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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 June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission File Number:333-30274
- --------------------------------------------------------------------------------
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.
As of June 30, 2000, there were 25,380,754 shares of the Registrant's
common stock, par value 0.02 NIS, outstanding.
(1) The Registrant became subject to the reporting requirements of the
Securities Exchange Act of 1934 at the time of its initial public offering on
June 22, 2000.
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ClickSoftware Technologies Ltd.
FORM 10-Q
FOR THE QUARTER ENDED June 30, 2000
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
(a) Condensed Consolidated Balance Sheets as of December 31, 1999 and June
30, 2000.................................................................................. 3
(b) Condensed Consolidated Statements of Operations for the Three Months
Ended and Six Months Ended June 30, 1999 and June 30, 2000................................ 4
(c) Condensed Consolidated Statements of Cash Flows for Six Months Ended
June 30, 1999 and June 30, 2000........................................................... 5
(d) Notes to Condensed Consolidated Financial Statements...................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....... 7
Factors That May Affect Future Results......................................................... 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk.................................. 25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................................... 26
Item 2. Changes in Securities and Use of Proceeds................................................... 26
Item 4. Submission of Matters to a Vote of Security Holders......................................... 27
Item 6. Exhibits and Reports on Form 8-K ........................................................... 27
Signatures.......................................................................................... 27
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PART I--FINANCIAL INFORMATION
ITEM 1. Financial Statements
ClickSoftware Technologies Ltd.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
December 31, June 30,
1999 2000
------------ ---------
ASSETS
Current Assets:
Cash and cash equivalents $ 7,838 $ 25,946
Trade receivables 3,966 4,656
Other receivables and prepaid expenses 465 968
--------- ---------
Total current assets 12,269 31,570
Property and equipment, Net 1,498 2,687
Severance pay deposits 428 479
--------- ---------
Total Assets $ 14,195 $ 34,736
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short term debt $ 320 $ 173
Accounts payable and accrued expenses 2,799 3,760
Deferred revenue 1,143 202
--------- ---------
Total Current Liabilities 4,262 4,135
--------- ---------
Long Term Liabilities
Long-term debt 213 140
Accrued severance pay, net 899 1,168
--------- ---------
Total Long Term Liabilities 1,112 1,308
--------- ---------
Total Liabilities 5,374 5,443
--------- ---------
Shareholders' Equity
Ordinary shares
NIS 0.02 par value; Authorized - 25,645,039 shares
as of December 31, 1999 and 100,000,000 shares as
of June 30, 2000. Issued and outstanding - 20,708,714
shares as of December 31, 1999 and 25,380,754 as
of June 30, 2000 73 96
Convertible preferred shares
Authorized - none as of December 31, 1999 and 5,000,000
shares as of June 30, 2000. Issued and outstanding -
none as of December 31, 1999 and none as of June 30, 2000. -- --
Additional paid-in capital 40,052 65,879
Deferred compensation (2,663) (1,953)
Accumulated deficit (28,641) (34,729)
--------- ---------
Total Shareholders' Equity 8,821 29,293
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 14,195 $ 34,736
========= =========
See notes to condensed consolidated financial statements.
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ClickSoftware Technologies Ltd.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
----------------------- ----------------------
1999 2000 1999 2000
--------- -------- -------- --------
Revenues:
Software License $ 1,033 $ 2,960 $ 1,791 $ 5,086
Service and maintenance 1,308 1,348 2,579 2,733
-------- -------- -------- --------
Total Revenues 2,341 4,308 4,370 7,819
Cost of revenues:
Software License 11 23 18 133
Service and maintenance 958 1,351 1,883 2,564
-------- -------- -------- --------
Total cost of revenue 969 1,374 1,901 2,697
-------- -------- -------- --------
Gross Profit 1,372 2,934 2,469 5,122
-------- -------- -------- --------
Operating expenses
Research and development, net 625 1,341 1,178 2,405
Sales and marketing expenses 1,811 3,164 3,705 6,338
General and administrative expenses 435 804 858 1,756
Share-based Compensation 14 355 40 710
-------- -------- -------- --------
Total operating expenses 2,885 5,664 5,781 11,209
-------- -------- -------- --------
Operating loss (1,513) (2,730) (3,312) (6,087)
Interest and other(expenses) income, net (65) (6) (87) (1)
-------- -------- -------- --------
Net Loss $(1,578) $(2,736) $(3,399) $ (6,088)
======== ======== ======== ========
Basic and Diluted Net Loss Per Share $ (0.09) $ (0.14) $ (0.19) $ (0.31)
======== ======== ======== ========
Shares Used In Calculating Basic and
Diluted Net Loss Per Share 17,617 20,266 17,617 19,884
======== ======== ========= =========
See notes to condensed consolidated financial statements.
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ClickSoftware Technologies Ltd.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
SIX MONTHS ENDED
JUNE 30,
---------------------
1999 2000
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(3,399) $ (6,088)
Adjustments to reconcile net loss to net cash used in
operating activities:
Expenses not affecting operating cash flows:
Depreciation 232 309
Amortization of deferred compensation 40 710
Severance pay, net 108 218
Changes in operating assets and liabilities:
Trade receivables (1,224) (690)
Other receivables (157) (503)
Accounts payable and accrued expenses 293 961
Deferred revenues 1,696 (941)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (2,411) (6,025)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of equipment (342) (1,498)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (342) (1,498)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term debt 80 (147)
Proceeds from long-term debt (50) (73)
Net proceeds from issuance of shares 24,875
Net proceeds from warrants exercised 579
Employee options exercised 396
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 30 25,630
-------- --------
NET INCREASE IN CASH AND EQUIVALENTS (2,723) 18,107
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 3,770 7,838
-------- --------
CASH AND EQUIVALENTS, END OF PERIOD $ 1,047 $ 25,946
======== ========
See notes to condensed consolidated financial statements.
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ClickSoftware Technologies Ltd.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 2000 FOR THE THREE MONTHS AND
SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 2000)
1. Condensed Consolidated Financial Statements. The accompanying condensed
consolidated financial statements have been prepared by the Company without
audit and reflect all adjustments, consisting of normal recurring
adjustments and accruals, which are, in the opinion of management,
necessary for a fair statement of the financial position of the Company as
of June 30, 2000 and the results of operations and cash flows for the
interim periods indicated. The results of operations covered are not
necessarily indicative of the results to be expected for future quarters or
for the year ending December 31, 2000. The statements have been prepared in
accordance with the regulations of the Securities and Exchange Commission;
accordingly, certain information and footnote disclosures normally included
in annual financial statements prepared in accordance with generally
accepted accounting principles have been 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, 1999 which are included in ClickSoftware's Registration Statement on
Form S-1 (File No. 333-30274 filed with the Securities and Exchange
Commission.
2. Net Income (Loss) Per Share. ClickSoftware computes net income (loss) per
share of ordinary shares in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128"). Under
the provisions of SFAS No. 128 basic net income per share ("Basic EPS") is
computed by dividing net income by the weighted average number of shares of
common stock outstanding. The weighted average ordinary shares outstanding
are on a pro-forma basis for the year 1999. The following is a
reconciliation of the numerators and denominators used in computing basic
and diluted net loss per share (in thousands except per share amounts):
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------------------------
1999 2000 1999 2000
---------------------------------------------------------
NET LOSS (NUMERATOR)
basic and diluted $ (1,578) $ (2,737) $ (3,399) $ (6,088)
---------------------------------------------------------
SHARES
(DENOMINATOR)
Weighted 17,616,628 20,266,123 17,616,628 19,884,040
Average
Ordinary Shares
Outstanding
=========================================================
Net Loss per share basic and
diluted $ (0.09) $ (0.14) $ (0.19) $ (0.31)
=========================================================
3. Initial Public Offering. On June 23, 2000, ClickSoftware completed the
initial public offering of its ordinary shares (the "IPO"). A total of
4,000,000 shares of ClickSoftware ordinary shares were sold to the public
at a price of $7.00 per share. Cash proceeds to ClickSoftware net of $1.96
million in underwriting discounts before expenses, were approximately
$26.04 million. Concurrent with the IPO, all of the shares of the Company's
Series A, Series B, Series C and Series D convertible preferred stock
("Preferred
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Stock") were converted into shares of the Company's common stock on a
share for share basis.
4. Exercise of Underwriters' Overallotment Option. On July 20, 2000 and
subsequent to the date of these financial statements the IPO Underwriters
exercised their overallotment Option and purchased 600,000 additional
ordinary shares from ClickSoftware at a price of $7.00 per share. Cash
proceeds to ClickSoftware net of $0.3 million in underwriting discounts
before expenses, were approximately $3.9 million.
5. Recent Accounting Pronouncements. In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities". SFAS No. 133 establishes accounting and reporting
standards requiring that every derivative instrument be recorded in the
balance sheet at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the
hedged item in the income statement. SFAS No. 133 is effective for fiscal
years beginning after June 15, 2000. The Company believes that the adoption
of SFAS No. 133 will not have a material effect on its financial
statements.
