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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 March 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
----- -----
As of March 31, 2003, there were 26,373,249 shares of the Registrant's
ordinary shares, par value 0.02 NIS, outstanding (net of treasury stock).
1
CLICKSOFTWARE TECHNOLOGIES LTD.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2003
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
(a) Condensed Consolidated Balance Sheets as of March 31, 2003 and
December 31, 2002......................................................... 3
(b) Condensed Consolidated Statements of Operations for the three
months ended March 31, 2003 and March 31, 2002............................ 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................................................ 9
Item 3. Quantitative and Qualitative Disclosures About Market Risks.......... 22
Item 4. Controls and Procedures.............................................. 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................... 24
Item 2. Changes in Securities and Use of Proceeds............................ 24
Item 4. Submission of Matters to a Vote of Security Holders.................. 24
Item 5. Other information ................................................... 24
Item 6. Exhibits and Reports on Form 8-K..................................... 24
Signatures..................................................................... 25
Exhibit 99.1................................................................... 28
Exhibit 99.2 .................................................................. 29
2
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CLICKSOFTWARE TECHNOLOGIES LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31,
2003 2002
---------------------------------------
(UNAUDITED)
---------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,207 $ 3,400
Short-term investments 3,114 2,949
Trade receivables, net 2,474 4,043
Other receivables and prepaid expenses 1,462 1,254
---------------------------------------
Total current assets 12,257 11,646
---------------------------------------
Long-term investments 280 280
Property and equipment, net 1,123 1,250
Severance pay deposits 710 781
---------------------------------------
Total assets $ 14,370 $ 13,957
=======================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $ 13 $ 17
Accounts payable and accrued expenses 4,908 5,369
Deferred revenues 1,189 411
---------------------------------------
Total current liabilities 6,110 5,797
---------------------------------------
LONG-TERM LIABILITIES:
Accrued severance pay 1,343 1,476
---------------------------------------
Total long-term liabilities 1,343 1,476
---------------------------------------
Total liabilities 7,453 7,273
---------------------------------------
SHAREHOLDERS' EQUITY:
Ordinary shares of NIS 0.02 par value:
Authorized -- 100,000,000 as of March 31, 2003 and December 31, 2002;
Issued -- 26,412,249 shares as of March 31, 2003 and December 31, 2002.
Outstanding -- 26,373,249 shares as of March 31, 2003 and December 31, 2002. 102 102
Additional paid-in capital 69,196 69,196
Deferred stock compensation (26) (101)
Accumulated deficit (62,312) (62,470)
Treasury stock, at cost: 39,000 shares (43) (43)
---------------------------------------
Total shareholders' equity 6,917 6,684
---------------------------------------
Total liabilities and shareholders' equity $ 14,370 $ 13,957
=======================================
The accompanying notes are an integral part of these condensed consolidated financial statements
3
CLICKSOFTWARE TECHNOLOGIES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
2003 2002
-----------------------------------------
Revenues:
Software license $ 2,245 $ 1,020
Services 2,896 2,086
-----------------------------------------
Total revenues 5,141 3,106
-----------------------------------------
Cost of revenues:
Software license 131 36
Services 1,677 1,387
-----------------------------------------
Total cost of revenues 1,808 1,423
-----------------------------------------
Gross profit 3,333 1,683
-----------------------------------------
Operating expenses:
Research and development expenses, net 486 817
Selling and marketing expenses 1,955 2,672
General and administrative expenses 730 489
Amortization of deferred Stock-based compensation (1) 75 75
-----------------------------------------
Total operating expenses 3,246 4,053
-----------------------------------------
Operating income (loss) 87 (2,370)
Interest and other income, net 71 20
-----------------------------------------
Net income (loss) $ 158 $ (2,350)
-----------------------------------------
Basic and diluted earnings (loss) per share $ 0.01 $ (0.09)
-----------------------------------------
Shares used in computing basic and diluted earnings (loss) per share 25,616,410 25,488,015
-----------------------------------------
(1) Amortization of deferred stock-based compensation would be further classified as follows:
THREE MONTHS ENDED
MARCH 31,
-----------------------------------------
2003 2002
-----------------------------------------
Cost of revenues $ 5 $ 5
Research and development expenses 11 11
Selling and marketing expenses 3 3
General and administrative expenses 56 56
-----------------------------------------
Total $ 75 $ 75
-----------------------------------------
The accompanying notes are an integral part of these condensed consolidated financial statements
4
CLICKSOFTWARE TECHNOLOGIES LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
2003 2002
-----------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 158 $ (2,350)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities Expenses not affecting operating cash flows:
Depreciation 132 198
Amortization of deferred compensation 75 75
Gain from investments 11 40
Severance pay, net (62) (21)
Changes in operating assets and liabilities:
Trade receivables 1,569 1,986
Other receivables and prepaid expenses (208) (541)
Accounts payable and accrued expenses (461) 64
Changes in investments, net - (553)
Deferred revenues 778 253
-----------------------------------------
Net cash provided by (used in) operating activities 1,992 (849)
-----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Short-term investments (176) -
Purchases of equipment (5) (175)
-----------------------------------------
Net cash used in investing activities (181) (175)
-----------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt, net (4) (60)
Repayments of long-term debt - (12)
Employee options exercised - 5
-----------------------------------------
Net cash used in financing activities (4) (67)
-----------------------------------------
Increase (decrease) in cash and cash equivalents 1,807 (1,091)
Cash and cash equivalents at beginning of period 3,400 8,125
-----------------------------------------
Cash and cash equivalents at end of period $ 5,207 $ 7,034
=========================================
Supplemental cash flow information:
Cash paid for interest 2 3
=========================================
The accompanying notes are an integral part of these condensed consolidated financial statements
5
CLICKSOFTWARE TECHNOLOGIES LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 2003 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2003 AND MARCH 31, 2002)
(IN THOUSANDS, EXCEPT SHARE DATA AND SHARE NUMBERS)
1. BASIS OF PRESENTATION
The accompanying condensed unaudited interim consolidated financial
statements have been prepared by ClickSoftware Technologies Ltd.
