SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission File Number: 000-30827
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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 Number)
34 Habarzel Street
Tel Aviv, Israel
(Address of principal executive offices)
(972-3) 765-9400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
As of June 30, 2002, there were 26,338,373 shares of the Registrant's
ordinary shares, par value 0.02 NIS, outstanding.
ClickSoftware Technologies Ltd.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2002
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
(a) Condensed Consolidated Balance Sheets as of June 30, 2002 and
December 31, 2001..................................................................................................... 3
(b) Condensed Consolidated Statements of Operations for the three and six
months ended June 30, 2002 and June 30, 2001.......................................................................... 4
(c) Condensed Consolidated Statements of Cash Flows....................................................................... 5
(d) Notes to Condensed Consolidated Financial Statements.................................................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................................................................. 7
Item 3. Quantitative and Qualitative Disclosures About Market Risks........................................................ 24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................................................................. 25
Item 2. Changes in Securities and Use of Proceeds.......................................................................... 25
Item 4. Submission of Matters to a Vote of Security Holders................................................................ 25
Item 6. Exhibits and Reports on Form 8-K................................................................................... 25
Signatures................................................................................................................. 26
Exhibit 99.1............................................................................................................... 27
Exhibit 99.2 .............................................................................................................. 28
2
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CLICKSOFTWARE TECHNOLOGIES LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
JUNE 30, DECEMBER 31,
2002 2001
------------------- -------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,789 $ 8,125
Short-term investments 4,107 1,846
Trade receivables, net 5,189 6,623
Other receivables and prepaid expenses 1,543 1,671
------------------- -------------------
Total current assets 15,628 18,265
Property and equipment, net 3,161 3,450
Severance pay deposits 737 652
------------------- -------------------
Total assets $ 19,526 $ 22,367
=================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term loans $ 33 $ 140
Accounts payable and accrued expenses 3,156 2,785
Deferred revenues 460 68
------------------- -------------------
Total current liabilities 3,649 2,993
------------------- -------------------
LONG-TERM LIABILITIES
Long-term loans - 21
Accrued severance pay 1,416 1,379
------------------- -------------------
Total long-term liabilities 1,416 1,400
------------------- -------------------
Total liabilities 5,065 4,393
------------------- -------------------
SHAREHOLDERS' EQUITY:
Ordinary shares of NIS 0.02 par value:
Authorized -- 100,000,000 as of December 31, 2001 and June 30, 2002;
Issued -- 26,285,464 shares as of December 31, 2001 and
26,377,373 as of June 30, 2002.
Outstanding-- 26,246,464 shares as of December 31, 2001 and
26,338,373 shares as of June 30, 2002.
102 101
Additional paid-in capital 69,186 69,143
Deferred compensation (251) (401)
Accumulated deficit (54,533) (50,826)
Less treasury shares at cost (43) (43)
------------------- -------------------
Total shareholders' equity 14,461 17,974
------------------- -------------------
Total liabilities and shareholders' equity $ 19,526 $ 22,367
=================== ===================
See notes to condensed consolidated financial statements.
3
CLICKSOFTWARE TECHNOLOGIES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED JUNE 30,
2002 2001
-----------------------------------------
Revenues:
Software license $ 2,476 $ 2,883
Service and maintenance 2,105 2,161
-----------------------------------------
Total revenues 4,581 5,044
-----------------------------------------
Cost of revenues:
Software license 229 138
Service and maintenance 1,327 1,578
-----------------------------------------
Total cost of revenues 1,556 1,716
-----------------------------------------
Gross profit 3,025 3,328
-----------------------------------------
Operating expenses:
Research and development expenses, net 590 685
Sales and marketing expenses 2,933 3,646
General and administrative expenses 965 962
Share-based compensation 75 16
-----------------------------------------
Total operating expenses 4,563 5,309
-----------------------------------------
Operating loss (1,538) (1,981)
Interest and other income, net 172 137
-----------------------------------------
Net loss $ (1,366) $ (1,844)
-----------------------------------------
Basic and diluted net loss per share $ (0.05) $ (0.07)
-----------------------------------------
Shares used in computing basic and diluted net loss per share 25,299,148 25,096,522
-----------------------------------------
CLICKSOFTWARE TECHNOLOGIES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
2002 2001
-----------------------------------------
Revenues:
Software license $ 4,081 $ 5,986
Service and maintenance 4,191 3,574
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Total revenues 8,272 9,560
-----------------------------------------
Cost of revenues:
Software license 229 212
Service and maintenance 2,641 2,950
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Total cost of revenues 2,870 3,162
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Gross profit 5,402 6,398
-----------------------------------------
Operating expenses:
Research and development expenses, net 1,407 1,659
Sales and marketing expenses 5,791 7,312
General and administrative expenses 1,953 1,789
Reorganization expenses - 294
Share-based compensation 150 187
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Total operating expenses 9,301 11,241
-----------------------------------------
Operating loss (3,899) (4,843)
Interest and other income, net 192 470
-----------------------------------------
Net loss $ (3,707) $ (4,373)
-----------------------------------------
Basic and diluted net loss per share $ (0.15) $ (0.17)
-----------------------------------------
Shares used in computing basic and diluted net loss per share 25,105,598 25,037,092
-----------------------------------------
See notes to condensed consolidated financial statements.