In March 2000, the FASB issued interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation -- an Interpretation of
APB Opinion No. 25". The interpretation clarifies the application of APB
Opinion No. 25 in certain situations, as defined. The interpretation is
effective July 1, 2000, but covers certain events occurring during the
period after December 15, 1998, but before the effective date. To the
extent that events covered by this interpretation occur during the period
after December 15, 1998, but before the effective date, the effects of
applying this interpretation would be recognized on a prospective basis
from the effective date. Accordingly, upon initial application of the final
interpretation, (a) no adjustments would be made to the financial
statements for periods before the effective date and (b) no expense would
be recognized for any additional compensation cost measured that is
attributable to periods before the effective date. We expect that the
adoption of this interpretation would not have any effect on the
accompanying financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements". SAB 101 provides guidance on applying generally accepted
accounting principles to revenue recognition issues in financial
statements. We adopted SAB 101 as required in the second quarter of
2000. We do not expect the adoption of SAB 101 to have a material impact on
our consolidated results of operations and financial position.
6. The number of authorized and outstanding ordinary shares as of December 31,
1999 are on a pro-forma basis.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
Except for historical information, the discussion in this report contains
forward-looking statements that involve risks and uncertainties. These forward
looking statements include, among others, those statements including the words,
"expects", "anticipates", "intends", "believes" and similar language. Our actual
results could differ materially from those discussed herein. Factors that could
cause or contribute to such differences include, but are not limited to the
risks discussed in the section titled "Risk Factors" in this prospectus.
OVERVIEW
We derive revenues from software licensing and service and maintenance fees.
Software license revenues are comprised of perpetual or annual software license
fees primarily derived from contracts with our direct sales clients and our
indirect distribution channels. License fees are based upon an initial fee
determined by the number of service resources to be scheduled, followed by
periodic maintenance fees. In conjunction with the repositioning of our
ClickSchedule and ClickFix product lines, we introduced additional software
license pricing structures to our clients which includes lower initial license
fees followed by monthly payments, and is based on the number of scheduling
transactions conducted. We introduced this pricing structure to offer a more
flexible pricing structure for our clients with seasonal businesses and for our
clients which do not schedule their own resources or experience a high degree of
variability in the number of scheduling transactions conducted.
We recognize revenues in accordance with the American Institute of Certified
Public Accountants Statement of Position 97-2, "Software
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Revenue Recognition," or SOP 97-2, as amended by Statement of Position 98-4.
Under SOP 97-2, we recognize software license revenues when a software license
agreement has been executed or a definitive purchase order has been received and
the product has been delivered to our clients, no significant obligations with
regard to implementation remain, the fee is fixed and determinable, and
collectibility is probable.
Service and maintenance revenues are comprised of revenues from implementation,
consulting, training release updates, and customer service support fees. Clients
licensing our products generally purchase consulting agreements from us.
Consulting revenues are recognized on a straight-line basis over the life of the
agreement. Consulting services are billed at an agreed-upon rate plus incurred
expenses. Customer support is 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.
Cost of revenues consists of cost of software license revenues and cost of
service and maintenance revenues. Cost of software license revenues consists of
expenses related to media duplication and packaging of our products. Cost of
service and maintenance revenues consists of expenses related to salaries,
expenses of our professional services organizations, costs related to
third-party consultants, and equipment costs.
We believe that as our client base matures, and as an increasing number of
existing clients purchase additional licenses, the percentage of revenues
derived from license fees will increase as a percentage of revenues while the
percentage of revenues derived from service and maintenance fees will increase
on an absolute basis but decrease as a percentage of revenues.
Operating expenses are categorized into research and development expenses, net,
sales and marketing expenses, general and administrative expenses, and share
based compensation.
Research and development expenses consist primarily of personnel costs to
support product development, net of grants received from the Chief Scientist. In
return for some of these grants, we are obligated to pay the Israeli Government
royalties as described below which are included in sales and marketing expenses.
Software research and development costs incurred prior to the establishment of
technology feasibility are included in research and development expenses as
incurred.
Personnel and related costs, primarily from our direct sales force and marketing
staff, comprised 56% of our sales and marketing expenses for the six months
ended June 30, 1999 and 60% for the six months ended June 30, 2000. Marketing
programs, including advertising, public relations, trade shows and promotional
events comprised 44% of our sales and marketing expenses for the six months
ended June 30, 1999 and 40% for the six months ended June 30, 2000, net of
grants received from the Fund for the Encouragement of Marketing Activities
established by the Government of Israel. In return for these grants, we are
obligated to pay the Israeli Government royalties as described below. We expect
that sales and marketing expenses will increase on an absolute basis over the
next year as we hire additional sales and marketing personnel, continue to
promote our brand and our new corporate name, continue our Internet initiative,
and increase our international sales efforts.
General and administrative expenses consist primarily of personnel and related
costs for corporate functions, including information services, finance,
accounting, human resources, facilities, legal, and directors and officers
liability insurance.
Share based compensation represents the aggregate difference, at the date of
grant, between the respective exercise price of stock options and the deemed
fair market value of the underlying stock. Share based compensation is amortized
over the vesting period of the underlying options, generally four years. We
recorded deferred
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share based compensation totaling $3.4 million for the year ended December 31,
1999 and none for the six months ended June 30, 2000. We expensed share based
compensation of $40,000 in the six months ended June 30, 1999 and $0.7 million
in the six months ended June 30, 2000.
Interest and other (expenses) income, net, includes interest income earned on
our cash and cash equivalents, offset by interest expense, and also includes the
effects of foreign currency translations.
As of December 31, 1999, we had outstanding trade receivables of approximately
$4.0 million which represented approximately 38% of 1999 total revenues. As of
June 30, 2000, we had outstanding trade receivables of approximately $4.7
million. Our trade receivables have terms that are negotiated individually with
each client. As of June 30, 2000, our DSO (Days Sales Outstanding) was 98 days.
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 expense is incurred in New
Israeli Shekels ("NIS") and a portion of our revenues and expenses are incurred
in British Pounds. The results of our operations are subject to fluctuations in
these exchange rates which are influenced by various global economic factors,
including inflation in Israel.
The effects of foreign currency exchange rates on our results of operations for
the six months ended June 30, 1999 and 2000 were immaterial.
RESULTS OF OPERATIONS
Our operating results for each of the six months ended June 30, 2000 and 1999
and for the three months ended June 30,1999 and 2000 as a percentage of total
revenues are as follows:
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
------------------ -----------------
1999 2000 1999 2000
------- ------- -------- ------
Revenues:
Software License 44% 69% 41% 65%
Service and maintenance 56 31 59 35
----- ----- ----- -----
Total Revenues 100 100 100 100
Cost of revenues:
Software License - 1 - 2
Service and maintenance 41 31 43 33
----- ----- ----- -----
Total cost of revenue 41 32 43 35
----- ----- ----- -----
Gross Profit 59 68 56 66
----- ----- ----- -----
Operating expenses
Research and development, net 27 31 27 31
Sales and marketing expenses 77 73 85 81
General and administrative expenses 19 19 20 22
Share-based Compensation 1 8 1 9
----- ----- ----- -----
Total operating expenses 123 131 132 143
----- ----- ----- -----
Loss from operations (65) (63) (76) (78)
Interest and other (expenses) income, net (3) - (2) -
----- ----- ----- -----
Net Loss (67)% (64)% (78)% (78)%
===== ===== ===== =====
RESULTS OF OPERATIONS - SUMMARY
Our revenues of $4.3 million for the second quarter ended June 30, 2000,
increased from $2.3 million or 84% over the second quarter of 1999. Revenues
increased 23% from $3.5 million in first quarter 2000, and the Company's net
loss was reduced to $2.7 million. This second quarter loss of $2.7 million is
$0.14 per share, compared to the first quarter 2000 loss of $3.4 million, or
$0.17 per share. The comparative net loss
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for the second quarter of 1999 was $1.6 million, or pro forma $0.09 per share,
with 13% fewer shares outstanding.
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED JUNE 30, 2000 AND 1999
REVENUES. Revenues increased $2.0 million or 84% to $4.3 million in the three
months ended June 30 ,2000 from $2.3 million in the three months ended June 30,
1999.
SOFTWARE LICENSE. Software license revenues were $3.0 million or 69% of total
revenues in the three months ended June 30, 2000 and $1.0 million or 44% of
total revenues in the three months ended June 30, 1999. The increase is due to
greater number of customers.
SERVICE AND MAINTENANCE. Service and maintenance revenues were $1.3 million or
31% of revenues in the three months ended June 30, 2000, and $1.3 million or 56%
of revenues in the three months ended June 30, 1999. The decrease in service and
maintenance revenues as a percentage of revenues for the three months ended June
30, 2000 from the three months ended June 30, 1999 was due primarily to
increased sales of ClickSchedule software licenses, decreased implementation
times, and an increase in implementation by third party integrators.
COST OF REVENUES. Cost of revenues were $1.4 million or 32% of revenues in the
three months ended June 30, 2000, and $1.0 million or 41% of revenues in the
three months ended June 30, 1999. The increase in the cost of revenues was due
to an increased number of licenses sold and an increase in our use of third
party contractors to provide a portion of these services.
