SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
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, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission File Number: 333-30274
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ClickSoftware Technologies Ltd.
(Exact name of Registrant as specified in its charter)
ISRAEL Not Applicable
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
34 Habarzel Street
Tel Aviv, Israel
(Address of principal executive offices)
(972-3) 765-9400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
As of June 30, 2000, there were 26,201,118 shares of the Registrant's
common stock, par value 0.02 NIS, outstanding.
1
TABLE OF CONTENTS
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10-Q
PART I - FINANCIAL INFORMATION.................................................2
Item I.........................................................................3
Balance Sheet..................................................................3
Income Statement...............................................................4
Cash Flow Statement............................................................5
Table 4........................................................................6
PART II.......................................................................21
ITEM 2........................................................................21
ITEM 3........................................................................22
ITEM 6........................................................................23
EX-10.1
Exhibit 10....................................................................25
ClickSoftware Technologies Ltd.
FORM 10-Q
FOR THE QUARTER ENDED June 30, 2001
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
(a) Condensed Consolidated Balance Sheets as of June 30, 2001 and December
31, 2000...................................................................................3
(b) Condensed Consolidated Statements of Operations for the Three and Six
Months Ended June 30, 2001 and June 30, 2000...............................................4
(c) Condensed Consolidated Statements of Cash Flows for Six Months Ended
June 30, 2001 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.....................................................................6
Factors That May Affect Future Results........................................................12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..........................................................................21
Item 2. Changes in Securities and Use of Proceeds..................................................21
Item 3. Quantitative and Qualitative Disclosures About Market Risk.................................22
Item 6. Exhibits and Reports on Form 8-K...........................................................23
Signatures.........................................................................................24
2
PART I--FINANCIAL INFORMATION
ITEM 1. Financial Statements
CLICKSOFTWARE TECHNOLOGIES LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
JUNE 30, DECEMBER 31,
2001 2000
--------------- ---------------
ASSETS
Current Assets:
Cash and cash equivalents $ 9,387 $ 4,438
Short-term investments 5,369 16,878
Trade receivables 6,564 4,375
Other receivables and prepaid expenses 1,888 1,466
Total current assets 23,208 27,157
Property and equipment, net 3,846 3,772
Severance pay deposits 572 526
Total assets $ 27,626 $ 31,455
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $ 79 $ 146
Accounts payable and accrued expenses 3,555 3,274
Deferred revenues 102 127
Total current liabilities 3,741 3,547
LONG-TERM LIABILITIES
Long-term debt 64 103
Accrued severance pay 1,372 1,343
Total long-term liabilities 1,431 1,446
Total liabilities 5,172 4,993
SHAREHOLDERS' EQUITY:
Convertible Preferred shares of NIS 0.02 par value:
Authorized -- 5,000,000 as of December 31, 2000 and June 30,
2001; Issued and outstanding -- none as of December 31, 2000 and June 30, 2001.
- -
Ordinary shares of NIS 0.02 par value:
Authorized -- 100,000,000 as of December 31, 2000 and June 30, 2001; Issued
and outstanding -- 26,064,539 as of December 31,2000 and
26,201,118 as of June 30, 2001. 101 100
Additional paid-in capital 69,288 69,169
Deferred compensation (875) (1,120)
Accumulated deficit (46,060) (41,687)
Total shareholders' equity 22,454 26,462
Total liabilities and shareholders' equity $ 27,626 $ 31,455
See notes to condensed consolidated financial statements.
3
CLICKSOFTWARE TECHNOLOGIES LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
THREE MONTHS ENDED JUNE 30,
2001 2000
------------------- -------------------
Revenues:
Software license $ 2,883 $ 2,960
Service and maintenance 2,161 1,348
------------------- -------------------
Total revenues 5,044 4,308
Cost of revenues:
Software license 138 23
Service and maintenance 1,578 1,351
Total cost of revenues 1,716 1,374
------------------- -------------------
Gross profit 3,328 2,934
------------------- -------------------
Operating expenses:
Research and development expenses, net 685 1,341
Sales and marketing expenses 3,646 3,164
General and administrative expenses 962 804
Share-based compensation 16 355
------------------- -------------------
Total operating expenses 5,309 5,664
------------------- -------------------
Operating loss (1,981) (2,730)
Interest and other income, net 137 (6)
------------------- -------------------
Net loss $ (1,844) $ (2,736)
=================== ===================
Basic and diluted net loss per share $ (0.07) $ (0.14)
=================== ===================
Shares used in computing basic and diluted net loss per
share 25,096,522 20,266,123
=================== ===================
CLICKSOFTWARE TECHNOLOGIES LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
SIX MONTHS ENDED JUNE 30,
2001 2000
------------------- -------------------
Revenues:
Software license $ 5,986 $ 5,086
Service and maintenance 3,500 2,733
------------------- -------------------
Total revenues 9,486 7,819
Cost of revenues:
Software license 212 133
Service and maintenance 2,876 2,564
Total cost of revenues 3,088 2,697
------------------- -------------------
Gross profit 6,398 5,122
------------------- -------------------
Operating expenses:
Research and development expenses, net 1,659 2,405
Sales and marketing expenses 7,312 6,338
General and administrative expenses 1,789 1,756
Reorganization expenses 294 -
Share-based compensation 187 710
------------------- -------------------
Total operating expenses 11,241 11,209
------------------- -------------------
Operating loss (4,843) (6,087)
Interest and other income, net 470 (1)
------------------- -------------------
Net loss $ (4,373) $ (6,088)
=================== ===================
Basic and diluted net loss per share $ (0.17) $ (0.31)
=================== ===================
Shares used in computing basic and diluted net loss per
share 25,037,092 19,884,040
=================== ===================
See notes to condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
SIX MONTHS ENDED JUNE 30
2001 2000
------------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,373) $ (6,088)
Adjustments to reconcile net loss to net cash used in operating activities
Expenses not affecting operating cash flows:
Depreciation 487 309
Amortization of deferred compensation 187 710
Unrealized gain from investments 319 -
Severance pay, net (16) 218
Changes in operating assets and liabilities:
Trade receivables (2,189) (690)
Other receivables and other prepaid
expenses (422) (503)
Accounts payable and accrued expenses 281 961
Deferred revenues (25) (941)
------------------- -----------------
Net cash used in operating activities (5,751) (6,024)
------------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of investments, net 11,190 -
Purchases of equipment (561) (1,498)
------------------- -----------------
Net cash provided (used) in investing activities
10,629 (1,498)
------------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of short-term debt (67) (147)
Repayment of long-term debt (39) (73)
Net proceeds from issuance of Ordinary
shares - 24,875
Net proceeds from warrants exercised - 579
Employee options exercised 177 396
------------------- -----------------
Net cash provided by financing activities 71 25,630
------------------- -----------------
Increase in cash and cash
equivalents 4,949 18,108
Cash and cash equivalents at beginning of
period 4,438 7,838
------------------- -----------------
Cash and cash equivalents at end of period $ 9,387 $ 25,946
------------------- -----------------
See notes to condensed consolidated financial statements.
5
ClickSoftware Technologies Ltd.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 2001 and FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2001 AND JUNE 30, 2000)
1. Condensed Consolidated Financial Statements. The accompanying condensed
interim 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, 2001 and the results of operations and cash
flows for the interim periods indicated. The results of operations
presented are not necessarily indicative of the results to be expected
for future quarters or for the year ending December 31, 2001. 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 condensed or omitted. These financial statements
should be read in conjunction with the audited financial statements and
notes thereto of ClickSoftware for the year ended December 31, 2000
that are included in ClickSoftware's Form 10-K filed with the
Securities and Exchange Commission.