4
CLICKSOFTWARE TECHNOLOGIES LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30
2002 2001
-----------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,707) $ (4,373)
Adjustments to reconcile net loss to net cash used in operating activities
Expenses not affecting operating cash flows:
Depreciation 520 487
Amortization of deferred compensation 150 187
Unrealized gain from investments 104 319
Severance pay, net (48) (16)
Changes in operating assets and liabilities:
Trade receivables 1,434 (2,189)
Other receivables and other prepaid
expenses 128 (422)
Accounts payable and accrued expenses 371 281
Deferred revenues 392 (25)
-----------------------------------------
Net cash used in operating activities (656) (5,751)
-----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase (Decrease)in short-term investments, net (2,365) 11,190
Purchases of equipment (231) (561)
-----------------------------------------
Net cash provided by (used in) investing activities (2,596) 10,629
-----------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of short-term loans (107) (67)
Repayment of long-term loans (21) (39)
Employee options exercised 44 177
-----------------------------------------
Net cash provided by (used in) financing activities (84) 71
-----------------------------------------
Increase (decrease) in cash and cash equivalents (3,336) 4,949
Cash and cash equivalents at beginning of period 8,125 4,438
-----------------------------------------
Cash and cash equivalents at end of period $ 4,789 $ 9,387
=========================================
Supplemental cash flow information:
Cash paid for interest 5 4
=========================================
See notes to condensed consolidated financial statements.
5
CLICKSOFTWARE TECHNOLOGIES LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 2002 AND FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2002 AND JUNE 30, 2001)
(IN THOUSANDS EXCEPT SHARE DATA AND SHARE NUMBERS)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
The accompanying condensed interim consolidated financial statements
of ClickSoftware Technologies Ltd. ("ClickSoftware" or the "Company")
are unaudited and reflect all adjustments, consisting of normal
recurring adjustments and accruals, which are, in the opinion of
management, necessary for a fair presentation of the financial
position of the Company as of June 30, 2002 and the results of
operations and cash flows for the interim periods indicated in
conformity with generally accepted accounting principles applicable to
interim periods. Accordingly, certain information and footnote
disclosures normally included in annual financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted. The results of operations presented are not
necessarily indicative of the results to be expected for future
quarters or for the year ending December 31, 2002. These financial
statements should be read in conjunction with the audited financial
statements and notes thereto of ClickSoftware for the year ended
December 31, 2001 that are included in ClickSoftware's Form 10-K filed
with the Securities and Exchange Commission.
2. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies described in the annual financial
statements, have been applied on a consistent basis in the condensed
consolidated financial statements.
During the six months period ended June 30, 2002, the Company applied
the following accounting policy in respect to long-term fixed
contracts:
Revenues under fixed-price contracts are recorded on a
percentage-of-completion method on the cost-to-cost basis. Provision
for anticipated losses on long-term contracts are recorded in full
when such losses become evident.
3. NET LOSS PER SHARE.
ClickSoftware computes net loss per share of ordinary shares in
accordance with Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS No. 128"). Under the provisions of SFAS
No. 128 basic an diluted net loss per share ("Basic EPS") is computed
by dividing net loss by the weighted average number of shares of
common stock outstanding, excluding ordinary shares held by a trustee
reserved for allocation against employee options granted but not yet
exercised. Diluted net loss per ordinary share is the same as basic
net loss per ordinary share for all periods presented, as the effects
of the Company's potential ordinary shares were antidilutive
The Calculation of diluted net loss per share excluded outstanding
stock options because their inclusion would be antidilutive. There are
approximately 4,105,992 stock options upstanding as of June 30, 2002
and approximately 3,266,161 stock options outstanding as of June 30,
2001.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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.