COST OF SOFTWARE LICENSES. Cost of software license revenues were $23,000 or 1%
of total revenues in the three months ended June 30, 2000, and $11,000 or less
than 1% of revenues in the three months ended June 30, 1999.
COST OF SERVICE AND MAINTENANCE. Cost of service and maintenance revenue were
$1.4 million or 31% of revenues in the three months ended June 30, 2000, and
$1.0 million or 41% of revenues in the three months ended June 30, 1999. This
absolute increase in the cost of service and maintenance revenues was due to
increased professional services required as a result of the increase in sale of
licenses, which resulted in an additional $0.3 million in personnel related
costs, and an increase in the use of third party consultants, which resulted in
an additional $0.1 million in costs. The total number of professional services
employees employed by us was 42 on June 30, 2000 and 31 on June 30, 1999.
GROSS PROFIT. Gross profit as a percentage of revenues was 68% in the three
months ended June 30, 2000 as compared to 59% in the three months ended June 30,
1999. This improvement is mostly attributed to change in the revenue mix in
favor of higher margin license revenues.
OPERATING EXPENSES. Total operating expenses were $5.7 million or 131% of
revenues in the three months ended June 30, 2000 and, $2.9 million or 123% of
revenues in the three months ended June 30, 1999.
RESEARCH AND DEVELOPMENT EXPENSES, NET. Research and development expenses, net
of related grants, were $1.3 million or 31% of revenues in the three months
ended June 30, 2000 and $0.6 million or 27% of revenues in the three months
ended June 30, 1999. Due to a delay in the approval process of the grants from
Israel's Chief Scientist, we did not accrue $0.3 million in expected grants in
the three months ended June 30, 2000. In the three months ended June 30, 1999
research and development included $0.3 million of grants from the Chief
Scientist. The grants for fiscal year 2000, were approved subsequent to June 30,
2000 and will be reflected in the financial statements for the third and fourth
quarters of 2000. Additionally, research and development expenses for the three
months ended June 30, 2000 reflect an increase of $0.4 million in personnel
related costs related to development of our products.
SALES AND MARKETING EXPENSES. Sales and marketing expenses were $3.2 million or
73% of revenues in the three months ended June 30, 2000 and $1.8 million or 77%
of revenues in the three months ended June 30, 1999. The increase in sales and
marketing expenses was due to additional sales and marketing efforts related to
the expansion of our salesforce and market penetration, which resulted in an
increase of
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$1.1 million of personnel related costs as well as additional marketing costs.
We expect that sales and marketing expenses will increase on an absolute basis
in future periods as we hire additional sales and marketing personnel, continue
to promote our brand, and establish sales in additional geographic areas. The
total number of sales and marketing employees employed by us was 60 on June 30,
2000 and 34 on June 30, 1999.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses were
$0.8 million or 19% of revenues in the three months ended June 30, 2000 and $0.4
million or 19% of revenues in the three months ended June 30, 1999. We expect
that the absolute dollar amount of general and administrative expenses will
increase as we expand our operations and incur incremental costs of being a
public company.
SHARE BASED COMPENSATION. Share based compensation for the three months ended
March 31, 2000 amounted to $0.4 million of previously recorded deferred
compensation. Share based compensation for the three months ended June 30, 1999
amounted to $14,000.
RESULTS OF OPERATIONS FOR Six Months Ended June 30, 2000 and 1999
REVENUES. Revenues increased $3.4 million or 79% to $7.8 million in the six
months ended June 30, 2000 from $4.4 million in the six months ended June 30,
1999.
SOFTWARE LICENSE. Software license revenues were $5.1 million or 65% of revenues
in six months ended June 30, 2000, and $1.8 million or 41% of revenues in the
six months ended June 30, 1999. The increase in software license revenues was
due to increased average sales per client, growth of our client base among
Internet access and telecommunication service companies, and recurring sales to
our installed base of clients.
SERVICE AND MAINTENANCE. Service and maintenance revenues were $2.7 million or
35% of revenues in the six months ended June 30, 2000, and $2.6 million or 59%
of revenues in six months ended June 30, 1999. The relatively small increase in
service and maintenance revenues was primarily due to ClickSchedule Fast Track
initiative, and an increase in implementation by third party integrators.
COST OF REVENUES. Cost of revenues were $2.7 million or 34% of revenues in the
six months ended June 30, 2000 and $1.9 million or 43% of revenues in the six
months ended June 30, 1999. This increase in the cost of revenues on an absolute
basis was due to an increased number of clients.
COST OF SOFTWARE LICENSES. Cost of software license revenues were $133,000 in
the six months ended June 30, 2000, and $18,000 in the six months ended June 30,
1999. Cost of software license revenues were less than 2% of revenues in the six
months ended June 30, 2000 and in the six months ended June 30, 1999.
COST OF SERVICE AND MAINTENANCE. Cost of service and maintenance revenues were
$2.6 million or 33% of revenues in the six months ended June 30, 2000, and $1.9
million or 43% of revenues in the six months ended June 30, 1999. This increase
in the cost of service and maintenance revenues was due primarily to an increase
in the sale of licenses, which resulted in an increase of $0.4 million in
personnel related costs, an increase of $0.2 million in third party related
costs and an increase of $0.1 million in other expenses. The total number of
professional services employees employed by us was 42 on June 30, 2000 and 31 on
June 30, 1999.
GROSS PROFIT. Gross profit as a percentage of revenue was 66% in the six months
ended June 30, 2000 as compared to 56% in the six months ended June 30, 1999.
This improvement is mostly attributed to the significant increase in high margin
license revenues. Our service and maintenance revenues have a significantly
lower gross margin than our software license revenues.
OPERATING EXPENSES. Total operating expenses were $11.2 million or 143% of
revenues in the six months ended June 30, 2000, and $5.8 million or 132% of
revenues in the six months ended June 30, 1999.
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RESEARCH AND DEVELOPMENT EXPENSES, NET. Research and development expenses, net
of related grants, were $2.4 million or 31% of revenues in the six months ended
June 30, 2000, and $1.2 million or 27% of revenues in the six months ended June
30, 1999. Due to a delay in the approval process of the grants from Israel's
Chief Scientist, $0.1 of $0.6 million in expected grants for the six months
ended June 30, 2000 were recognized as an offset to research and development
expenses. In the six months ended June 30, 1999 research and development
included $0.6 million of grants from the Chief Scientist. $0.8 million in grants
for fiscal year 2000 were approved subsequent to June 30, 2000, and will be
reflected in the financial statements of the third and fourth quarters 2000.
Additionally, research and development expenses for the six months ended June
30, 2000 reflect an increase of $0.6 million in personnel related costs related
to development of our product. We are continuing to invest substantially in
research and development, and we expect that research and development expenses
will increase on an absolute basis in the future.
SALES AND MARKETING EXPENSES. Sales and marketing expenses were $6.3 million or
81% of revenues in six months ended June 30, 2000, $3.7 million or 85% of
revenues in six months ended June 30, 1999. The increase was primarily due to
marketing efforts related to the expansion of salesforce and market penetration.
Personnel related costs increased $1.7 million and other expenses increased $0.9
million. We expect that sales and marketing expenses will increase on an
absolute basis in future periods, as we hire additional sales and marketing
personnel, continue to promote our brand and establish sales in additional
geographic areas.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses were
$1.8 million or 22% of revenues in the six months ended June 30, 2000, and $0.9
million or 20% of revenues in the six months ended June 30, 1999.
SHARE BASED COMPENSATION. Share based compensation for the six months ended June
30, 2000 amounted to $0.7 million and for six months ended June 30, 1999
amounted to $40,000.
INTEREST AND OTHER (EXPENSES) INCOME, NET. Interest income, net, was $1,000 of
net expense in the six months ended June 30, 2000, and $87,000 of net expense
in the six months ended June 30, 1999.
INCOME TAXES. As of June 30, 2000, we had approximately $12.0 million of Israeli
net operating loss carryforwards, approximately $13.3 million of U.S. federal
net operating loss carryforwards and approximately $1.2 million of British net
operating loss carryforwards available to offset future taxable income. The
Israeli and British net operating loss carryforwards have no expiration date.
The U.S. net operating loss carryforwards will expire in various amounts in the
years 2008 to 2013.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception and prior to our initial public offering, we funded
operations primarily through the private placement of equity securities and, to
a lesser extent, borrowings from financial institutions. We raised an aggregate
of approximately $32.0 million, net of issuance costs, from the sale of
preferred shares and ordinary shares.
On June 23, 2000, the Company completed an initial public offering of 4,000,000
ordinary shares at a price of $7.00 per share. The proceeds to the Company from
the offering were approximately $26.0 million before expenses (net of
underwriters discount).
In July 2000, the Underwriters exercised their overallotment option and
purchased 600,000 additional ordinary shares at a price of $7.00 per share. The
proceeds to the Company from the offering were approximately $3.9 million before
expenses (net of underwriters discount). The financial statement for the third
quarter 2000 will reflect such proceeds.
Cash used in operations includes expenditures associated with research and
development activities and marketing efforts related to promotion of our
products.