2. Net Loss Per Share. ClickSoftware computes net loss per share of
ordinary shares in accordance with Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS No. 128"). Under the
provisions of SFAS No. 128 basic net loss per share ("Basic EPS") is
computed by dividing net loss by the weighted average number of shares
of common stock outstanding, excluding ordinary shares held by a
trustee reserved for allocation against employee options granted but
not yet exercised. 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):
SIX MONTHS ENDED JUNE 30
2001 2000
---- ----
(in thousands except share data and share numbers)
Net loss attributable to ordinary shareholders $ (4,373) $ (6,088)
Basic and diluted:
Weighted averages shares used in computing
basic and diluted net loss per ordinary
share
25,037,092 19,884,040
Basic and diluted net loss per ordinary
share $(0.17) $(0.31)
================ ==============
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".
6
OVERVIEW
ClickSoftware Technologies Ltd. ("ClickSoftware" or the "Company") derives
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 on an initial fee determined by
the number of service resources to be scheduled, followed by periodic
maintenance fees.
We recognize revenues in accordance with the American Institute of Certified
Public Accountants Statement of Position 97-2, "Software Revenue Recognition,"
or SOP 97-2, as amended by Statement of Position 98-4. Under SOP 97-2, we
recognize software license revenues when a software license agreement has been
executed or a definitive purchase order has been received and the product has
been delivered to our clients, no significant obligations with regard to
implementation remain, the fee is fixed and determinable, and collectability is
probable.
Service and maintenance revenues are comprised of professional service revenues
from implementation, and revenues from consulting, training, and customer
service support fees. Clients licensing our products generally purchase support
service agreements from us. Professional service and training revenues are
billed at an agreed-upon rate plus incurred expenses, and are recognized when
provided. Consulting revenues are recognized on a straight-line basis over the
life of the agreement. Customer support is charged as a percentage of license
fees depending upon the level of support coverage requested by the customer, and
are recognized over the duration of the support provided. 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.
We also offer software license pricing structures to our clients which include
lower initial license fees followed by monthly payments based on the number of
scheduling transactions conducted. To date, however, no significant revenue has
been recognized on this basis.
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 reaches maturity, and as 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 as compared to historic periods.
Operating expenses are categorized into net research and development expenses
(net of grants), 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.
In previous years we received grants 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 quarters as we hire additional sales and marketing
personnel, continue to promote our brand, and increase our international sales
efforts.
7
Sales and marketing expenses consist primarily of personnel and related costs
for marketing and sales functions, including related travel, direct advertising
costs, expenditures on trade shows, market research and promotional printing.
General and administrative expenses consist primarily of personnel and related
costs for corporate functions, including information services, finance,
accounting, human resources, facilities, 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.
Interest and other 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.
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 and the Euro. The results of our operations are subject to
fluctuations in these exchange rates which are influenced by various global
economic factors, including inflation rates and economic growth within each
nation.
The effects of foreign currency exchange rates on our results of operations for
the three and six months ended June 30, 2000 and 2001 were immaterial.
RESULTS OF OPERATIONS
Our operating results for each of the three and six months ended June 30, 2001
and 2000, expressed as a percentage of revenues are as follows:
THREE MONTHS SIX MONTHS
JUNE 30, JUNE 30,
2001 2000 2001 2000
------------ --------- ----------- ----------
Revenues:
Software license 57% 69% 63% 65%
Service and maintenance 43% 31% 37% 35%
------------ --------- ----------- ----------
Total revenues 100% 100% 100% 100%
Cost of revenues:
Software license 3% 1% 2% 2%
Service and maintenance 31% 31% 30% 33%
Total cost of revenues 34% 32% 33% 34%
------------ --------- ----------- ----------
Gross profit 66% 68% 67% 66%
------------ --------- ----------- ----------
Operating expenses:
Research and development expenses, net 14% 31% 17% 31%
Sales and marketing expenses 72% 73% 77% 81%
General and administrative expenses 19% 19% 19% 22%
Reorganization expenses 0% 0% 3% 0%
Share-based compensation 0% 8% 2% 9%
------------ --------- ----------- ----------
Total operating expenses 105% 131% 119% 143%
------------ --------- ----------- ----------
Operating loss (39%) (63%) (51%) (78%)
Interest and other income, net 3% 0% 5% 0%
------------ --------- ----------- ----------
Net loss (36%) (63%) (46%) (78%)
============ ========= =========== ==========
8
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED JUNE 30, 2001 AND 2000
REVENUES: Company revenues increased $0.7 million or 17% to $5.0 million for the
three months ended June 30, 2001 from $4.3 million for the three months ended
June 30, 2000.
SOFTWARE LICENSE: Software license revenues were $2.9 million or 57% of total
revenues for the three months ended June 30, 2001, and $3.0 million or 69% of
total revenues for the three months ended June 30, 2000. The decrease in license
revenue was primarily due to fewer licenses sold because the general state of
the economy and the general decline of orders in the software sector.
SERVICE AND MAINTENANCE: Service and maintenance revenues were $2.2 million or
43% of revenues for the three months ended June 30, 2001, and $1.3 million or
31% of total revenue in the three months ended June 30, 2000. The increase in
service and maintenance revenues was primarily due to the increased professional
services fees in connection with implementation for ten of our clients going
into production during the second quarter of 2001.
COST OF REVENUES: Cost of revenues were $1.7 million or 34% of revenues for the
three months ended June 30, 2001, and $1.4 million or 32% of revenues for the
three months ended June 30, 2000. The increase in the cost of revenues on an
absolute basis was due to increased professional services fees in connection
with implementation clients going into production during the second quarter of
2001.
COST OF SOFTWARE LICENSES: Cost of software license revenues were $138,000 or 3%
of total revenues for the three months ended June 30, 2001 and, $23,000 or 1% of
revenues for the three months ended June 30, 2000. The increase in the cost of
software licenses is due to the costs associated with the sale of third parties'
licenses.
COST OF SERVICE AND MAINTENANCE: Cost of service and maintenance revenues was
$1.6 million or 31% of revenues for the three months ended June 30, 2001, and
$1.4 million or 31% of revenues for the three months ended June 30, 2000.
GROSS PROFIT: Gross profit as a percentage of revenues was 66% for the three
months ended June 30, 2001 as compared to 68% for the three months ended June
30, 2000. The decrease in the gross margin is due to the change in the mix
between license and services and maintenance revenues.
OPERATING EXPENSES: Total operating expenses were $5.3 million or 105% of
revenues for the three months ended June 30, 2001, and $5.7 million or 131% of
revenues for the three months ended June 30, 2000. This reduction in operating
expenses was due to cost controls implemented during the second quarter of 2001.
RESEARCH AND DEVELOPMENT EXPENSES, NET: Research and development expenses, net
of related grants, were $685,000 or 14% of revenues for the three months ended
June 30, 2001, and $1.3 million or 31% of revenues for the three months ended
June 30, 2000. For the second quarter of 2001 we recognized a research and
development grant from Israel's Chief Scientist in the amount of $471,000
compared to none recognized for the three months ended June 30,2000. The
decrease in both absolute and percentage terms is primarily due to the
recognition of the grant from the Israel's Chief Scientist which was approved
for the second quarter of 2001 and is also due to the temporary transfer of R&D
software engineers to the Professional Services division to support the
implementation process with several European customers.
SALES AND MARKETING EXPENSES: Sales and marketing expenses were $3.6 million or
72% of revenues for the three months ended June 30, 2001, and $3.2 million or
73% of revenues for the three months ended June 30, 2000. The absolute increase
in sales and marketing expenses was due to additional sales efforts related to
the expansion of our salesforce, which resulted in an increase in personnel
related costs as well as additional marketing costs.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses were
$962,000 or 19% of revenues for the three months ended June 30, 2001, and
9
$804,000 or 19% of revenues for the three months ended June 30, 2000. We expect
general and administrative expenses to decrease as a percentage of revenues.
