, which
is located in North America, Europe, the Asia Pacific region and Africa. Our
multidisciplinary 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, email campaigns, web seminars
with our customers and industry analysts, a newsletter and advertising creation
and placement, direct mailings and trade shows. As of December 31, 2001, we
employed over 51 individuals in our sales and marketing department.
Our business development organization 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 ERP companies and
CRM vendors. We participate in joint sales efforts. A partial list of these
vendors includes Amdocs Limited/Clarify, JD Edwards & Company, PeopleSoft
Inc./Vantive, SAP AG, and Siebel Systems, Inc.
We have also established relationships with large System Integrator (SI)
organizations such as Accenture, Anderson Consulting, PriceWaterhouseCoopers,
Deloitte Consulting, Logica SA/NV, KPMG Consulting, Inc. and Computer Sciences
Corporation. These partners have committed various levels of resources to
integrate, customize and implement our solutions. Depending on the strength of
the relationship, we have co-invested in training and certifying their
professional services teams, developed co-marketing programs, and incorporated
our products into their marketing/referral strategies.
We also have a focused reseller program. Our formal reseller agreements
generally provide the parties with the right to use each other's name in
marketing and advertising materials, and to conduct joint marketing programs.
These agreements are generally for a one-year period and are automatically
renewable. We provide sales materials and training to resellers on the
marketing, selling and implementation of our software solutions. A sampling of
these partners includes: i2 Technologies, Inc., Metrix, Inc., AST, Planwell Pty.
Limited and Axiom Corporation. We believe these relationships will extend our
presence and brand name in new and existing markets.
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 $500,000 of
product and/or service revenues for 2001 and, as a group, these clients
accounted for approximately 41% of our total revenues for 2001:
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Expanets Inc.
London Electricity plc
NRC Benelux B.V. (Nashuatec)
Philips Medical Systems Nederland B.V.
Siemens Building Technologies AG
Telekom Austria AG
Telstra Corporation
One customer accounted for greater than 10% of revenues during the year ended
December 31, 2001.
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, capacity planning and
monitoring, schedule optimization and installations scheduling, and continuing
to enhance the scalability of our products, and in continuing the development of
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 $4.4 million
for the year ended December 31, 2001, $5.4 million for the year ended December
31, 2000, and $3.9 million for the year ended December 31, 1999. As of December
31, 2001, we employed 41 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.
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.
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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 broad 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 own a U.S. trademark registration for the mark AITEST, and have filed
applications for registration of the marks CLICKANALYZE, CLICKPLAN,
CLICKFORECAST, CLICKSCHEDULE, and CLICKFIX. In the European Union, we have
recently obtained registrations for CLICKFIX and CLICKSCHEDULE, and have pending
applications for registration of CLICKANALYZE, CLICKFORECAST, and CLICKPLAN.
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.
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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, and 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, 2001, we had 157 full-time employees, 41 engaged in research
and development, 51 in sales, marketing and business development, 37 in
professional services and technical support and 28 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.
80 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 $202,000 in 1999, $562,000 in 2000, and
$266,000 in the year 2001.
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.
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EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and certain information about them as of
March 15, 2002 are as follows:
Name Age Position
- ----- --- ----------
Dr. Moshe BenBassat 54 Chief Executive Officer and Chairman of the Board
Shimon M. Rojany 54 Senior Vice President and Chief Financial Officer
Corey Leibow 47 Chief Operating Officer
David Schapiro 43 Executive Vice President, Markets & Products
Hannan Carmeli 43 Senior Vice President, Product Services and Operations
Amit Bendov 37 Senior Vice President, Product Marketing
Roni A. Einav 57 Director
Dr. Israel Borovich 60 Director
Nathan Gantcher 61 Director
Eddy Shalev 54 Director
James W. Thanos 53 Director
Janet Schinderman 50 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. Mr.
Rojany 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
Business Development & Professional Services for Ajuba Solutions. Beginning in
1995, Mr. Leibow was the Vice President of World Wide Sales Operations 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 our Executive Vice President of Markets and
Products since April 2001. Prior to this role and since 1999, he held various
executive roles in our product development group, including Senior Vice
President of Product Development. 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 to 1996, Mr. Schapiro 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.
HANNAN CARMELI has served as our Senior Vice President, Worldwide Professional
Services since January 2001. From August 1996 to December 2000, Mr. Carmeli held
various executive roles including General Manager of the TechMate Division as
well as Manager of Product Services and Operations. Prior to joining us, Mr.
Carmeli held R&D and field positions with software vendors ranging from software
development through product management and sales management. Mr. Carmeli holds a
Bachelor of Science degree from the Technion Institute and a Master of Science
degree in Computer Science from Boston University.
12
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 A. EINAV has served as a director of ClickSoftware since April 2000. From
1983 to April 1999, Mr. Einav founded and served as Chairman of the Board of
Directors and president of New Dimension Software, Ltd., a systems software
company, subsequently acquired by BMC Software. Mr. Einav has also played a role
in founding other Israeli high-tech companies, including Liraz Computers,
Jacada, UDS-Ultimate Distribution Systems, XciTel, CePost, CeDimension, ComDa
and Einav Systems. Mr. Einav was 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 and CEO 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., Dr. Borovich serves as a chairman of
Granit Hacarmel Investments, Ltd., Sonol Israel, Ltd., and Ayalon Highways
(Israel) Ltd. Dr. Borovich is a full professor at the Faculty of Management, Tel
Aviv University. Dr. Borovich holds Bachelor of Science, Master of Science and a
PhD. in Industrial Engineering from the Polytechnic Institute in Brooklyn.
NATHAN GANTCHER has served as a director of ClickSoftware since April 2000.
Since January 2002, Mr. Gantcher has served as Co-Chairman, President and CEO of
Alpha Investment management LLC. 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. Since April 1997, Mr. Shalev has also served as a director of
Fundtech Corp. and other publicly traded high tech companies. Mr. Shalev is the
Managing General Partner of Genesis Partners. 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.
JANET SCHINDERMAN has served as a director of ClickSoftware since August 2001.
Ms. Schinderman has served as associate dean for special projects and secretary
to the Board of Overseers at Columbia Business School of Columbia University
since 1990. Ms. Schinderman serves on the Board of Directors of four CIBC World
Markets mutual funds, the Columbia University Knight-Bagehot Business Journalist
Board of Advisors and the Department of Education's Center for International
Business Education and Research (CIBER) operating committee. Ms. Schinderman
holds a Bachelor of Arts degree from Newcomb College of Tulane University and a
Masters of Business Administration degree from Tulane University.
13
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
We have 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
2,700 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.
Anticipated minimum net rents for these facilities are approximately $1.3
million for the twelve months ending December 31, 2002, $1.3 million for 2003,
$1.2 million for 2004 and $985,000 for 2005.
ITEM 3. LEGAL PROCEEDINGS
We are not currently involved in any material legal proceedings.
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:
Fiscal year ended December 31, 2001 HIGH LOW
- ----------------------------------- ---- ---
First Quarter $ 2.72 $ 0.75
Second Quarter $ 1.43 $ 0.56
Third Quarter $ 1.82 $ 0.70
Fourth Quarter $ 1.47 $ 0.82
Fiscal year ended December 31, 2000
- -----------------------------------
Second Quarter (from June 22, 2000) $ 7.38 $ 5.81
Third Quarter $ 8.75 $ 3.00
Fourth Quarter $ 3.66 $ 1.75
As of March 4, 2002, there were 1,148 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, we commenced an initial public offering of our 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 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 and incurred other expenses of approximately $1.8 million.
14
As of December 31, 2001, we have used a portion of the aggregate net proceeds of
$28.3 million from our initial public offering of ordinary shares for the
following purposes:
* approximately $8 million to expand our international operations
including infrastructure and sales and marketing expenses;
* approximately $7.6 million to expand our domestic operations by hiring
additional employees, leasing additional office space and expanding
our infrastructure; and
* approximately $3.9 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
directors, officers, or general partners or their associates, or to persons
owning 10% or more of any class of our equity securities, or any of our
affiliates.
We have invested the net proceeds of the offering in interest-bearing short-term
investments or bank deposits.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The selected consolidated statement of operations data for the years ended
December 31, 1997, 1998, 1999, 2000 and 2001, and the selected consolidated
balance sheet data as of December 31, 1997, 1998, 1999, 2000 and 2001 have been
derived from our audited financial statements. The consolidated statements of
operations data for the years ended December 31, 1997,1998 and 1999 and the
selected consolidated balance sheet data as of December 31, 1997 and 1998 are
derived from audited consolidated financial statements that are not included
herein. 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.