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For the six months ended June 30, 2000, cash used in operations was $6.0
million, consisting of our net loss of $6.1 million, an increase in trade
receivables of $0.7 million, partially offset by non-cash charges of $1.2
million, and an increase in accrued expenses of $0.9 million and a decrease in
deferred revenues of $0.9 million. For the six months ended June 30, 1999, cash
used in operations was $2.4 million, consisting of our net loss of $3.4 million,
an increase in trade receivables of $1.2 million, partially offset by non-cash
charges of $0.4 million.
As of June 30, 2000, we had outstanding trade receivables of approximately $4.7
million. Our trade receivables typically have terms that are negotiated
individually with each client. As of June 30, 2000, our DSO (Days Sales
Outstanding) was 98 days.
As of June 30, 2000, we have also received aggregate payments from the
Government of the State of Israel in the amount of $3.2 million related to
research and development and $0.7 million related to marketing activities. As of
June 30, 2000, we have paid or accrued royalties related to these funds in the
amount of $1.3 million.
The Company also has an aggregate of $313,000 in term loans relating to
borrowings for working capital. One loan is in dollars and bears interest at a
rate of LIBOR plus 1% and the other is linked to the Israeli CPI and bears
interest at a rate of 5.4%.
Our bank in Israel has issued two standby letters of credit on our behalf. One
is for $125,000 for tenant improvements related to our facilities in Israel. The
other is for $350,000 and secures our performance pursuant to projects with the
Government of Israel.
Our capital requirements depend on numerous factors, including market acceptance
of our products, the resources we devote to developing, marketing, selling and
supporting our products, the timing and extent of establishing additional
international operations and other factors. We intend to continue investing
significant resources in our sales and marketing and research and development
operations in the future. We believe that our current cash balances will be
sufficient to fund our operations for at least the next twelve months. After
that time, we cannot assure you that cash generated from operations will be
sufficient to satisfy our liquidity requirements, and we may need to raise
additional capital by selling additional equity or debt securities or by
increasing the size of our credit facility. If additional funds are raised
through the issuance of equity or debt securities, these securities could have
rights, preferences and privileges senior to those of holders of ordinary
shares, and the terms of these securities could impose restrictions on our
operations. The sale of additional equity or convertible debt securities could
result in additional dilution to our shareholders, and we cannot be certain that
additional financing will be available in amounts or on terms acceptable to us,
if at all. If we are unable to obtain this additional financing, we may be
required to reduce the scope of our planned product development and marketing
efforts, which could harm our business, financial condition or operating
results.
FACTORS THAT MAY AFFECT FUTURE RESULTS
This report contains certain forward-looking statements (as such term is defined
in Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934) and information relating to the Company that is based on
the beliefs of the management of the Company as well as assumptions made by and
information currently available to the management of the Company including
statements related to products, markets, and future operations, and includes
implied statements concerning market acceptance of our products, our growing
leadership role in the market, future grants from the Chief Scientist of Israel
and future profitability. 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 the Company or the management of the Company,
may identify forward-looking statements. Such statements reflect the judgement
of the Company 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 below, which may have a significant
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impact on the Company's business, operating results or financial condition. Such
"forward-looking statements" involve known and unknown risks, uncertainties and
other factors which may cause actual results or performance to be materially
different from any future results or performance expressed or implied by such
forward-looking statements. ClickSoftware's achievement of these results may be
affected by many factors, including among others, the following: continued
market acceptance of our products; delays in or failure to develop future
products or enhancements and upgrades to existing products; uncertainties
regarding the impact or outcome of our marketing and integration alliances;
uncertainties regarding our intellectual property; uncertainties regarding
additional grants from the Chief Scientist of Israel; and competition and other
risks. Investors are cautioned that these forward-looking statements are
inherently uncertain. Should assumptions prove incorrect, actual results or
outcomes may vary materially from those described herein. ClickSoftware
undertakes no obligation to update forward-looking statements.
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 occurs, 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 FINANCIAL PERFORMANCE MAY SUFFER BECAUSE WE HAVE RECENTLY CHANGED OUR
STRATEGIC FOCUS. Historically, all of our operating revenue has come from sales
of our ClickSchedule product, formerly known as W-6 Service Scheduler, and our
ClickFix product, formerly known as TechMate, to clients seeking application
software that enables efficient provisioning of services in enterprise, rather
than Internet, environments. As a result, while we sold the W-6 technology that
is included in ClickSchedule and the TechMate technology that is included in
ClickFix prior to 1999, we have only recently sold the new versions for Internet
scheduling and troubleshooting. Our current strategy is to expand upon our
installed base of clients using our software to become the leading provider of
web-scheduling and delivery software solutions for service operations, including
Internet companies and companies transitioning to Internet applications. To the
extent that our strategy is not successful, our business, operating results and
financial condition will suffer.
OUR FINANCIAL PERFORMANCE MAY SUFFER BECAUSE WE HAVE RECENTLY INTRODUCED A NEW
PRICING PROGRAM. In December 1999, we introduced a new pricing program for our
products. Traditionally, we have generated revenue through one-time sales of
licenses to our clients at a price based upon the number of resources optimized.
Our new pricing model enables our clients to pay monthly user fees for licenses
of our software or to pay on a per-transaction basis. If we have not determined
appropriate monthly or per transaction fees for our software licenses, our
revenues from software licenses may decrease or may not increase. Our new
pricing model may also result in delayed recognition of revenues, which may
cause our quarterly operating results to be lower than expected in any
particular quarter. Thus far, however, this pricing structure has been selected
by only a few customers and not had a significant impact on our revenue.
WE HAVE A HISTORY OF LOSSES AND EXPECT TO INCUR FUTURE LOSSES. We have not
achieved profitability and expect to continue to incur net losses for the
foreseeable future.
We expect to continue to incur significant sales and marketing and research and
development expenses and expect such expenses to increase significantly. Some of
our expenses, such as expenses for administrative and management payroll and
rent and utilities, are fixed in the short term and cannot be quickly reduced to
respond to decreases in revenues. As a result, we will need to generate
significant revenues to achieve and maintain profitability, which we may not be
able to do.
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO FLUCTUATIONS AND IF WE FAIL TO
MEET THE EXPECTATIONS OF SECURITIES ANALYSTS OR INVESTORS, OUR SHARE PRICE MAY
DECREASE. Our quarterly operating results are difficult to predict and are not a
good measure for comparison. Our operating history shows that a significant
percentage of our quarterly revenues come from orders placed toward the end of a
quarter. For example, in the six months ended June 30, 2000, 57% of realized
revenue was recognized in the last two weeks of each quarter. A delay in the
completion of a sale past the end of a particular quarter could negatively
impact results for that quarter. Our future quarterly operating results may
fluctuate significantly and may not meet the expectations of securities analysts
or investors. If this occurs, the price of our ordinary shares may decrease. The
factors that may cause fluctuations in our quarterly operating results include
the following:
- - the volume and timing of customer orders;
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- - the length and unpredictability of our sales cycle;
- - the mix of revenue generated by product licenses and professional
services;
- - the mix of revenue between domestic and foreign sources;
- - internal budget constraints of our current and prospective clients,
particularly newly formed Internet companies;
- - announcement or introduction of new products or product enhancements by us
or our competitors;
- - changes in prices of and the adoption of different pricing strategies for
our products and those of our competitors;
- - changes in our business strategy;
- - timing and amount of sales and marketing expenses;
- - changes in our business relationships;
- - technical difficulties or "bugs" affecting the operation of our software;
- - foreign currency exchange rate fluctuations; and
- - general economic conditions.
FAILURE OF THE MARKET TO ACCEPT OUR TECHNOLOGY WOULD ADVERSELY AFFECT DEMAND FOR
OUR PRODUCTS AND THE PRICE OF OUR ORDINARY SHARES COULD DECLINE. Our products
are based on complex technologies, including sophisticated algorithms and models
which we have developed to address complex scheduling and troubleshooting issues
in the service industry. Although our products are currently being used in the
service industry, and we believe our technologies address these issues, the
methods we have chosen have not yet been widely accepted by the service industry
and other providers of similar software use different technology and models. We
cannot predict whether our products will be widely accepted by the service
industry. Failure of the market to accept our technology would adversely affect
demand for our products. In addition, we participate in an industry with an
inherently high failure rate and we cannot assure you that our clients will
achieve success when using our products and services. Any publicized performance
problems relating to our products or those of our competitors could also slow
client adoption of our products. Moreover, to the extent that we are associated
with unsuccessful client projects, even if due to factors beyond our control,
our reputation and competitive position in our industry could be materially and
adversely affected.