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
7
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.
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.
Sales and marketing expenses consist primarily of personnel and related costs
for marketing and sales functions, including related travel, direct advertising
costs, expenditures on trade shows, market research and promotional printing.
General and administrative expenses consist primarily of personnel and related
costs for corporate functions, including information services, finance,
accounting, human resources, facilities, provision for doubtful accounts, 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 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, the Australian statutory tax rate 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.
8
CRITICAL ACCOUNTING POLICIES
We prepare our consolidated financial statements in conformity with
accounting principles generally accepted in the United States. As
such, we are required to make certain estimates, judgments and
assumptions that we believe are reasonable based upon the information
available. These estimates and assumptions affect the reported amounts
of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the periods
presented. To fully understand and evaluate our reported financial
results, we believe it is important to understand our policies for
revenue recognition, provision for doubtful accounts and software
development costs.
REVENUE RECOGNITION
We recognize software license revenues upon delivery of our software
to customers, provided persuasive evidence of an agreement exists, the
fee is fixed or determinable and collection of the related receivable
is probable. We allocate our software license revenues under
arrangements where we sell software and services together under one
contract to each element based on our relative fair values, with these
fair values being determined using the price charged when that element
is sold separately. If fair value for a delivered element does not
exist but the fair value does exist for all undelivered elements, we
defer the fair value of the undelivered elements and recognize the
remaining value for the delivered elements.
We generally recognize software license revenues from resellers or
distributors at the time of shipment, provided that all other revenue
recognition criteria set forth in governing statements of position on
software revenue recognition have been met.
We recognize services revenues from software maintenance agreements
ratably over the term of the maintenance period, typically one year.
We recognize services revenues from training as the services are
performed. Amounts collected or billed prior to satisfying the above
revenue recognition criteria are reflected as deferred revenue.
Revenues under fixed-price contracts are recorded on a
percentage-of-completion method on the cost-to-cost basis. Provision
for anticipated losses on long-term contracts are recorded in full
when such losses become evident. We use estimates based on costs to
determine the percentage completion of our long-term contracts and
thus its revenue recognition. These estimates and contracts are
reviewed regularly and are adjusted to meet the Company's best
estimate at the time. The Company's assumptions used to form these
estimates may require adjustment should circumstances on a contract
change.
PROVISION FOR DOUBTFUL ACCOUNTS
Occasionally, our customers experience financial difficulty after we
record a sale but before payment has been received. We maintain
allowances for doubtful accounts for estimated losses resulting from
the inability of our customers to make required payments on our normal
payment terms. These estimated allowances are based primarily on our
evaluation of the financial condition of our customers. If the
financial condition of any of our customers was to deteriorate,
resulting in the impairment of their ability to make payments to us,
additional allowances may be required.
SOFTWARE DEVELOPMENT COSTS
We account for software development costs in accordance with SFAS No.
86, Accounting for the Costs of Computer Software to Be Sold, Leased
or Otherwise Marketed. Software development costs incurred from the
point of reaching technological feasibility until the time of general
product release should be capitalized. We define technological
feasibility as the completion of a working model. Because we sell our
products in a market that is subject to rapid technological change,
new product development and changing customer needs, we have concluded
that technological feasibility is not established until the
development stage of the product is nearly complete. For us, the
9
period in which we can capitalize software development costs is very
short, so the amounts that could be capitalized are not material to
our financial statements. Therefore, we have charged all such costs to
research and development expense in the period incurred.
RECENT ACCOUNTING PRONOUNCEMENTS
None.
