SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission File Number: 000-30827
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ClickSoftware Technologies Ltd.
(Exact name of Registrant as specified in its charter)
ISRAEL Not Applicable
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
34 Habarzel Street
Tel Aviv, Israel
(Address of principal executive offices)
(972-3) 765-9400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
As of March 31, 2001, there were 26,091,351 shares of the Registrant's
common stock, par value 0.02 NIS, outstanding.
EXPLANATORY NOTE
THIS FORM 10-Q/A IS BEING FILED FOR THE PURPOSE OF AMENDING AND RESTATING ITEMS
1, 2 AND 3 OF PART I OF FORM 10-Q (EXCLUDING "FACTORS THAT MAY AFFECT FUTURE
RESULTS") SOLELY TO THE EXTENT NECESSARY TO REFLECT THE RESTATEMENT OF OUR
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE PERIODS ENDED
MARCH 31, 2001 AND 2000 AND DECEMBER 31, 2000, TO MAKE A REVISION TO
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES", TO INCLUDE DISCLOSURE REGARDING
"SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS" IN ITEM 4 OF PART II AND
TO INCLUDE THE CERTIFICATIONS REQUIRED BY THE SARBANES-OXLEY ACT OF 2002. WE
HAVE MADE NO FURTHER CHANGES TO THE PREVIOUSLY FILED 10-Q. ALL INFORMATION IN
THIS FORM 10-Q/A IS AS OF MARCH 31, 2001 AND DOES NOT REFLECT ANY SUBSEQUENT
INFORMATION OR EVENTS OTHER THAN THE RESTATEMENT.
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PAGE 1
ClickSoftware Technologies Ltd.
FORM 10-Q/A
FOR THE QUARTER ENDED MARCH 31, 2001
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
(a) Condensed Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000.............3
(b) Condensed Consolidated Statements of Operations for the Three Months Ended
March 31, 2001 and March 31, 2000...........................................................4
(c) Condensed Consolidated Statements of Cash Flows for Three Months Ended March 31, 2001
and March 31, 2000...........................................................................5
(d) Notes to Condensed Consolidated Financial Statements.........................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......11
Item 3. Quantitative and Qualitative Disclosures About Market Risks..................................26
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................................................28
Item 2. Changes in Securities and Use of Proceeds....................................................28
Item 4. Submission of Matters to a Vote of Security Holders..........................................28
Item 6. Exhibits and Reports on Form 8-K.............................................................28
Signatures............................................................................................29
Exhibit 99.1..........................................................................................32
Exhibit 99.2..........................................................................................33
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PAGE 2
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CLICKSOFTWARE TECHNOLOGIES LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31,
2001 2000
---- ----
(AS RESTATED (AS RESTATED
SEE NOTE 2) SEE NOTE 2)
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents $ 6,806 $ 4,438
Short-term investments 9,465 16,878
Trade receivables 3,498 2,042
Other receivables and prepaid expenses 1,546 1,466
----------------------------------
Total current assets 21,315 24,824
----------------------------------
Property and equipment, net 3,379 3,295
Severance pay deposits 516 526
Long-term cash investments 1600
----------------------------------
Total assets $ 26,810 $ 28,645
----------------------------------
LIABILITIERS AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt $ 157 $ 146
Accounts payable and accrued expenses 3,665 3,153
Deferred revenues 231 127
----------------------------------
Total current liabilities 4,053 3,426
----------------------------------
LONG-TERM LIABILITIES
Long-term debt 94 103
Accrued severance pay 1,283 1,343
----------------------------------
Total long-term liabilities 1,377 1,446
----------------------------------
Total liabilities 5,430 4,872
----------------------------------
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Ordinary shares of NIS 0.02 par value:
Authorized -- 100,000,000 as of March 31, 2001
and December 31, 2000; Issued and outstanding --
26,091,351 as of March 31, 2001 and 26,064,539 as
of December 31, 2000. 100 100
Additional paid-in capital 69,220 69,169
Deferred stock compensation (949) (1,120)
Accumulated deficit (46,991) (44,376)
----------------------------------
Total shareholders' equity 21,380 23,773
----------------------------------
Total liabilities and shareholders' equity $ 26,810 $ 28,645
----------------------------------
The accompanying notes are an integral part of these condensed consolidated financial statements
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PAGE 3
CLICKSOFTWARE TECHNOLOGIES LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
2001 2000
---- ----
(As Restated and (As Restated and
Reclassified - Reclassified -
see Note 2) see Note 2)
Revenues:
Software license $ 3,004 $ 1,292
Services 1,326 1,331
---------------------------------------
Total revenues 4,330 2,623
Cost of revenues:
Software license 242 132
Services 1,449 1,248
Total cost of revenues 1,691 1,380
---------------------------------------
Gross profit 2,639 1,243
---------------------------------------
Operating expenses:
Research and development expenses, net 974 1,064
Selling and marketing expenses 3,376 3,086
General and administrative expenses 772 819
Reorganization expenses 294 -
Amortization of deferred Stock-based compensation (1) 171 355
---------------------------------------
Total operating expenses 5,587 5,324
---------------------------------------
Operating loss (2,948) (4,081)
Interest and other income, net 333 5
---------------------------------------
Net loss $ (2,615) $ (4,076)
=======================================
Basic and diluted net loss per share $ (0.10) $ (0.21)
=======================================
Shares used in computing basic and diluted net loss per
share 24,976,284 19,501,794
=======================================
(1) Amortization of deferred stock-based compensation would be further classified as follows:
THREE MONTHS ENDED
MARCH 31,
---------------------------------------
2001 2000
---------------------------------------
Cost of revenues $7 $32
Research and development expenses 22 50
Selling and marketing expenses 22 50
General and administrative expenses 120 223
---------------------------------------
Total $ 121 $355
---------------------------------------
The accompanying notes are an integral part of these condensed consolidated financial
statements
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PAGE 4
CLICKSOFTWARE TECHNOLOGIES LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
2001 2000
---- ----
(As Restated - (As Restated -
See Note 2) See Note 2)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,615) $ (4,076)
Adjustments to reconcile net loss to net cash used in operating activities
Expenses not affecting operating cash flows:
Depreciation 215 139
Amortization of deferred compensation 171 355
Unrealized gain from investments 220 -
Severance pay, net (50) 87
Changes in operating assets and liabilities:
Trade receivables (1,456) 1,288
Other receivables and other prepaid expenses (80) (185)
Accounts payable and accrued expenses 512 (156)
Deferred revenues 104 (338)
Change in investments, net 5,593 -
-----------------------------------------