IF THE MARKET FOR SCHEDULING FULFILLMENT OF SERVICES AND PRODUCTS OVER THE
INTERNET DOES NOT DEVELOP AS EXPECTED OR AT ALL, OR IF OUR PRODUCTS ARE NOT
ACCEPTED BY BUSINESSES SCHEDULING SERVICES, DEMAND FOR OUR SOLUTIONS MAY NOT
DEVELOP AND THE PRICE OF OUR ORDINARY SHARES COULD DECLINE ACCORDINGLY. Our
business strategy is premised, in part, on our belief that traditional
bricks-and-mortar companies, such as utilities, as well as e-commerce companies,
will offer their customers the opportunity to schedule and obtain services
online rather than on the telephone. While some of our clients use the web-based
features of our products in an intranet environment, as of the date of this
statement, none of our clients is currently offering Internet self-scheduling
options to its customers. In addition, in order for our business strategy to be
fully achieved, consumers and businesses must move away
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from telephone-based customer service to Internet-based customer service. While
adoption of the Internet as a new medium for commerce is occurring for purchases
of products, the adoption of the Internet to schedule and obtain services is at
a much earlier stage. If online service scheduling solutions are not widely
adopted by consumers and businesses engaging in e-commerce transactions, our
business will suffer. We began emphasizing our products' Internet capabilities
in September 1999 and we have devoted and expect to continue to devote
substantial resources to market these products. Our new business strategy
requires us to market our products to companies that utilize the Internet to
deliver service. Many of these companies may have limited capital resources and
may not be willing to invest in our solutions.
IF USE OF THE INTERNET FOR COMMERCIAL TRANSACTIONS DOES NOT GROW AS ANTICIPATED,
OUR BUSINESS STRATEGY MAY NOT BE SUCCESSFUL. Our success will depend in part on
the acceptance of the Internet in the commercial marketplace and on the ability
of third parties to provide a reliable Internet infrastructure network with the
speed, data capacity, security and hardware necessary for reliable Internet
access and services. To the extent that the Internet continues to experience
increased numbers of users, increased frequency of use or increased bandwidth
requirements of users, the Internet infrastructure may not be able to support
the demands placed on it and the performance and reliability of the Internet
could suffer, which could cause the market for our products to fail to grow or
to grow more slowly than anticipated, causing our business to suffer.
IF WE FAIL TO MANAGE OUR GROWTH EFFECTIVELY, OUR BUSINESS MAY NOT SUCCEED. Our
ability to successfully offer products and services and to implement our
business plan in the evolving market for service scheduling and resource
optimization software requires an effective planning and management process. We
continue to increase the scope of our operations in the United States and
internationally and expect to continue to increase our headcount substantially
in the future. For example, the number of individuals we employed grew from 128
as of June 30, 1999 to 182 as of June 30, 2000. As part of this growth, we have
had to implement new operational and financial systems, procedures and controls;
expand, train and manage our employee base; and maintain close coordination
among our technical, accounting, finance, marketing and sales staffs. These
factors have placed, and our anticipated expansion will continue to place, a
significant strain on our existing management systems and resources.
We expect that we will need to continue to expand our existing management and to
improve our financial and managerial controls and reporting systems and
procedures, and expand, train and manage our work force worldwide. Furthermore,
we expect that we will be required to manage multiple relationships as we expand
our customer base and our business relationships.
TWO PRODUCTS ACCOUNT FOR THE MAJORITY OF OUR REVENUE. IF THE DEMAND FOR THESE
PRODUCTS FALLS, OUR SALES COULD BE SIGNIFICANTLY REDUCED AND OUR FINANCIAL
PERFORMANCE COULD BE SERIOUSLY DAMAGED. Historically, all of our operating
revenue has come from sales of, and services related to, our ClickSchedule
product, formerly known as W-6 Service Scheduler, and our ClickFix product,
formerly known as TechMate, to clients seeking application software that enables
efficient provisioning of services in enterprise environments. As we pursue our
new business strategy and develop our products, we anticipate that revenues from
sales of our ClickSchedule and ClickFix product lines, together with related
professional services fees, will continue to account for all of our operating
revenue for the foreseeable future. Accordingly, the widespread market
acceptance of these products is critical to our future success. Competition,
technological change or other factors could decrease demand for, or market
acceptance of, these products or make these products obsolete. Any decrease in
demand or market acceptance would have a material adverse effect on our business
and operating results.
OUR LONG AND UNPREDICTABLE SALES AND IMPLEMENTATION CYCLES DEPEND ON FACTORS
OUTSIDE OUR CONTROL, WHICH MAY CAUSE QUARTERLY LICENSE AND SERVICE FEES REVENUES
TO VARY SIGNIFICANTLY FROM PERIOD TO PERIOD. To date, our customers have taken a
long time, typically ranging from three months to one year, to evaluate our
products before making their purchase decisions. In addition, depending on the
nature and specific needs of a client, the implementation of our products can
take up to three to twelve months. Sales of licenses and implementation
schedules are subject to a number of
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risks over which we have little or no control, including clients' budgetary
constraints, clients' internal acceptance reviews, the success and continued
internal support of clients' own development efforts, the efforts of businesses
with which we have relationships, the nature, size and specific needs of a
client and the possibility of cancellation of projects by clients. The uncertain
outcome of our sales efforts and the length of our sales cycles could result in
substantial fluctuations in license revenues. If sales forecasted from a
specific client for a particular quarter are not realized in that quarter, we
are unlikely to be able to generate revenues from alternate sources in time to
compensate for the shortfall. As a result, and due to the relatively large size
of some orders, a lost or delayed sale could have a material adverse effect on
our quarterly revenue and operating results. Moreover, to the extent that
significant sales occur earlier than expected, revenue and operating results for
subsequent quarters could be adversely affected.
FAILURE TO EXPAND OUR SALES AND MARKETING ORGANIZATIONS COULD LIMIT OUR ABILITY
TO SELL ADDITIONAL PRODUCTS AND SERVICES, WHICH WOULD IMPAIR OUR ABILITY TO GROW
OUR BUSINESS AND INCREASE REVENUES. We must expand our direct and indirect sales
operations to increase market awareness of our products and generate increased
revenues. We cannot be certain that we will be successful in these efforts. We
have recently expanded our direct sales force in North America and plan to hire
additional sales personnel. As of June 30, 2000, we employed 60 individuals in
our sales and marketing organizations. Because 26 of these sales and marketing
personnel joined us within the last twelve months, we will be required to devote
significant resources to the training of these new sales personnel. We believe
we will need to expand our sales and marketing organization significantly. We
might not be able to hire or retain the kind and number of sales and marketing
personnel we are targeting because competition for qualified sales and marketing
personnel in our market is intense.
WE DEPEND ON KEY PERSONNEL, AND THE LOSS OF ANY KEY PERSONNEL COULD AFFECT OUR
ABILITY TO COMPETE AND OUR ABILITY TO ATTRACT ADDITIONAL KEY PERSONNEL MAY BE
MORE DIFFICULT. 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 Dr. BenBassat and our Chief Financial Officer, Shimon M. Rojany. None of
our other officers or key employees is bound by an employment agreement. Our
relationships with these officers and key employees are at will and the loss of
any of our key personnel could harm our ability to execute our business strategy
and compete. In addition, we believe that the prospective employees that we
target may perceive that the share option component of our compensation packages
is not a valuable component. Consequently, we may have difficulty hiring our
desired numbers of key personnel. Moreover, even if we are able to attract key
personnel, the resources required to attract and retain such personnel may
adversely affect our operating results.
IF WE FAIL TO EXPAND OUR PROFESSIONAL SERVICES ORGANIZATION, WE MAY NOT BE ABLE
TO SERVICE ADDITIONAL CLIENTS AND SELL ADDITIONAL LICENSES. We cannot be certain
that we can attract or retain a sufficient number of highly qualified 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 other assistance to our clients and works
with our clients' in-house staff to train them regarding the maintenance,
management and expansion of their software systems. Growth in licenses of our
software will depend in part on our ability to provide our clients with these
services. In addition, we will be required to expand our professional services
organization to enable us to continue to support our existing installed base of
customers as we focus on our new business strategy. As a result, we plan to
increase the number of our service personnel in order to meet these needs.
Competition for qualified services personnel with the relevant knowledge and
experience is intense, and we may not be able to attract and retain necessary
personnel. If we are not able to grow our professional services organization,
our ability to expand our business would be limited. To meet our clients' needs
for professional services, we may need to increase our use of third-
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party consultants to supplement professional services provided by our own
professional services group which may be more costly and less successful than
our own organization. In addition, we could experience delays in recognizing
revenue if our professional services group fails to complete implementations in
a timely manner.
OUR ABILITY TO ATTRACT AND RETAIN QUALIFIED DEVELOPERS IS CRUCIAL TO OUR FUTURE
GROWTH AND RESULTS OF OPERATIONS. As a company focused on the development of
software products, our research and development personnel are one of our most
valued assets. Our future success depends in large part on our ability to hire,
train and retain software developers, systems architects, project managers,
telecommunications business process experts, systems analysts, trainers,
writers, consultants and sales and marketing professionals of various experience
levels. Personnel possessing the skills needed to contribute to our research and
development efforts are in short supply, and this shortage is likely to
continue. As a result, competition for these people is intense, and the industry
turnover rate for them is high. Any inability to hire, train and retain a
sufficient number of qualified development employees could hinder the research
and development activities and growth of our business.
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 be seriously harmed. 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 expand our base of
clients. Even if we are successful in developing relationships with third-party
implementation and professional services providers, we will be subject to
significant risk, as we cannot control the level and quality of service provided
by third-party implementation and professional services partners.