SHARE-BASED COMPENSATION: Share based compensation for the three months ended
June 30, 2001 amounted to $16,000 of previously recorded deferred compensation.
Share based compensation for the three months ended June 30, 2000 amounted to
$355,000. The decrease in share-based compensation is due to the termination of
options associated with the corporate restructuring for the first quarter on
2001.
RESULTS OF OPERATIONS FOR SIX MONTHS ENDED JUNE 30, 2001 AND 2000
REVENUES: Company revenues increased $1.7 million or 21% to $9.5 million for the
six months ended June 30, 2001 from $7.8 million for the six months ended June
30, 2000.
SOFTWARE LICENSE: Software license revenues were $6.0 million or 63% of total
revenues for the six months ended June 30, 2001, and $5.1 million or 65% of
total revenues for the six months ended June 30, 2000. The increase in license
revenue was primarily due new license agreements with several customers for the
first quarter of 2001.
SERVICE AND MAINTENANCE: Service and maintenance revenues were $3.5 million or
37% of revenues for the six months ended June 30, 2001, and $2.7 million or 35%
of total revenue for the six months ended June 30, 2000. The increase in service
and maintenance revenues was primarily due to the increased professional
services fees in connection with implementation for new clients going into
production during the first part of 2001.
COST OF REVENUES: Cost of revenues were $3.1 million or 33% of revenues for the
six months ended June 30, 2001, and $2.7 million or 34% of revenues for the six
months ended June 30, 2000. The increase in the cost of revenues on absolute
basis was due to increased deployment of clients.
COST OF SOFTWARE LICENSES: Cost of software license revenues were $212,000 or 2%
of total revenues for the six months ended June 30, 2001 and, $133,000 or 2% of
revenues for the six months ended June 30, 2000. The increase in the cost of
software licenses is due to the costs associated with the sale of third parties'
licenses.
COST OF SERVICE AND MAINTENANCE: Cost of service and maintenance revenues was
$2.9 million or 30% of revenues for the six months ended June 30, 2001, and $2.6
million or 33% of revenues for the six months ended June 30, 2000. The increase
in cost of service and maintenance was primarily due to the increased deployment
costs resulting from ten of our clients going into production during the second
quarter of 2001.
GROSS PROFIT: Gross profit as a percentage of revenues was 67% for the six
months ended June 30, 2001 as compared to 66% for the six months ended June 30,
2000.
OPERATING EXPENSES: Total operating expenses were $11.2 million or 119% of
revenues for the six months ended June 30, 2001, and $11.2 million or 143% of
revenues for the six months ended June 30, 2000. The reduction in operating
expenses as a percent of revenues were due to cost controls implemented during
the first and second quarter of 2001 and due to increase of revenues by $1.7
from the six months ended June 30, 2000.
RESEARCH AND DEVELOPMENT EXPENSES, NET: Research and development expenses, net
of related grants, were $1.7 million or 17% of revenues for the six months ended
June 30, 2001, and $2.4 million or 31% of revenues for the six months ended June
30, 2000. For the six months ended June 30, 2001, we recognized a research and
development grant from Israel's Chief Scientist in the amount of $637,000. For
the six months ended June 30, 2000, we recognized $87,000 of such grant.
Additionally, overall research and development costs also declined as a result
of the temporary transfer of R&D software engineers to the Professional Services
division to support the implementation process with several European customers.
10
SALES AND MARKETING EXPENSES: Sales and marketing expenses were $7.3 million or
77% of revenues for the six months ended June 30, 2001, and $6.3 million or 81%
of revenues for the six months ended June 30, 2000. The absolute increase in
sales and marketing expenses was due to additional sales and marketing efforts
related to the expansion of our salesforce, which resulted in an increase in
personnel related costs as well as additional marketing costs.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses were
$1.8 million or 19% of revenues for the six months ended June 30, 2001, and $1.8
million or 22% of revenues for the six months ended June 30, 2000. We expect
general and administrative expenses to decrease as a percentage of revenues.
REORGANIZATION EXPENSES: Reorganization expenses were $294,000 or 3% of revenues
for the six months ended June 30, 2001. There were no reorganization expenses
for the six months ended June 30, 2000.
SHARE-BASED COMPENSATION: Share based compensation for the six months ended June
30, 2001 amounted to $0.2 million of previously recorded deferred compensation.
Share based compensation for the six months ended June 30, 2000 amounted to $0.7
million. The decrease in share based compensation is due to the to termination
of options associated with the corporate restructuring for the first quarter on
2001.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2001 we had cash and cash equivalents of $9.4 million and
short-term investments of $5.4 million for a total of $14.8 million.
From inception through our IPO on June 22, 2000, we financed our operations
primarily through the private placement of equity securities, which through
December 31, 1999 totaled approximately $32.0 million, net of issuance costs.
Our initial public stock offering of ordinary shares realized $28.3 million, net
of underwriter discount and other issuance costs.
Net cash used in operating activities primarily consisted of net losses in
addition to increases in trade receivables and prepaid expenses, partially
offset by increases in accounts payable, accrued liabilities, amortization of
deferred compensation, non-cash compensation expenses, depreciation and
amortization, as applicable. For the six months ended June 30, 2001, cash used
in operations was $5.8 million, comprised of our net loss of $4.4 million, an
increase in trade receivables of $2.2 million, increase in other receivables of
$0.4 million, increase in accounts payable of $0.3 million, decrease in deferred
revenue of $25,000, partially offset by non-cash charges of $1.0 million. For
the six months ended June 30, 2000, cash used in operations was $6.0 million,
comprised of our net loss of $6.1 million, a decrease in trade receivables of
$0.7 million, increase in other receivables of $0.5 million, increase in
accounts payable of $1.0 million, decrease in deferred revenue of $0.9 million,
partially offset by non-cash charges of $1.2 million.
Net cash provided in investing activities for the six months ended June 30, 2001
was $10.6 million, of which $11.2 million was provided from short-term
investments and $0.6 invested primarily in leasehold improvements and purchases
of equipment and systems, including computer equipment and fixtures and
furniture. Net cash used in investing activities the six months ended June 30,
2000 was $1.5 million which was primarily invested in leasehold improvements and
purchases of equipment and systems, including computer equipment and fixtures
and furniture.
Net cash provided by financing activities during the six months ended June 30,
2001 was $71,000 and $25.6 million for the six months ended June 30, 2000. In
June 2000, the Company completed an initial public offering of 4,000,000
ordinary shares at a price of $7.00 per share. In July 2000, the Underwriters
exercised their overallotment option and purchased 600,000 additional ordinary
shares at a price of $7.00 per share. The proceeds to the Company from the
offering were approximately $28.3 million (net of underwriters discount and
issuance expenses).
As of June 30, 2001 we had outstanding trade receivables of approximately $6.6
million. Our trade receivables typically have 30 to 60 day terms; although we
11
have also negotiated longer payment plans with some of our clients. As of June
30, 2001 our DSO (Days Sales Outstanding) was 117 days.
Since inception, we have received aggregate payments from the Government of the
State of Israel in the amount of $4.8 million related to research and
development and $707,000 related to marketing activities. As of June 30, 2001,
we have paid or accrued royalties related to these funds in the amount of $1.8
million.
We have a $1.0 million unsecured line of credit with an Israeli bank. No amounts
were outstanding under this line of credit as of June 30, 2001.
The Company also has an aggregate of $143,000 in term loans relating to
borrowings for working capital. We have a loan in US Dollars bearing an interest
rate of LIBOR plus 1% and a loan in New Israeli Shekels linked to the Israeli
CPI, currently bearing an interest rate of 9.7%. Additional loans are in British
Pounds bearing an average interest rate of 6.5%.