Net cash provided by (used in) operating activities 2,614 (2,886)
-----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment (299) (364)
-----------------------------------------
Net cash (used in) investing activities (299) (364)
-----------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of short-term loans 11 (126)
Repayment of long-term loans (9) (57)
Net proceeds from warrants exercised - 12
-----------------------------------------
Employee options exercised 51 322
-----------------------------------------
Net cash provided by (used in) financing activities 53 151
-----------------------------------------
Increase (decrease) in cash and cash equivalents 2,368 (3,099)
Cash and cash equivalents at beginning of period 4,438 7,838
-----------------------------------------
Cash and cash equivalents at end of period $ 6,806 $ 4,739
=========================================
Supplemental cash flow information:
Cash paid for interest 4 21
=========================================
The accompanying notes are an integral part of these condensed consolidated financial
statements
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PAGE 5
ClickSoftware Technologies Ltd.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF March 31, 2001 and FOR THE THREE MONTHS ENDED MARCH 31, 2001
and march 31, 2000)
1. BASIS OF PRESENTATION
The accompanying condensed unaudited interim consolidated financial statements
have been prepared by ClickSoftware Technologies Ltd. ("ClickSoftware" or the
"Company") in accordance with accounting principles generally accepted in the
United States of America for interim financial information and the instructions
to Form 10-Q and Article 10 of Regulation S-X. These financial statements
reflect all adjustments, consisting of normal recurring adjustments and
accruals, which are, in the opinion of management, necessary for a fair
presentation of the financial position of the Company as of March 31, 2001 and
the results of operations and cash flows for the interim periods indicated in
conformity with generally accepted accounting principles applicable to interim
periods. Accordingly, certain information and footnote disclosures normally
included in annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. These financial
statements should be read in conjunction with the audited financial statements
and notes thereto of ClickSoftware for the year ended December 31, 2000 that are
included in ClickSoftware's Form 10-K/A for 2001 filed with the Securities and
Exchange Commission on January 24, 2003. The results of operations presented are
not necessarily indicative of the results to be expected for future quarters or
for the year ending December 31, 2001.
2. RESTATEMENT
During the third quarter of 2002, the Company's audit committee, with the
assistance of outside advisors, conducted a review of its financial statements
for 2000 and 2001 and for the first six months of 2002. On October 21, 2002, the
Company announced that it would restate its financial statements for 2000 and
2001 and for the first six months of 2002.
Following the reaudit of the Company's financial statements, the Company is
restating its financial statements for the announced periods and for the year
ended December 31, 1999. The restatement results primarily from the recognition
of revenue from sales to reseller customers and other customers, where revenue
has been recognized prematurely or should not have been recognized at all. The
Company has also determined to reclassify royalty expenses related to grants
received from the Chief Scientist Office from Selling and Marketing expenses to
Cost of Revenues expenses.
This restatement is further discussed in note 3 of the notes to the consolidated
financial statements of the Company that are included on the Company's Form
10-K/A for the year ended December 31, 2001, filed with the Securities and
Exchange Commission on January 24, 2003.
The Company applied in these financial statements the SEC staff guidance to
classify royalty expenses related to grants received from Chief Scientist Office
as part of cost of revenues. Accordingly, the Company reclassified the following
amounts from Selling and Marketing expenses to Cost of Revenues expenses:
$245,000 for the three months ended March 31, 2001 and $88,000 for the three
months ended March 31, 2000.
The impact of the adjustments on the financial statements of the Company is set
forth below.
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PAGE 6
CLICKSOFTWARE TECHNOLOGIES LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2001
(IN THOUSANDS, EXCEPT SHARE DATA)
BALANCE SHEET:
DECEMBER 31, EFFECT OF DECEMBER 31,
2000 RESTATEMENT 2000
---------------------------------------------------------------
(AS PREVIOUSLY (AS RESTATED)
ASSETS REPORTED)
CURRENT ASSETS:
Cash and cash equivalents $4,438 $4,438
Short-term investments 16,878 16,878
Trade receivables, net 4,375 (2,333) 2,042
Other receivables and prepaid expenses 1,466 1,466
---------------------------------------------------------------
Total current assets 27,157 (2,333) 24,824
Property and equipment, net 3,772 (477) 3,295
Severance pay deposits 526 526
---------------------------------------------------------------
Total assets $31,455 $(2,810) $28,645
===============================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term loans $146 $146
Accounts payable and accrued expenses 3,274 (121) 3,153
Deferred revenues 127 127
---------------------------------------------------------------
Total current liabilities 3,547 (121) 3,426
---------------------------------------------------------------
LONG-TERM LIABILITIES
Long-term loans 103 103
Accrued severance pay 1,343 1,343
---------------------------------------------------------------
Total long-term liabilities 1,446 1,446
---------------------------------------------------------------
Total liabilities 4,993 (121) 4,872
---------------------------------------------------------------
SHAREHOLDERS' EQUITY:
Ordinary shares of NIS 0.02 par value: 100 100
Additional paid-in capital 69,169 69,169
Deferred stock compensation (1,120) (1,120)
Accumulated deficit (41,687) (2,689) (44,376)
---------------------------------------------------------------
Total shareholders' equity 26,462 (2,689) 23,773
---------------------------------------------------------------
Total liabilities and shareholders' equity $31,455 $(2,810) $28,645
===============================================================
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PAGE 7
CLICKSOFTWARE TECHNOLOGIES LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2001
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
BALANCE SHEET:
MARCH 31, EFFECT OF MARCH 31,
2001 RESTATEMENT 2001
---------------------------------------------------------------
(AS PREVIOUSLY (AS RESTATED)
ASSETS REPORTED)
CURRENT ASSETS:
Cash and cash equivalents $6,806 $6,806
Short-term investments 9,465 9,465
Trade receivables, net 5,805 (2,307) 3,498
Other receivables and prepaid expenses 1,546 1,546
---------------------------------------------------------------
Total current assets 23,622 (2,307) 21,315
Property and equipment, net 3,968 (589) 3,379
Severance pay deposits 516 516
---------------------------------------------------------------
Long-term cash investments 1,600 1,600
===============================================================
Total assets $29,706 $(2,896) $ 26,810
===============================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term loans $157 $157
Accounts payable and accrued expenses 3,786 (121) 3,665
Deferred revenues 231 231
---------------------------------------------------------------