RESULTS OF OPERATIONS
Our operating results for each of the three months and six months ended June 30,
2002 and 2001, expressed as a percentage of revenues are as follows:
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
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2002 2001 2002 2001
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Revenues:
Software license 54% 57% 49% 63%
Service and maintenance 46% 43% 51% 37%
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Total revenues 100% 100% 100% 100%
Cost of revenues:
Software license 5% 3% 3% 2%
Service and maintenance 29% 31% 32% 31%
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Total cost of revenues 34% 34% 35% 33%
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Gross profit 66% 66% 65% 67%
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Operating expenses:
Research and development expenses, net 13% 14% 17% 17%
Sales and marketing expenses 64% 72% 70% 77%
General and administrative expenses 21% 19% 23% 19%
Reorganization expenses - - - 3%
Share-based compensation 2% - 2% 2%
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Total operating expenses 100% 105% 112% 118%
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Operating loss (34%) (39%) (47%) (51%)
Interest and other income, net 4% 2% 2% 5%
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Net loss (30%) (37%) (45%) (46%)
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RESULTS OF OPERATIONS FOR THREE MONTHS ENDED JUNE 30, 2002 AND 2001
REVENUES: Company revenues decreased by $0.4 million or 9% to $4.6 million for
the three months ended June 30, 2002 from $5.0 million for the three months
ended June 30, 2001. This decrease was the result of the general economic
conditions, and slower than expected recovery in Information Technology
spending. Specifically, increased scrutiny of capital budgets has resulted in
unexpected delays in the larger opportunities and smaller than expected initial
orders on the deals that did successfully close.
SOFTWARE LICENSE: Software license revenues were $2.5 million or 54% of total
revenues for the three months ended June 30, 2002, and $2.9 million or 57% of
total revenues for the three months ended June 30, 2001. The decrease in
software license revenues was the result of slower than expected economic
recovery in domestic and international opportunities during the second quarter
of 2002.
10
SERVICE AND MAINTENANCE: Service and maintenance revenues were $2.1 million or
46% of revenues for the three months ended June 30, 2002, and $2.2 million or
43% of total revenue in the three months ended June 30, 2001. The decrease in
service and maintenance revenues on an absolute basis was primarily due to a
decrease in license revenues in the first quarter of 2002.
COST OF REVENUES: Cost of revenues were $1.6 million or 34% of revenues for the
three months ended June 30, 2002, and $1.7 million or 34% of revenues for the
three months ended June 30, 2001. The decrease in the cost of revenues on an
absolute basis was primarily due to a decrease in service deployment costs
offset by an increase in third party licensing and deployment costs.
COST OF SOFTWARE LICENSES: Cost of software license revenues were $229,000 or 5%
of revenues for the three months ended June 30, 2002, and $138,000 or 3% of
revenue for the three months ended June 30, 2001. The increase in the cost of
software licenses was due to an increase in new third parties' licenses and
adaptors sold to new customers in the second quarter of 2002.
COST OF SERVICE AND MAINTENANCE: Cost of service and maintenance revenues was
$1.3 million or 29% of revenues for the three months ended June 30, 2002, and
$1.6 million or 31% of revenues for the three months ended June 30, 2001. The
decrease in the cost of service and maintenance on an absolute basis was
primarily due to lower license revenue generated in the first quarter of 2002 as
well as service improvements reducing implementation time associated with our
products.
GROSS PROFIT: Gross profit as a percentage of revenues was 66% for the three
months ended June 30, 2002 which is the same as the 66% reported for the three
months ended June 30, 2001.
OPERATING EXPENSES: Total operating expenses were $4.6 million or 100% of
revenues for the three months ended June 30, 2002, and $5.3 million or 105% of
revenues for the three months ended June 30, 2001. The decrease in operating
expenses was primarily due to the decreases in sales and marketing costs.
RESEARCH AND DEVELOPMENT EXPENSES, NET: Research and development expenses, net
of related grants, were $590,000 or 13% of revenues for the three months ended
June 30, 2002, and $685,000 or 14% of revenues for the three months ended June
30, 2001. The decrease in research and development expenses on an absolute basis
is due to cost controls implemented during the past twelve months.
SALES AND MARKETING EXPENSES: Sales and marketing expenses were $2.9 million or
64% of revenues for the three months ended June 30, 2002, and $3.6 million or
72% of revenues for the three months ended June 30, 2001. The absolute decrease
in sales and marketing expenses was due to cost controls implemented during the
year as well as the decrease in revenues that reduced related variable expenses.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses were
$965,000 or 21% of revenues for the three months ended June 30, 2002, and
$962,000 or 19% of revenues for the three months ended June 30, 2001. The
absolute increase in general and administrative expenses was due primarily to an
increase in the provision for doubtful accounts amounting to $506,000 in the
quarter ended June 30, 2002 as compared to $207,000 for the quarter ended June
30, 2001, offset by a significant decrease in other general and administrative
expenses.