("ClickSoftware" or the "Company") in accordance with accounting principles
generally accepted in the United States of America for interim financial
information and the instructions to Form 10-Q and Article 10 of Regulation
S-X. These financial statements 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 March 31, 2003 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. These financial
statements should be read in conjunction with the audited financial
statements and notes thereto of ClickSoftware for the year ended December
31, 2002 that are included in ClickSoftware's Form 10-K filed with the
Securities and Exchange Commission on March 24, 2003. 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, 2003. The
balance sheet at December 31, 2002 has been derived from the audited
financial statements as of and for the year ended December 31, 2002, but
does not include all the information and footnotes required by generally
accepted accounting principles for annual financial statements.
2. RESTATEMENT
During the third quarter of 2002, the Company's audit committee, with the
assistance of outside advisors, conducted a review of its financial
statements for 2000 and 2001 and for the first six months of 2002. On
October 21, 2002, the Company announced that it would restate its financial
statements for 2000 and 2001 and for the first six months of 2002. The
restatement resulted primarily from the recognition of revenue from sales
to reseller customers and other customers, where revenue has been
recognized prematurely or should not have been recognized at all.
Following the reaudit of the Company's financial statements, the Company
restated its financial statements for the announced periods and for the
year ended December 31, 1999 and filed on January 24, 2003 an amendment to
the 10-K for the year ended December 31, 2001 (the "2001 10-K/A").
The restatement is further discussed in note 3 of the notes to the
consolidated financial statements of the Company that are included in the
2001 10-K/A.
3. REVENUE RECOGNITION
The Company recognizes revenues in accordance with the American Institute
of Certified Public Accountants ("AICPA") Statement of Position 97-2,
Software Revenue Recognition, as amended.
In accordance with SOP 97-2, revenues from software license fees are
recognized when persuasive evidence of an arrangement exists, the software
product covered by written agreement or a purchase order signed by the
customer has been delivered, the license fees are fixed and determinable
and collection of the license fees is considered probable. Revenues from
software product license agreements, which require significant
customization and modification of the software product are deferred and
recognized using the percentage-of-completion method of contract accounting
in accordance with AICPA Statement of Position 81-1. When software
arrangements involve multiple elements, the Company allocates revenue to
each element based on the relative fair values of the elements. The
Company's determination of fair value of each element in multiple element
arrangements is based on vendor-specific objective evidence (VSOE).
6
The Company limits its assessment of VSOE for each element to the price
charged when the same element is sold separately. If vendor specific
objective evidence of fair value does not exist for all elements to support
the allocation of the total fee among all delivered and undelivered
elements of the arrangement, revenue is deferred until such evidence exist
for the undelivered elements, or until all elements are delivered,
whichever is earlier.
If the fee due from the customer is not fixed or determinable, revenue is
recognized as payments become due from the customer, assuming all other
revenue recognition criteria have been met. Generally, the Company
considers all arrangements with extended payment terms greater than nine
months not to be fixed or determinable.
The Company also enters into license arrangements with resellers whereby
revenues are recognized upon sale through to the end user by the reseller.
Service revenues include consulting services, post-contract customer
support and training. Consulting revenues are generally recognized on a
time and material basis. However, revenues from certain fixed-price
contracts are recognized on the percentage of completion basis.
Post-contract customer support agreements provide technical support and the
right to unspecified updates on an if-and-when-available basis.
Post-contract customer support revenues are recognized ratably over the
term of the support period (generally one year) and training and other
service revenues are recognized as the related services are provided.
4. STOCK-BASED COMPENSATION
The Company accounts for employee stock-based compensation in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and in accordance with FASB Interpretation No. 44.
Pursuant to these accounting pronouncements, the Company records
compensation for stock options granted to employees over the vesting period
of the options based on the difference, if any, between the exercise price
of the options and the market price of the underlying shares at that date.
Deferred compensation is amortized to compensation expense over the vesting
period of the options. See below for pro forma disclosures required in
accordance with SFAS No. 123, "Accounting for Stock-Based Compensation", as
amended by SFAS 148.
If stock-based compensation had been measured under the alternative fair
value accounting method provided for under SFAS No. 123, "Accounting for
Stock-Based Compensation", as amended by SFAS 148, the Company's net loss
and basic and diluted net loss per share would have been increased or
decreased to the following pro-forma amounts:
THREE MONTHS ENDED
MARCH 31 MARCH 31
2003 2002
---- ----
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
Net Income (loss)
As reported $ 158 $ (2,350)
Deduct- stock based compensation determined under APB 25 75 75
Add- stock based compensation determined under SFAS 123 (82) (133)
Pro-forma 151 (2,408)
Basic and diluted net loss per
Share
As reported $ 0.01 $ (0.09)
Pro-forma 0.01 (0.09)
Under SFAS 123, the fair market value of each option grant is estimated on
the date of grant using the " Black-Scholes Option Pricing" method with the
following weighted-average assumptions:(1) expected life of 5 years ;(2)
dividend yield of 0%; (3) expected volatility of 149% ;and (4) risk-free
interest rate of 4%.
7
5. BASIC AND DILUTED EARNINGS (LOSS) PER SHARE
Basic and diluted earnings (loss) per share are presented in conformity
with SFAS No. 128 "Earnings per Share" for all years presented. Basic and
diluted earnings (loss) per share have been computed using the
weighted-average number of ordinary shares outstanding during the year.
All outstanding share options and shares issued and reserved for
outstanding share options have been excluded from the calculation of basic
and diluted earnings (loss) per share because all such securities are
anti-dilutive for all periods presented. The total number of shares
excluded from the calculations of basic and diluted earnings (loss) per
share were 3,504,756 and 4,111,601 for the three months ended March 31,
2003 and March 31, 2002, respectively.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 quarterly report on Form 10-Q 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
Since late 1996, we have focused on providing service optimization software
products based on our W-6 Service Scheduler and TechMate technologies. We have
also invested significant resources in developing products based on these
technologies including, until 2001, increasing the number of our employees
involved in research and development, selling and marketing, and professional
services. During 2001 and 2002 the number of our employees decreased due to cost
cutting measures.
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. 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. Currently our product
offering for service optimization applications includes: CLICKSCHEDULE,
CLICKFIX, CLICKANALYZE, CLICKPLAN, CLICKMOBILE, AND CLICKFORECAST.