OUR MARKET IS HIGHLY COMPETITIVE AND ANY REDUCTION IN DEMAND FOR, OR PRICES OF,
OUR PRODUCTS COULD NEGATIVELY IMPACT OUR REVENUES, REDUCE OUR GROSS MARGINS AND
CAUSE OUR SHARE PRICE TO DECLINE. The market for our products is competitive and
rapidly changing. We expect competition to increase in the future as current
competitors expand their product offerings and new companies enter the market.
Our current and potential competitors include:
- - independent systems integrators, such as Electronic Data Systems
Corporation, consulting firms and in-house information technology departments of
enterprise and Internet businesses which may develop their own solutions that
compete with our products;
- - traditional enterprise resource planning and customer relationship
management software application vendors, including Oracle Corporation;
- - software vendors in the utility, telecom, field services, home delivery and
other vertical markets, including Mobile Data Solutions Inc.;
- - other providers of scheduling software and components as well as various
logistics solutions providers such as ServicePower, Inc.; and
- - providers of software that allow manufacturing organizations to optimize
their resources.
Because the market for service and delivery optimization software is evolving,
it is difficult to determine what portion of the market each competitor
currently
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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 DEVELOP OR MAINTAIN KEY BUSINESS RELATIONSHIPS COULD LIMIT OUR
ABILITY TO SELL ADDITIONAL LICENSES WHICH COULD DECREASE OUR REVENUES AND
INCREASE OUR SALES AND MARKETING COSTS. We believe that our success in
penetrating our target markets depends in part on our ability to develop and
maintain business relationships with software vendors, resellers, systems
integrators, distribution partners and customers. If we fail to develop 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 have not derived
significant revenues from these agreements and we may not be able to derive
significant revenues in the future from these agreements. In addition, our
growth may be limited if prospective clients do not accept the solutions offered
by our strategic partners.
OUR MARKET MAY EXPERIENCE RAPID TECHNOLOGICAL CHANGES THAT COULD CAUSE OUR
PRODUCTS TO FAIL OR REQUIRE US TO REDESIGN OUR PRODUCTS, WHICH WOULD RESULT IN
INCREASED RESEARCH AND DEVELOPMENT EXPENSES. Our market is characterized by
rapid technological change, dynamic client needs and frequent introductions of
new products and product enhancements. If we fail to anticipate or respond
adequately to technology developments and client requirements, or if our product
development or introduction is delayed, we may have lower revenues. Client
product requirements can change rapidly as a result of computer hardware and
software innovations or changes in and the emergence, evolution and adoption of
new industry standards. For example, we offer Windows NT versions of our
products due to the market acceptance of Windows NT over the last several years.
We currently do not provide Unix versions of our software and we may not be able
to modify our products and services to address new requirements and standards.
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 make substantial product development investments. As is customary in
the software industry, we have previously experienced delays in introducing new
products and features, and we may experience such delays in the future which
could impair our revenue and operating results.
OUR PRODUCTS COULD BE SUSCEPTIBLE TO ERRORS OR DEFECTS THAT COULD RESULT IN LOST
REVENUES, LIABILITY OR DELAYED OR LIMITED MARKET ACCEPTANCE. Complex software
products such as ours often contain errors or defects, particularly when first
introduced or when new versions or enhancements are released. In the past, some
of our products have contained errors and defects which have delayed
implementation or required us to expend additional resources to correct the
problems. Despite internal testing and testing by current and potential clients,
our current and future products may contain serious defects or errors. Any such
defects or errors would likely result in lost revenues, liability or a delay in
market acceptance of these products, any of which would have a material adverse
effect on our business, operating results and financial condition.
The performance of our products also depends 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
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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 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. For example,
on February 28, 2000, a trademark infringement complaint was filed against us
with respect to the use of our former corporate name and former Internet domain
names. On May 2, 2000, a preliminary injunction was entered, enjoining us from
using these names. As a result, we changed our corporate name to ClickSoftware
Technologies Ltd. and ceased our use of our former domain names. In addition, on
June 23, 2000 we filed a complaint for declaratory relief against Click
Commerce, Inc. requesting a determination of non-infringing status of our use of
the name ClickSoftware. Click Commerce, Inc. has denied our allegations and
counterclaimed alleging infringement of trademark and trade name rights. These
actions remain ongoing and even if we are successful in our claims, we may incur
significant legal expenses and our management may expend significant time in the
defense.
We expect that software products may be increasingly subject to third-party
infringement or ownership claims as the number of competitors in our industry
segment grows and the functionality of products in different industry segments
overlaps. Third parties may make a claim of infringement or conflicting
ownership rights against us with respect to our products and technology. Any
claims, with or without merit, could:
- - be time-consuming to defend;
- - result in costly litigation;
- - divert management's attention and resources;
- - cause product shipment delays; or
- - require us to enter into costly royalty or licensing agreements, if they
are even available, on commercially reasonable terms, or at all.
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.
ANY FUTURE ACQUISITIONS OF COMPANIES OR TECHNOLOGIES MAY RESULT IN DISTRACTION
OF OUR MANAGEMENT AND DISRUPTIONS TO OUR BUSINESS. We may acquire or make
investments in complementary businesses, technologies, services or products if
appropriate opportunities arise. From time to time we may engage in discussions
and negotiations with companies regarding our acquiring or investing in such
companies' businesses, products, services or technologies. We cannot make
assurances that we will be able to identify future suitable acquisition or
investment candidates, or if we do identify suitable candidates, that we will be
able to make such acquisitions or investments on commercially acceptable terms
or at all. Our management has limited experience in acquiring companies or
technologies. If we acquire or invest in another company, we could have
difficulty assimilating that company's personnel, operations, technology or
products and service offerings. In addition, the key personnel of the acquired
company may decide not to work for us. These difficulties could disrupt our
ongoing business, distract our management and employees, increase
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our expenses and adversely affect our results of operations. Furthermore, we may
incur indebtedness to pay for any future acquisitions. As of the date of this
statement, we have no agreement to enter into any material investment or
acquisition transaction.
FUTURE ACQUISITIONS MAY RESULT IN DILUTION TO OUR CURRENT SHAREHOLDERS. In the
future we may acquire complementary business through the issuance of additional
ordinary shares. Additional issuances of ordinary shares could decrease the
value of our ordinary shares and reduce the net tangible book value per share.
Consequently, an acquisition in which we issue additional shares could actually
decrease the value of your investment in ClickSoftware. As of the date of this
statement, we have no agreement to enter into any material acquisition which
would result in the issuance of additional shares.
OUR BUSINESS MAY BECOME INCREASINGLY SUSCEPTIBLE TO NUMEROUS RISKS ASSOCIATED
WITH INTERNATIONAL OPERATIONS. A significant portion of our operations occur
outside the United States. Our facilities are located in North America, Israel
and the United Kingdom and our executive officers and other key employees are
dispersed throughout the world. This geographic dispersion requires significant
management resources that may place us at a disadvantage compared to our
locally-based competitors. In addition, our international operations are
generally subject to a number of risks, including:
- - foreign currency exchange rate fluctuations;
- - longer sales cycles;
- - multiple, conflicting and changing governmental laws and regulations;
- - expenses associated with customizing products for foreign countries;
- - protectionist laws and business practices that favor local competition;
- - difficulties in collecting accounts receivable; and
- - political and economic instability.
We expect international revenues to continue to account for a significant
percentage of total revenues in the future 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 a substantial portion of our sales
currently are being made 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. We could be adversely affected by any major hostilities
involving Israel, the interruption or curtailment of trade between Israel and
its trading partners, a significant increase in inflation, or a significant
downturn in the economic or financial condition of Israel. Despite the progress
towards peace between Israel and its Arab neighbors, the future of these peace
efforts is uncertain. Several Arab countries still restrict business with
Israeli companies which may limit our ability to make sales in those countries.
We could be adversely affected by restrictive laws or policies directed towards
Israel or Israeli businesses.
CERTAIN OF OUR OFFICERS AND EMPLOYEES ARE REQUIRED TO SERVE IN THE ISRAEL
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DEFENSE FORCES AND THIS COULD FORCE THEM TO BE ABSENT FROM OUR BUSINESS FOR
EXTENDED PERIODS. David Schapiro, our Vice President and General Manager,
product development group, and Hannan Carmeli, our Vice President and General
Manager, ClickFix, as well as other male employees located in Israel are
currently obligated to perform up to 39 days of annual reserve duty in the
Israel Defense Forces and are subject to being called for active military duty
at any time. The loss or extended absence of any of our officers and key
personnel due to these requirements could harm our business.
WE ARE SUBJECT TO A RECENTLY ADOPTED NEW COMPANIES LAW WHICH HAS NOT YET BEEN
INTERPRETED. Because we are incorporated under the laws of the State of Israel,
your rights as a shareholder will be governed by the Companies Law of Israel
which became effective on February 1, 2000. Certain obligations and fiduciary
duties of directors, officers and shareholders under the new Companies Law are
new and have not been interpreted or reviewed by the Israeli courts. In
addition, not all of the regulations have been promulgated to date. As a result,
our shareholders may have more difficulty and uncertainty in protecting their
interests in the case of actions by our directors, officers or controlling
shareholders or third parties than would shareholders of a corporation
incorporated in a state or other jurisdiction in the United States.