15
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
YEAR ENDED DECEMBER 31,
------------ ------------ ------------- ------------- --------------
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
(in thousands except share and per share data)
Revenues:
Software license $1,235 $3,932 $5,414 $ 10,500 $ 11,676
Service and maintenance 1,080 2,139 4,912 5,242 6,528
------------ ------------ ------------- ------------- --------------
Total Revenues 2,315 6,071 10,326 15,742 18,204
------------ ------------ ------------- ------------- --------------
Cost of Revenues:
Software License 13 25 71 272 352
Service and Maintenance 1,035 2,301 4,299 5,156 5,418
------------ ------------ ------------- ------------- --------------
Total cost of revenues 1,048 2,326 4,370 5,428 5,770
------------ ------------ ------------- ------------- --------------
Gross Profit 1,267 3,745 5,956 10,314 12,434
Operating Expenses:
Research and Development
expenses, net 1,339 2,284 2,910 4,300 3,246
Sales and Marketing expenses 3,172 6,019 8,274 14,106 13,391
General and Administrative 1,120 1,333 1,759 4,397 4,854
Expenses
Reorganization expenses - - - - 294
Share based Compensation - - 738 1,237 437
------------ ------------ ------------- ------------- --------------
Total Operating Expenses 5,631 9,636 13,681 24,040 22,222
Loss from Operations (4,364) (5,891) (7,725) (13,726) (9,788)
Interest and other income(expenses), net
(148) 33 (254) 680 649
------------ ------------ ------------- ------------- --------------
Net Loss $(4,512) $(5,858) $(7,979) $(13,046) $(9,139)
Dividend related to convertible
preferred shares - - (4,989) - -
------------ ------------ ------------- ------------- --------------
Net loss attributable to ordinary
shareholders $(4,512) $(5,858) $(12,968) $(13,046) $(9,139)
------------ ------------ ------------- ------------- --------------
Basic and diluted net loss per ordinary $(0.80) $(0.99) $(2.18) $(0.58) $(0.36)
share
Shares used in computing basic and
diluted net loss per share 5,657,728 5,914,735 5,948,816 22,312,554 25,098,321
CONSOLIDATED BALANCE SHEET DATA:
DECEMBER 31,
----------------------------------------------------------------
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
(in thousands)
Cash and cash equivalents $ 301 $ 3,770 $ 7,838 $ 4,438 $ 8,125
Short-term Investments - - - 16,878 1,846
Working capital (604) 4,178 8,007 23,610 15,272
Total assets 2,604 7,983 14,195 31,455 22,367
Long-term liabilities, net of current portion
1,530 1,254 1,112 1,446 1,400
Shareholders' equity (net capital
deficiency) (3,177) 4,657 8,821 26,462 17,974
16
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.
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.
17
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 income (expenses) include 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, 1999, 2000 and 2001 were immaterial.
Our tax rate will mainly reflect a mix of the U.S. statutory tax rate on our
U.S. income, the U.K statutory tax rate on our U.K income, the Belgium statutory
tax rate on our Belgium 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 that
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.
CRITICAL ACCOUNTING POLICIES
The Company's critical accounting policies, including the assumptions and
judgments underlying them, are disclosed in the Notes to the Consolidated
Financial Statements. These policies have been consistently applied in all
material respects and address such matters as revenue recognition, including
assessing clients' credit worthiness. While the estimates and judgments
associated with the application of these policies may be affected by different
assumptions or conditions, the Company believes the estimates and judgments
associated with the reported amounts are appropriate in the circumstances.
RESULTS OF OPERATIONS
FISCAL YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
REVENUES. Revenues increased $2.5 million or 16% to $18.2 million in 2001, from
$15.7 million in 2000. In 2000, revenues increased $5.4 million or 52% to $15.7
million from $10.3 million in 1999. In 2001, 44% of our revenues were generated
in North America, 37% in Europe, 2% in Israel and 17% in all other geographic
18
locations ("Asia Pacific and Africa"). In 2000, 62% of our revenues were
generated in North America, 32% in Europe, 3% in Israel and 3% in Asia Pacific
and Africa. In 1999, 67% of our revenues were generated in North America, 21% in
Europe, 9% in Israel and 3% in Asia Pacific and Africa. The increase in
percentage of revenues from Europe and the Asia Pacific region is largely
attributable to an increase in sales by our European subsidiary to customers in
Europe as well as expansion of our sales effort in Europe and the Asian Pacific
region.
SOFTWARE LICENSE. Software license revenues were $11.7 million or 64% of
revenues in 2001, $10.5 million or 67% of revenues in 2000, and $5.4 million or
52% of revenues in 1999. 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 $6.5 million or
36% of revenues in 2001, $5.2 million or 33% of revenues in 2000, and $4.9
million or 48% of revenues in 1999. The increase in service and maintenance
revenues from 2000 to 2001 is primarily due to the increase in the sale of
software licenses. 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.
COST OF REVENUES. Cost of revenues were $5.8 million or 32% of revenues in 2001,
$5.4 million or 35% of revenues in 2000, and $4.4 million or 42% of revenues in
1999. 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 68% in 2001 as compared to 66% in 2000
and 58% in 1999. The change in gross profit percentages are primarily due to
both an increase in high margin software license revenues, as well as the
improved productivity of our professional services personnel.
COST OF SOFTWARE LICENSES. Cost of software license revenues were $352,000 in
2001, $272,000 in 2000 and $71,000 in 1999. Cost of software license revenues
were less than 2% of revenues in 2001 and 2000 and less than 1% of revenues in
1999.
COST OF SERVICE AND MAINTENANCE. Cost of service and maintenance revenues were
$5.4 million or 30% of revenues in 2001, $5.2 million or 33% of revenues in
2000, and $4.3 million or 42% of revenues in 1999. Cost of service and
maintenance increased by 5% from 2000 to 2001 while service and maintenance
revenues increased by 25% during the same period. This is directly attributed to
the increased service and maintenance productivity and the release of
CLICKSCHEDULE FAST TRACK which offers a more rapid implementation of
CLICKSCHEDULE reducing the cost of implementation. 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 total number of
professional services employees employed by us was 37 on December 31, 2001, 44
on December 31, 2000, and 35 on December 31, 1999.
OPERATING EXPENSES. Total operating expenses were $22.2 million or 122% of
revenues in 2001, $24.0 million or 153% of revenues in 2000, and $13.7 million
or 132% of revenues in 1999.
RESEARCH AND DEVELOPMENT EXPENSES, NET. Research and development expenses, net
of related grants, were $3.2 million or 18% of revenues in 2001, $4.3 million or
27% of revenues in 2000, and $2.9 million or 28% of revenues in 1999. We
received or accrued grants from the Chief Scientist in the amount of $1.2
million in 2001, $1.1 million in 2000, and $1.0 million in 1999. The decrease in
research and development expenses from 2000 to 2001 is directly attributed to
the high costs associated with the introduction of the full optimization suite
in 2000. The increase in research and development expenses on an absolute basis
from 1999 to 2000 was primarily due to an increase of personnel related costs
related to improvements of our CLICKSCHEDULE and CLICKFIX product lines and
19
development of CLICKPLAN and CLICKANALYZE as part of our introduction of a
complete suite of service optimization management products.
SALES AND MARKETING EXPENSES. Sales and marketing expenses were $ 13.4 million
or 74% of revenues in 2001, $14.1 million or 90% of revenues in 2000, and $8.3
million or 80% of revenues in 1999. The decrease in 2001 is attributed primarily
to cost reductions in our North American operations and overall cost controls.
Personnel related costs decreased $0.5 million, and other expenses decreased
$0.2 million from 2000 to 2001. 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. 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 51 on December 31,
2001, 71 on December 31, 2000, and 44 on December 31, 1999.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses were
$4.9 million or 27% of revenues in 2001, $4.4 million or 28% of revenues in
2000, and $1.8 million or 17% of revenues in 1999. General and administrative
expenses included $2.0 million in bad debt charges in 2001, $1.1 million in
2000, and $0.1 million in 1999. 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.
SHARE BASED COMPENSATION. Share based compensation for the year ended December
31, 2001 amounted to $0.4 million. Deferred compensation as of December 31, 2001
amounted to $0.4 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, 2000 amounted to $1.2 million. Deferred compensation at
December 31, 2000 amounted to $1.1 million. Share based compensation for the
year ended December 31, 1999 amounted to $0.7 million. Deferred compensation as
of December 31, 1999 amounted to $2.7 million.
REORGANIZATION COSTS. Reorganization costs were $0.3 million or 2% of revenues
in 2001. These expenses were primarily costs associated with severance payments
to terminated employees. There were no reorganization costs in 2000 and 1999.
