UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2005
Commission file number: 000 30827
ClickSoftware Technologies Ltd.
(Exact name of Registrant as specified in its charter)
State of Israel
(Jurisdiction of incorporation or organization)
34 HaBarzel Street
Tel Aviv, 69710 Israel
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
None
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
Ordinary Shares, par Nasdaq Stock Market
value of NIS 0.02
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act: None.
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the period covered by the annual report
27,634,707 Ordinary Shares, par value NIS 0.02 per share
Indicate by check mark whether the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act.
[ ] Yes [X] No
If this report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
[ ] Yes [X] No
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.
[X] Yes [ ] No
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20-F ClickSoftware Technologies Ltd. Page 1
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the
Act).
[ ] Large Accelerated Filer [ ] Accelerated Filer [X] Non-Accelerated Filer
Indicate by check mark which financial statement item the registrant has elected
to follow.
[ ] Item 17 [X] Item 18
If this is an annual report, indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act).
[ ] Yes [X] No
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20-F ClickSoftware Technologies Ltd. Page 2
TABLE OF CONTENTS
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Item Number Title Page
- ----------- ----- ----
PART ONE
Item 1. Identity of Directors, Senior Management and Advisers ............4
Item 2. Offer Statistics and Expected Timetable ..........................4
Item 3. Key Information ..................................................4
Item 4. Information on the Company ......................................16
Item 4A Unresolved Staff Comments .......................................21
Item 5. Operating and Financial Review and Prospects ....................21
Item 6. Directors, Senior Management and Employees ......................32
Item 7. Major Shareholders and Related Party Transactions ...............37
Item 8. Financial Information ...........................................38
Item 9. The Offer and Listing ...........................................39
Item 10. Additional Information ..........................................40
Item 11. Quantitative and Qualitative Disclosure about Market Risk .......52
Item 12. Description of Securities Other than Equity Securities ..........53
PART TWO
Item 13. Defaults, Dividend Arrearages and Delinquencies .................54
Item 14. Material Modifications to the Rights of Security Holders and
Use of Proceeds .................................................54
Item 15. Controls and Procedures .........................................54
Item 16A. Audit Committee Financial Expert ................................54
Item 16B. Code of Ethics; Standards of Business Conduct ...................54
Item 16C. Principal Accountant Fees and Services ..........................54
Item 16D. Exemptions from the Listing Standards for Audit Committees ......55
Item 16E. Purchases of Equity Securities by the Issuer and
Affiliated Purchasers ...........................................55
PART THREE
Item 17. Financial Statements ............................................56
Item 18. Financial Statements ............................................56
Item 19. Exhibits ........................................................74
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20-F ClickSoftware Technologies Ltd. Page 3
PART I
------
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
3A. Selected financial data
Our historical consolidated financial statements are prepared in accordance
with generally accepted accounting principles in the United States ("GAAP") and
are presented in U.S. dollars. The selected historical consolidated financial
information as of December 31, 2004 and 2005 and for each of the three years
ended December 31, 2003, 2004 and 2005 have been derived from, and should be
read in conjunction with, the consolidated financial statements of
ClickSoftware Technologies Ltd. and notes thereto appearing elsewhere in this
annual report. The selected financial data as of December 31, 2001, 2002 and
2003 and for each of the years ended December 31, 2001 and December 31, 2002
have been derived from the audited financial statements of ClickSoftware
Technologies Ltd. not included in this annual report. Historical information as
of and for the five years ended December 31, 2005 is derived from our
consolidated financial statements that have been audited by Brightman Almagor,
a member of Deloitte Touche Tohmatsu.
The information presented below is qualified by the more detailed historical
consolidated financial statements set forth in this annual report, and should
be read in conjunction with those consolidated financial statements, the notes
thereto and the discussion under Item 5 - Operating and Financial Review and
Prospects - included elsewhere in this annual report.