Total current liabilities 4,174 (121) 4,053
---------------------------------------------------------------
LONG-TERM LIABILITIES
Long-term loans 94 94
Accrued severance pay 1,283 1,283
---------------------------------------------------------------
Total long-term liabilities 1,377 1,377
---------------------------------------------------------------
Total liabilities 5,551 (121) 5,430
---------------------------------------------------------------
SHAREHOLDERS' EQUITY:
Ordinary shares of NIS 0.02 par value: 100 100
Additional paid-in capital 69,220 69,220
Deferred stock compensation (949) (949)
Accumulated deficit (44,216) (2,775) (46,991)
---------------------------------------------------------------
Total shareholders' equity 24,155 (2,775) 21,380
---------------------------------------------------------------
Total liabilities and shareholders' equity $29,706 $(2,896) $26,810
===============================================================
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PAGE 8
CLICKSOFTWARE TECHNOLOGIES LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR PERIOD ENDED MARCH 31, 2001
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
STATEMENT OF OPERATIONS:
2001 2001 2001 2001
-----------------------------------------------------------------------
(AS PREVIOUSLY (EFFECT OF (EFFECT OF (AS RESTATED AND
REPORTED) RESTATEMENT) RECLASSIFICATION) RECLASSIFIED)
Software license fees $3,103 (99) $3,004
Services 1,413 (87) 1,326
-----------------------------------------------------------------------
Total revenues 4,516 (186) 4,330
-----------------------------------------------------------------------
Cost of revenues:
Software license 74 168 242
Services 1,372 77 1,449
-----------------------------------------------------------------------
Total cost of revenues 1,446 245 1,691
-----------------------------------------------------------------------
Gross profit 3,070 (186) (245) 2,639
-----------------------------------------------------------------------
Operating expenses:
Research and development expenses, net 974 974
Selling and marketing expenses 3,666 (45) (245) 3,376
General and administrative expenses 827 (55) 772
Reorganization expenses 294 294
Amortization of deferred Stock-based compensation 171 171
-----------------------------------------------------------------------
Total operating expenses 5,932 (100) (245) 5,587
-----------------------------------------------------------------------
Operating loss (2,862) (86) - (2,948)
Interest and other income, net 333 333
-----------------------------------------------------------------------
Net loss $(2,529) (86) $(2,615)
-----------------------------------------------------------------------
Basic and diluted net loss per share $(0.10) $(0.10)
-----------------------------------------------------------------------
Shares used in computing basic and diluted net loss per
share 24,976,284 24,976,284
-----------------------------------------------------------------------
CLICKSOFTWARE TECHNOLOGIES LTD.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR PERIOD ENDED MARCH 31, 2001
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
STATEMENT OF OPERATIONS:
2000 2000 2000 2000
------------------------------------------------------------------------
(AS PREVIOUSLY (EFFECT OF (EFFECT OF (AS RESTATED AND
Revenues: REPORTED) RESTATEMENT) RECLASSIFICATION) RECLASSIFIED)
Software license fees $2,126 (834) $1,292
Services 1,385 (54) 1,331
------------------------------------------------------------------------
Total revenues 3,511 (888) 2,623
------------------------------------------------------------------------
Cost of revenues:
Software license 110 (31) 53 132
Services 1,213 35 1,248
------------------------------------------------------------------------
Total cost of revenues 1,323 (31) 88 1,380
------------------------------------------------------------------------
Gross profit 2,188 (857) (88) 1,243
------------------------------------------------------------------------
Operating expenses:
Research and development expenses, net 1,064 1,064
Selling and marketing expenses 3,174 (88) 3,086
General and administrative expenses 952 (133) 819
Amortization of deferred Stock-based compensation 355 355
------------------------------------------------------------------------
Total operating expenses 5,545 (133) (88) 5,324
------------------------------------------------------------------------
Operating loss (3,357) (724) - (4,081)
Interest and other income, net 5 5
------------------------------------------------------------------------
Net loss $(3,352) (724) $(4,076)
------------------------------------------------------------------------
Basic and diluted net loss per share $(0.17) $(0.21)
------------------------------------------------------------------------
Shares used in computing basic and diluted net loss per
share 19,501,794 19,501,794
------------------------------------------------------------------------
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PAGE 9
3. REVENUE RECOGNITION
The Company recognizes revenues in accordance with the American Institute of
Certified Public Accountants ("AICPA") Statement of Position 97-2, Software
Revenue Recognition, as amended.
In accordance with SOP 97-2, revenues from software license fees are recognized
when persuasive evidence of an arrangement exists, the software product covered
by written agreement or a purchase order signed by the customer has been
delivered, the license fees are fixed and determinable and collection of the
license fees is considered probable. Revenues from software product license
agreements, which require significant customization and modification of the
software product are deferred and recognized using the percentage-of-completion
method of contract accounting in accordance with AICPA Statement of Position
81-1. When software arrangements involve multiple elements the Company allocates
revenue to each element based on the relative fair values of the elements. The
Company's determination of fair value of each element in multiple element
arrangements is based on vendor-specific objective evidence (VSOE). The Company
limits its assessment of VSOE for each element to the price charged when the
same element is sold separately. If vendor specific objective evidence of fair
value does not exist for all elements to support the allocation of the total fee
among all delivered and undelivered elements of the arrangement, revenue is
deferred until such evidence exist for the undelivered elements, or until all
elements are delivered, whichever is earlier.
If the fee due from the customer is not fixed or determinable, revenue is
recognized as payments become due from the customer, assuming all other revenue
recognition criteria have been met. Generally, we consider all arrangements with
extended payment terms greater than nine months not to be fixed or determinable.
We also enter into license arrangements with resellers whereby revenues are
recognized upon sale through to the end user by the reseller.
Service revenues include consulting services, post-contract customer support and
training. Consulting revenues are generally recognized on a time and material
basis. However, revenues from certain fixed-price contracts are recognized on
the percentage of completion basis. Post-contract customer support agreements
provide technical support and the right to unspecified updates on an
if-and-when-available basis. Post-contract customer support revenues are
recognized ratably over the term of the support period (generally one year) and
training and other service revenues are recognized as the related services are
provided.