INTEREST AND OTHER INCOME (EXPENSES), NET. Interest income net of interest
expenses, were $0.6 million or 4% of revenues in 2001, $0.7 million or 4% of
revenues in 2000, and ($0.3) million or 2% of revenues in 1999.
INCOME TAXES. As of December 31, 2001, we had approximately $12.9 million of
Israeli net operating loss carryforwards, approximately $23.9 million of U.S.
federal net operating loss carryforwards and approximately $5.7 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 through 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, 2001 we had cash and cash equivalents of $8.1 million and
short- term investments of $1.9 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.
20
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, 2001, cash used in operations was $10.5 million, comprised of our
net loss of $9.1 million, an increase in trade receivables of $2.2 million,
increase in other receivables of $0.2 million, decrease in accounts payable of
$0.5 million, decrease in deferred revenue of $0.1 million, partially offset by
non-cash charges of $1.6 million. For the year ended December 31, 2000, cash
used in operations was $13.0 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
Net cash provided by investing activities was $14.0 million in 2001, of which
$14.6 million was provided by investment in short-term investments and $0.6
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 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 was $0.7 million, which was primarily invested in leasehold
improvements and purchases of equipment and systems, including computer
equipment and fixtures and furniture.
There were no material financing activities in 2001. Net cash provided by
financing activities was $29.1 million in 2000 and $11.3 million in 1999. In
June 2000, we 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 us from the offering were approximately
$28.3 million (net of underwriters discount and issuance expenses). Net cash
from financing activities during 1999 included proceeds from the issuance of
preferred shares of $11.4 million.
As of December 31, 2001 we had outstanding trade receivables of approximately
$6.6 million which represented approximately 36% of 2001 total revenues. 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 $5.4 million related to research and
development. As of December 31, 2001, we have paid or accrued royalties related
to these funds in the amount of $1.9 million. See Note 12 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, 2001.
We also have an aggregate of $161,000 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 bearing an average interest
rate of 5.5% are in British Pounds or in US Dollars.
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 $921,000 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.
21
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.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards (SFAS) No. 141, "Business Combinations", and SFAS
No. 142, "Goodwill and Other Intangible Assets". The new rules require business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method of accounting and goodwill acquired after this date will no
longer be amortized, but will be subject to annual impairment tests. All other
intangible assets will continue to be amortized over their estimated useful
lives. Companies are required to adopt SFAS No. 142 for fiscal years beginning
after December 15, 2001. We did not complete any business combinations through
the year ended December 31, 2001, and as a result these standards are not
expected to have a material impact on our financial position or operating
results.
In August 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets ("SFAS 144"). Although SFAS 144
supersedes FASB Statement No. 121, it retains the requirements of SFAS 121
regarding recognition of impairment loss for long-lived assets to be held and
used (based on undiscounted cash flows) and resolves certain implementation
issues. Also, the accounting model used in SFAS 121 for long-lived assets to be
disposed of by sale (lower of carrying amount or fair value less cost to sell)
is broadened by SFAS 144 to include discontinued operations and supersedes APB
Opinion No. 30. Therefore, discontinued operations will no longer be measured on
a net realizable value basis and future operating losses will no longer be
recognized before they occur. SFAS 144 also broadens the presentation of
discontinued operations to include a component of an entity (rather than a
segment of a business). The provisions of SFAS 144 are effective for financial
statements issued for fiscal years beginning after December 15, 2001, and
interim periods within those years. We believe that the adoption of SFAS 144
will not have a material impact on our consolidated financial statements.
FACTORS THAT MAY AFFECT FUTURE RESULTS
You should carefully consider the following factors and other information in
this statement before you decide to invest in our ordinary shares. If any of the
negative events referred to below occur, our business, financial condition and
results of operations could suffer. In any such case, the trading price of our
ordinary shares could decline, and you may lose all or part of your investment.
22
RISKS RELATED TO OUR BUSINESS
THE ECONOMIC OUTLOOK MAY ADVERSELY AFFECT THE DEMAND FOR OUR CURRENT PRODUCTS
AND THE COMPANY'S RESULTS OF OPERATIONS. Current predictions for the general
economy 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 that 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. We expect to continue to incur significant
sales and marketing and research and development expenses. 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. 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 and approval processes 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.
FAILURE OF THE MARKET TO ACCEPT OUR PRODUCTS WOULD ADVERSELY AFFECT OUR
PROFITABILITY. 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. During the year ended December 31, 2000, we
introduced three products that, together with our existing products, constitute
a suite of products that offers a more comprehensive solution to our customers.
On November 28, 2001 we released version 7.0 of our Service Optimization Suite
that utilizes dynamic load balancing architecture, which dynamically redirects
requests among a group of ClickSoftware servers running our product
applications. This increases the scalability of our products by enabling our
23
customers to optimize additional resources by adding hardware to this group of
ClickSoftware servers. The growth of our company depends in part on the
development of market acceptance of these products. We have no guarantee that
the sales of these 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 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 typically from three months
to nine months to evaluate our offering before making their purchase decisions.
In addition, depending on the nature and specific needs of a client, the
implementation of our products typically takes two to six 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. Historically, a significant portion of our
sales in any given quarter occur in the last two weeks of the quarter; 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.
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 Asia Pacific and Africa. As of December 31,
2001, we employed 51 individuals in our sales and marketing organizations.
Because 16 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. At the
beginning of 2001, Mr. Shimon Rojany, our CFO, announced his plan to retire, but
has recently decided to indefinitely withdraw his retirement plans. Mr. Rojany
is committed to continuing his employment with the Company. 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.
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
24
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
were 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.
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.
FAILURE TO FULLY DEVELOP OR MAINTAIN KEY BUSINESS RELATIONSHIPS COULD LIMIT OUR
ABILITY TO SELL ADDITIONAL LICENSES THAT 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
currently deriving 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.
25
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 that could impair our revenue and
operating results.
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 that 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
26
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 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:
* 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 that would result in the issuance of additional shares.
27
OUR BUSINESS MAY BECOME INCREASINGLY SUSCEPTIBLE TO NUMEROUS RISKS ASSOCIATED
WITH INTERNATIONAL OPERATIONS. Significant portions 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 o political and
economic instability.
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.
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 substantial portions 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 past 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 Executive Vice President, Markets and
Product, and Hannan Carmeli, our Senior Vice President, 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,
the Companies Law of Israel, which became effective on February 1, 2000, governs
your rights as a shareholder. Certain obligations and fiduciary duties of
directors, officers and shareholders under the new Companies Law are new and
28
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.
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 2000, 27%, and in 2001, 24% 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.
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. Our revenue from the UK has grown both in
absolute dollar basis as well as a percentage of total revenues. We are
expanding operations in other areas of Europe, and income and expenses
recognized in the European Community Euro will increase. In 2001, 26% of our
costs were incurred in GBP and Euro. We incur a portion of our expenses,
principally salaries and related personnel expenses in Israel, in NIS. In 2001,
24% 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. 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. 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 that
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. From time to
time, the Government of Israel changes the rate of royalties we must pay, so we
are unable to accurately predict this rate. 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 office of
the Chief Scientist does not consider the licensing of our software in the
ordinary course of business a transfer of technology 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
29
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.
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.
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 against us or any of those persons or to effect
service of process upon these persons in the United States, based upon the civil
liability provisions of the U.S. federal securities laws in an Israeli court.
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, 2001, our executive officers, directors and entities affiliated with them
beneficially owned approximately 33.6% 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 our other
investors oppose them.
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.
30
OTHER ORDINARY SHARES MAY BE SOLD IN THE FUTURE. THIS COULD DEPRESS THE MARKET
PRICE FOR OUR ORDINARY SHARES. As of December 31, 2001, we had 26,246,454 (net
of 39,000 shares held in treasury), ordinary shares outstanding, including
shares held by a trustee for issuance under outstanding options. In addition, as
of December 31, 2001, we had 1,789,804 ordinary shares issuable upon exercise of
outstanding options, and 2,164,857 additional ordinary shares reserved for
issuance pursuant to our stock option plans and employee share purchase plan. If
our existing shareholders or we 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 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. 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.
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, either, (1) 75% or more of our gross income is passive income or
(2) 50% or more of the fair market value of our assets, including cash (even if
held as working capital), produce or are held to produce passive income, we may
be characterized as a "passive foreign investment company" ("PFIC") for United
States federal income tax purposes. We do not believe that we currently are a
PFIC nor do we anticipate that we will be characterized a PFIC in the future,
but, if we do, our shareholders will be subject to adverse United States tax
consequences.