In the fourth quarter of 2002, in light of continued worldwide economic
recession and ongoing reductions in investments in corporate capital
expenditures, we initiated a reorganization plan aimed at reducing our operating
expenses. As part of the plan, we reduced our workforce by approximately 40
employees, implemented an across-the-board salary reduction, closed our office
in Campbell, California and moved our North America headquarters to Burlington,
Massachusetts. As a result of this plan, we recorded in the fourth quarter of
2002 restructuring costs and asset impairment in the amount of approximately
$2.7 million. (See also note 4 of the notes to our consolidated financial
statements for the year ended December 31, 2002 in "Item 8. Financial
Statements".)
We derive revenues from software licensing and services. Our operating history
shows that a significant percentage of our quarterly revenues comes from orders
placed toward the end of a quarter. Software license revenues are comprised of
perpetual software license fees primarily derived from contracts with our direct
sales clients and our indirect distribution channels. We recognize revenues in
accordance with the AICPA Statement of Position 97-2, "SOFTWARE REVENUE
RECOGNITION," or SOP 97-2, as amended (See note 3 of the notes to our interim
consolidated financial statements).
Service revenues are comprised of revenues from consulting, training, and
post-contract customer support. Consulting services are billed at an agreed-upon
rate plus incurred expenses. Clients licensing our products generally purchase
consulting agreements from us. Post-contract customer support arrangements
provide technical support and the right to unspecified upgrades on an if-and
when-available basis. Post-contract customer support revenues are charged as a
percentage of license fees depending upon the level of support coverage
requested by the customer. 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.
9
Cost of revenues consists of cost of software license revenues and cost of
services. Cost of software license revenues consists of expenses related to
media duplication and packaging of our products, costs of software purchased or
licensed for resale and royalties payments to the Chief Scientist. Cost of
services consists of expenses related to salaries and expenses of our
professional services organizations, costs related to third-party consultants,
and equipment costs and royalties payments to the Chief Scientist.
Operating expenses are categorized into research and development expenses, sales
and marketing expenses, general and administrative expenses, and stock-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 cost of revenues. Software
research and development costs incurred prior to the establishment of technology
feasibility are included in research and development expenses as incurred.
Selling 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, legal and costs related to activity as
public company.
Amortization of stock-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. Deferred stock-based
compensation is amortized over the vesting period of the underlying options,
generally four years.
Interest and other income (expenses) include interest income earned on 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 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.
The effects of foreign currency exchange rates on our results of operations for
the three months ended March 31, 2003 and 2002 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 German statutory tax rate on our German
income, the Australian tax rate on our Australian income and the Israeli tax
rate discussed below.
Israeli companies are generally subject to income tax at the rate of 36% of
taxable income. The majority of our income, however, is derived from our
company's capital investment program with "Approved Enterprise" status under the
Law for the Encouragement of Capital Investments, and is eligible therefore for
tax benefits. As a result of these benefits, we will have a tax exemption on
income derived during the first two years in which this investment program
produces taxable income and a reduced tax rate of 15-25% for the next 5 to 8
years. In the event of a distribution of a cash dividend out of retained
earnings that were exempt from tax due to our Approved Enterprise status, we
would be required to pay 25% corporate income tax on income from which the
dividend was distributed. All of these tax benefits are subject to various
conditions and restrictions. There can be no assurance that we will obtain
approval for additional Approved Enterprise Programs or that the provisions of
the law will not change.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United
States. The preparation of these financial statements requires us to
10
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. We evaluate these estimates on an on-going basis. We base our
estimates on our historical experience and on various other assumptions that we
believe to be reasonable under the circumstances. These estimates form the basis
for making judgments about the carrying amount values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
Our recognition of revenue requires judgments and estimates that may
significantly impact our consolidated financial statements.
Revenue results are difficult to predict, and any shortfall in revenues or delay
in recognizing revenues could cause our operating results to vary significantly
from quarter to quarter and could result in future operating losses. In
addition, the timing of our revenue recognition influences the timing of certain
expenses, such as commissions and royalties. We follow very specific and
detailed guidelines in measuring revenues, however, certain judgments affect the
application of our revenue policy.
Our revenues are principally derived from the licensing of our software and the
provision of related services. We recognize revenues in accordance with SOP
97-2. Revenues from software license fees are recognized when persuasive
evidence of an arrangement exists, either by written agreement or a purchase
order signed by the customer, the software product has been delivered, the
license fees are fixed and determinable, and collection of the license fees is
considered probable. License fees from software arrangements that involve
multiple elements, such as post-contract customer support, consulting and
training, are allocated to each element of the arrangement based on the relative
fair values of the elements. We determine the fair value of each element in
multiple-element arrangements based on vendor specific objective evidence, or
VSOE. We determine the VSOE for each element according to the price charged when
the element is sold separately. In judging the probability of collection of
software license fees we continuously monitor collection and payments from our
customers and maintain a provision for estimated credit losses based upon our
historical experience and any specific customer collection issues that we have
identified. In connection with customers with whom we have no previous
experience, we may utilize independent resources to evaluate the
creditworthiness of those customers. For some customers, typically those with
whom we have long-term relationships, we may grant extended payment terms. We
perform on-going credit evaluations of our customers. If the financial situation
of any of our customers were to deteriorate, resulting in an impairment of their
ability to pay amounts owed to us, additional allowances may be required.
Our software products generally do not require significant customization or
modification. However, when such customization or modification is necessary, the
revenue generated by those activities is deferred and recognized using the
percentage of completion method.
Service revenues include post-contract customer support, consulting and
training. Post-contract customer support arrangements provide for technical
support and the right to unspecified updates on an if-and-when-available basis.
Revenues from those arrangements are recognized ratably over the term of the
arrangement, usually one year. Revenues from consulting services are recognized
on a time and material basis or, in a fixed price contract, on a percentage of
completion basis. Revenues from training are recognized as the services are
provided.
In recognizing revenues based on the rate of completion method, we estimate time
to completion with revisions to estimates made in the period in which changes
become known. If we do not accurately estimate the resources required or scope
of work to be performed, manage our projects properly within the planned periods
of time or satisfy our obligations under the contracts, then future services
margins may be significantly and negatively affected or losses on existing
contracts may need to be recognized.