4. NET LOSS PER SHARE
ClickSoftware computes net loss per share of ordinary shares in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
No. 128"). Under the provisions of SFAS No. 128 basic an diluted net loss per
share ("Basic EPS") is computed by dividing net loss by the weighted average
number of shares of common stock outstanding, excluding ordinary shares held by
a trustee reserved for allocation against employee options granted but not yet
exercised. Diluted net loss per ordinary share is the same as basic net loss per
ordinary share for all periods presented, as the effects of the Company's
potential ordinary shares were antidilutive
A total of 3,524,789 and 2,877,532 incremental shares were excluded from the
calculation of diluted net loss per ordinary share for the three months ended
March 30,2001 and March 30, 2000,respectively
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PAGE 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report contains certain forward-looking statements (as such term is defined
in Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934) and information relating to us that are based on the
beliefs of our management as well as assumptions made by and information
currently available to our management, including statements related to products,
markets, and future results of operations and profitability, and may include
implied statements concerning market acceptance of our products, and our growing
leadership role in the marketplace. In addition, when used in this report, the
words "likely," "will," "suggests," "may," "would," "could," "anticipate,"
"believe," "estimate," "expect," "intend," "plan, "predict" and similar
expressions and their variants, as they relate to us or our management, may
identify forward-looking statements. Such statements reflect our judgment as of
the date of this annual report on Form 10-K with respect to future events, the
outcome of which is subject to certain risks, including the risk factors set
forth herein, which may have a significant impact on our business, operating
results or financial condition. Investors are cautioned that these
forward-looking statements are inherently uncertain. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results or outcomes may vary materially from those described
herein. We undertake no obligation to update forward-looking statements, whether
as a result of new information, future events or otherwise.
OVERVIEW
Since late 1996, we have focused on providing service optimization software
products based on our W-6 Service Scheduler and TechMate technologies. We have
also invested significant resources in developing products based on these
technologies including, until 2001, increasing the number of our employees
involved in research and development, selling and marketing, and professional
services.
We believe that in today's economy successful businesses must constantly
increase the performance of existing service resources. Our products emphasize
the use of optimization tools for performance enhancement in the service
environment. In September 1999, we began marketing our product lines under new
names, CLICKSCHEDULE and CLICKFIX and in May 2000, we changed our company name
to ClickSoftware Technologies Ltd. Currently our product offering for service
optimization applications includes: CLICKSCHEDULE, CLICKFIX, CLICKANALYZE,
CLICKPLAN, CLICKMOBILE.
We derive revenues from software licensing and services. Our operating history
shows that a significant percentage of our quarterly revenues comes from orders
placed toward the end of a quarter. Software license revenues are comprised of
perpetual software license fees primarily derived from contracts with our direct
sales clients and our indirect distribution channels. We recognize revenues in
accordance with the AICPA Statement of Position 97-2, "SOFTWARE REVENUE
RECOGNITION," or SOP 97-2, as amended (see note 3 of the notes to our interim
consolidated financial statements).
Service revenues are comprised of revenues from consulting, training, and
post-contract customer support. Consulting services are billed at an agreed-upon
rate plus incurred expenses. Clients licensing our products generally purchase
consulting agreements from us. Post-contract customer support arrangements
provide technical support and the right to unspecified upgrades on an if-and
when-available basis. Post-contract customer support revenues are charged as a
percentage of license fees depending upon the level of support coverage
requested by the customer. Our products are marketed worldwide through a
combination of a direct sales force, consultants and various business
relationships we have with implementation and technology companies and
resellers.
Cost of revenues consists of cost of software license revenues and cost of
services. Cost of software license revenues consists of expenses related to
media duplication and packaging of our products, costs of software purchased or
licensed for resale and royalties payments to the Chief Scientist. Cost of
services consists of expenses related to salaries and expenses of our
professional services organizations, costs related to third-party consultants,
and equipment costs and royalties payments to the Chief Scientist.
Operating expenses are categorized into research and development expenses, sales
and marketing expenses, general and administrative expenses, and stock-based
compensation.
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PAGE 11
Research and development expenses consist primarily of personnel costs to
support product development, net of grants received from the Chief Scientist. In
return for some of these grants, we are obligated to pay the Israeli Government
royalties as described below which are included in cost of services expenses.
Software research and development costs incurred prior to the establishment of
technology feasibility are included in research and development expenses as
incurred.
Selling and marketing expenses consist primarily of personnel and related costs
for marketing and sales functions, including related travel, direct advertising
costs, expenditures on trade shows, market research and promotional printing.
General and administrative expenses consist primarily of personnel and related
costs for corporate functions, including information services, finance,
accounting, human resources, facilities, provision for doubtful accounts, legal
and costs related to activity as public company.
Amortization of stock- based compensation represents the aggregate difference,
at the date of grant, between the respective exercise price of stock options and
the deemed fair market value of the underlying stock. Deferred Stock-based
compensation is amortized over the vesting period of the underlying options,
generally four years.
Interest and other income include interest income earned on our cash equivalents
and short-term investments, offset by interest expense, and also includes the
effects of foreign currency translations.
The functional currency of our operations is the U.S. dollar, which is the
primary currency in the economic environment in which we conduct our business. A
significant portion of our research and development expenses is incurred in New
Israeli Shekels ("NIS") and a portion of our revenues and expenses are incurred
in British Pounds and the European Community Euro. The results of our operations
are subject to fluctuations in these exchange rates which are influenced by
various global economic factors.
The effects of foreign currency exchange rates on our results of operations for
the three months ended March 31, 2001 and March 31, 2000 were immaterial.
Our tax rate will mainly reflect a mix of the U.S. statutory tax rate on our
U.S. income, the U.K statutory tax rate on our U.K income, and the Israeli tax
rate discussed below. Israeli companies are generally subject to income tax at
the rate of 36% of taxable income. The majority of our income, however, is
derived from our company's capital investment program with "Approved Enterprise"
status under the Law for the Encouragement of Capital Investments, and is
eligible therefore for tax benefits. As a result of these benefits, we will have
a tax exemption on income derived during the first two years in which this
investment program produces taxable income, and a reduced tax rate of 15-25% for
the next 5 to 8 years. In the event of a distribution of a cash dividend out of
retained earnings that were exempt from tax due to its Approved Enterprise
status, we would be required to pay 25% corporate income tax on income from
which the dividend was distributed. All of these tax benefits are subject to
various conditions and restrictions. There can be no assurance that we will
obtain approval for additional Approved Enterprise Programs, or that the
provisions of the law will not change.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United
States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. These estimates are evaluated by us on an on-going basis. We base
our estimates on our historical experience and on various other assumptions that
we believe to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying amount values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
Our recognition of revenue requires judgments and estimates which may
significantly impact our consolidated financial statements.
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PAGE 12
Revenue results are difficult to predict, and any shortfall in revenues or delay
in recognizing revenues could cause our operating results to vary significantly
from quarter to quarter and could result in future operating losses. In
addition, the timing of our revenue recognition influences the timing of certain
expenses, such as commissions and royalties. We follow very specific and
detailed guidelines in measuring revenues, however, certain judgments affect the
application of our revenue policy.