If we were to be treated as a PFIC, our shareholders will be required, in
certain circumstances, to pay an interest charge together with tax calculated at
maximum rates on certain "excess distributions" including any gain on the sale
of ordinary shares. In order to avoid this tax consequence, they (1) may be
31
permitted to make a "qualified electing fund" election (however the company does
not currently intend to take the action necessary for our shareholders to make a
"qualified electing fund" election, in which case, in lieu of such treatment
they would be required to include in their taxable income certain undistributed
amounts of our income) or (2) may elect to mark-to-market the ordinary shares
and recognize ordinary income (or possible ordinary loss) each year with respect
to such investment and on the sale or other disposition of the ordinary shares.
Prospective investors should consult with their own tax advisors with respect to
the tax consequences applicable to them of investing in our ordinary shares.
BUSINESS INTERRUPTIONS COULD ADVERSELY AFFECT OUR BUSINESS. Our operations are
vulnerable to interruption by fire, earthquake, power loss, telecommunications
failure and other events beyond 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 compensate 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.
32
INTEREST RATE RISK. As of December 31, 2001, we had cash and cash equivalents of
$10.0 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, 2001, we had total short-term debt of $89,000 and long-term
debt net of current maturities of $21,000 which bear interest at rates that are
linked to LIBOR or the Israeli consumer price index. As of December 31,2001 we
had $1.0 million unsecured line of credit.
The following table provides information about our investment portfolio, cash,
and long-term debts as of December 31, 2001 and presents principal cash flows
and related weighted averages interest rates by expected maturity dates.
TOTAL CARRYING
YEAR OF MATURITY 2002 2003 AFTER 2003 VALUE
(in thousands of dollars)
A) CASH AND CASH EQUIVALENTS AND INVESTMENT PORTFOLIO:
- ------------------------------------------------------
Cash and equivalents $ 6,524 - - $ 6,524
Average interest rate 2.0% - - 2.0%
Commercial Papers $ 301 - - $ 301
Average interest rate 2.4% - - 2.4%
Taxable Auction Securities $ 1,600 - - $ 1,600
Average interest rate 2.2% - - 2.2%
Asset backed Securities $ 1,545 - - $ 1,545
Average interest rate 2.9% - - 2.9%
B) LONG-TERM DEBTS:
- -------------------
Bank Loan $ 30 - - $ 30
Average interest rate L+1% - - L+1%
N.I.S indexed loans $ 5 $ 2 - $ 7
Average interest rate 5.4% 5.4% - 5.4%
Leases US$ $ 15 $ 1 - $ 16
Average interest rate 7.1% 7.1% - 7.1%
Leases GBP $ 18 $ 17 $ 1 $ 36
Average interest rate 3.5% 3.5% 3.5% 3.5%
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
33
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 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.
Report of Independent Public Accountants.................... 35
Consolidated Balance Sheets................................. 36
Consolidated Statements of Operations and Comprehensive
Loss...................................................... 37
Consolidated Statements of Changes in 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) and its subsidiaries
(the Company) as of December 31, 2000 and 2001, 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, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with 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. and its subsidiaries as of December
31, 2000 and 2001, 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, 2001, in conformity with accounting principles generally
accepted in the United States.
/s/ Luboshitz Kasierer
------------------------------------
Luboshitz Kasierer
Arthur Andersen
30 January 2002
Tel-Aviv, Israel
35
CLICKSOFTWARE TECHNOLOGIES LTD.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
DECEMBER 31,
2000 2001
----------------- ----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (note 3) $ 4,438 $ 8,125
Short-term investments (note 4) 16,878 1,846
Trade receivables, net (note 5) 4,375 6,623
Other receivables and prepaid expenses (note 6) 1,466 1,671
----------------- ----------------
Total current assets 27,157 18,265
Property and equipment, net (note 7) 3,772 3,450
Severance pay deposits (note 11) 526 652
----------------- ----------------
Total assets $ 31,455 $ 22,367
----------------- ----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt (note 8) $ 146 $ 140
Accounts payable and accrued expenses (note 9) 3,274 2,785
Deferred revenues 127 68
----------------- ----------------
Total current liabilities 3,547 2,993
----------------- ----------------
LONG-TERM LIABILITIES
Long-term debt (note 10) 103 21
Accrued severance pay (note 11) 1,343 1,379
----------------- ----------------
Total long-term liabilities 1,446 1,400
----------------- ----------------
Total liabilities 4,993 4,393
----------------- ----------------
COMMITMENTS AND CONTINGENCIES (NOTE 12)
SHAREHOLDERS' EQUITY: (NOTE 13)
Convertible Preferred shares of NIS 0.02 par value:
Authorized -- 5,000,000 as of December 31, 2000
and 2001;
Issued and outstanding -- none as of
December 31,2000 and 2001. - -
Ordinary shares of NIS 0.02 par value:
Authorized -- 100,000,000 as of December 31, 2000 and 2001; Issued --
26,064,539 shares as of December 31, 2000 and 26,285,464 as of December
31,2001.Outstanding-- 26,064,539 shares as of December 31,2000 and
26,246,464 shares as of December 31, 2001.
100 101
Additional paid-in capital 69,169 69,143
Deferred compensation (1,120) (401)
Accumulated deficit (41,687) (50,826)
Less Treasury stock at cost - (43)
----------------- ----------------
Total shareholders' equity 26,462 17,974
----------------- ----------------
Total liabilities and shareholders' equity $ 31,455 $ 22,367
================= ================
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,
1999 2000 2001
---------------- ---------------- --------------
Revenues (note 14):
Software license $ 5,414 $ 10,500 $ 11,676
Service and maintenance 4,912 5,242 6,528
---------------- ---------------- --------------
Total revenues 10,326 15,742 18,204
---------------- ---------------- --------------
Cost of revenues:
Software license 71 272 352
Service and maintenance 4,299 5,156 5,418
---------------- ---------------- --------------
Total cost of revenues 4,370 5,428 5,770
---------------- ---------------- --------------
---------------- ---------------- --------------
Gross profit 5,956 10,314 12,434
---------------- ---------------- --------------
Operating expenses:
Research and development expenses 3,935 5,408 4,422
Less - participation by the Chief Scientist
of the Government of Israel (note 11) 1,025 1,108 1,176
---------------- ---------------- --------------
Research and development expenses, net 2,910 4,300 3,246
Sales and marketing expenses 8,274 14,106 13,391
General and administrative expenses 1,759 4,397 4,854
Reorganization costs - - 294
Share-based compensation 738 1,237 437
---------------- ---------------- --------------
Total operating expenses 13,681 24,040 22,222
---------------- ---------------- --------------
Operating loss (7,725) (13,726) (9,788)
Interest and other income (expenses), net (254) 680 649
---------------- ---------------- --------------
Net loss $ (7,979) $ (13,046) $(9,139)
---------------- ---------------- --------------
Dividend related to convertible preferred shares
$ (4,989) $ - $ -
---------------- ---------------- --------------
Net loss attributable to ordinary shareholders $(12,968) $ (13,046) $(9,139)
================ ================ ==============
Basic and diluted net loss per share (note 2) $ (2.18) $ (0.58) $ (0.36)
================ ================ ==============
Shares used in computing basic and diluted net loss per share
5,948,816 22,312,554 25,098,321
================ ================ ==============
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 LESS COST
NUMBER OF CONVERTIBLE ADDITIONAL ACCUMULATED OF
ORDINARY PREFERRED SHARE PAID-IN DEFERRED DEFICIT TREASURY
SHARES SHARES AMOUNT CAPITAL COMPENSATION SHARES TOTAL
-----------------------------------------------------------------------------------------------------------
Balance as of January
1, 1999 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 13,499,898 (13,499,898) - - - - - -
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
Employee options
exercised 62,020 - - 119 - - - 119
Expired options - - - (282) 282 - - -
Employee Stock
purchase plan 158,905 - 1 137 - - - 138
Amortization of
deferred compensation - - - - 437 - - 437
Net loss - - - - - (9,139) - (9,139)
Treasury Shares (39,000) - - - - - (43) (43)
Balance as of December
31, 2001 26,246,464 - $ 101 $ 69,143 $ (401) $(50,826) $ (43) $ 17,974
-----------------------------------------------------------------------------------------------------------
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,
1999 2000 2001
------------------- -------------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (7,979) $ (13,046) $(9,139)
Adjustments to reconcile net loss to net cash used in operating activities:
Expenses not affecting operating cash flows:
Depreciation 484 654 916
Amortization of deferred compensation 738 1,237 437
Unrealized (gain) loss from - (258) 395
investments
Severance pay 40 346 (90)
Other (8) - -
Changes in operating assets and liabilities:
Trade receivables (1,925) (409) (2,248)
Other receivables (26) (1,001) (205)
Accounts payable and accrued expenses 1,112 475 (489)
Deferred revenues 1,057 (1,016) (59)
------------------- -------------------- ----------------
Net cash used in operating activities (6,507) (13,018) (10,482)
------------------- -------------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale (purchase) of short-term investments
- (16,620) 14,637
Purchases of equipment (732) (2,928) (594)
------------------- -------------------- ----------------
Net cash provided by (used in) investing
activities (732) (19,548) 14,043
------------------- -------------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) 14 (174) (6)
Long-term debt 35 - -
Repayments of long-term debt (147) (110) (82)
Net proceeds from issuance of Convertible Preferred
shares 11,374 - -
Net proceeds from issuance of Ordinary
shares - 28,170 -
Purchase of treasury shares - - (43)
Net proceeds from warrants exercised - 579 -
Employee and ESPP options exercised 31 701 257
------------------- -------------------- ----------------
Net cash provided by financing activities
11,307 29,166 126
------------------- -------------------- ----------------
Increase (decrease) in cash and cash
equivalents 4,068 (3,400) 3,687
Cash and cash equivalents at beginning
of year 3,770 7,838 4,438
------------------- -------------------- ----------------
Cash and cash equivalents at end of year $ 7,838 $ 4,438 $8,125
=================== ==================== ================
Supplemental cash flow information
Cash paid for interest $ 137 $ 86 $ 22
=================== ==================== ================
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 2001 AND
FOR THE YEAR ENDED DECEMBER 31, 1999, 2000 and 2001)
(IN THOUSANDS OF DOLLARS)
NOTE 1 -- GENERAL
ClickSoftware Technologies Ltd. (the "Company" or "ClickSoftware") was
incorporated in Israel and is the world's leading provider of end-to-end service
optimization software. The ClickSoftware Service Optimization suite consists of
CLICKSCHEDULE, which enables companies to automate and optimize their service
resources; CLICKANALYZE and CLICKPLAN, which enables corporate decision makers
the ability to intelligently analyze past performance, monitor current
performance, and effectively plan for future service needs; and CLICKFIX,
CLICKMOBILE, and SERVICEMARKETPLACE, which empowers service personnel by
providing real-time information and solutions for service related issues.