RECENT ACCOUNTING PRONOUNCEMENTS
None.
11
RESULTS OF OPERATIONS
Our operating results for each of the three months ended March 31, 2003 and
2002, expressed as a percentage of revenues are as follows:
THREE MONTHS
ENDED MARCH 31,
------------------------------------
2003 2002
------------------------------------
Revenues:
Software license 44% 33%
Services 56% 67%
------------------------------------
Total revenues 100% 100%
------------------------------------
Cost of revenues:
Software license 3% 1%
Services 33% 45%
Total cost of revenues 36% 46%
------------------------------------
Gross profit 64% 54%
------------------------------------
Operating expenses:
Research and development expenses, net 9% 26%
Selling and marketing expenses 38% 86%
General and administrative expenses 14% 16%
Share-based compensation 1% 2%
------------------------------------
Total operating expenses 62% 130%
------------------------------------
Operating income (loss) 2% (76%)
Interest and other income, net 1% -%
------------------------------------
Net income (loss) 3% (76%)
====================================
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED MARCH 31, 2003 AND 2002
REVENUES: Company revenues increased $2.0 million or 66% to $5.1 million for the
three months ended March 31, 2003 from $3.1 million for the three months ended
March 31, 2002. This increase in revenues was the result of increased demand for
our products and the expansion of our sales and marketing efforts into various
industries. For the three months ended March 31, 2003, 42% of our revenues were
generated in North America, 44% in Europe, 13% in Asia Pacific and Africa and 1%
in Israel. For the three months ended March 31, 2002, 55% of our revenues were
generated in North America, 32% in Europe, 11% in Asia Pacific and Africa and 2%
in Israel.
SOFTWARE LICENSE REVENUES: Software license revenues increased $1.2 million or
120% to $2.2 million for the three months ended March 31, 2003 from $1.0 million
for the three months ended March 31, 2002. Software license revenues were $2.2
million or 44% of total revenues for the three months ended March 31, 2003, and
$1.0 million or 33% of total revenues for the three months ended March 31, 2002.
The increase in software license revenues by $1.2 million or 120% from the three
months ended March 31, 2002 was primarily the result of repeat orders.
SERVICES: Services revenues were $2.9 million or 56% of revenues for the three
months ended March 31, 2003, and $2.1 million or 67% of total revenue in the
three months ended March 31, 2002. The increase in services revenues by $0.8
million or 39% from the three months ended March 31, 2002 was primarily due to
an increase in professional services fees in connection with implementations for
clients during the first quarter of 2003 as well an increase in support revenues
as a result of an increase in number of customers under support agreements.
COST OF REVENUES: Cost of revenues were $1.8 million or 36% of revenues for the
three months ended March 31, 2003, and $1.4 million or 46% of revenues for the
three months ended March 31, 2002. The increase in the cost of revenues by $0.4
million or 27% from the three months ended March 31, 2002 on an absolute basis
was primarily due to higher costs associated with professional services
performed by the Company and an increase in royalties paid by the Company to the
Chief Scientist Office.
12
COST OF SOFTWARE LICENSES: Cost of software licenses was $131,000 or 3% of
revenues for the three months ended March 31, 2003 and $36,000 or 1% of revenues
in the three months ended March 31, 2002. The increase in the cost of software
licenses was due to an increase in royalties paid by the Company to the Chief
Scientist Office and an increase in new third parties' licenses sold by the
Company in the first quarter of 2003.
COST OF SERVICES: Cost of services revenues was $1.7 million or 33% of revenues
for the three months ended March 31, 2003, and $1.4 million or 45% of revenues
for the three months ended March 31, 2002. The increase in the cost of services
by $0.3 million or 21% from the three months ended March 31, 2002 on an absolute
basis was primarily due to the increased demand for our professional services
and an increase in royalties paid.
GROSS PROFIT: Gross profit was $3.3 million, or 64% of revenues for the three
months ended March 31, 2003 and $1.7 million, or 54% of revenues for the three
months ended March 31, 2002. The increase in the gross profit by $1.6 million or
98% was primarily due to an increase in total revenues. The increase in gross
profit as a percentage of revenues was the result of an increase in higher
margin license revenues and improvement in services profitability.
OPERATING EXPENSES: Total operating expenses were $3.2 million or 62% of
revenues for the three months ended March 31, 2003, and $4.1 million or 130% of
revenues for the three months ended March 31, 2002. The decrease in operating
expenses by $0.9 million or 20% from the three months ended March 31, 2002 was
primarily due to cost cutting measures implemented during 2002. Our total number
of employees decreased from 152 at March 31, 2002 to 112 at March 31, 2003.
RESEARCH AND DEVELOPMENT EXPENSES, NET: Research and development expenses, net
of related grants, were $486,000 or 9% of revenues for the three months ended
March 31, 2003, and $817,000 or 26% of revenues for the three months ended March
31, 2002. The decrease in research and development expenses by $0.3 million or
41% from the three months ended March 31, 2002 is primarily due to the impact of
cost cutting measures implemented during 2002.
SELLING AND MARKETING EXPENSES: Selling and marketing expenses were $2.0 million
or 38% of revenues for the three months ended March 31, 2003, and $2.7 million
or 86% of revenues for the three months ended March 31, 2002. The absolute
decrease in selling and marketing expenses by $0.7 million or 27% from the three
months ended March 31, 2002 was primarily due to cost cutting measures
implemented during 2002.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses were
$730,000 or 14% of revenues for the three months ended March 31, 2003, and
$489,000 or 16% of revenues for the three months ended March 31, 2002. The
increase in general and administrative expenses by $0.2 million or 49% from the
three months ended March 31, 2002 was due primarily to increased legal and
consultancy expenses and one time payroll charges amounted to approximately
$60,000.
AMORTIZATION OF STOCK-BASED COMPENSATION: Stock-based compensation expenses for
the three months ended March 31, 2003 and March 31, 2002 amounted to $75,000,
which had previously been recorded as deferred stock-compensation.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2003 we had cash and cash equivalents of $5.2 million,
short-term investments of $3.1 million and long-term investments of $0.3 million
for a total of $8.6 million.