Our bank in Israel has issued two standby letters of credit on our behalf. One
is for $125,000 for tenant improvements related to our facilities in Israel. The
other is for $934,000 and secures our performance pursuant to projects with the
Government of Israel. Additionally, Silicon Valley Bank has issued a letter of
credit on our behalf in the amount of $205,560 to assure performance under the
terms of our Campbell, CA lease.
Our capital requirements depend on numerous factors, including market acceptance
of our products, the resources we devote to developing, marketing, selling and
supporting our products, the timing and extent of establishing additional
international operations and other factors. We intend to continue investing
significant resources in our sales and marketing and research and development
operations in the future. We believe that our current cash balances will be
sufficient to fund our expenses until we reach profitability.
FACTORS THAT MAY AFFECT FUTURE RESULTS
You should carefully consider the following factors and other information in
this statement before you decide to invest in our ordinary shares. If any of the
negative events referred to below occur, our business, financial condition and
results of operations could suffer. In any such case, the trading price of our
ordinary shares could decline, and you may lose all or part of your investment.
RISKS RELATED TO OUR BUSINESS
THE ECONOMIC OUTLOOK FOR THE YEAR 2001 MAY ADVERSELY AFFECT THE DEMAND FOR OUR
PRODUCTS AND THE COMPANY'S RESULTS OF OPERATIONS. Predictions for the general
economy for 2001 indicate uncertain economic conditions. Weak economic
conditions may cause a reduction in information technology spending generally.
Consequently, there may be an adverse impact on the demand for our products,
which would adversely affect our results of operations. In addition, predictions
regarding economic conditions have a low degree of certainty, and further
predicting the effects of the changing economy is even more difficult. We may
not accurately gauge the effect of the general economy on our business. As a
result, we may not react to such changing conditions in a timely manner that may
result in an adverse impact on our results of operations. Any such adverse
impacts to our results of operations from a changing economy may cause the price
of our ordinary shares to decline.
We have not achieved profitability. We expect to continue to incur significant
sales and marketing and research and development expenses. Some of our expenses,
such as administrative and management payroll and rent and utilities, are fixed
in the short term and cannot be quickly reduced to respond to decreases in
revenues. As a result, we will need to generate significant revenues to achieve
and maintain profitability, which we may not be able to do.
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO FLUCTUATIONS AND IF WE FAIL TO
MEET THE EXPECTATIONS OF SECURITIES ANALYSTS OR INVESTORS, OUR SHARE PRICE MAY
DECREASE. Our quarterly operating results are difficult to predict and are not a
good measure for comparison. Our operating history shows that a significant
percentage of our quarterly revenues come from orders placed toward the end of a
quarter. From time to time, we anticipate a sale of significant size to a single
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customer. A delay in the completion of any sale past the end of a particular
quarter could negatively impact results for that quarter, and such negative
impact could be significant for the delay of a sale of significant size. Even
without the delay of a significant sale, our future quarterly operating results
may fluctuate significantly and may not meet the expectations of securities
analysts or investors. If this occurs, the price of our ordinary shares may
decrease. The factors that may cause fluctuations in our quarterly operating
results include the following:
* the volume and timing of customer orders;
* internal budget constraints of our current and prospective clients;
* the length and unpredictability of our sales cycle;
* the mix of revenue generated by product licenses and professional
services;
* the mix of revenue between domestic and foreign sources;
* announcements or introductions of new products or product enhancements
by us or our competitors;
* changes in prices of and the adoption of different pricing strategies
for our products and those of our competitors;
* timing and amount of sales and marketing expenses;
* changes in our business and partner relationships;
* technical difficulties or "bugs" affecting the operation of our
software;
* foreign currency exchange rate fluctuations; and
* general economic conditions.
FAILURE OF THE MARKET TO ACCEPT OUR NEW PRODUCTS WOULD ADVERSLY AFFECT OUR
PROFITABILITY. Historically, all of our operating revenue has come from sales
of, and services related to, our ClickSchedule product and our ClickFix product,
to clients seeking application software that enables efficient provisioning of
services in enterprise environments.
During the year ended December 31, 2000, we introduced three new products that,
together with our existing products, constitute a suite of products that offers
a more comprehensive solution to our customers. The growth of our company
depends in part on the development of market acceptance of these new products.
We have no guarantee that the sales of these new products will develop as
quickly as we anticipate, or at all. Lack of long-term demand for our new
products would have a material adverse effect on our business and operating
results.
OUR SALES AND IMPLEMENTATION CYCLES DEPEND ON FACTORS OUTSIDE OUR CONTROL, WHICH
MAY CAUSE QUARTERLY LICENSE AND SERVICE FEES REVENUES TO VARY SIGNIFICANTLY FROM
PERIOD TO PERIOD. To date, our customers have taken typically from three months
to nine months, to evaluate our offering before making their purchase decisions.
In addition, depending on the nature and specific needs of a client, the
implementation of our products typically takes two to six months. Sales of
licenses and implementation schedules are subject to a number of risks over
which we have little or no control, including clients' budgetary constraints,
clients' internal acceptance reviews, the success and continued internal support
of clients' own development efforts, the efforts of businesses with which we
have relationships, the nature, size and specific needs of a client and the
possibility of cancellation of projects by clients. The uncertain outcome of our
sales efforts and the length of our sales cycles could result in substantial
fluctuations in license revenues. Historically, a significant part of our sales
in any given quarter occur in the last two weeks of the quarter; if sales
forecasted from a specific client for a particular quarter are not realized in
that quarter, we are unlikely to be able to generate revenues from alternate
sources in time to compensate for the shortfall. As a result, and due to the
relatively large size of some orders, a lost or delayed sale could have a
material adverse effect on our quarterly revenue and operating results.
Moreover, to the extent that significant sales occur earlier than expected,
revenue and operating results for subsequent quarters could be adversely
affected.
FAILURE TO EXPAND OUR SALES AND MARKETING ORGANIZATIONS COULD LIMIT OUR ABILITY
TO SELL ADDITIONAL PRODUCTS AND SERVICES, WHICH WOULD IMPAIR OUR ABILITY TO GROW
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OUR BUSINESS AND INCREASE REVENUES. We are expanding our direct and indirect
sales operations to increase market awareness of our products and generate
increased revenues. We cannot be certain that we will be successful in these
efforts. In addition to normal turnover of personnel, we are attempting to
expand our direct sales force in North America. As of June 30, 2001, we employed
56 individuals in our sales and marketing organizations. Because 27 of these
sales and marketing personnel joined us within the last twelve months, we will
be required to devote significant resources to the training of these new sales
personnel. In addition, we might not be able to hire or retain the kind and
number of sales and marketing personnel we are targeting because competition for
qualified sales and marketing personnel in our market is intense.
WE DEPEND ON KEY PERSONNEL, AND THE LOSS OF ANY KEY PERSONNEL COULD AFFECT OUR
ABILITY TO COMPETE AND OUR ABILITY TO ATTRACT ADDITIONAL KEY PERSONNEL MAY BE
IMPAIRED. We believe our future success will depend on the continued service of
our executive officers and other key sales and marketing, product development
and professional services personnel. Dr. Moshe BenBassat, our Chief Executive
Officer, has individually participated in and has been responsible for
overseeing much of the research and development of our core technologies. Mr.
Shimon Rojany, our CFO, has announced his upcoming retirement. Mr. Rojany is
committed to continuing his services for as long as required to ensure a smooth
transition. The services of Dr. BenBassat and other members of our senior
management team and key personnel would be very difficult to replace and the
loss of any of these employees could harm our business significantly. We have
employment agreements with, among others, Dr. BenBassat, Mr. Rojany, and Mr.