ClickSoftware products are used by a wide array of companies, including
customers in the telecommunications, utilities, financial services, aerospace,
defense, semi-conductor, and home service.
The Company has incurred net operating losses since inception and, as
of December 31, 2001, had an accumulated deficit of $50.8 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 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 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.
In January 2001, due to macroeconomic and capital spending issues
affecting the software industry, the Company instituted a reorganization program
to prioritize its initiatives, focus on profit contribution, reduce expenses,
and improve efficiency. This reorganization program included a worldwide
workforce reduction and reorganization of certain business functions.
In fiscal 2001, the Company recorded reorganization costs and other
special charges classified as operating expenses and primarily consisted of
salary, vacation reimbursement, and severance pay. The following table provides
detailed information relating to the status of the reorganization during fiscal
2001:
(IN THOUSANDS)
Balance at Balance at
January Reorganization December
1,2001 Expense Cash Payments 31,2001
Workforce
Reduction $ 0 $ 294 $ 294 $ 0
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), in the U.K. (ClickSoftware Europe Limited) and
in Belgium (ClickSoftware Belgium, N.V.). 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.
40
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:
- 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, 2001 - U.S.$1.00 = NIS 4.416
(December 31, 2000 = NIS 4.041).
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 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.
41
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the company to credit
risk consist principally of cash instruments and accounts receivable. The
Company maintains cash and cash equivalents and investments with major financial
institutions and limits the amount of credit exposure with any institution.
Credit risk with respect to accounts receivables are limited due to the large
number of customers and ongoing credit evaluations performed by the Company in
regard to its customers and maintaining 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.
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 13).
FOR THE YEAR ENDED DECEMBER 31,
1999 2000 2001
---------------- -------------- ---------------
(IN THOUSANDS EXCEPT SHARE DATA AND SHARE NUMBERS)
Net loss attributable to ordinary shareholders $ (12,968) $ (13,046) $ (9,139)
Basic and diluted:
Weighted average shares used in computing
basic and diluted net loss per ordinary share 5,948,816 22,312,554 25,098,321
================ ============== ===============
Basic and diluted net loss per Ordinary share $ (2.18) $ (0.58) $ (0.36)
================ ============== ===============
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 16,577,409, 2,761,049 and 3,672,383, as of
December 31, 1999, 2000 and 2001, respectively.
42
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 13 the pro forma disclosures required under SFAS No. 123.
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 July 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 141, Business Combinations
("SFAS 141") and No. 142, Goodwill and Other Intangible Assets ("SFAS 142").
SFAS 141 requires all business combinations initiated after June 30, 2001, to be
accounted for using the purchase method. Under SFAS 142, goodwill and intangible
assets with indefinite lives are no longer amortized but are reviewed annually
(or more frequently if impairment indicators arise) for impairment. All other
intangible assets will continue to be amortized over their estimated useful
lives. The amortization provisions of SFAS 142 apply to goodwill and intangible
assets acquired after June 30, 2001. With respect to goodwill and intangible
assets acquired prior to July 1, 2001, the Company is required to adopt SFAS 142
effective January 1, 2002. The adoption of SFAS No. 142 will not have a material
effect on the Company's consolidated financial statements.
In August 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets ("SFAS 144"). Although SFAS 144
supersedes FASB Statement No. 121, it retains the requirements of SFAS 121
regarding recognition of impairment loss for long-lived assets to be held and
used (based on undiscounted cash flows) and resolves certain implementation
issues. Also, the accounting model used in SFAS 121 for long-lived assets to be
disposed of by sale (lower of carrying amount or fair value less cost to sell)
is broadened by SFAS 144 to include discontinued operations and supersedes APB
Opinion No. 30. Therefore, discontinued operations will no longer be measured on
a net realizable value basis and future operating losses will no longer be
recognized before they occur. SFAS 144 also broadens the presentation of
discontinued operations to include a component of an entity (rather than a
segment of a business). The provisions of SFAS 144 are effective for financial
statements issued for fiscal years beginning after December 15, 2001, and
interim periods within those years. The Company believes that the adoption of
SFAS 144 will not have a material impact on the Company's consolidated financial
statements.
43
NOTE 3 -- CASH AND CASH EQUIVALENTS
DECEMBER 31,
2000 2001
--------------- -------------
(in thousands)
In U.S. dollars $ 3,470 $ 7,784
In British Pounds 436 336
In NIS $ 532 $ 5
--------------- -------------
$ 4,438 $ 8,125
--------------- -------------
The cash equivalents bear an average annual interest rate of 1.8%.
NOTE 4 - SHORT-TERM INVESTMENTS
DECEMBER 31,
2000 2001
--------------- -------------
(in thousands)
Asset-backed Securities (average annual interest rate of 2.9%) $ 5,440 $ 1,545
Euro Dollar Bonds 5,121 -
Taxable Securities 4,026 -
Corporate Bonds 2,291 -
Commercial Papers $ - $ 301
--------------- -------------
$ 16,878 $ 1,846
=============== =============
The Short-term investments bear an average annual interest rate of 2.8%.
NOTE 5 - ALLOWANCE FOR DOUBTFULL ACCOUNTS
DECEMBER 31,
2000 2001
--------------- -------------
(in thousands)
Balance at Beginning of Year $ 130 $ 742
Charged to expenses 1,109 2,035
Deductions 497 1,865
--------------- -------------
Balance at Year end $ 742 $ 912
=============== =============
NOTE 6 - OTHER RECEIVABLES AND PREPAID EXPENSES
DECEMBER 31,
2000 2001
--------------- -------------
(in thousands)
Government participations and other government receivables $ 421 $ 329
Employees 78 58
Other receivables and prepaid expenses 967 1284
--------------- -------------
$ 1,466 $ 1,671
=============== =============
44
NOTE 7 -- PROPERTY AND EQUIPMENT
DECEMBER 31,
2000 2001
--------------- -------------
(in thousands)
Cost
Computers and office equipment $ 4,264 $ 4,916
Leasehold improvements 1,551 1,664
Motor vehicles 580 409
--------------- -------------
$ 6,395 $ 6,989
Accumulated Depreciation 2,623 3,539
--------------- -------------
NET BOOK VALUE $ 3,772 $ 3,450
=============== =============
For the years ended December 31,1999, 2000 and 2001 depreciation
expense was $484,000, $654,000 and 916,000, respectively.