THE RATE OF INFLATION IN ISRAEL MAY NEGATIVELY IMPACT OUR COSTS IF IT EXCEEDS
THE RATE OF DEVALUATION OF THE NIS AGAINST THE DOLLAR. Substantially all of our
revenues are denominated in dollars or are dollar-linked, but we incur a portion
of our expenses, principally salaries and related personnel expenses in Israel,
in NIS. In 1999, 34%, and in the six months ended June 30, 2000, 29%, of our
costs were incurred in NIS. As a result, we are exposed to the risk that the
rate of inflation in Israel will exceed the rate of devaluation of the NIS in
relation to the dollar or that the timing of this devaluation will lag behind
inflation in Israel. In that event, the dollar cost of our operations in Israel
will increase and our dollar-measured results of operations will be adversely
affected. In 1998, the rate of devaluation of the NIS against the dollar
exceeded the rate of inflation in Israel which benefited us. However, we cannot
assure you that this reversal will continue or that we will not be materially
adversely affected in the future if the rate of inflation in Israel exceeds the
devaluation of the NIS against the dollar or if the timing of this devaluation
lags behind increases in inflation in Israel.
THE GOVERNMENT PROGRAMS IN WHICH WE CURRENTLY PARTICIPATE AND TAX BENEFITS WHICH
WE CURRENTLY RECEIVE REQUIRE US TO SATISFY PRESCRIBED CONDITIONS AND MAY BE
DELAYED, TERMINATED OR REDUCED IN THE FUTURE. THIS WOULD INCREASE OUR COSTS AND
TAXES. We receive grants from the Government of the State of Israel through the
Office of the Chief Scientist of the Ministry of Industry and Trade, or the
Chief Scientist, for the financing of a significant portion of our research and
development expenditures in Israel and we may apply for additional grants in the
future. In 1998, 1999, and 2000, we received, will receive, or accrued grants
from the Chief Scientist totaling approximately $0.9 million, $1.0 million and
approximately $1.0 million respectively. In the six months ended June 30, 2000,
we received or accrued grants from the Chief Scientist totaling approximately
$0.1 million, and subsequent to June 30, 2000 (and subsequent to the issuance of
these financial statements for the quarter then ended) we received approval of a
grant of $0.8 million. We cannot assure that we will continue to receive grants
at the same rate or at all. The Chief Scientist budget has been subject to
reductions which may affect the availability of funds for Chief Scientist grants
in the future. The percentage of our research and development expenditures
financed using grants from the Chief Scientist may decline in the future, and
the terms of such grants may become less favorable. In connection with research
and development grants received from the Chief Scientist, we must make royalty
payments to the Chief Scientist on the revenues derived from the sale of
products, technologies and services developed with the grants from the Chief
Scientist. The amount of the grants received since inception is approximately
$3.2 million in respect of which we have already paid $1.0 million, out of a
total of $3.5 million, due to the Chief Scientist in the form of royalties. We
expect to pay or accrue additional royalties for the year 2000 at a rate equal
to 3% of our total revenues. 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
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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. Additionally, the licensing of our
software in the ordinary course of business is not considered a transfer of
technology by the Office of the Chief Scientist and we do not intend to transfer
any technology outside of Israel. Consequently, we do not anticipate having to
pay increased royalties to the Chief Scientist for the foreseeable future. In
connection with our grant applications, we have made representations and
covenants to the Chief Scientist regarding our research and development
activities in Israel. The funding from the Chief Scientist is subject to the
accuracy of these representations and covenants. If we fail to comply with any
of these conditions, we could be required to refund any 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. A warning
letter regarding our latest program was issued to us alleging that we have
partially performed the program and therefore we may not be entitled to receive
the benefits under that program. We currently believe that we will be entitled
to receive these benefits, although there can be no assurances that we will be
able to do so at this time. From time to time, the Government of Israel has
discussed reducing or limiting the benefits. We cannot assess whether these
benefits will be continued in the future at their current levels or at all.
PROPOSED TAX REFORM IN ISRAEL MAY REDUCE OUR TAX BENEFITS. On May 4, 2000, a
committee chaired by the Director General of the Israeli Ministry of Finance
issued a report recommending a sweeping reform in the Israeli system of
taxation. The proposed reform would significantly alter the taxation of
individuals and would also affect corporate taxation. In particular, the
proposed reform would reduce but not eliminate, the tax benefits available to
approved enterprises such as ours. The Israeli cabinet has approved the
recommendation in principle, but implementation of the reform requires
legislation by Israel's Knesset. We cannot be certain whether the proposed
reform will be adopted, when it will be adopted or what form any reform will
ultimately take or what effect it will have on our company.
IT MAY BE DIFFICULT TO ENFORCE A U.S. JUDGMENT AGAINST US, OUR OFFICERS AND
DIRECTORS AND THE ISRAELI ACCOUNTANTS NAMED AS EXPERTS IN THIS STATEMENT OR TO
ASSERT U.S. SECURITIES LAWS CLAIMS IN ISRAEL OR SERVE PROCESS ON SUBSTANTIALLY
ALL OF OUR OFFICERS AND DIRECTORS AND THESE ACCOUNTANTS. We are incorporated in
Israel and maintain significant operations in Israel. Some of our executive
officers and directors and the Israeli accountants named as experts in this
statement reside outside of the United States and a significant portion of our
assets and the assets of these persons are located outside the United States.
Therefore, it may be difficult for an investor, or any other person or entity,
to enforce a U.S. court judgment based upon the civil liability provisions of
the U.S. federal securities laws in an Israeli court against us or any of those
persons or to effect service of process upon these persons in the United States.
Additionally, it may be difficult for an investor, or any other person or
entity, to enforce civil liabilities under U.S. federal securities laws in
original actions instituted in Israel. We have appointed ClickSoftware Inc., our
U.S. subsidiary, as our agent to receive service of process in any action
against us arising out of our original June 23, 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.
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OUR OFFICERS, DIRECTORS AND AFFILIATED ENTITIES OWN A LARGE PERCENTAGE OF OUR
COMPANY AND COULD SIGNIFICANTLY INFLUENCE THE OUTCOME OF ACTIONS. As of June 30,
2000, our executive officers, directors and entities affiliated with them
beneficially owned approximately 51.5% of our outstanding ordinary shares. These
shareholders, if acting together, would be able to significantly influence all
matters requiring approval by our shareholders, including the election of
directors. This concentration of ownership may also have the effect of delaying
or preventing a change of control of our company, which could have a material
adverse effect on our stock price. These actions may be taken even if they are
opposed by our other investors.
WE EXPECT TO EXPERIENCE VOLATILITY IN OUR SHARE PRICE WHICH COULD NEGATIVELY
AFFECT YOUR INVESTMENT. You may not be able to sell your shares at or above the
purchase price due to a number of factors, including:
- - announcements of technological innovations;
- - announcements relating to strategic relationships;
- - conditions affecting the software and Internet industries; and
- - trends related to the fluctuations of stock prices of Israeli companies.
The trading price of our ordinary shares may be volatile. The market for
technology and Internet-related companies has experienced extreme volatility
that often has been unrelated to the operating performance of particular
companies. These fluctuations may adversely affect the trading price of our
ordinary shares, regardless of our actual operating performance.
WE ARE SUBJECT TO ANTI-TAKEOVER PROVISIONS THAT COULD DELAY OR PREVENT AN
ACQUISITION OF US, EVEN IF AN ACQUISITION WOULD BE BENEFICIAL TO OUR
SHAREHOLDERS. Provisions of Israeli corporate and tax law and of our articles of
association may have the effect of delaying, preventing or making more difficult
merger or other acquisition of us, even if doing so would be beneficial to our
shareholders. In addition, any merger or acquisition of us will require the
prior consent of the Chief Scientist.
Israeli law regulates mergers, votes required to approve a merger, acquisition
of shares through tender offers and transactions involving significant
shareholders. In addition, our articles of association provide for a staggered
board of directors and for restrictions on business combinations with interested
shareholders. Any of these provisions may make it more difficult to acquire our
company. Accordingly, an acquisition of us could be delayed or prevented even if
it would be beneficial to our shareholders.
OTHER ORDINARY SHARES MAY BE SOLD IN THE FUTURE. THIS COULD DEPRESS THE MARKET
PRICE FOR OUR ORDINARY SHARES. As of June 30, 2000, we had 25,380,754 ordinary
shares outstanding, including shares held by a trustee for issuance under some
outstanding options. In addition, as of June 30, 2000, we had 1,595,524 ordinary
shares issuable upon exercise of outstanding options and warrants, and 3,477,800
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 and certain lock-up
agreements limit the number of ordinary shares available for sale by our
shareholders in the public market. We and the beneficial holders, or trustees
issuing shares to option holders, of 21,374,514 ordinary shares and options
exercisable into an aggregate of 1,595,524 ordinary shares have agreed not to
sell ordinary shares or any securities convertible into or exercisable for
ordinary shares for 180 days after June 22, 2000 without the prior consent of
Lehman Brothers. After the expiration of this 180 day period, these shares will
be available for sale in the public market of varying times subject to
compliance with applicable laws. Lehman Brothers may, in its sole discretion,
release all or any portion of the securities subject to such lock-up agreements
prior to the end of the 180 day period. The holders of options exercisable into
an aggregate of 324,600 additional ordinary shares hold options which will not
be exercisable within 180 days of June 22, 2000. We have filed a
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Registration Statement on Form S-8 to register for resale the ordinary shares
reserved for issuance under our stock option plans.