Corey Leibow, our Chief Operating Officer. Although these agreements request
sixty days notification prior to departure, relationships with these officers
and key employees are at will. The loss of any of our key personnel could harm
our ability to execute our business strategy and compete. The Company, however,
has demonstrated its ability to expand its key personnel by offering competitive
compensation packages.
IF WE FAIL TO EXPAND OUR PROFESSIONAL SERVICES ORGANIZATION, WE MAY NOT BE ABLE
TO SERVICE ADDITIONAL CLIENTS AND INSTALL ADDITIONAL LICENSES. We cannot be
certain that we can attract or retain a sufficient number of highly qualified
professional services personnel to meet our business needs. Clients that license
our software typically engage our professional services organization to assist
with the installation and operation of our software applications. Our
professional services organization also provides assistance to our clients
related to the maintenance, management and expansion of their software systems.
Growth in licenses of our software will depend in part on our ability to provide
our clients with these services. In addition, we will be required to expand our
professional services organization to enable us to continue to support our
existing installed base of customers. As a result, we plan to increase the
number of our service personnel in order to meet these needs. Competition for
qualified services personnel with the relevant knowledge and experience is
intense, and we may not be able to attract and retain necessary personnel. If we
are not able to grow our professional services organization, our ability to
expand our service business would be limited. In addition, we could experience
delays in recognizing revenue if our professional services group fails to
complete implementations in a timely manner.
IF WE FAIL TO EXPAND OUR RELATIONSHIPS WITH THIRD PARTIES THAT CAN PROVIDE
IMPLEMENTATION AND PROFESSIONAL SERVICES TO OUR CLIENTS, WE MAY BE UNABLE TO
INCREASE OUR REVENUES AND OUR BUSINESS COULD BE HARMED. In order for us to focus
more effectively on our core business of developing and licensing software
solutions, we need to continue to establish relationships with third parties
that can provide implementation and professional services to our clients.
Third-party implementation and consulting firms can also be influential in the
choice of resource optimization applications by new clients. If we are unable to
establish and maintain effective, long-term relationships with implementation
and professional services providers, or if these providers do not meet the needs
or expectations of our clients, we may be unable to grow our revenues and our
business could suffer. As a result of the limited resources and capacities of
many third-party implementation providers, we may be unable to attain sufficient
focus and resources from the third-party providers to meet all of our clients'
needs, even if we establish relationships with these third parties. If
sufficient resources are unavailable, we will be required to provide these
services internally, which could limit our ability to meet other demands. Even
14
if we are successful in developing relationships with third-party implementation
and professional services providers, we will be subject to significant risk, as
we cannot control the level and quality of service provided by third-party
implementation and professional services partners.
OUR MARKET IS HIGHLY COMPETITIVE AND ANY REDUCTION IN DEMAND FOR, OR PRICES OF,
OUR PRODUCTS COULD NEGATIVELY IMPACT OUR REVENUES, REDUCE OUR GROSS MARGINS AND
CAUSE OUR SHARE PRICE TO DECLINE. The market for our products is competitive and
rapidly changing. We expect competition to increase in the future as current
competitors expand their product offerings and new companies enter the market.
Because the market for service and delivery optimization software is evolving,
it is difficult to determine what portion of the market each competitor
currently controls. However, competition could result in price reductions, fewer
customer orders, reduced gross margin and loss of market share, any of which
could cause our business to suffer. We may not be able to compete successfully,
and competitive pressures may harm our business.
Some of our current and potential competitors have greater name recognition,
longer operating histories, larger customer bases and significantly greater
financial, technical, marketing, public relations, sales, distribution and other
resources than us. In addition, some of our potential competitors are among the
largest and most well capitalized software companies in the world. See Part 1,
Competition.
FAILURE TO FULLY DEVELOP OR MAINTAIN KEY BUSINESS RELATIONSHIPS COULD LIMIT OUR
ABILITY TO SELL ADDITIONAL LICENSES WHICH COULD DECREASE OUR REVENUES AND
INCREASE OUR SALES AND MARKETING COSTS. We believe that our success in
penetrating our target markets depends in part on our ability to develop and
maintain business relationships with software vendors, resellers, systems
integrators, distribution partners and customers. If we fail to continue
developing these relationships, our growth could be limited. We have entered
into agreements with third parties relating to the integration of our products
with their product offerings, distribution, reselling and consulting. We are
deriving revenues from these agreements but we may not be able to derive
significant revenues in the future from these agreements. In addition, our
growth may be limited if prospective clients do not accept the solutions offered
by our strategic partners.
OUR MARKET MAY EXPERIENCE RAPID TECHNOLOGICAL CHANGES THAT COULD CAUSE OUR
PRODUCTS TO FAIL OR REQUIRE US TO REDESIGN OUR PRODUCTS, WHICH WOULD RESULT IN
INCREASED RESEARCH AND DEVELOPMENT EXPENSES. Our market is characterized by
rapid technological change, dynamic client needs and frequent introductions of
new products and product enhancements. If we fail to anticipate or respond
adequately to technology developments and client requirements, or if our product
development or introduction is delayed, we may have lower revenues. Client
product requirements can change rapidly as a result of computer hardware and
software innovations or changes in and the emergence, evolution and adoption of
new industry standards. For example, we offer Windows NT versions of our
products due to the market acceptance of Windows NT over the last several years.
While we interface smoothly with UNIX systems, we currently do not provide Unix
versions of our software. The actual or anticipated introduction of new products
has resulted and will continue to result in some reformulation of our product
offerings. Technology and industry standards can make existing products obsolete
or unmarketable or result in delays in the purchase of such products. As a
result, the life cycles of our products are difficult to estimate. We must
respond to developments rapidly and continue to make substantial product
development investments. As is customary in the software industry, we have
previously experienced delays in introducing new products and features, and we
may experience such delays in the future 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 that have delayed
implementation or required us to expend additional resources to correct the
problems. Despite internal testing and testing by current and potential clients,
and despite the history of use by our installed base of customers, our current
15
and future products may contain as yet undetected serious defects or errors. Any
such defects or errors could result in lost revenues, liability or a delay in
market acceptance of these products, any of which would have a material adverse
effect on our business, operating results and financial condition.
The performance of our products also depends in part upon the accuracy and
continued availability of third-party data. We rely on third parties that
provide information such as street and address locations and mapping functions
that we incorporate into our products. If these parties do not provide accurate
information, or if we are unable to maintain our relationships with them, our
reputation and competitive position in our industry could suffer and we could be
unable to develop or enhance our products as required.
OUR INTELLECTUAL PROPERTY COULD BE USED BY THIRD PARTIES WITHOUT OUR CONSENT
BECAUSE PROTECTION OF OUR INTELLECTUAL PROPERTY IS LIMITED. Our success and
ability to compete are substantially dependent upon our internally developed
technology, which we protect through a combination of copyright, trade secret
and trademark law. However, we may not be able to adequately protect our
intellectual property rights, which may significantly harm our business.
Specifically, we may not be able to protect our trademarks for our company name
and our product names, and unauthorized parties may attempt to copy or otherwise
obtain and use our products or technology. Policing unauthorized use of our
products and technology is difficult, particularly in countries outside the
U.S., and we cannot be certain that the steps we have taken will prevent
infringement or misappropriation of our intellectual property rights.
Our end-user licenses are designed to prohibit unauthorized use, copying or
disclosure of our software and technology in the United States, Israel and other
foreign countries. However, these provisions may be unenforceable under the laws
of some jurisdictions and foreign countries. Unauthorized third parties may be
able to copy some portions of our products or reverse engineer or obtain and use
information and technology that we regard as proprietary. Third parties could
also independently develop competing technology or design around our technology.