NOTE 8 -- SHORT-TERM DEBT
DECEMBER 31,
2000 2001
--------------- -------------
(in thousands)
Short-term debt $ - $ 72
Current maturities on long-term debt (note 10) 146 68
--------------- -------------
$ 146 $ 140
=============== =============
NOTE 9 -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES
DECEMBER 31,
2000 2001
--------------- -------------
(in thousands)
Suppliers $ 1,335 $ 732
Employee and related expenses 1,075 941
Accrued royalties 389 567
Other 475 545
--------------- -------------
$ 3,274 $ 2,785
=============== =============
NOTE 10 -- LONG-TERM DEBT
DECEMBER 31,
2000 2001
--------------- -------------
(in thousands)
Bank Loans
In U.S. dollars $ 113 $ 46
In British Pounds 89 36
Linked to the Israeli CPI 47 7
--------------- -------------
$ 249 $ 89
Less - current maturities (note 8) 146 68
--------------- -------------
$ 103 $ 21
=============== =============
A U.S. dollar loan in the amount of $30,000 bears annual interest of
LIBOR plus 1% (3% as of December 31, 2001). 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 3.5%.
45
Long-term debt as of December 31, 2001, the amount that is repayable, net of
current maturities, is as follows:
DECEMBER 31,
2000 2001
--------------- -------------
(in thousands)
2002 $ 72 -
2003 26 $ 20
2004 5 1
-------------- -------------
$ 103 $ 21
============== =============
NOTE 11 - ACCRUED 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 $202,000, $562,000 and $266,000 for
the years ended December 31, 1999, 2000 and 2001 respectively.
NOTE 12 -- 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
$5,370,000. 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 with annual
interest of LIBOR as of the date of approval for programs approved from 1999 and
thereafter. The Company has paid or accrued royalties through December 31, 2001
of $1,927,000.
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 in
the amount of $62,000.
The Company operates from leased facilities in Israel, the United
States and the U.K., for periods expiring in the years 2002 through 2005 (some
with a renewal option ending in May 2008) Minimum future rental payments, as of
December 31 are as follows:
(in thousands)
----------------------
2002 $ 1,257
2003 1,258
2004 1,155
2005 985
----------------------
$ 4,655
======================
Rent expense amounted to $722,000, $1,039,000 and $1,138,000 for the years ended
December 31, 1999, 2000 and 2001, respectively.
46
NOTE 13 -- SHAREHOLDERS' EQUITY
A. SHARE CAPITAL -- COMPRISES OF SHARES OF NIS 0.02 PAR VALUE.
NUMBER OF SHARES
---------------------------------------------------------------------------------------
AUTHORIZED ISSUED (*) OUTSTANDING (*)
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 2001 2000 2001 2000 2001
-------------- --------------- ------------- ------------- ------------- --------------
Ordinary shares 100,000,000 100,000,000 26,064,539 26,285,464 26,064,539 26,246,464
Special preferred shares 5,000,000 5,000,000 - - - -
-------------- --------------- ------------- ------------- ------------- --------------
Total shares 105,000,000 105,000,000 26,064,539 26,285,464 26,064,539 26,246,464
============== =============== ============= ============= ============= ==============
- ----------------
(*) 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 911,230 as of December 31, 2000, and 791,031 as of December
31,2001.
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.
B. ISSUANCES
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 convertible shares in December 1999.
This warrant was exercised in March 2000.
In February 2000, 15,329 ordinary 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 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 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.
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 of $2.60 per share according to the 2000 Employee Share Purchase
Plan.
During the year ended December 31, 2001, certain employees exercised
their options to acquire 150,287 ordinary shares. Of the ordinary shares 88,267
had been previously issued and held by the trustee and were included in the
number of issued and outstanding ordinary shares, whereas 62,020 represented
newly issued shares.
47
During the year ended December 31,2001, certain employees purchased
158,905 ordinary shares at an average price $0.87 per share according to the
2000 Employee Share Purchase Plan.
C. WARRANTS
Warrants to purchase 393,552 preferred convertible shares were issued
on March 31, 1998 in conjunction with the conversion to preferred 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
During the year ended December 31,2001 the Board of Directors and
Shareholders at the annual meeting approved the grants of stand-alone options to
purchase 144,036 ordinary shares to directors.
The Company has adopted new option plans in 2000 under which they have
granted during the year ended December 31,2000, 1,015,213 options at a weighted
average exercise price of $5.75 per share and a vesting period of four years.
Under the same program during the year ended December 31,2001,the Company
granted 1,375,652 options at a weighted average exercise price of $1.50 per
share
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 part of shareholders' equity and amortized over
the vesting period of the applicable options. The Company recorded amortization
of deferred compensation of approximately $738,000, $1,237,000 and $437,000
during the years ended December 31, 2001,2000 and 1999, respectively.
During 2001 a total of 93,910 options expired which reduced deferred
compensation by approximately $282,000. During 2000, a total of 91,571 options
expired which reduced deferred compensation by approximately $306,000. As of
December 31, 2001, the remaining deferred compensation of approximately $401,000
will be amortized as follows: $300,000 and $101,000 during the years ended 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", the Company's net loss and basic and diluted net loss
per share would have been increased or decreased to the following proforma
amounts:
1999 2000 2001
---------- ---------- ----------
Net loss
As reported $ (12,968) $ (13,046) $ (9,139)
Proforma (13,039) (13,172) (9,329)
Basic and diluted net loss per
share
As reported $ (2.18) $ (0.58) $ (0.36)
Proforma (2.19) (0.59) (0.37)
Under SFAS 123, the fair market value of each option grant is
estimated on the date of grant using the "Black-Scholes option pricing" method
with the following weighted-average assumptions:(1) expected life of 1.2 years
(1999 - 1.3, 2000 - 1.3); (2) dividend yield of 0% (3) expected volatility of
122% (1999 - 0%, 2000 - 152%) and (4) risk-free interest rate of 1.75% (1999 -
5%, 2000 - 5%).
48
Transactions related to the above discussed options and warrants
granted to employees and consultants during the years ended 2000 and 2001, 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 AVERAGE
OPTIONS EXERCISE WEIGHTED AVERAGE
AVAILABLE FOR OUTSTANDING PRICE PER FAIR VALUE
GRANT OPTIONS (*) SHARE OF OPTION
-------------------------------------------------------------------
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 Purchase Plan (23,288) -
---------------- --------------- -----------
Outstanding December 31, 2000 3,385,383 2,761,049 2.65
Granted (1,519,688) 1,519,688 1.51 $ 0.72
Forfeited 458,067 (458,067) 2.20
Exercised (150,287) 0.79
Exercised Employee Stock Purchase plan (158,905)
---------------- --------------- -----------
Outstanding December 31, 2001 2,164,857 3,672,383 2.31
================ =============== ===========
- -----------------
(*) As of December 31, 1999, 2000 and 2001, 1,206,920, 912,228 and 791,031
Ordinary shares are held by a trustee and have been reserved for allocation
against certain employee options granted but not yet exercised.
The following table summarizes information about options outstanding
and exercisable as of December 31, 2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- --------------------------------
NUMBER WEIGHTED-AVERAGE NUMBER
OUTSTANDING AT REMAINING WEIGHTED-AVERAGE OUTSTANDING AT WEIGHTED-AVERAGE
RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE PRICE DECEMBER 31, EXERCISE PRICE
EXERCISE PRICE 2001 LIFE 2001
$
- ----------------------------------------------------------------------------------------------------------------
0.58 657,601 3.09 $ 0.58 599,534 $ 0.58
0.83 280,408 5.91 $ 0.83 142,604 $ 0.83
1.83 496,390 4.96 $ 1.83 285,660 $ 1.83
3.67 90,000 3.85 $ 3.67 62,500 $ 3.67
8.50 227,133 7.08 $ 8.50 68,750 $ 8.50
10.00 65,000 8.25 $10.00 27,083 $10.00
8.00 15,000 8.41 $ 8.00 7,917 $ 8.00
4.37 205,538 7.85 $ 4.37 40,058 $ 4.37
3.06 275,000 8.86 $ 3.06 63,638 $ 3.06
1.69 787,090 9.08 $ 1.69 339,715 $ 1.69
1.21 224,010 9.58 $ 1.21 149,340 $ 1.21
0.75 - 1.81 349,213 9.58 $ 1.22 3,005 $ 1.26
----------------- ----------------
3,672,383 1,789,804
================= ================
NOTE 14 -- 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.