From inception until our IPO in June 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.
For the three months ended March 31, 2003, cash provided by operations was $2.0
million, comprised of our net profit of $0.2 million, a decrease in trade
receivables of $1.6 million, an increase in other receivables of $0.2 million, a
decrease in accounts payable of $0.5 million, an increase in deferred revenue of
$0.8 million and non-cash charges of $0.2 million. For the three months ended
March 31, 2002, cash used in operations was $0.8 million, comprised of our net
loss of $2.4 million, a decrease in trade receivables of $2.0 million, an
increase in other receivables of $0.5 million, an increase in accounts payable
of $0.1 million, an increase in deferred revenue of $0.3 million, partially
offset by non-cash charges of $0.3 million and an increase in short term
investments of $0.6 million.
13
Net cash used in investing activities for the three months ended March 31, 2003
was $181,000 of which $176,000 was primarily invested in bank deposits and
$5,000 was invested in purchases of computer equipment. Net cash used in
investing activities for the three months ended March 31, 2002 was $175,000 and
was invested primarily in leasehold improvements and purchases of equipment and
systems, including computer equipment and fixtures and furniture.
As of March 31, 2003 we had outstanding trade receivables of approximately $2.5
million , which represented approximately 48% of revenues for the three months
ended March 31, 2003. Our trade receivables typically have 30 to 60 day terms,
although we have also negotiated longer payment plans with some of our clients.
For the three months ended March 31, 2003 our DSO (Day Sales Outstanding) was 43
days, a decrease of 34 days from 79 for the three months ended December 31,
2002.
We have entered into standby letters of credit agreements with banks primarily
relating to the guarantee of future performance on certain contracts and office
lease payments. As of March 31, 2003, contingent liabilities on outstanding
letters of credit agreements aggregated approximately $2.9 million of which all
but $318,000 are scheduled to expire during 2003. It is possible that some of
these letters of credit will be renewed following their expiration.The letters
of credit are secured by $3.2 million in deposits with the banks, to cover any
potential payments under the guarantees. As of December 31, 2002, contingent
liabilities on outstanding letters of credit agreements aggregated approximately
$2.6 million of which all but $280,000 are scheduled to expire during 2003. The
letters of credit were secured by $2.9 million in deposits with the banks, to
cover any potential guarantees.
Since inception, we have received aggregate payments from the Government of the
State of Israel through the Office of the Chief Scientist of the Ministry of
Industry and Trade in the amount of $6.5 million related to research and
development. In return for the Government of Israel participation, we are
committed to pay royalties at a rate of 3% to 5% of sales of the developed
product, up to 100%-150% of the amount of grants received with annual interest
of LIBOR as of the date of approval for programs approved from 1999 and
thereafter. As of March 31, 2003, we had paid or accrued royalties related to
the results of research and development in the amount of $2.5 million. The
estimated current net commitment is approximately $4.0 million. The refund of
the grant is contingent on future sales, and we have no obligation to refund
these grants if sufficient sales are not generated.
Our capital requirements depend on numerous factors, including market demand and
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 selling and marketing and research and
development operations in the future. We attained profitability in the three
month period ending March 31, 2003. Our ability to maintain profitability using
our currently available balance of cash and cash equivalents will depend on our
ability to increase our revenues while continuing to control our expenses.
However, we cannot assure you that we will be able to maintain profitability,
particularly given the current economic conditions and potential reduction in
information technology spending by our current and prospective customers. If we
are not successful in doing so, we will be required to seek new external sources
of financing. 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 out
shareholders.
We estimate that our expenses in the second quarter of 2003 will be between $5.0
and $5.5 million, although actual expenses may differ. Also we will need to use
cash during 2003 for certain expenses recorded in 2002 in connection with our
restructuring in the amount of approximately $1.3 million. If we are able to
maintain our quarterly revenues at a level similar to that of the first quarter
of 2003, we believe that we will have sufficient cash to fund our operations for
at least the next twelve months although there is no assurance we will be able
to do so.
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
OUR NEED FOR ADDITIONAL FINANCING IS UNCERTAIN, AS IS OUR ABILITY TO OBTAIN
FURTHER FINANCING IF REQUIRED. Our ability to maintain or increase profitability
using our currently available balance of cash and cash equivalents will depend
on our ability to increase our revenues while continuing to control our
expenses. We cannot assure you that we will be successful in doing so. If we are
14
not successful in doing so, particularly given current economic conditions and
potential reductions in information technology spending by our current and
prospective customers, we will need to raise additional capital to finance our
operations. Under current market conditions, we may not be able to do so by
selling additional equity or debt securities. If we are able to issue 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. 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.
Alternatively, we may seek other forms of financing, such as credit from banks
or institutional lenders. We cannot be certain that additional financing will be
available to us 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, which
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 respond to competitive pressures; or
o acquire complementary businesses or necessary technologies.
THE ECONOMIC OUTLOOK MAY ADVERSELY AFFECT THE DEMAND FOR OUR CURRENT PRODUCTS
AND OUR RESULTS OF OPERATIONS. Current predictions for the general economy
indicate uncertain economic conditions. Weak economic conditions may cause a
reduction in information technology spending generally. Consequently, there may
be an adverse impact on the demand for our products, which would adversely
affect our results of operations. In addition, predictions regarding economic
conditions have a low degree of certainty, and further predicting the effects of
the changing economy is even more difficult. We may not accurately gauge the
effect of the general economy on our business. As a result, we may not react to
such changing conditions in a timely manner and this 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 MAY NOT BE ABLE TO MAINTAIN 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 maintain profitability, which we may not be able to do.
WE FACE RISKS RELATING TO OUR FINANCIAL STATEMENTS RESTATEMENT. During the third
quarter of 2002, our audit committee, with the assistance of outside advisors,
conducted a review of our financial statements for 2000 and 2001 and the first
six months of 2002. On October 21, 2002, we announced that we would restate our
financial statements for 1999, 2000 and 2001 and the first six months of 2002.