SHARE-BASED COMPENSATION: Share-based compensation for the three months ended
June 30, 2002 amounted to $75,000 of previously recorded deferred compensation.
Share based compensation for the three months ended June 30, 2001 amounted to
$16,000.
During the quarter, the U.S. dollar amount of expenses incurred in NIS decreased
as a result of depreciation of the NIS by 17% in the second quarter of 2002
compared to the second quarter of 2001.
11
RESULTS OF OPERATIONS FOR SIX MONTHS ENDED JUNE 30, 2002 AND 2001
REVENUES: Company revenues decreased $1.2 million or 13% to $8.3 million for the
six months ended June 30, 2002 from $9.5 million for the six months ended June
30, 2001. This decrease was the result of the general economic conditions, and
slower than expected recovery in Information Technology spending. Specifically,
increased scrutiny of capital budgets has resulted in unexpected delays in
larger opportunities and smaller than expected initial orders on the deals that
did successfully close.
SOFTWARE LICENSE: Software license revenues were $4.1 million or 49% of total
revenues for the six months ended June 30, 2002, and $6.0 million or 63% of
total revenues for the six months ended June 30, 2001. The decrease in software
license revenues was the result of slower that expected economic recovery in
domestic and international opportunities during the first and second quarters of
2002.
SERVICE AND MAINTENANCE: Service and maintenance revenues were $4.2 million or
51% of revenues for the six months ended June 30, 2002, and $3.5 million or 37%
of total revenue in the six months ended June 30, 2001. The increase in service
and maintenance revenues was primarily due to an increase in maintenance
contracts during the first two quarters of 2002.
COST OF REVENUES: Cost of revenues were $2.9 million or 35% of revenues for the
six months ended June 30, 2002, and $3.1 million or 33% of revenues for the six
months ended June 30, 2001. The decrease in the cost of revenues on an absolute
basis was primarily due to a decrease in service deployment costs resulting from
operational efficiencies offset by a small increase in third party licensing and
deployment costs.
COST OF SOFTWARE LICENSES: Cost of software license revenues were $229,000 or 3%
of revenue for the six months ended June 30, 2002, and $212,000 or 2% of revenue
for the six months ended June 30, 2001. The increase in the cost of software
licenses was due to increase in new third parties' licenses and adaptors sold in
the second quarter of 2002.
COST OF SERVICE AND MAINTENANCE: Cost of service and maintenance revenues was
$2.6 million or 32% of revenues for the six months ended June 30, 2002, and $2.9
million or 31% of revenues for the six months ended June 30, 2001. The decrease
in the cost of service and maintenance on an absolute basis was primarily due to
service improvements reducing implementation time associated with our products.
GROSS PROFIT: Gross profit as a percentage of revenues was 65% for the six
months ended June 30, 2002 as compared to 67% for the six months ended June 30,
2001. The decrease in the gross profit is due to the decrease in higher margin
license revenues as a percentage of revenues.
OPERATING EXPENSES: Total operating expenses were $9.3 million or 112% of
revenues for the six months ended June 30, 2002, and $11.2 million or 118% of
revenues for the six months ended June 30, 2001. The decrease in operating
expenses was primarily due to the decreases in sales and marketing costs and
one-time reorganization expenses as a percentage of revenues incurred in the
first quarter of 2001.
RESEARCH AND DEVELOPMENT EXPENSES, NET: Research and development expenses, net
of related grants, were $1.4 million or 17% of revenues for the six months ended
June 30, 2002, and $1.7 million or 17% of revenues for the six months ended June
30, 2001. The decrease in research and development expenses on an absolute basis
is due to cost controls implemented during the past few quarters.
SALES AND MARKETING EXPENSES: Sales and marketing expenses were $5.8 million or
70% of revenues for the six months ended June 30, 2002, and $7.3 million or 77%
of revenues for the six months ended June 30, 2001. The decrease in sales and
marketing expenses was due to cost controls implemented during the year of 2001
as well as the decrease in revenues that reduced related variable expenses.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses were
$2.0 million or 23% of revenues for the six months ended June 30, 2002, and $1.8
million or 19% of revenues for the six months ended June 30, 2001. The absolute
increase in general and administrative expenses was due primarily to an increase
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in the provision for doubtful accounts amounting to $885,000 for the six months
ended June 30, 2002, compared to a provision of $307,000 for the six months
ended June 30, 2001.