49
The Company's revenue by geographic area is as follows:
YEAR ENDED DECEMBER 31,
2000 2001
------------- ------------
Revenue (in thousands)
North America $ 6,978 $ 9,766 $ 7,956
Europe 2,163 5,027 6,751
Israel 905 440 455
Asia Pacific and Africa 280 509 3,042
------------ -------------- ------------
$ 10,326 $ 15,742 $ 18,204
------------ -------------- ------------
Sales to a single customer exceeding 10%
% % %
------------ -------------- ------------
Customer A - - 12%
Long lived Assets by geographical areas is as follows:
YEAR ENDED DECEMBER 31,
2000 2001
------------- ------------
(in thousands)
Net Property and Equipment
North America $2,373 $2,255
Europe 183 198
Israel 1,216 997
------------ ------------
$3,772 $3,450
============ ============
NOTE 15 -- 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%.
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 $12.9 million as of December 31, 2001. In addition losses of
approximately $23.9 million are attributable to the U.S. subsidiary which will
expire between 2008 and 2014. The UK subsidiary has carryforward tax losses of
approximately $5.7 million as of December 31, 2001. The carryforward tax losses
for Israel and the UK have no expiration date.
50
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 tax assets
have been included in these financial statements. Deferred taxes in respect of
other temporary differences are immaterial.
Israel and International components of income profit (loss) before taxes are:
YEAR ENDED DECEMBER 31,
1999 2000 2001
--------------- -------------- -------------
(in thousands)
Israel
$(2,980) $(5,153) $ 1,250
International (9,988) (7,893) (10,389)
--------------- -------------- -------------
$ (12,968) $ (13,046) $ (9,139)
--------------- -------------- -------------
NOTE 16 -- 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,
2000 2001
---------- ------------
(in thousands)
Balances:
Other Receivables $ 121 $ 294
YEAR ENDED DECEMBER 31,
1999 2000 2001
-------- -------- --------
(in thousands)
Transactions:
Management fee income from Nester $ 48 $ 48 $ 48
Other transactions $ 105 $ 208 $ 165
51
NOTE 17 - UNAUDITED CONSOLIDATED QUARTERLY FINANCIAL DATA
The following table presents the quarterly information for fiscal 2001
and 2000:
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------------------------------------------------------
(in thousands except per share amounts)
(Unaudited)
2001
Net sales $ 4,516 $ 5,044 $ 2,739 $ 5,905
Gross profit $ 3,070 $ 3,328 $ 1,352 $ 4,684
Net Loss $(2,529) $(1,844) $(4,147) $ (619)
- ----------------------------------------------------------------------------------------------------------------
Basic and diluted net loss per share: $ (0.10) $ (0.07) $ (0.16) $ (0.02)
Shares used in computing basic and
diluted net loss per share 24,976 25,097 25,155 25,211
Price per ordinary share - high $ 2.719 $ 1.43 $ 1.82 $ 1.47
Price per ordinary share - low $ 0.75 $ 0.563 $ 0.7 $ 0.82
2000
Net sales $ 3,511 $ 4,308 $ 4,789 $ 3,134
Gross profit $ 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
The company's ordinary shares are traded on the NASDAQ. As of March 4,
2002, there were approximately 1,148 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 OWENERSHIP 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
52
reporting persons, the Company believes that during the year ending December 31,
2000, all Section 16 filing requirements were met, except that Ms. Schinderman
filed one late report on Form 3 to report her initial holdings and all directors
and officers filed annual statements on Form 5 one day late.
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,
Mr. James Thanos and, Mr. Israel Borovich. All 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 we only established the Committee in connection with our initial
public offering in 2000, 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, we completed the initial public offering of our 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 we
continue to grow and mature. The Committee recognizes that in order for us 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, we must offer compensation
that (a) is competitive in the industry; (b) motivates executive officers to
achieve our strategic business objectives; and (c) aligns the interests of
executive officers with the long-term interests of stockholders.
We currently use 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 our overall performance.
53
COMPENSATION
The following table sets forth all compensation received for services rendered
to us and our subsidiaries in all capacities during the last three years by (i)
our Chief Executive Officer and (ii) our 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
1999 178,989 189,112 - 720,000 -
2000 225,000 239,709 83,594 (1) - -
2001 222,188 22,500 79,449 (1) - -
Shimon Rojany
CFO
1999 88,333 32,083 - 73,227 -
2000 185,833 68,083 4,362 (2) 30,000 -
2001 211,542 10,000 1,587 (2) 79,000 -
Corey Leibow
COO
1999 - - - - -
2000 27,865 - - 275,000 -
2001 203,438 34,000 1,298 (2) 24,000 -
David Schapiro
Executive V.P. - Markets and Products
1999 103,080 12,397 23,142 (3) 31,036 -
2000 131,858 14,714 29,006 (3) 30,000 -
2001 128,538 - 39,744 (3) 20,000 -
Hannan Carmeli
Sr. V.P. Product Services and
Operations
1999 88,477 9,169 26,347 (3) 18,000 -
2000 102,625 12,175 28,370 (3) 18,000 -
2001 116,411 - 31,132 (3) 25,000 -
- -----------------------------
(1) Other compensation to Dr. BenBassat includes $75,000 housing allowance.
(2) Executive disability insurance.
(3) Contributions to employee benefit programs.
OPTION GRANTS IN YEAR 2001
The following table sets forth information concerning grants of stock options to
each of the Named Executive Officers during the year ended December 31, 2001.
All such options were granted under our various option plans approved during
2000, and these options generally vest over two to four years.
54
Number of % of Total
Shares Options Weighted
Underlying Granted to Exercise
Options Granted Employees in Price Expiration Present Value
2001 ($/sh) Date Grant Date (1)
---------------- ------------- ---------- ----------- ----------- --------------
Moshe BenBassat - 0.00% - - -
Shimon Rojany 79,000 5.92% $ 1.66 2/8/11 2/8/01 $ 60,974
Corey Leibow 24,000 1.80% $ 1.61 2/8/11 2/8/01 $ 17,184
Hannan Carmeli 25,000 1.87% $ 1.59 2/8/11 2/8/01 $ 17,499
David Schapiro 20,000 1.50% $ 1.69 2/8/11 2/8/01 $ 15,924
- ----------------------------
(1) Computed using the Black-Scholes option pricing model. Full vesting of
options is six months to two years from grant date. Assumes the average expected
life of the option is between 0.29 and 1.042 years, a volatility of 122%, an
annual dividend yield of 0.0% risk free interest rate of 1.75%.
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 2001, and exercisable and unexercisable
stock options held by each of the Named Executive Officers as of December 31,
2001.
Number of Securities
Underlying Unexercised Options Value of Unexercised
as of December 31, 2001 In-the-Money Options at
Shares Acquired Value December 31, 2001 (1)
------------------------------------------------------------
on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
-------------------------------------------------------------------------------------------
Moshe BenBassat 18,000 $ (10,499) 268,099 228,293 - -
Shimon Rojany - - 89,890 45,515 $ 23,482 $ 9,170
Corey Leibow - - 85,478 213,522 $ 159 $ 80
David Schapiro - - 194,952 83,047 $124,487 $ 24,320
Hannan Carmeli - - 81,963 51,036 $ 46,348 $ 11,254
(1) Based upon the Closing Price of the ordinary shares on December 31, 2001 of
$1.27 less the exercise price per share.
DIRECTORS' COMPENSATION
In 2001 outside directors were not compensated for either membership on the
board member or attendance at board meetings, though expenses for attending
Board and committee meetings were reimbursed.
Under our 2000 Share Option Plan, as amended in 2001, new non-employee
directors, except for certain directors designated as External Directors under
Israeli law, are automatically granted an option to purchase 30,000 of our
ordinary shares, when they first become a director. Each year after the initial
grant, they are entitled to receive an additional option grant to purchase up to
7,500 ordinary shares. All options are granted at the fair market value on the
date of grant vest one quarter each year over four years from the date of grant.
Pursuant to Israeli law restrictions on director compensation, Ms. Schinderman,
as an External Director, received an option to purchase 24,036 ordinary shares
at the time of her election to our board in September 2001. All other directors
received grants of option to purchase 30,000 ordinary shares in 2001. These
grants, all separately approved at our 2001 annual meeting of shareholders, vest
monthly over two years from the date of grant.
55
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, 2001. 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:
CKSW Nasdaq USA Nasdaq Computer
& Data Processing
6/30/00 -5% 3% 5%
9/29/00 -46% -5% -3%
12/29/00 -76% -36% -40%
3/30/01 -86% -52% -56%
6/29/01 -82% -44% -43%
9/28/01 -86% -61% -65%
12/31/01 -83% -49% -52%
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, 2001 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, 2001. 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
27,251,964 shares outstanding as of March 15, 2002.
Unless otherwise indicated below, the address of each of the principal
shareholders is c/o ClickSoftware Technologies Ltd., 34 Habarzel Street, Tel
Aviv, Israel.