Our revenues are principally derived from the licensing of our software and the
provision of related services. We recognize revenues in accordance with SOP
97-2. Revenues from software license fees are recognized when persuasive
evidence of an arrangement exists, either by written agreement or a purchase
order signed by the customer, the software product has been delivered, the
license fees are fixed and determinable, and collection of the license fees is
considered probable. License fees from software arrangements which involve
multiple elements, such as post-contract customer support, consulting and
training, are allocated to each element of the arrangement based on the relative
fair values of the elements. We determine the fair value of each element in
multiple-element arrangements based on vendor specific objective evidence, or
VSOE. We determine the VSOE for each element according to the price charged when
the element is sold separately. In judging the probability of collection of
software license fees we continuously monitor collection and payments from our
customers and maintain a provision for estimated credit losses based upon our
historical experience and any specific customer collection issues that we have
identified. In connection with customers with whom we have no previous
experience, we may utilize independent resources to evaluate the
creditworthiness of those customers. For some customers, typically those with
whom we have long-term relationships, we may grant extended payment terms. We
perform on-going credit evaluations of our customers. If the financial situation
of any of our customers were to deteriorate, resulting in an impairment of their
ability to pay the indebtedness they incur with us, additional allowances may be
required.
Our software products generally do not require significant customization or
modification. However, when such customization or modification is necessary, the
revenue generated by those activities is deferred and recognized using the
percentage of completion method.
Service revenues include post-contract customer support, consulting and
training. Post-contract customer support arrangements provide for technical
support and the right to unspecified updates on an if-and-when-available basis.
Revenues from those arrangements are recognized ratably over the term of the
arrangement, usually one year. Consulting services are recognized on a time and
material basis, or in a fixed price contract, on a percentage of completion
basis. Revenues from training are recognized as the services are provided.
In recognizing revenues based on the rate of completion method, we estimate time
to completion with revisions to estimates reflected in the period in which
changes become known. If we do not accurately estimate the resources required or
the scope of work to be performed, or do not manage our projects properly within
the planned periods of time or satisfy our obligations under the contracts, then
future services margins may be significantly and negatively affected or losses
on existing contracts may need to be recognized.
RECENT ACCOUNTING PRONOUNCEMENTS
None
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PAGE 13
RESULTS OF OPERATIONS
Our operating results for each of the three months ended March 31, 2001 and
2000, expressed as a percentage of revenues are as follows:
THREE MONTHS ENDED MARCH 31,
2001 2000
---- ----
(AS RESTATED AND (AS RESTATED AND
RECLASSIFIED) RECLASSIFIED)
Revenues:
Software license 69% 49%
Services 31% 51%
-------------------------------------
Total revenues 100% 100%
Cost of revenues:
Software license 6% 5%
Services 33% 48%
Total cost of revenues 39% 53%
-------------------------------------
Gross profit 61% 47%
-------------------------------------
Operating expenses:
Research and development expenses, net 22% 40%
Selling and marketing expenses 78% 118%
General and administrative expenses 18% 31%
Reorganization expenses 7% -
Amortization of deferred Stock-based compensation 4% 13%
-------------------------------------
Total operating expenses 129% 202%
-------------------------------------
Operating loss (68%) (155%)
Interest and other income, net 8% -
-------------------------------------
Net loss (60%) (155%)
-------------------------------------
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(As restated and reclassified)
During the third quarter of 2002, our audit committee, with the assistance of
outside advisors, conducted a review of our financial statements for 2000 and
2001 and for the first six months of 2002. On October 21, 2002, we announced
that we would restate our financial statements for 2000 and 2001 and for the
first six months of 2002. In addition, we announced that our audit committee
decided to recommend to our shareholders that we terminate our relationship with
Luboshitz Kasierer, formerly a member firm of Arthur Andersen, as our auditors
and to appoint new auditors. At a shareholders' meeting held on December 31,
2002, our shareholders authorized the engagement of Brightman Almagor, a member
of Deloitte Touche Tohmatsu.
Following the reaudit of our financial statements, we are restating our
financial statements for the announced periods and for the year ended December
31, 1999. The restatement results primarily from the recognition of revenue from
sales to reseller customers and other customers, where revenue has been
recognized prematurely or should not have been recognized at all. We have also
determined to reclassify royalty expenses related to grants received from Chief
Scientist Office from Selling and Marketing expenses to Cost of Revenues
expenses.
The Company applied in these financial statements the SEC staff guidance to
classify royalty expenses related to grants received from Chief Scientist Office
as part of cost of revenues. Accordingly, the Company reclassified the following
amounts from Selling and Marketing expenses to Cost of Revenues expenses:
$245,000 for the three months ended March 31, 2001 and $88,000 for the three
months ended March 31, 2000.
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PAGE 14
REVENUES. Company revenues increased $1.7 million or 65% to $4.3 million for the
three months ended March 31, 2001 from $2.6 million for the three months ended
March 31, 2000.
SOFTWARE LICENSE. Software license revenues were $3.0 million or 69% of total
revenues in the three months ended March 31, 2001, and $1.3 million or 49% of
total revenues in the three months ended March 31, 2000. The increase in license
revenue was primarily due to continued demand by new customers for ClickSoftware
products.
SERVICES. Services revenues were $1.3 million or 31% of revenues in the three
months ended March 31, 2001, and $1.3 million or 51% of total revenue in the
three months ended March 31, 2000 Cost of Revenues. Cost of revenues were $1.7
million or 39% of revenues in the three months ended March 31, 2001, and $1.4
million or 53% of revenues in the three months ended March 31, 2000. The
increase in the cost of revenues on absolute basis was primarily due to an
increase in royalties paid.
COST OF SOFTWARE LICENSES. Cost of software license revenues were $242,000 or 6%
of total revenues in the three months ended March 31, 2001 and, $132,000 or 5%
of revenues in the three months ended March 31, 2000. The increase in the cost
of revenues was primarily due to an increase in royalties paid.
COST OF SERVICES. Cost of services revenues was $1.4 million or 33% of revenues
for the three months ended March 31, 2001, and $1.2 million or 48% of revenues
for the three months ended March 31, 2000. This increase in the cost of services
revenues was due to higher expenses associated with project implementation ; the
percentage decrease in the cost of services was primarily due to higher revenues
in this quarter .
GROSS PROFIT. Gross profit as a percentage of revenues was 61% in the three
months ended March 31, 2001 as compared to 47% in the three months ended March
31, 2000. This improvement is mostly attributed to changes in the revenue mix in
favor of higher margin license revenues.