If we are unable to successfully detect infringement and/or to enforce our
rights to our technology, we may lose competitive position in the market. We
cannot assure you that our means of protecting our intellectual property rights
in the United States, Israel or elsewhere will be adequate or that competing
companies will not independently develop similar technology. In addition, some
of our licensed users may allow additional unauthorized users to use our
software, and if we do not detect such use, we could lose potential license
fees.
OUR TECHNOLOGY AND OTHER INTELLECTUAL PROPERTY MAY BE SUBJECT TO INFRINGEMENT
CLAIMS. Substantial litigation regarding technology rights and other
intellectual property rights exists in the software industry both in terms of
infringement and ownership issues. A successful claim of patent, copyright or
trademark infringement or conflicting ownership rights against us could cause us
to make changes in our business or significantly harm our business. We believe
that our products do not infringe the intellectual property rights of third
parties. However, we cannot assure you that we will prevail in all future
intellectual property disputes.
We expect that software products may be increasingly subject to third-party
infringement or ownership claims as the number of competitors in our industry
segment grows and the functionality of products in different industry segments
overlaps. Third parties may make a claim of infringement or conflicting
ownership rights against us with respect to our products and technology. Any
claims, with or without merit, could:
* be time-consuming to defend;
* result in costly litigation;
* divert management's attention and resources; or
* cause product shipment delays.
Further, if an infringement or ownership claim is successfully brought against
us, we may have to pay damages or royalties, enter into a licensing agreement,
and/or stop selling the product or using the technology at issue. Any such
royalty or licensing agreements may not be available on commercially reasonable
terms, if at all.
16
From time to time, we may encounter disputes over rights and obligations
concerning intellectual property. We also indemnify some of our customers
against claims that our products infringe the intellectual property rights of
others. We have only conducted a partial search for existing patents and other
intellectual property registrations, and we cannot assure you that our products
do not infringe any issued patents. In addition, because patent applications in
the United States and Israel are not publicly disclosed until the patent is
issued, applications may have been filed which would relate to our products.
ANY FUTURE ACQUISITIONS OF COMPANIES OR TECHNOLOGIES MAY RESULT IN DISTRACTION
OF OUR MANAGEMENT AND DISRUPTIONS TO OUR BUSINESS. Although not currently under
consideration, we may acquire or make investments in complementary businesses,
technologies, services or products if appropriate opportunities arise. From time
to time we may engage in discussions and negotiations with companies regarding
our acquiring or investing in such companies' businesses, products, services or
technologies. We cannot make assurances that we will be able to identify future
suitable acquisition or investment candidates, or if we do identify suitable
candidates, that we will be able to make such acquisitions or investments on
commercially acceptable terms or at all. Our management has limited experience
in acquiring companies or technologies. If we acquire or invest in another
company, we could have difficulty assimilating that company's personnel,
operations, technology or products and service offerings. In addition, the key
personnel of the acquired company may decide not to work for us. These
difficulties could disrupt our ongoing business, distract our management and
employees, increase our expenses and adversely affect our results of operations.
Furthermore, we may incur indebtedness to pay for any future acquisitions. As of
the date of this statement, we have neither begun discussions nor entered an
agreement to make any such material investment or acquisition transaction.
FUTURE ACQUISITIONS MAY RESULT IN DILUTION TO OUR CURRENT SHAREHOLDERS. In the
future we may acquire complementary business through the issuance of additional
ordinary shares. Additional issuances of ordinary shares could decrease the
value of our ordinary shares and reduce the net tangible book value per share.
Consequently, an acquisition in which we issue additional shares could actually
decrease the value of your investment in ClickSoftware. As of the date of this
statement, we have neither begun discussions nor entered an agreement to make
any material acquisition that would result in the issuance of additional shares.
OUR BUSINESS MAY BECOME INCREASINGLY SUSCEPTIBLE TO NUMEROUS RISKS ASSOCIATED
WITH INTERNATIONAL OPERATIONS. Significant portions of our operations occur
outside the United States. Our facilities are located in North America, Israel,
the European continent, and the United Kingdom, and our executive officers and
other key employees are dispersed throughout the world. This geographic
dispersion requires significant management resources that may place us at a
disadvantage compared to our locally based competitors. In addition, our
international operations are generally subject to a number of risks, including:
* foreign currency exchange rate fluctuations;
* longer sales cycles;
* multiple, conflicting and changing governmental laws and regulations;
* expenses associated with customizing products for foreign countries;
* protectionist laws and business practices that favor local competition;
* difficulties in collecting accounts receivable; and
* political and economic instability.
We expect international revenues to continue to account for a significant
percentage of total revenues and we believe that we must continue to expand our
international sales and professional services activities in order to be
successful. Our international sales growth will be limited if we are unable to
expand our international sales management and professional services
organizations, hire additional personnel, customize our products for local
markets and establish relationships with additional international distributors,
consultants and other third parties. If we fail to manage our geographically
dispersed organization, we may fail to meet or exceed our business plan and our
revenues may decline.
17
WE ARE INCORPORATED IN ISRAEL AND HAVE IMPORTANT FACILITIES AND RESOURCES
LOCATED IN ISRAEL WHICH COULD BE NEGATIVELY AFFECTED DUE TO MILITARY OR
POLITICAL TENSIONS. We are incorporated under the laws of the State of Israel
and our research and development facilities as well as significant executive
offices are located in Israel. Although substantial portions of our sales
currently are to customers outside of Israel, political, economic and military
conditions in Israel could nevertheless directly affect our operations. Since
the establishment of the State of Israel in 1948, a number of armed conflicts
have taken place between Israel and its Arab neighbors and a state of hostility,
varying in degree and intensity, has led to security and economic problems for
Israel. Since September 2000, a continuous armed conflict with the Palestinian
authority has been taking place.
Despite our history of avoiding adverse effects, in the future we could be
adversely affected by any major hostilities involving Israel, the interruption
or curtailment of trade between Israel and its trading partners, a significant
increase in inflation, or a significant downturn in the economic or financial
condition of Israel. Despite the progress towards peace between Israel and its
Arab neighbors, the future of these peace efforts is uncertain. Several Arab
countries still restrict business with Israeli companies which may limit our
ability to make sales in those countries. We could be adversely affected by
restrictive laws or policies directed towards Israel or Israeli businesses.
CERTAIN OF OUR OFFICERS AND EMPLOYEES ARE REQUIRED TO SERVE IN THE ISRAEL
DEFENSE FORCES AND THIS COULD FORCE THEM TO BE ABSENT FROM OUR BUSINESS FOR
EXTENDED PERIODS. David Schapiro, our Executive Vice President of Worldwide
Markets and Product Group, and Hannan Carmeli, our Senior Vice President of
Worldwide Professional Services and Operations, as well as other male employees
located in Israel are currently obligated to perform up to 39 days of annual
reserve duty in the Israel Defense Forces and are subject to being called for
active military duty at any time. The loss or extended absence of any of our
officers and key personnel due to these requirements could harm our business.
WE ARE SUBJECT TO A RECENTLY ADOPTED NEW COMPANIES LAW WHICH HAS NOT YET BEEN
INTERPRETED. Because we are incorporated under the laws of the State of Israel,
the Companies Law of Israel which became effective on February 1, 2000 will
govern your rights as a shareholder. Certain obligations and fiduciary duties of
directors, officers and shareholders under the new Companies Law are new and
have not been interpreted or reviewed by the Israeli courts. In addition, not
all of the regulations have been promulgated to date. As a result, our
shareholders may have more difficulty and uncertainty in protecting their
interests in the case of actions by our directors, officers or controlling
shareholders or third parties than would shareholders of a corporation
incorporated in a state or other jurisdiction in the United States.
WE ARE AN INTERNATIONAL COMPANY AND OUR INTERNATIONAL OPERATIONS ARE EXPANDING.