56
ORDINARY SHARES
BENEFICIALLY OWNED
NAME AND ADDRESS NUMBER PERCENTAGE
- ------------------------- ------------ -------------
SHAREHOLDERS
--------------- ---------------
Entities affiliated with Worldview Technology Partners (11) 2,254,121 8.13%
435 Tasso Street, Suite 120
Palo Alto, CA 94301
Entities affiliated with Genesis Partners (13) 2,871,270 10.36%
50 Dizengoff Street
Tel-Aviv 64332, Israel
Entities affiliated with Oak Investments Partners (12) 4,724,027 17.04%
525 University Avenue, Suite 1300
Palo Alto, CA 94301
Entities affiliated with Meritech Capital Associates LLC (12) 1,828,629 6.59%
90 Middlefield Road, Suite 201
Menlo Park, CA 94025
Liberty Wanger Asset Management (11) 1,660,000 5.99%
227 West Monroe Street, Suite 3000
Chicago, IL 60606-5016
NAMED EXECUTIVE OFFICERS AND DIRECTORS
Moshe BenBassat (1) 5,115,286 18.45%
Shimon Rojany (2) 457,872 1.65%
Corey Leibow (3) 132,625 0.48%
David Schapiro (4) 227,595 0.82%
Hannah Carmeli (5) 105,036 0.38%
Israel Borovich (6) 30,833 0.11%
Nathan Gantcher (7) 94,791 0.34%
Roni Einav (8) 26,562 0.10%
James W. Thanos (9) 33,750 0.12%
Janet Schinderman (10) 8,012 0.03%
Eddy Shalev 2,871,270 10.36%
--------------- ---------------
All executive officers and directors as a group (12 persons) 9,316,756 33.60%
=============== ===============
- ---------------------
(1) Includes 2,246,887 shares held by Dr. BenBassat's spouse, Idit BenBassat.
Also includes options to purchase 355,904 ordinary shares exercisable
within 60 days of March 31, 2002 held by Dr. BenBassat.
(2) Includes options to purchase 118,227 Ordinary Shares exercisable within 60
days of March 31, 2002 held by Mr. Rojany.
(3) Includes options to purchase 119,625 Ordinary Shares exercisable within 60
days of March 31, 2002 held by Mr. Leibow
(4) Includes options to purchase 227,595 Ordinary Shares exercisable within 60
days of March 31, 2002 held by Mr. Schapiro.
(5) Includes options to purchase 101,934 Ordinary Shares exercisable within 60
days of March 31, 2002 held by Mr. Carmeli.
(6) Includes options to purchase 30,833 Ordinary Shares exercisable within 60
days of March 31, 2002 held by Mr. Borovich.
(7) Includes options to purchase 44,791 Ordinary Shares exercisable within 60
days of March 31, 2002 held by Mr. Gantcher.
(8) Includes options to purchase 26,562 Ordinary Shares exercisable within 60
days of March 31, 2002 held by Mr. Einav.
(9) Includes options to purchase 28,750 Ordinary Shares exercisable within 60
days of March 31, 2002 held by Mr. Thanos.
(10) Includes options to purchase 8,012 Ordinary Shares exercisable within 60
days of March 31, 2002 held by Ms. Schinderman.
(11) Based on schedule 13G-A filed on February 14, 2002.
(12) Based on Schedule 13G filed on February 14, 2001.
(13) Based on the Registrant's report on Form-3, filed on February 14, 2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fiscal year ended December 31, 2001, 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".
57
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT INDEX
EXHIBIT DESCRIPTION OF DOCUMENT
NUMBER
3.1 (1) Articles of Association of ClickSoftware Technologies Ltd.
4.1 (1) Specimen of Ordinary Share Certificate
4.2 (1) Fourth Amended and Restated Registration Rights Agreement,
dated December 15, 1999
10.1 (2) Form of 2000 Share Option Plan, as amended
10.2 (1) Form of 2000 Employee Share Purchase Plan
10.3 (1) Employment Agreement between ClickSoftware Technologies Ltd.
and Moshe BenBassat
10.4 (1) Employment Agreement between ClickSoftware Technologies Ltd. and
Shimon Rojany
10.5 (1) Form of Indemnification Agreement
10.6 (1) Form of 1996 Option Plan
10.7 (1) Form of 1997 Option Plan
10.8 (1) Form of 1998 Option Plan
10.9 (1) Form of 1999 Option Plan
10.10(1) Form of 1999 Option Plan
10.12(1) Form of 2000 Israeli Plan
10.13(1) Form of 2000 Unapproved U.K. Share Scheme
10.14(1) Form of 2000 Approved U.K. Share Scheme
10.15(3) Employment Agreement between ClickSoftware Technologies Ltd. and
Corey Leibow
10.16(4) Lease made on January 21, 2000 by and between WTA Campbell
Technologies Park, LLC and ClickSoftware, Inc.
21.1 Subsidiaries of the Registrant
23.1 Consent of Luboshitz Kasierer, Arthur Andersen
99.1 Letter from the Registrant to the SEC regarding Arthur Andersen's
representation
(1) Incorporated by reference to the Registrant's Registration Statement on
Form S-file no. 333-30274), as amended.
(2) Incorporated by reference to the Registrants definitive proxy statement
filed on August 6, 2001.
(3) Incorporated by reference to the Registrant's report on form 10-K filed on
March 30, 2001.
(4) Incorporated by reference to the Registrant's report on form 10-Q filed on
August 14, 2001.
(a)(1) FINANCIAL STATEMENTS
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
(a)(2) FINANCIAL STATEMENTS SCHEDULES
Schedule II - Valuation and Qualifying Accounts and Reserves
All other financial statements and schedules not listed have been
omitted because the required information is included in the consolidated
financial statements or notes thereto, or is not applicable or required.
(b) REPORTS ON FORM 8-K:
None.
58
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in Campbell,
California, on March 25, 2002.
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 25, 2002
- ------------------------------------ Chairman of the Board of Directors
Moshe BenBassat (Principal Executive Officer)
/s/ Shimon M. Rojany Chief Financial Officer March 25, 2002
- ------------------------------------ Principal Financial and Accounting
Shimon M. Rojany Officer)
/s/ Roni Einav Director March 25, 2002
- ------------------------------------
Roni Einav
/s/ Dr. Israel Borovich Director March 25, 2002
- ------------------------------------
Dr. Israel Borovich
/s/ Nathan Gantcher Director March 25, 2002
- ------------------------------------
Nathan Gantcher
/s/ Eddy Shalev Director March 25, 2002
- ------------------------------------
Eddy Shalev
/s/ James W. Thanos Director March 25, 2002
- ------------------------------------
James W. Thanos
/s/ Janet Schinderman Director March 25, 2002
- ------------------------------------
Janet Schinderman
59
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
3.1 (1) Articles of Association of ClickSoftware Technologies Ltd.
4.1 (1) Specimen of Ordinary Share Certificate
4.2 (1) Fourth Amended and Restated Registration Rights Agreement, dated
December 15, 1999
10.1 (2) Form of 2000 Share Option Plan, as amended
10.2 (1) Form of 2000 Employee Share Purchase Plan
10.3 (1) Employment Agreement between ClickSoftware Technologies Ltd.
and Moshe BenBassat
10.4 (1) Employment Agreement between ClickSoftware Technologies Ltd. and
Shimon Rojany
10.5 (1) Form of Indemnification Agreement
10.6 (1) Form of 1996 Option Plan
10.7 (1) Form of 1997 Option Plan
10.8 (1) Form of 1998 Option Plan
10.9 (1) Form of 1999 Option Plan
10.10(1) Form of 1999 Option Plan
10.12(1) Form of 2000 Israeli Plan
10.13(1) Form of 2000 Unapproved U.K. Share Scheme
10.14(1) Form of 2000 Approved U.K. Share Scheme
10.15(3) Employment Agreement between ClickSoftware Technologies Ltd. and
Corey Leibow
10.16(4) Lease made on January 21, 2000 by and between WTA Campbell
Technologies Park, LLC and
ClickSoftware, Inc.
21.1 Subsidiaries of the Registrant
23.1 Consent of Luboshitz Kasierer, Arthur Andersen
99.1 Letter from the Registrant to the SEC regarding Arthur Andersen's
representation
(1) Incorporated by reference to the Registrant's Registration Statement on Form
S- file no. 333-30274), as amended.
(2) Incorporated by reference to the Registrants definitive proxy statement
filed on August 6, 2001.
(3) Incorporated by reference to the Registrant's report on form 10-K filed on
March 30, 2001.
(4) Incorporated by reference to the Registrant's report on form 10-Q filed on
August 14, 2001.
60