Reorganization costs: Reorganization costs were 0.3 or 3% of revenues for the
six months ended June 30,2001.These expenses were primarily costs associated
with severance payments to terminated employees. There were no reorganization
costs in the six months ended June 30,2002.
SHARE-BASED COMPENSATION: Share-based compensation for the six months ended June
30, 2002 amounted to $150,000 of previously recorded deferred compensation.
Share based compensation for the six months ended June 30, 2001 amounted to
$187,000. The decrease in share-based compensation is attributed to the fact
that the amortization of the share-based compensation progressively decreases
over the four-year amortization period.
During the first six months of 2002, the U.S. dollar amount of expenses incurred
in NIS decreased as a result of depreciation of the NIS by 15% in the six months
ended June 30, 2002 compared to the six months ended June 30,2001.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2002 we had cash and cash equivalents of $4.8 million and
short-term investments of $4.1 million totaling of $8.9 million.
From inception through our IPO on June 22, 2000, we financed our operations
primarily through the private placement of equity securities, which through
December 31, 1999 totaled approximately $32.0 million, net of issuance costs.
Our initial public stock offering of ordinary shares realized $28.3 million, net
of underwriter discount and other issuance costs.
Net cash used in operating activities primarily consisted of net losses in
addition to changes in trade receivables, prepaid expenses and changes in
accounts payable, partially offset by amortization of deferred compensation and
depreciation, as applicable. For the six months ended June 30, 2002, cash used
in operations was $656,000, comprised of our net loss of $3.7 million, a
decrease in trade receivables of $1.4 million, an decrease in other receivables
of $128,000, an increase in accounts payable of $371,000, an increase in
deferred revenue of $392,000, partially offset by non-cash charges of $726,000.
For the six months ended June 30, 2001, cash used in operations was $5.8
million, comprised of our net loss of $4.4 million, an increase in trade
receivables of $2.2 million, an increase in other receivables of $422,000, an
increase in accounts payable of $281,000, a decrease in deferred revenue of
$25,000, partially offset by non-cash charges of $977,000.
Net cash used in investing activities for the six months ended June 30, 2002 was
$2.6 million, of which $2.4 million was invested in short-term investments and
$231,000 was invested primarily in purchases of equipment and systems, including
computer equipment and fixtures and furniture. Net cash provided from investing
activities for the six months ended June 30, 2001 was $10.6 million, of which
$11.2 million provided from the sale of short-term investments and $561,000 was
invested primarily in leasehold improvements and purchases of equipment and
systems, including computer equipment and fixtures and furniture.
As of June 30, 2002 we had outstanding trade receivables of approximately $5.2
million. Our trade receivables typically have 30 to 180 day terms, although we
have also negotiated longer payment plans with some of our clients. Current
economic conditions have increased the difficulties in collecting accounts
receivables and the typical collection period has lengthened. For the six months
ended June 30, 2002 our DSO (Day Sales Outstanding) was 102 days, a decrease of
15 days from 117 for the six months ended June 30, 2001.
Since inception, we have received aggregate payments from the Government of the
State of Israel in the amount of $5.9 million related to research and
development. As of June 30, 2002, we have paid or accrued royalties related to
these funds in the amount of $2.2 million.
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 June 30, 2002.
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The Company also has an aggregate of $33,000 in term loans relating to
borrowings for working capital.
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.
This letter of credit will mature in September 2003. The other is for $817,000
and secures our performance pursuant to projects with the Government of Israel.
Portions of this letter will mature between August 2002 and February 2003 and
are subject to renewal. 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. This letter of credit will mature on the earlier of
ClickSoftware achieving four profitable quarters, or June 30, 2007.
Additionally, Bank Leumi in the Silicon Valley has issued a letter of credit on
our behalf in the amount of $1.7 million to secure our performance of a project
in Australia. This letter of credit will mature between October 2002 and August
2003.
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 balance will be
sufficient to fund our expenses until we reach profitability.
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.
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 continue to indicate uncertain economic conditions. Weak economic
conditions may cause continued reductions in information technology spending
generally. We experienced and may continue to experience an adverse impact on
the demand for our products, which would adversely affect our results of
operations. We may not accurately gauge the effect of the general economy on our
business. As a result, we may not react to such changing conditions in a timely
manner which may result in an adverse impact on our results of operations. Any
such adverse impacts to our results of operations from a changing economy may
cause the price of our ordinary shares to decline.