OPERATING EXPENSES. Total operating expenses were $5.6 million or 129% of
revenues for the three months ended March 31, 2001, and $5.3 million or 203% of
revenues for the three months ended March 31, 2000.
RESEARCH AND DEVELOPMENT EXPENSES, NET. Research and development expenses, net
of related grants, were $1.0 million or 22% of revenues for the three months
ended March 31, 2001, and $1.1 million or 40% of revenues for the three months
ended March 31, 2000. In the first quarter of 2001 we recognized a research and
development grant from Israel's Chief Scientist in the amount of $165,000. The
decrease in both absolute and percentage terms is primarily due to the temporary
transfer of R&D software engineers to the Professional Services division to
support the implementation process with several European customers.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses were $3.4 million
or 78% of revenues for the three months ended March 31, 2001, and $3.1 million
or 118% of revenues for the three months ended March 31, 2000. The absolute
increase in selling 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
$772,000 or 18% of revenues in the three months ended March 31, 2001, and
$819,000 or 31% of revenues in the three months ended March 31, 2000. The
percentage decrease is due to an increase in revenues without a corresponding
increase in administrative expenses.
REORGANIZATION EXPENSES. Reorganization expenses were $294,000 or 7% of revenues
in the three months ended March 31, 2001. There were no such expenses in the
three months ended March 31, 2000. These expenses were primarily costs
associated with severance payments to terminated employees.
STOCK-BASED COMPENSATION. Stock-based compensation for the three months ended
March 31, 2001 amounted to $171,000 of previously recorded deferred
compensation. Stock based compensation for the three months ended March 31, 2000
amounted to $355,000.
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PAGE 15
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2001 we had cash and cash equivalents of $6.8 million,
short-term investments of $9.5 million, and long-term cash investment of $1.6
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 provided (used) in the company's operating activities primarily
consisted of net losses for the period and changes in short term investment
before non-cash expenses consisting primarily of deferred compensation,
unrealized gain from investments and depreciation, in addition to net changes in
trade receivables, prepaid expenses and changes in accounts payable. For the
three months ended March 31, 2001, cash provided by operations was $2.6 million,
comprised of our net loss of $2.6 million, an increase in trade receivables of
$1.5 million, increase in other receivables of $80,000, increase in accounts
payable of $512,000, increase in deferred revenue of $104,000, decrease in short
term investments of $5.6 million partially offset by non-cash charges of
$556,000. For the three months ended March 31, 2000, cash used in operations was
$2.9 million, comprised of our net loss of $4.1 million, a decrease in trade
receivables of $1.3million, increase in other receivables of $185,000, decrease
in accounts payable of $156,000, decrease in deferred revenue of $338,000,
partially offset by non-cash charges of $581,000.
Net cash used in investing activities in the three months ended March 31, 2001
was $299,000and was 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 three months ended March
31, 2000 was $364,000 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 three months ended March
31, 2001 was $53,000 and 151,000 for the three months ended March 31, 2000.
As of March 31, 2001 we had outstanding trade receivables of approximately $3.5
million. Our trade receivables typically have 30 to 60 day terms; although we
have also negotiated longer payment plans with some of our clients. As of March
31, 2001 our DSO (Days Sales Outstanding) was 73 days.
Since inception, we have received aggregate payments from the Government of the
State of Israel in the amount of $4.4 million related to research and
development and $707,000 related to marketing activities. As of March 31, 2001,
we have paid or accrued royalties related to these funds in the amount of $1.6
million.
The Company also has an aggregate of $251,000 in term loans relating to
borrowings for working capital. We have a loan in US Dollars bearing an interest
rate of LIBOR plus 1% and a loan in New Israeli Shekels linked to the Israeli
CPI, currently bearing an interest rate of 5.4%. Additional loans are in British
Pounds bearing an average interest rate of 9.7%.
We have a $1.0 million unsecured line of credit with an Israeli bank. 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 $703,000 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.
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PAGE 16
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 which
may result in an adverse impact on our results of operations. Any such adverse
impacts to our results of operations from a changing economy may cause the price
of our ordinary shares to decline.
We have not achieved profitability. We expect to continue to incur significant
sales and marketing and research and development expenses. Some of our expenses,
such as administrative and management payroll and rent and utilities, are fixed
in the short term and cannot be quickly reduced to respond to decreases in
revenues. As a result, we will need to generate significant revenues to achieve
and maintain profitability, which we may not be able to do.
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO FLUCTUATIONS AND IF WE FAIL TO
MEET THE EXPECTATIONS OF SECURITIES ANALYSTS OR INVESTORS, OUR SHARE PRICE MAY
DECREASE. Our quarterly operating results are difficult to predict and are not a
good measure for comparison. Our operating history shows that a significant
percentage of our quarterly revenues come from orders placed toward the end of a
quarter, for the quarter ended March 31, 2001 approximately two-thirds of our
realized revenue was recognized in the last two weeks of the quarter. From time
to time, we anticipate a sale of significant size to a single customer. A delay
in the completion of any sale past the end of a particular quarter could
negatively impact results for that quarter, and such negative impact could be
significant for the delay of a sale of significant size. Even without the delay
of a significant sale, our future quarterly operating results may fluctuate
significantly and may not meet the expectations of securities analysts or
investors. If this occurs, the price of our ordinary shares may decrease. The
factors that may cause fluctuations in our quarterly operating results include
the following:
o the volume and timing of customer orders;
o internal budget constraints of our current and prospective clients;
o the length and unpredictability of our sales cycle;
o the mix of revenue generated by product licenses and professional
services;
o the mix of revenue between domestic and foreign sources;
o announcements or introductions of new products or product enhancements
by us or our competitors;
o changes in prices of and the adoption of different pricing strategies
for our products and those of our competitors;
o timing and amount of sales and marketing expenses;
o changes in our business and partner relationships;
o technical difficulties or "bugs" affecting the operation of our
software;
o foreign currency exchange rate fluctuations; and
o general economic conditions.
FAILURE OF THE MARKET TO ACCEPT OUR 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. We cannot predict whether our products will be widely
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PAGE 17
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.
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 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 nine months, 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 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 more than 60% of our sales in any given quarter occur in
the last two weeks of the quarter; if sales forecasted from a specific client
for a particular quarter are not realized in that quarter, we are unlikely to be
able to generate revenues from alternate sources in time to compensate for the
shortfall. As a result, and due to the relatively large size of some orders, a
lost or delayed sale could have a material adverse effect on our quarterly
revenue and operating results. Moreover, to the extent that significant sales
occur earlier than expected, revenue and operating results for subsequent
quarters could be adversely affected.