In addition, we announced that our audit committee had decided to recommend to
our shareholders that we terminate our relationship with Luboshitz Kasierer,
formerly a member firm of Arthur Andersen, as our auditors and appoint new
auditors. At a shareholders' meeting held on December 31, 2002, our shareholders
authorized the engagement of Brightman Almagor & Co., a member firm of Deloitte
Touche Tohmatsu. Following the reaudit of our financial statements, we restated
our financial statements for the announced periods and for the year ended
December 31, 1999 and filed an amendment to the 10-K for the three years ended
2001 on January 24, 2003.
The restatement of our prior financial statements may lead to litigation claims
against us. The defense of claims may cause the diversion of management's
attention and resources, and we may be required to pay damages if any such
claims are not resolved in our favor. Any litigation, even if resolved in our
favor, could cause us to incur significant legal and other expenses. In this
regard, in December 2002, a lawsuit was filed against us and our current and
former officers in the United States District Court for the District of
Massachusetts asserting securities law claims on behalf of persons who purchased
our ordinary shares between June 22, 2000 and October 21, 2002. To date, the
complaint has not been served on any of the defendants, nor has the plaintiff
taken any other action in connection with the matter. In addition, we have
provided information regarding our financial statement restatement to the staff
of the Securities and Exchange Commission on a voluntary basis, and the SEC has
requested additional information. Any additional inquiry by the SEC may result
in a diversion of our management's attention and resources and require
additional expenses for professional services. In addition, any claims against
us or any inquiry by the SEC may cause the price of our Ordinary Shares to
decline.
15
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. Passive income includes dividends, interest,
royalties, rents annuities and the excess of gains over losses from the
disposition of assets, which produce passive income. For purposes of the asset
test, cash is considered to be an asset that produces passive income. As a
result of our cash position and the decline in the value of our assets, there is
a substantial risk that we are a PFIC for U.S. federal income tax purposes.
If we are characterized as a PFIC, our shareholders who are residents of the
United States will be subject to adverse United States tax consequences. Our
treatment as a PFIC could result in a reduction in the after-tax return to
shareholders resident in the United States and may cause a reduction in the
value of such shares.
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.
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 comes from orders placed towards 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, 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;
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 and ClickFix products and 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
16
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. On October
2002 we added ClickForecast to our Service Optimization suite. This increases
the scalability of our products by enabling our customers to optimize additional
resources by adding hardware to this group of ClickSoftware servers. Our growth
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 three to nine 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.
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 our executive officers, including Dr. BenBassat. Although these agreements
generally require 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.
Future 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. If we were not able to
maintain our professional services organization, our ability to support our
service business would be limited.
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
17
we cannot control the level and quality of service provided by third-party
implementation and professional services partners.
OUR MARKET IS HIGHLY COMPETITIVE AND ANY REDUCTION IN DEMAND FOR, OR PRICES OF,
OUR PRODUCTS COULD NEGATIVELY IMPACT OUR REVENUES, REDUCE OUR GROSS MARGINS AND
CAUSE OUR SHARE PRICE TO DECLINE. The market for our products is competitive and
rapidly changing. We expect competition to increase in the future as current
competitors expand their product offerings and new companies enter the market.
Because the market for service and delivery optimization software is evolving,
it is difficult to determine what portion of the market each competitor
currently controls. However, competition could result in price reductions, fewer
customer orders, reduced gross margin and loss of market share, any of which
could cause our business to suffer. We may not be able to compete successfully,
and competitive pressures may harm our business. Some of our current and
potential competitors have greater name recognition, longer operating histories,
larger customer bases and significantly greater financial, technical, marketing,
public relations, sales, distribution and other resources than us. In addition,
some of our potential competitors are among the largest and most well
capitalized software companies in the world.
FAILURE TO FULLY DEVELOP OR MAINTAIN KEY BUSINESS RELATIONSHIPS COULD LIMIT OUR
ABILITY TO SELL ADDITIONAL LICENSES, THEREBY DECREASING OUR REVENUES AND
INCREASING 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.
IF OUR SHARES ARE DELISTED, IT MAY BECOME MORE DIFFICULT TO SELL OUR SHARES AND
THE PRICE OF OUR ORDINARY SHARES WILL LIKELY FALL. After and in response to our
completion on February 27, 2003 of filings of Forms 10-K/A and 10-Q/A required
in connection with the restatement of our financial statements for the years
ending December 31, 1999, 2000, 2001 and for the six months ended June 30, 2002,
the Nasdaq Listing Qualifications Department (the "Panel") ceased the process of
delisting our shares from the Nasdaq SmallCap Market. The Panel also approved
the resumption of trading of our ordinary shares under the ticker symbol "CKSW".
Our shares had been traded under the temporary ticker symbol "CKSWE" used during
the delisting evaluation process. However, we cannot assure you that our
ordinary shares will continue to be listed on the Nasdaq SmallCap Market or that
we will be able to meet the Nasdaq SmallCap Market continued listing criteria in
the future. If our shares are delisted, our ordinary shares may become more
difficult to buy and sell. In addition, the trading market for our ordinary
shares will likely be adversely affected by our shares' delisting, and the
decreased trading volume may cause the price of our ordinary shares to fall.
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 2000 versions of our
products due to the market acceptance of Windows 2000 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, testing by current and potential clients and
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
18
acceptance of these products, any of which would have a material adverse effect
on our business, operating results and financial condition.
The performance of our products also depends in part upon the accuracy and
continued availability of third-party data. We rely on third parties that
provide information such as street and address locations and mapping functions
that we incorporate into our products. If these parties do not provide accurate
information, or if we are unable to maintain our relationships with them, our
reputation and competitive position in our industry could suffer and we could be
unable to develop or enhance our products as required.
OUR INTELLECTUAL PROPERTY COULD BE USED BY THIRD PARTIES WITHOUT OUR CONSENT
BECAUSE PROTECTION OF OUR INTELLECTUAL PROPERTY IS LIMITED. Our success and
ability to compete are substantially dependent upon our internally developed
technology, which we protect through a combination of copyright, trade secret
and trademark law. However, we may not be able to adequately protect our
intellectual property rights, which may significantly harm our business.