OUR RISK EXPOSURE TO FOREIGN CURRENCY FLUCTUATIONS IS INCREASING, AND WE MAY NOT
BE ABLE TO FULLY MITIGATE THE RISK. Our revenue from the UK has grown. We are
expanding operations in other areas of Europe, and income and expenses
recognized in the European Community Euro will increase. We incur a portion of
our expenses, principally salaries and related personnel expenses in Israel, in
NIS. In 2000 27% of our costs were incurred in NIS. We are also experiencing a
growth in revenue and expenses in Israel, and we anticipate recognizing revenue
from other international sources. Presently our risk to foreign currency
fluctuations is minimal, but if our foreign accounts receivable balances
increase, the risk will increase. We cannot assure that we will be able to
adequately protect ourselves against such risk.
THE GOVERNMENT PROGRAMS IN WHICH WE CURRENTLY PARTICIPATE AND TAX BENEFITS WHICH
WE CURRENTLY RECEIVE REQUIRE US TO SATISFY PRESCRIBED CONDITIONS AND MAY BE
DELAYED, TERMINATED OR REDUCED IN THE FUTURE. THIS WOULD INCREASE OUR COSTS AND
TAXES. We receive grants from the Government of the State of Israel through the
Office of the Chief Scientist of the Ministry of Industry and Trade, or the
Chief Scientist, for the financing of a significant portion of our research and
development expenditures in Israel, and we may apply for additional grants in
the future. We cannot assure that we will continue to receive grants at the same
rate or at all. The Chief Scientist budget has been subject to reductions that
may affect the availability of funds for Chief Scientist grants in the future.
The percentage of our research and development expenditures financed using
18
grants from the Chief Scientist may decline in the future, and the terms of such
grants may become less favorable. In connection with research and development
grants received from the Chief Scientist, we must make royalty payments to the
Chief Scientist on the revenues derived from the sale of products, technologies
and services developed with the grants from the Chief Scientist. From time to
time, the Government of Israel changes the rate of royalties we must pay, which
does not allow us to accurately predict what this rate will be. In addition, our
ability to manufacture products or transfer technology outside Israel without
the approval of the Chief Scientist is restricted under law. Any manufacture of
products or transfer of technology outside Israel will also require the company
to pay increased royalties to the Chief Scientist up to 300%. We currently
conduct all of our manufacturing activities in Israel and intend to continue
doing so in the foreseeable future and therefore do not believe there will be
any increase in the amount of royalties we pay to the Chief Scientist. Currently
the office of the Chief Scientist does not consider the licensing of our
software in the ordinary course of business a transfer of technology and we do
not intend to transfer any technology outside of Israel. Consequently, we do not
anticipate having to pay increased royalties to the Chief Scientist for the
foreseeable future. In connection with our grant applications, we have made
representations and covenants to the Chief Scientist regarding our research and
development activities in Israel. The funding from the Chief Scientist is
subject to the accuracy of these representations and covenants. If we fail to
comply with any of these conditions, we could be required to refund payments
previously received together with interest and penalties and would likely be
denied receipt of these grants thereafter.
WE ANTICIPATE RECEIVING TAX BENEFITS FROM THE GOVERNMENT OF THE STATE OF ISRAEL,
HOWEVER THESE BENEFITS MAY BE DELAYED, REDUCED OR TERMINATED IN THE FUTURE.
Pursuant to the Law for the Encouragement of Capital Investments, the Government
of the State of Israel through the Investment Center has granted "Approved
Enterprise" status to three of our existing capital investment programs.
Consequently, we are eligible for certain tax benefits for the first several
years in which we generate taxable income. We have not, however, begun to
generate taxable income for purposes of this law and we do not expect to utilize
these tax benefits for the near future. Once we begin to generate taxable
income, our financial condition could suffer if our tax benefits were
significantly reduced. The benefits available to an approved enterprise are
dependent upon the fulfillment of certain conditions and criteria. If we fail to
comply with these conditions and criteria, the tax benefits that we receive
could be partially or fully canceled and we could be forced to refund the amount
of the benefits we received, adjusted for inflation and interest. From time to
time, the Government of Israel has discussed reducing or limiting the benefits.
We cannot assess whether these benefits will be continued in the future at their
current levels or at all.
IT MAY BE DIFFICULT TO ENFORCE A U.S. JUDGMENT AGAINST US, OUR OFFICERS AND
DIRECTORS AND THE ISRAELI ACCOUNTANTS NAMED AS EXPERTS IN THIS STATEMENT OR TO
ASSERT U.S. SECURITIES LAWS CLAIMS IN ISRAEL OR SERVE PROCESS ON SUBSTANTIALLY
ALL OF OUR OFFICERS AND DIRECTORS AND THESE ACCOUNTANTS. We are incorporated in
Israel and maintain significant operations in Israel. Some of our executive
officers and directors and the Israeli accountants named as experts in this
statement reside outside of the United States and a significant portion of our
assets and the assets of these persons are located outside the United States.
Therefore, it may be difficult for an investor, or any other person or entity,
to enforce a U.S. court judgment against us or any of those persons or to effect
service of process upon these persons in the United States, based upon the civil
liability provisions of the U.S. federal securities laws in an Israeli court.
Additionally, it may be difficult for an investor, or any other person or
entity, to enforce civil liabilities under U.S. federal securities laws in
original actions instituted in Israel. We have appointed ClickSoftware Inc., our
U.S. subsidiary, as our agent to receive service of process in any action
against us arising out of our original June 22, 2000 initial public offering. We
have not given our consent for our agent to accept service of process in
connection with any other claim. Furthermore, if a foreign judgment is enforced
by an Israeli court, it will be payable in NIS.
OUR OFFICERS, DIRECTORS AND AFFILIATED ENTITIES OWN A LARGE PERCENTAGE OF OUR
COMPANY AND COULD SIGNIFICANTLY INFLUENCE THE OUTCOME OF ACTIONS. As of June 30,
2001, our executive officers, directors and entities affiliated with them
beneficially owned approximately 33.8% of our outstanding ordinary shares. These
shareholders, if acting together, would be able to significantly influence all
19
matters requiring approval by our shareholders, including the election of
directors. This concentration of ownership may also have the effect of delaying
or preventing a change of control of our company, which could have a material
adverse effect on our stock price. These actions may be taken even if our other
investors oppose them.
WE ARE SUBJECT TO ANTI-TAKEOVER PROVISIONS THAT COULD DELAY OR PREVENT AN
ACQUISITION OF US, EVEN IF AN ACQUISITION WOULD BE BENEFICIAL TO OUR
SHAREHOLDERS. Provisions of Israeli corporate and tax law and of our articles of
association may have the effect of delaying, preventing or making more difficult
merger or other acquisition of us, even if doing so would be beneficial to our
shareholders. In addition, any merger or acquisition of us will require the
prior consent of the Chief Scientist.
Israeli law regulates mergers, votes required to approve a merger, acquisition
of shares through tender offers and transactions involving significant
shareholders. In addition, our articles of association provide for a staggered
board of directors and for restrictions on business combinations with interested
shareholders. Any of these provisions may make it more difficult to acquire our
company. Accordingly, an acquisition of us could be delayed or prevented even if
it would be beneficial to our shareholders.
OTHER ORDINARY SHARES MAY BE SOLD IN THE FUTURE. THIS COULD DEPRESS THE MARKET
PRICE FOR OUR ORDINARY SHARES. As of June 30, 2001, we had 26,201,118 ordinary
shares outstanding, including shares held by a trustee for issuance under
outstanding options. In addition, as of June 30, 2001, we had 2,491,350 ordinary
shares issuable upon exercise of outstanding options, and 2,691,457 additional
ordinary shares reserved for issuance pursuant to our stock option plans and
employee share purchase plan. If our existing shareholders or we sell a large
number of our ordinary shares, the price of our ordinary shares could fall
dramatically. Restrictions under the securities laws limit the number of
ordinary shares available for sale by our shareholders in the public market. We
have filed a Registration Statement on Form S-8 to register for resale the
ordinary shares reserved for issuance under our stock option plans.