OUR NEED FOR ADDITIONAL FINANCING IS UNCERTAIN, AS IS OUR ABILITY TO RAISE
FURTHER FINANCING IF REQUIRED. We currently anticipate that our available cash
resources will be sufficient to meet our anticipated working capital and capital
expenditure requirements for at least twelve months. We may need to raise
additional funds, however, to respond to business contingencies which may
include the need to:
- - fund more rapid expansion;
- - fund additional marketing expenditures;
- - develop new or enhance existing products and services;
- - enhance our operating infrastructure;
- - hire additional personnel;
- - respond to competitive pressures; or
- - acquire complementary businesses or necessary technologies.
If additional funds are raised through the issuance of equity or convertible
debt securities, the percentage ownership of our shareholders will be reduced,
and these newly issued securities may have rights, preferences or privileges
senior to those of existing shareholders. We cannot assure you that additional
financing will be available on terms favorable to us, or at all. If adequate
funds are not available or are not available on acceptable terms, our ability to
fund our operations, take advantage of unanticipated opportunities, develop or
enhance our products and services or otherwise respond to competitive pressures
would be significantly limited. Additionally, prior to the issuance of
additional equity or convertible debt securities to entities outside of Israel,
we will need to obtain approval from the Chief Scientist of the State of Israel
and there can be no assurance that we will be able to obtain this consent in the
future.
IF WE ARE CHARACTERIZED AS A PASSIVE FOREIGN INVESTMENT COMPANY, OUR UNITED
STATES SHAREHOLDERS WILL BE SUBJECT TO ADVERSE TAX CONSEQUENCES. If, for any
taxable year, our passive income, or our assets which produce passive income,
exceeds specified levels, we may be characterized as a passive foreign
investment company for United States federal income tax purposes. We do not
currently anticipate that this will happen, but, if it does, our shareholders
will be subject to adverse United States tax consequences. Prospective investors
should consult with their own tax advisors with respect to the tax consequences
applicable to them of investing in our ordinary shares.
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, particularly Internet-related companies, have
been highly volatile. The price at which our common stock trades is likely to be
volatile and may fluctuate substantially due to factors such as: our historical
and anticipated quarterly and annual operating results; variations between our
actual results and the expectations of investors or published reports or
analyses of ClickSoftware; announcements by us or others and developments
affecting our business, systems or expansion plans; and conditions and trends in
e-commerce industries.
In the past, securities class action litigation has often been instituted
against companies following periods of volatility in the market price of their
securities. This type of litigation could result in substantial costs and a
diversion of management's attention and resources.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Exchange Rate Risk
We develop products in Israel and sell them primarily in North America and
Europe. As a result, our financial results could be affected by factors such as
changes in foreign currency exchange rates or weak economic conditions in
foreign markets. As most of our sales are currently made in U.S. dollars, a
strengthening of the dollar could make our products less competitive in foreign
markets. Our interest income is sensitive to changes in the general level of
U.S. interest rates, particularly since the majority of our investments are in
short-term instruments. We regularly assess these risks and have established
policies and business practices to protect against the adverse effects of these
and other potential exposures. As a result, we do not anticipate material
losses in these areas. Due to the nature of our short-term investments, we
have concluded that there is no material market risk exposure. Therefore, no
quantitative tabular disclosures are required. Additionally, we do not
participate in any speculative investments or hedging contracts related to
foreign currency exchange rate risks.
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Interest Rate Risk
As of June 30, 2000, we had cash and cash equivalents of $24.3 million which
consist of cash and highly liquid short-term investments. Our short-term
investments will decline in value by an immaterial amount if market interest
rates increase, and, therefore, our exposure to interest rate changes has been
immaterial. Declines of interest rates over time will, however, reduce our
interest income from our short-term investments.
As of June 30, 2000, we had total short term debt of $0.2 million and long-term
debt net of current maturities of $0.1 million which bear interest at rates
that are linked to LIBOR or the Israeli consumer price index. We also have a
revolving, accounts receivable-based, secured credit facility of up to $2.5
million for working capital purposes. Amounts outstanding bear interest at the
U.S. prime rate plus 1%. As of June 30, 2000, there were no amounts outstanding
under this facility.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Click Commerce, Inc., an unrelated third party, contacted us alleging that our
trademarks and our new company name infringe on their trademarks. After
discussions with them, we responded on June 23, 2000 by filing a complaint for
declaratory relief in the United States District Court, Northern District of
California, seeking a determination that the use of our name and trademarks do
not infringe on Click Commerce, Inc.'s claimed trademarks. Click Commerce, Inc.
responded to our complaint by denying our allegations. In addition, Click
Commerce, Inc.'s response includes a cross-complaint alleging that our use of
the CLICKSOFTWARE trademark and our use of other product names have resulted in
trademark infringement, unfair competition, and false designation of origin in
violation of federal law. The cross-complaint also alleges unfair competition
and false advertising in violation of California's Business and Professions Code
and trademark infringement in violation of California common law. Click
Commerce, Inc. is seeking damages from us in an unspecified amount.
Based on our preliminary investigation, we believe that we have meritorious
defenses to Click Commerce, Inc.'s claims for relief and damages, and we intend
to vigorously pursue our interests in these matters. We are unable at this time
to predict the outcome of this litigation. If this litigation is decided
adversely to us, we might be required to change our name and the names of our
products, pay damages, and we could be subject to significant costs of
litigation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Item 2(c)
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During the quarter ended June 30, 2000 and prior to the closing of our initial
public offering we granted options to three directors to purchase 80,000
ordinary shares of common stock, at an exercise price of $10.00 per share.
Item 2(d)
On June 27, 2000, the Company completed the sale of an aggregate of 4,000,000
ordinary shares of its common stock, par value 0.02 NIS per share, at a price of
$7.00 per share in a firm commitment underwritten public offering. The offering
was effected pursuant to a Registration Statement on Form S-1 (Registration No.
333-30274), which the United States Securities and Exchange Commission declared
effective on June 22, 2000. Lehman Brothers Inc., CIBC World Markets Corp., SG
Cowen Securities Corporation and Fidelity Capital Markets were the lead
underwriters for the offering.
Of the $28 million in aggregate proceeds raised by the Company in the offering,
(i) $1.96 million was paid to underwriters in connection with the underwriting
discount, and (ii) approximately $1.2 million was paid or accrued by the Company
in connection with offering expenses, printing fees, filing fees, and legal
fees. The legal fees included approximately $0.5 million paid or accrued to
Wilson Sonsini, Goodrich & Rosati, Professional Corporation ("WSGR"), counsel to
the Company.
The Company expects to use the proceeds for general corporate purposes,
including working capital. A portion of the proceeds may also be used to pursue
possible acquisitions of complementary businesses, technologies or products. The
Company, however, has no current plans, agreements or commitments with respect
to any such acquisition. Pending such uses, the Company is investing the
proceeds in short-term, interest-bearing, money market investment accounts and
investment-grade securities. There were no direct or indirect payments to
directors or officers of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the three months ended June 30, 2000, the following matters were
submitted to the shareholders of the Company:
1. On May 11, 2000, the shareholders of the Company, acting by unanimous
written consent, (i) approved the change of the Company's name from
ClickService Software, Ltd. to ClickSoftware, Ltd. or to Intelligent
e-Service Technologies, Ltd., or to any similar names acceptable to
the Registrar of Companies in Israel, and (ii) authorized similar
changes to the names of the Company's subsidiaries.
2. On June 21, 2000, the shareholders of the Company, acting by
unanimous written consent, (i) approved the conversion of 2,700,000
Class A-1 Preferred Shares of NIS 0.02 par value each to 2,700,000
Ordinary Shares of NIS 0.02 par value each; (ii) adopted a special
resolution to approve the amendment of the resolution of shareholders
of the Company dated March 20, 2000, regarding the division of the
authorized share capital of the Company, to provide that upon the
consummation of the Company's initial public offering, the authorized
share capital of the Company shall be divided into (A) 97,000,000
Ordinary Shares of NIS 0.02 nominal value each; (B) 3,000,000
Non-Voting Ordinary Shares of NIS 0.02 nominal value each; and (C)
5,000,000 Special Preferred Shares of NIS 0.02 nominal value each.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed with the Securities and Exchange
Commission during the three months ended June 30, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CLICKSOFTWARE TECHNOLOGIES LTD.
(Registrant)
By: /s/ SHIMON M. ROJANY
------------------------------------
Shimon M. Rojany
Senior Vice President and
Chief Financial Officer
Date: August 13, 2000
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EXHIBIT INDEX
No. Description
- --- -----------
27.1 Financial Data Schedule
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