Specifically, we may not be able to protect our trademarks for our company name
and our product names, and unauthorized parties may attempt to copy or otherwise
obtain and use our products or technology. Policing unauthorized use of our
products and technology is difficult, particularly in countries outside the
U.S., and we cannot be certain that the steps we have taken will prevent
infringement or misappropriation of our intellectual property rights.
Our end-user licenses are designed to prohibit unauthorized use, copying or
disclosure of our software and technology in the United States, Israel and other
foreign countries. However, these provisions may be unenforceable under the laws
of some jurisdictions and foreign countries. Unauthorized third parties may be
able to copy some portions of our products, reverse engineer or obtain and use
information and technology that we regard as proprietary. Third parties could
also independently develop competing technology or design around our technology.
If we are unable to successfully detect infringement and/or to enforce our
rights to our technology, we may lose competitive position in the market. We
cannot assure you that our means of protecting our intellectual property rights
in the United States, Israel or elsewhere will be adequate or that competing
companies will not independently develop similar technology. In addition, some
of our licensed users may allow additional unauthorized users to use our
software, and if we do not detect such use, we could lose potential license
fees.
OUR TECHNOLOGY AND OTHER INTELLECTUAL PROPERTY MAY BE SUBJECT TO INFRINGEMENT
CLAIMS. Substantial litigation regarding technology rights and other
intellectual property rights exists in the software industry both in terms of
infringement and ownership issues. A successful claim of patent, copyright or
trademark infringement or conflicting ownership rights against us could cause us
to make changes in our business or significantly harm our business. We 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
19
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.
We expect international revenues to continue to account for a significant
percentage of total revenues and we believe that we must continue to expand our
international sales and professional services activities in order to be
successful. Our international sales growth will be limited if we are unable to
expand our international sales management and professional services
organizations, hire additional personnel, customize our products for local
markets and establish relationships with additional international distributors,
consultants and other third parties. If we fail to manage our geographically
dispersed organization, we may fail to meet or exceed our business plan and our
revenues may decline.
WE ARE INCORPORATED IN ISRAEL AND HAVE IMPORTANT FACILITIES AND RESOURCES
LOCATED IN ISRAEL, WHICH COULD BE NEGATIVELY AFFECTED DUE TO MILITARY OR
POLITICAL TENSIONS. We are incorporated under the laws of the State of Israel
and our research and development facilities as well as significant executive
offices are located in Israel. Although substantial portions of our sales
currently are to customers outside of Israel, political, economic and military
conditions in Israel could nevertheless directly affect our operations. Since
the establishment of the State of Israel in 1948, a number of armed conflicts
have taken place between Israel and its Arab neighbors and a state of hostility,
varying in degree and intensity, has led to security and economic problems for
Israel. Since September 2000, a continuous armed conflict with the Palestinian
authority has been taking place.
Despite our history of avoiding adverse effects, in the future we could be
adversely affected by any major hostilities involving Israel, the interruption
or curtailment of trade between Israel and its trading partners, a significant
increase in inflation, or a significant downturn in the economic or financial
condition of Israel. Despite past progress towards peace between Israel and its
Arab neighbors, the future of these peace efforts is uncertain. Several Arab
countries still restrict business with Israeli companies, which may limit our
ability to make sales in those countries. We could be adversely affected by
restrictive laws or policies directed towards Israel or Israeli businesses.
CERTAIN OF OUR OFFICERS AND EMPLOYEES ARE REQUIRED TO SERVE IN THE ISRAEL
DEFENSE FORCES AND THIS COULD FORCE THEM TO BE ABSENT FROM OUR BUSINESS FOR
EXTENDED PERIODS. David Schapiro, our Executive Vice President, Markets and
Products, Hannan Carmeli, our Executive Vice President, Product Services and
Operations, and Shmuel Arvatz, our Executive Vice President and Chief Financial
Officer, as well as other male employees located in Israel are currently
obligated to perform up to 39-45 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 AN INTERNATIONAL COMPANY AND OUR INTERNATIONAL OPERATIONS ARE EXPANDING.
OUR RISK EXPOSURE TO FOREIGN CURRENCY FLUCTUATIONS IS INCREASING, AND WE MAY NOT
BE ABLE TO FULLY MITIGATE THE RISK. Our revenue from the UK has grown both in
absolute dollar basis as well as a percentage of total revenues. We are
expanding operations in other areas of Europe, and income and expenses
recognized in the European Community Euro will increase. In 2002, 20% of our
costs were incurred in GBP and 3% in the Euro. We incur a portion of our
expenses, principally salaries and related personnel expenses in Israel, in NIS.
In 2002, 25% of our costs were incurred in NIS. In 2002 we incurred 2% of our
costs in the Australian Dollar. In addition to above, we have balance sheet
exposure related to foreign net assets. So far our risk to foreign currency
fluctuations has been minimal, but we cannot assure you that we will be able to
adequately protect ourselves against such risks.
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
20
the future. We cannot assure that we will continue to receive grants at the same
rate or at all. The Chief Scientist budget has been subject to reductions that
may affect the availability of funds for Chief Scientist grants in the future.
The percentage of our research and development expenditures financed using
grants from the Chief Scientist may decline in the future, and the terms of such
grants may become less favorable. In connection with research and development
grants received from the Chief Scientist, we must make royalty payments to the
Chief Scientist on the revenues derived from the sale of products, technologies
and services developed with the grants from the Chief Scientist. From time to
time, the Government of Israel changes the rate of royalties we must pay, so we
are unable to accurately predict this rate. In addition, our ability to
manufacture products or transfer technology outside Israel without the approval
of the Chief Scientist is restricted under law. Any manufacture of products or
transfer of technology outside Israel will also require the Company to pay
increased royalties to the Chief Scientist up to 300%. We currently conduct all
of our manufacturing activities in Israel and intend to continue doing so in the
foreseeable future and therefore do not believe there will be any increase in
the amount of royalties we pay to the Chief Scientist. Currently the office of
the Chief Scientist does not consider the licensing of our software in the
ordinary course of business a transfer of technology and we do not intend to
transfer any technology outside of Israel. Consequently, we do not anticipate
having to pay increased royalties to the Chief Scientist for the foreseeable
future. In connection with our grant applications, we have made representations
and covenants to the Chief Scientist regarding our research and development
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 effect service of process on us or any of those persons or to enforce a U.S.
court judgment, based upon the civil liability provisions of the U.S. federal
securities laws, against us or any of those persons , 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 March
31, 2003, our executive officers, directors and entities affiliated with them
beneficially owned approximately 36.7% 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
any merger or acquisition of us, even if doing so would be beneficial to our
shareholders. In addition, any merger or acquisition of us will require the
prior consent of the Chief Scientist.