FAILURE TO EXPAND OUR SALES AND MARKETING ORGANIZATIONS COULD LIMIT OUR ABILITY
TO SELL ADDITIONAL PRODUCTS AND SERVICES, WHICH WOULD IMPAIR OUR ABILITY TO GROW
OUR BUSINESS AND INCREASE REVENUES. We are expanding our direct and indirect
sales operations to increase market awareness of our products and generate
increased revenues. We cannot be certain that we will be successful in these
efforts. In addition to normal turnover of personnel, we are attempting to
expand our direct sales force in North America. As of March 31, 2001, we
employed 64 individuals in our sales and marketing organizations. Because 25 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, recently 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
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PAGE 18
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. In addition, given the
decline in our share price and the volatility of the stock market, we believe
that the prospective employees that we target may perceive that the share option
component of our compensation packages is not valuable. 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 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
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
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PAGE 19
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 only beginning to derive 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, 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,
and despite the history of use by our installed base of customers, our current
and future products may contain as yet undetected serious defects or errors. Any
such defects or errors could result in lost revenues, liability or a delay in
market acceptance of these products, any of which would have a material adverse
effect on our business, operating results and financial condition.
The performance of our products also depends in part upon the accuracy and
continued availability of third-party data. We rely on third parties that
provide information such as street and address locations and mapping functions
that we incorporate into our products. If these parties do not provide accurate
information, or if we are unable to maintain our relationships with them, our
reputation and competitive position in our industry could suffer and we could be
unable to develop or enhance our products as required.
OUR INTELLECTUAL PROPERTY COULD BE USED BY THIRD PARTIES WITHOUT OUR CONSENT
BECAUSE PROTECTION OF OUR INTELLECTUAL PROPERTY IS LIMITED. Our success and
ability to compete are substantially dependent upon our internally developed
technology, which we protect through a combination of copyright, trade secret
and trademark law. However, we may not be able to adequately protect our
intellectual property rights, which may significantly harm our business.
Specifically, we may not be able to protect our trademarks for our company name
and our product names, and unauthorized parties may attempt to copy or otherwise
obtain and use our products or technology. Policing unauthorized use of our
products and technology is difficult, particularly in countries outside the
U.S., and we cannot be certain that the steps we have taken will prevent
infringement or misappropriation of our intellectual property rights.
Our end-user licenses are designed to prohibit unauthorized use, copying or
disclosure of our software and technology in the United States, Israel and other
foreign countries. However, these provisions may be unenforceable under the laws
of some jurisdictions and foreign countries. Unauthorized third parties may be
able to copy some portions of our products or reverse engineer or obtain and use
information and technology that we regard as proprietary.
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PAGE 20
Third parties could also independently develop competing technology or design
around our technology. If we are unable to successfully detect infringement
and/or to enforce our rights to our technology, we may lose competitive position
in the market. We cannot assure you that our means of protecting our
intellectual property rights in the United States, Israel or elsewhere will be
adequate or that competing companies will not independently develop similar
technology. In addition, some of our licensed users may allow additional
unauthorized users to use our software, and if we do not detect such use, we
could lose potential license fees.
OUR TECHNOLOGY AND OTHER INTELLECTUAL PROPERTY MAY BE SUBJECT TO INFRINGEMENT
CLAIMS. Substantial litigation regarding technology rights and other
intellectual property rights exists in the software industry both in terms of
infringement and ownership issues. A successful claim of patent, copyright or
trademark infringement or conflicting ownership rights against us could cause us
to make changes in our business or significantly harm our business. We believe
that our products do not infringe the intellectual property rights of third
parties. However, we cannot assure you that we will prevail in all future
intellectual property disputes.
We expect that software products may be increasingly subject to third-party
infringement or ownership claims as the number of competitors in our industry
segment grows and the functionality of products in different industry segments
overlaps. Third parties may make a claim of infringement or conflicting
ownership rights against us with respect to our products and technology. Any
claims, with or without merit, could:
o be time-consuming to defend;
o result in costly litigation;
o divert management's attention and resources; or
o cause product shipment delays.
Further, if an infringement or ownership claim is successfully brought against
us, we may have to pay damages or royalties, enter into a licensing agreement,
and/or stop selling the product or using the technology at issue. Any such
royalty or licensing agreements may not be available on commercially reasonable
terms, if at all. From time to time, we may encounter disputes over rights and
obligations concerning intellectual property. We also indemnify some of our
customers against claims that our products infringe the intellectual property
rights of others. We have only conducted a partial search for existing patents
and other intellectual property registrations, and we cannot assure you that our
products do not infringe any issued patents. In addition, because patent
applications in the United States and Israel are not publicly disclosed until
the patent is issued, applications may have been filed which would relate to our
products.
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 which would result in the issuance of additional
shares.
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OUR BUSINESS MAY BECOME INCREASINGLY SUSCEPTIBLE TO NUMEROUS RISKS ASSOCIATED
WITH INTERNATIONAL OPERATIONS. Significant portions of our operations occur
outside the United States. Our facilities are located in North America, Israel,
the European continent, and the United Kingdom, and our executive officers and
other key employees are dispersed throughout the world. This geographic
dispersion requires significant management resources that may place us at a
disadvantage compared to our locally based competitors. In addition, our
international operations are generally subject to a number of risks, including:
o foreign currency exchange rate fluctuations;
o longer sales cycles;
o multiple, conflicting and changing governmental laws and regulations;
o expenses associated with customizing products for foreign countries;
o protectionist laws and business practices that favor local
competition;
o difficulties in collecting accounts receivable; and
o political and economic instability.
We expect international revenues to continue to account for a significant
percentage of total revenues and we believe that we must continue to expand our
international sales and professional services activities in order to be
successful. Our international sales growth will be limited if we are unable to
expand our international sales management and professional services
organizations, hire additional personnel, customize our products for local
markets and establish relationships with additional international distributors,
consultants and other third parties. If we fail to manage our geographically
dispersed organization, we may fail to meet or exceed our business plan and our
revenues may decline.
WE ARE INCORPORATED IN ISRAEL AND HAVE IMPORTANT FACILITIES AND RESOURCES
LOCATED IN ISRAEL WHICH COULD BE NEGATIVELY AFFECTED DUE TO MILITARY OR
POLITICAL TENSIONS. We are incorporated under the laws of the State of Israel
and our research and development facilities as well as significant executive
offices are located in Israel. Although substantial portions of our sales
currently are to customers outside of Israel, political, economic and military
conditions in Israel could nevertheless directly affect our operations. Since
the establishment of the State of Israel in 1948, a number of armed conflicts
have taken place between Israel and its Arab neighbors and a state of hostility,
varying in degree and intensity, has led to security and economic problems for
Israel. Since September 2000, a continuous armed conflict with the Palestinian
authority has been taking place.