WE HAVE NOT ACHIEVED PROFITABILITY. 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:
o the volume and timing of customer orders;
14
o internal budget constraints and approval processes of our current
and prospective clients;
o the length and unpredictability of our sales cycle;
o the mix of revenue generated by product licenses and professional
services;
o the mix of revenue between domestic and foreign sources;
o announcements or introductions of new products or product
enhancements by us or our competitors;
o changes in prices of and the adoption of different pricing
strategies for our products and those of our competitors;
o timing and amount of sales and marketing expenses;
o changes in our business and partner relationships;
o technical difficulties or "bugs" affecting the operation of our
software;
o foreign currency exchange rate fluctuations; and
o 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
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 June 30, 2002,
we employed 48 individuals in our sales and marketing organizations. Because 12
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.
15
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. 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. Moshe BenBassat, Mr. Shimon Rojany our Chief Financial
Officer, 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
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.
16
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.
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.
17
Our end-user licenses are designed to prohibit unauthorized use, copying or
disclosure of our software and technology in the United States, Israel and other
foreign countries. However, these provisions may be unenforceable under the laws
of some jurisdictions and foreign countries. Unauthorized third parties may be
able to copy some portions of our products or reverse engineer or obtain and use
information and technology that we regard as proprietary. Third parties could
also independently develop competing technology or design around our technology.
If we are unable to successfully detect infringement and/or to enforce our
rights to our technology, we may lose competitive position in the market. We
cannot assure you that our means of protecting our intellectual property rights
in the United States, Israel or elsewhere will be adequate or that competing
companies will not independently develop similar technology. In addition, some
of our licensed users may allow additional unauthorized users to use our
software, and if we do not detect such use, we could lose potential license
fees.
OUR TECHNOLOGY AND OTHER INTELLECTUAL PROPERTY MAY BE SUBJECT TO INFRINGEMENT
CLAIMS. Substantial litigation regarding technology rights and other
intellectual property rights exists in the software industry both in terms of
infringement and ownership issues. A successful claim of patent, copyright or
trademark infringement or conflicting ownership rights against us could require
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:
o be time-consuming to defend;
o result in costly litigation;
o divert management's attention and resources; or
o 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.
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:
o foreign currency exchange rate fluctuations;
o longer sales cycles;
o multiple, conflicting and changing governmental laws and
regulations;
o expenses associated with customizing products for foreign
countries;
o protectionist laws and business practices that favor local
competition;
o difficulties in collecting accounts receivable; and
o political and economic instability.
18
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.
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.
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
19
your rights as a shareholder. Certain obligations and fiduciary duties of
directors, officers and shareholders under the new Companies Law are new and
have not been interpreted or reviewed by the Israeli courts. In addition, not
all of the regulations have been promulgated to date. As a result, our
shareholders may have more difficulty and uncertainty in protecting their
interests in the case of actions by our directors, officers or controlling
shareholders or third parties than would shareholders of a corporation
incorporated in a state or other jurisdiction in the United States.
WE ARE SUBJECT TO A RECENTLY ADOPTED NEW TAX LAW, THE CONSEQUENCES OF WHICH ARE
NOT CLEAR. On July 24, 2002, the Israeli parliament, the Knesset, enacted the
Law for Amendment of the Income Tax Ordinance. The amendment substantially
changes Israeli taxation in Israel in several areas, including: (a) gradual
reduction of the direct tax burden on personal work income; (b) taxation of the
capital market and savings; (c) increased taxation of income outside of Israeli
residents outside Israel; (d) elimination of many exemptions and preferential
tax rates; and (e) encouragement of business and technological activities. The
Amendment is extensive and significantly changes part of the current tax
principles under Israeli tax law. In order to implement part of the amendment,
the Minister of Finance was authorized to promulgate regulations under the
amendment. Such regulations have not been promulgated yet. The amendment was
enacted and major parts of it will become effective on January 1, 2003. The
Company is currently reviewing the possible implications of the amendment.
However, it is not possible, at this stage, to estimate the effect of this
amendment on the financial statements.
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 on an
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 you 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
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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 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
a merger or other acquisition of us, even if doing so would be beneficial to our
21
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.