21
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 March 31, 2003, we had 26,373,249 ordinary
shares outstanding (net of 39,000 shares held in treasury), including shares
held by a trustee for issuance under outstanding options. In addition, as of
March 31, 2003, we had 2,929,647 ordinary shares issuable upon exercise of
outstanding options, and 2,342,017 additional ordinary shares reserved for
issuance pursuant to our stock option plans and employee share purchase plan. If
we or our existing shareholders sell a large number of our ordinary shares, the
price of our ordinary shares could fall dramatically.
Restrictions under the securities laws limit the number of ordinary shares
available for sale by our shareholders in the public market. We have filed a
Registration Statement on Form S-8 to register for resale the ordinary shares
reserved for issuance under our stock option plans.
Our 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 2003 a
diversion of management's attention and resources.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the ordinary course of our operations, we are exposed to certain market
risks, primarily changes in foreign currency exchange rates and interest rates.
FOREIGN CURRENCY EXCHANGE RATE RISK. We develop products in Israel and sell them
primarily in North America, Europe, and the Asia Pacific and Africa regions. 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.
In 2002, 66% of our revenues and 50% of our expenses were denominated in U.S.
dollars. Since our financial results are reported in our functional currency,
U.S. dollars, fluctuations in the exchange rates between the dollar and
non-dollar currencies may have a material effect on our results of operations.
The exposure to currency exchange rate changes is diversified due to the number
of different countries and currencies in which we conduct business. The main
currencies are US$, NIS, GBP and Euro.
In addition to above, we have balance sheet exposure related to foreign net
assets.
In the first Quarter of 2003 we entered into forward Contracts related to
foreign currency rates in order to protect against foreign currency accounts
receivables and certain forecasted transactions. The impact of those
transactions is immaterial. We do not participate in any speculative
investments.
22
INTEREST RATE RISK. As of March 31, 2003, we had cash and cash equivalents of
$8.3 million, which consist of cash and highly liquid short-term investments. Of
this amount, a total of $0.9 million, net of currency forward transactions, is
denominated in non-dollar currencies.
A hypothetical 10 percent change in exchange rates against the U.S dollar and a
substantial decrease in market interest rates will have immaterial impact on our
financial condition.
The following table provides information about our investment portfolio, cash,
and long-term debts as of March 31, 2003 and presents principal cash flows and
related weighted averages interest rates by expected maturity dates.
YEAR OF MATURITY 2003
(in thousands of dollars)
A) CASH AND CASH EQUIVALENTS AND INVESTMENT PORTFOLIO:
------------------------------------------------------
Cash and Cash equivalents $5,207
Average interest rate 0.8%
Bank deposits $3,394
Average interest rate 1.9%
B) LONG-TERM DEBTS:
-------------------
None.
ITEM 4. CONTROLS AND PROCEDURES
In the last quarter of 2002, we identified a weakness in the process of
recognizing and recording revenues in our books which led to the restatement of
our financial statements for the years 2001, 2000 and 1999 and for the six
months ended June 30, 2002. (See also note 3 of the notes to our consolidated
financial statements on Form 10-K/A for the year ended December 31, 2001, filed
with the Securities and Exchange Commission on January 24, 2003.)
Based on the instructions of the audit committee of our Board of Directors and
with the assistance of its independent auditor, we adopted a new policy for
revenue recognition. The policy includes procedures and practices to assure the
proper recognition of revenue in the future. In addition, to improve the overall
effectiveness of our disclosure controls and procedures, we have expanded the
scope of periodic discussions between our finance department and our other
operational departments, and expanded our formal reporting procedures. We have
also established a Disclosure Committee with a mandate to assist our CEO and CFO
in overseeing the accuracy and timeliness of our public disclosure and in
evaluating regularly our disclosure and control procedures.
Within 90 days prior to the date of the filing of this quarterly report, our
chief executive officer and our chief financial officer evaluated the
effectiveness of our disclosure controls and procedures. They did not find any
weaknesses not identified previously, and believe that the changes we began
implementing at the end of 2002 and described above address the weaknesses
identified. With the assistance of our advisors, we continue to evaluate further
improvements, including formalizing our processes, procedures and policies, to
our internal control and disclosure controls and procedure.
Subsequent to the date of this evaluation by our chief executive officer and
chief financial officer, there have been no significant changes in our internal
controls or in other factors that could significantly affect these controls,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
23
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
No legal proceeding has been filed against the company during the first
quarter of 2003. For prior reporting periods, reference is made to the
company's report on Form 10-K for the year ended December 31, 2002.
ITEM 2. Changes in Securities and Use of Proceeds
None
ITEM 4. Submission of matters to a vote of security holders
None.
ITEM 5. Other information
None.
ITEM 6. Exhibits and Reports on Form 8-K
(a) 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 Form 8 - K:
On January 2, 2003, the Company filed a current report on Form 8-K
pursuant to the Securities and Exchange Act of 1934, as amended, reporting under
Item 4 the change in its certifying accountant.
24
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/ Shmuel Arvatz
---------------------
Shmuel Arvatz
Executive Vice President and
Chief Financial Officer
Date: May 14, 2003
25
CERTIFICATIONS
I, Moshe BenBassat, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ClickSoftware
Technologies Ltd.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
May 14, 2003
By: /s/ Moshe Benbassat
-------------------
Moshe BenBassat
Chairman and Chief Executive Officer
26
I, Shmuel Arvatz, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ClickSoftware
Technologies Ltd.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
d) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
e) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
f) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
c) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
d) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
May 14, 2003
By: /s/ Shmuel Arvatz
-----------------
Shmuel Arvatz
Executive Vice President and
Chief Financial Officer
27