Despite our history of avoiding adverse effects, in the future we could be
adversely affected by any major hostilities involving Israel, the interruption
or curtailment of trade between Israel and its trading partners, a significant
increase in inflation, or a significant downturn in the economic or financial
condition of Israel. Despite 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,
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.
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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 1999 34%, and 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
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.
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
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PAGE 23
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 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 March
31, 2001, our executive officers, directors and entities affiliated with them
beneficially owned approximately 33.5% 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 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 March 31, 2001, we had 26,091,351 ordinary
shares outstanding, including shares held by a trustee for issuance under
outstanding options. In addition, as of March 31, 2001, we had 2,649,641
ordinary shares issuable upon exercise of outstanding options, and 2,578,161
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
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PAGE 24
debt securities could result in additional dilution to our shareholders. In
addition, we cannot be certain that additional financing will be available in
amounts or on terms acceptable to us, if at all. If we are unable to obtain this
additional financing, we may be required to reduce the scope of our planned
product development and marketing efforts, which could harm our business,
financial condition or operating results. If the economy continues to weaken or,
for any other reason, we are unable to meet our business goals, we may have to
raise additional funds to respond to business contingencies and may include the
need to:
o fund additional marketing expenditures;
o develop new or enhance existing products and services;
o enhance our operating infrastructure;
o hire additional personnel;
o respond to competitive pressures;
o acquire complementary businesses or necessary technologies; or
o fund more rapid expansion.
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.
business interruptions could adversely affect our business. Our operations are
vulnerable to interruption by fire, earthquake, power loss, telecommunications
failure and other events beyond our control. In particular, we have operations
in the San Francisco Bay Area, an area that is known to be susceptible to the
risk of earthquakes. We do not have a detailed disaster recovery plan. Our
facilities in the State of California are currently subject to electrical
blackouts as a consequence of a shortage of available electrical power. In the
event these blackouts continue or increase in severity, they could disrupt the
operations of our affected facilities. In addition, we do not carry sufficient
business interruption insurance to compensate us for losses that may occur and
any losses or damages incurred by us could have a material adverse effect on our
business.
Our stock price could be volatile and could decline substantially. The stock
market has experienced significant price and volume fluctuations, and the market
prices of technology companies have been highly volatile. The price at which our
ordinary shares trades is likely to be volatile and may fluctuate substantially
due to factors such as:
o announcements of technological innovations;
o announcements relating to strategic relationships;
o conditions affecting the software and Internet industries;
o trends related to the fluctuations of stock prices of companies such
as ours;
o our historical and anticipated quarterly and annual operating results;
o variations between our actual results and the expectations of
investors or published reports or analyses of ClickSoftware;
o announcements by us or others affecting our business, systems or
expansion plans; and
o general conditions and trends in technology industries.
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PAGE 25
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 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 March 31, 2001, we had cash and cash equivalents of
$16.3 million which consist of cash and highly liquid short-term investments and
a $1.6 million in long tern cash investment. 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 March 31, 2001, 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 $2.5
million for working capital purposes. Amounts outstanding bear interest at the
U.S. prime rate plus 1%. As of March 31, 2001, there were no amounts outstanding
under this facility.
ClickSoftware maintains a short-term investment portfolio primarily consisting
of corporate debt securities with maturities of twelve months or less. These
securities are subject to interest rate risk and will rise and fall in value if
market interest rates change. The extent of this risk is not quantifiable or
predictable due to the variability of future interest rates. ClickSoftware does
not expect any material loss with respect to its investment portfolio.
The following table provides information about ClickSoftware investment
portfolio, cash, long term debts as of March 31, 2001 and presents principal
cash flows and related weighted averages interest rates by expected maturity
dates.
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YEAR OF MATURITY
2001 2002 2003 AFTER 2003 TOTAL CARRYING VALUE
(dollars in thousands)
Cash and equivalents 5,050 - - - 5,050
Average interest rate 4.6% - - - 4.6%
Commercial Papers 1,587 - - - 1,587
Average interest rate 5.1% - - - -
Corp Bonds 1,216 - - - 1,216
Average interest rate 5.6% - - - 5.6%
Euro Dollar Bonds 4,111 - - - 4,111
Average interest rate 5.9% - - - 5.9%
Taxable Auction Securities 1,000 1,600 - - 2,600
Average interest rate 5.4% - - - 5.4%
Asset backed Securities 3,306 - - - 3,306
Average interest rate 6.7% - - - 6.7%
Bank Loan 60 15 - - 75
Average interest rate L+1% L+1% - - L+1%
N.I.S indexed loans 12 4 1 - 17
Average interest rate 9.7% 9.7% 9.7% - 9.7%
Leases US$ 7 7 8 - 22
Average interest rate 7.1% 7.1% 7.1% - 7.1%
Leases GBP 85 35 12 4 136
Average interest rate 9.8% 9.3% 5.5% 5.5% 9.2%
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements (as such term is defined
in Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934) and information relating to us that are based on the
beliefs of our management as well as assumptions made by and information
currently available to our management, including statements related to products,
markets, and future results of operations and profitability, and may include
implied statements concerning market acceptance of our products, and our growing
leadership role in the marketplace. In addition, when used in this report, the
words "likely," "will," "suggests," "may," "would," "could," "anticipate,"
"believe," "estimate," "expect," "intend," "plan," "predict" and similar
expressions and their variants, as they relate to us or our management, may
identify forward-looking statements. Such statements reflect the judgment of the
Company as of the date of this annual report on Form 10-K with respect to future
events, the outcome of which is subject to certain risks, including the risk
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.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Number Description
99.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8 - K:
No reports on Form 8-K were filed with the Securities and Exchange
Commission during the three months ended March 31, 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/ SHMUEL ARVATZ
-----------------
Shmuel Arvatz
Executive Vice President and
Chief Financial Officer
Date: February 27, 2003
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CERTIFICATIONS
I, Moshe BenBassat, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of ClickSoftware
Technologies Ltd.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
February 27, 2003
By: /s/ Moshe BenBassat
----------------------
Moshe BenBassat
Chairman and Chief Executive Officer
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I, Shmuel Arvatz, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of ClickSoftware
Technologies Ltd.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
February 27, 2003
By: /s/ Shmuel Arvatz
--------------------
Shmuel Arvatz
Executive Vice President and
Chief Financial Officer
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