OTHER ORDINARY SHARES MAY BE SOLD IN THE FUTURE. THIS COULD DEPRESS THE MARKET
PRICE FOR OUR ORDINARY SHARES. As of June 30, 2002, we had 26,338,373 (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
June 30, 2002, we had 2,389,305 ordinary shares issuable upon exercise of
outstanding options, and 1,634,979 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.
WE HAVE APPLIED TO MOVE OUR LISTING FROM THE NASDAQ NATIONAL MARKET TO THE
NASDAQ SMALLCAP MARKET, WHICH COULD ADVERSELY AFFECT THE ABILITY TO TRADE AND
THE PRICE OF OUR ORDINARY SHARES. On August 12, 2002, because we were unable to
meet the continued listing criteria for the Nasdaq National Market, we applied
to move our listing to the Nasdaq SmallCap Market. There are no assurances that
our application will be approved or that we will be able to meet the Nasdaq
SmallCap Market continued listing criteria in the future. As a result of this
proposed move to the Nasdaq SmallCap Market, because of certain secondary
trading restrictions, our ordinary shares may become harder to buy and sell. We
cannot predict how the trading market for our ordinary shares will be affected
by our proposed move to the National SmallCap Market, but decreased trading
volume may cause the price of our ordinary shares to fall.
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:
o fund additional marketing expenditures;
o develop new or enhance existing products and services;
o enhance our operating infrastructure;
o hire additional personnel;
o respond to competitive pressures;
o acquire complementary businesses or necessary technologies; or
o 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
22
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
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:
o announcements of technological innovations;
o announcements relating to strategic relationships;
o conditions affecting the software and Internet industries;
o trends related to the fluctuations of stock prices of companies
such as ours;
o our historical and anticipated quarterly and annual operating
results;
o variations between our actual results and the expectations of
investors or published reports or analyses of ClickSoftware;
o announcements by us or others affecting our business, systems or
expansion plans; and
o 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.
23
ITEM 3. 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. However, due to the short-term
nature of our term investments, we have concluded that there is no material
market risk exposure and we do not anticipate material losses as a result of
foreign exchange rate fluctuations. Therefore, no quantitative tabular
disclosures are required. Additionally, although we do not presently participate
in hedging contracts related to foreign currency exchange rates, we may do so in
the future to protect against rate fluctuations affecting our foreign currency
accounts receivable balances. We do not participate in any speculative
investments.
INTEREST RATE RISK. As of June 30, 2002, we had cash, cash equivalents and
short-term investments of $8.9 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 June 30, 2002, we had total short-term loans and current maturities of
$33,000. As of June 30,2002 we had $1.0 million unsecured line of credit.
The following table provides information about our investment portfolio, cash,
and long-term loans as of June 30, 2002 and presents principal cash flows and
related weighted averages interest rates by expected maturity dates.
YEAR OF MATURITY TOTAL CARRYING
2002 2003 AFTER 2003 VALUE
(in thousands of dollars)
A) CASH AND CASH EQUIVALENTS AND INVESTMENT PORTFOLIO:
- ------------------------------------------------------
Cash and equivalents $ 4,789 - - $ 4,789
Average interest rate 2.0% - - 2.0%
Commercial Papers $ 1,800 - - $ 1,800
Average interest rate 2.0% - - 2.0%
Bank Deposits - $2,000 - $ 2,000
Average interest rate - 2.2% - 2.2%
Copr Bonds $ 307 - - $ 307
Average interest rate 2.2% - - 2.2%
B) TERM DEBTS:
- --------------
N.I.S indexed loans $ 2 $ 2 - 4
Average interest rate 5.4% 5.4% - 5.4%
Leases US$ $ 12 $ 1 - $ 13
Average interest rate 7.1% 7.1% - 7.1%
Leases GBP $ 10 $ 6 - $ 16
Average interest rate 3.5% 3.5% - 3.5%
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PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
None
ITEM 2. Changes in Securities and Use of Proceeds
None
ITEM 4. Submission of matters to a vote of security holders
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Index
Exhibit Number Description
99.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
99.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) Reports on for 8 - K:
No reports on Form 8-K were filed with the Securities and Exchange
Commission during the three months ended June 30, 2002.
25
SIGNATURES
Pursuant to the requirements 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.
CLICKSOFTWARE TECHNOLOGIES LTD.
(Registrant)
By: /s/ SHIMON M. ROJANY
--------------------------
Shimon M. Rojany
Senior Vice President and
Chief Financial Officer
Date: August 14, 2002
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