OUR NEED FOR ADDITIONAL FINANCING IS UNCERTAIN, AS IS OUR ABILITY TO RAISE
FURTHER FINANCING IF REQUIRED. We believe that our current cash balances will be
sufficient to fund our expenses until we reach profitability. However, we cannot
assure you that we will attain sufficient revenues to achieve or maintain
profitability, particularly given current economic conditions and potential
reductions in information technology spending by our current and prospective
customers. We may need to raise additional capital to finance our operations or
for strategic purposes, and we may do so by selling additional equity or debt
securities or by increasing the size of our credit facility. If additional funds
are raised through the issuance of equity or debt securities, these securities
could have rights; preferences and privileges senior to those of holders of
ordinary shares, and the terms of these securities could impose restrictions on
our operations. The sale of additional equity or convertible debt securities
could result in additional dilution to our shareholders. In addition, we cannot
be certain that additional financing will be available in amounts or on terms
acceptable to us, if at all. If we are unable to obtain this additional
financing, we may be required to reduce the scope of our planned product
development and marketing efforts, which could harm our business, financial
condition or operating results. If the economy continues to weaken or, for any
other reason, we are unable to meet our business goals, we may have to raise
additional funds to respond to business contingencies and may include the need
to:
* fund additional marketing expenditures;
* develop new or enhance existing products and services;
* enhance our operating infrastructure;
* hire additional personnel;
* respond to competitive pressures;
* acquire complementary businesses or necessary technologies; or
* fund more rapid expansion.
If additional funds are raised through the issuance of equity or convertible
debt securities, the percentage ownership of our shareholders will be reduced,
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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.
BUSINESS INTERRUPTIONS COULD ADVERSELY AFFECT OUR BUSINESS. Our operations are
vulnerable to interruption by fire, earthquake, power loss, telecommunications
failure and other events beyond our control. In particular, we have operations
in the San Francisco Bay Area, an area that is known to be susceptible to the
risk of earthquakes. We do not have a detailed disaster recovery plan. Our
facilities in the State of California are currently subject to electrical
blackouts as a consequence of a shortage of available electrical power. In the
event these blackouts continue or increase in severity, they could disrupt the
operations of our affected facilities. In addition, we do not carry sufficient
business interruption insurance to compensate us for losses that may occur and
any losses or damages incurred by us could have a material adverse effect on our
business.
OUR STOCK PRICE COULD BE VOLATILE AND COULD DECLINE SUBSTANTIALLY. The stock
market has experienced significant price and volume fluctuations, and the market
prices of technology companies have been highly volatile. The price at which our
ordinary shares trades is likely to be volatile and may fluctuate substantially
due to factors such as:
* announcements of technological innovations;
* announcements relating to strategic relationships;
* conditions affecting the software and Internet industries;
* trends related to the fluctuations of stock prices of companies such as
ours;
* our historical and anticipated quarterly and annual operating results;
* variations between our actual results and the expectations of investors
or published reports or analyses of ClickSoftware;
* announcements by us or others affecting our business, systems or
expansion plans; and
* general conditions and trends in technology industries.
In the past, securities class action litigation has often been instituted
against companies following periods of volatility in the market price of their
securities. This type of litigation could result in substantial costs and a
diversion of management's attention and resources.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
21
None
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 as a result of foreign exchange rate fluctuations.
Due to the short-term nature of our term investments, we have concluded that
there is no material market risk exposure. Therefore, no quantitative tabular
disclosures are required. Additionally, although we do not presently participate
in hedging contracts related to foreign currency exchange rates, we may do so in
the future to protect against rate fluctuations affecting our foreign currency
accounts receivable balances. We do not participate in any speculative
investments.
INTEREST RATE RISK. As of June 30, 2001, we had cash and cash equivalents of
$14.8 million which consist of cash and highly liquid short-term investments.
Our 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, 2001, we had total short-term debt of $79,000 and long-term debt
net of current maturities of $64,000 which bear interest at rates that are
linked to LIBOR or the Israeli consumer price index or Gbp. We also have a
revolving, accounts receivable-based, secured credit facility of up to $2.5
million for working capital purposes. Amounts outstanding bear interest at the
U.S. prime rate plus 1%. As of June 30, 2001, there were no amounts outstanding
under this facility.
ClickSoftware maintains a short-term investment portfolio primarily consisting
of corporate debt securities with maturities of twelve months or less. These
securities are subject to interest rate risk and will rise and fall in value if
market interest rates change. The extent of this risk is not quantifiable or
predictable due to the variability of future interest rates. ClickSoftware does
not expect any material loss with respect to its investment portfolio.
The following table provides information about ClickSoftware investment
portfolio, cash, long term debts as of June 30, 2001 and presents principal cash
flows and related weighted averages interest rates by expected maturity dates.
YEAR OF MATURITY
2001 2002 2002 AFTER 2003 TOTAL CARRYING VALUE
(dollars in thousands)
Cash and equivalents 7,142 - - - 7,142
Average interest rate 3.9% - - - 3.9%
Commercial Papers 1,17517 - - - 1,175
Average interest rate 3.75% - - - 3.75%
Corp Bonds 1,207 - - - 1,207
Average interest rate 5.5% - - - 5.5%
Euro Dollar Bonds 1,118 - - - 1,118
Average interest rate 4.0% - - - 4.0%
Taxable Auction Securities 1,6000 - - - 1,600
Average interest rate 3.9% - - - 3.9%%
Asset backed Securities 2,007 507 - - 2,514
Average interest rate 3.8% 3.7% - - 3.75%
Bank Loan 30 30 - - 60
Average interest rate L+1% L+1% - - L+1%
N.I.S indexed loans 7 5 2 - 14
Average interest rate 9.7% 9.7% 9.7% - 9.7%
Leases US$ 5 7 8 - 20
Average interest rate 7.1% 7.1% 7.1% - 7.1%
Leases GBP 22 21 6 - 49
Average interest rate 6.5% 6.5% 6.5% 6.5% 6.5%
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements (as such term is defined
in Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934) and information relating to us that are based on the
beliefs of our management as well as assumptions made by and information
currently available to our management, including statements related to products,
markets, and future results of operations and profitability, and may include
implied statements concerning market acceptance of our products, and our growing
leadership role in the marketplace. In addition, when used in this report, the
words "likely," "will," "suggests," "may," "would," "could," "anticipate,"
"believe," "estimate," "expect," "intend," "plan," "predict" and similar
expressions and their variants, as they relate to us or our management, may
identify forward-looking statements. Such statements reflect the judgment of the
Company as of the date of this quarterly report on Form 10-Q with respect to
future events, the outcome of which is subject to certain risks, including the
risk factors set forth herein, which may have a significant impact on our
business, operating results or financial condition. Investors are cautioned that
these forward-looking statements are inherently uncertain. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results or outcomes may vary materially from those described
herein. ClickSoftware undertakes no obligation to update forward-looking
statements, whether as a result of new information, future events or otherwise.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Index
Exhibit Number Description
10.1 Lease made on January 21, 2000 by and
between WTA Campbell Technology Park
LLC and the Company.
(b) No reports on Form 8-K were filed with the Securities and Exchange
Commission during the three months ended June 30, 2001.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CLICKSOFTWARE TECHNOLOGIES LTD.
(Registrant)
By: /s/ SHIMON M. ROJANY
------------------------------------
Shimon M. Rojany
Senior Vice President and
Chief Financial Officer
Date: August 14, 2001
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