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20-F ClickSoftware Technologies Ltd. Page 4
Consolidated Statement of Operations Data - Year Ended December 31
(in thousands of U.S. dollars, except per share data)
2005 2004 2003 2002 2001
---- ---- ---- ---- ----
Revenues $ 24,067 $ 22,705 $ 22,410 $ 15,753 $ 18,175
Cost of revenues 9,792 7,504 7,586 6,753 6,296
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Gross profit 14,275 15,201 14,824 9,000 11,879
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Research and Development 3,128 2,710 1,911 2,806 3,246
expenses, net
Selling and Marketing expenses 10,124 8,939 7,836 10,473 12,499
General and Administrative expenses 3,119 2,809 3,494 3,106 4,048
Restructuring and assets impairment - - - 2,665 294
Amortization of deferred
stock-based compensation 19 9 101 300 437
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Total operating expenses 16,390 14,467 13,342 19,350 20,524
-----------------------------------------------------------------
Operating (loss) income (2,115) 734 1,482 (10,350) (8,645)
Interest and other income, net 122 179 259 252 649
-----------------------------------------------------------------
Net (loss) income $ (1,993) $ 913 $1,741 $(10,098) $ (7,996)
-----------------------------------------------------------------
Basic net (loss) income per share $ (0.07) $ 0.03 $ 0.07 $ 0.40) $ (0.32)
Diluted net (loss) income per share $ (0.07) $ 0.03 $ 0.06 $ (0.40) $ (0.32)
Shares used in computing basic net
(loss) income per share 27,514,262 27,202,804 25,847,758 25,553,891 25,322,771
-----------------------------------------------------------------
Shares used in computing diluted
net (loss) income per share 27,514,262 28,336,450 26,874,351 25,553,891 25,322,771
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Consolidated Balance Sheet Data - Year Ended December 31
(in thousands of U.S. dollars, except for shares data)
2005 2004 2003 2002 2001
---- ---- ---- ---- ----
Working capital $ 8,824 $ 10,328 $ 8,821 $ 5,849 $ 14,191
Total assets 21,004 20,249 17,455 13,957 20,700
Long-term liabilities 1,786 1,677 1,490 1,476 1,400
Shareholders' equity 9,263 10,872 9,613 6,684 16,428
Number of shares outstanding 27,634,707 27,403,159 27,080,955 26,373,249 26,246,454
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20-F ClickSoftware Technologies Ltd. Page 5
3B. Capitalization and indebtedness
Not applicable.
3C. Reasons for the offer and use of proceeds
Not applicable.
3D. Risk factors
In conducting our business, we face many risks that may interfere with our
business objectives. Some of these risks could affect our business, financial
condition and results of operations. We are subject to various risks resulting
from changing economic, political, industry, business and financial conditions.
Some of the more relevant risks are described below.
You should carefully consider the following factors and other information in
this annual report 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.
WE MAY NOT BE ABLE TO ACHIEVE OR MAINTAIN PROFITABILITY.
We expect to continue to incur significant sales and marketing and research and
development expenses. Some of our expenses, such as administrative and
management payroll and rent and utilities, are fixed in the short term and
cannot be quickly reduced if we experience revenue declines. As a result, we
need to generate and maintain growing revenues in order 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 comes from orders placed towards the end of
a given quarter. Frequently, we are reliant upon a sale of significant size to a
single customer. A delay in the completion of any such sale past the end of a
particular quarter could negatively impact results for that quarter, and such
negative impact could be significant. In addition, a portion of our business is
recognized based on contract accounting, and it is difficult to predict the rate
of completion in a given quarter. Because 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, if revenue levels
fall below expectations, net income may be disproportionately affected.
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, but are not limited to, the following:
o the volume and timing of customer orders, including a trend toward
larger customers generating larger transactions;
o internal budget constraints and approval processes of our current and
prospective clients;
o the length and unpredictability of our sales cycle;
o the recognition of a portion of our business on a contract accounting
basis;
o the indirect nature of our sales efforts through our channel and
strategic partners;
o the mix of revenue generated by product licenses and professional
services;
o the geographic mix of revenue;
o announcements or introductions of new products or product enhancements
by us or our competitors;
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20-F ClickSoftware Technologies Ltd. Page 6
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 the composition and success of 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.
Because of the numerous factors that may cause fluctuations in our quarterly
operating results, we believe that period-to-period comparisons of our results
of operations are not necessarily meaningful and that such comparisons should
not be relied upon as an indication of future performance.
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 and continue to be
particularly 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 industry;
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 our inability to meet any guidance or forward looking information, if
provided;
o sales of our Ordinary Shares by existing shareholders;
o variations between our actual results and the expectations of
investors or published reports or analyses regarding our business;
o announcements by us or others affecting our business, systems or
expansion plans; and
o general conditions and trends in technology industries.
THE ECONOMIC OUTLOOK MAY ADVERSELY AFFECT THE DEMAND FOR OUR CURRENT PRODUCTS.
Predictions regarding general economic conditions remain uncertain. Unless the
economic outlook continues to improve, the rate of growth of information
technology spending may stagnate. Consequently, the demand for our products may
not grow or may decrease, which would adversely affect our business, financial
condition and results of operations. In addition, we may not accurately gauge
the effect of general economic conditions on our business. As a result, we may
not react to such changing conditions in a timely manner and this may result in
an adverse impact on our business, financial condition and results of
operations. Any such adverse impacts to our business, financial condition and
results of operations caused by changing economic conditions may cause the price
of our ordinary shares to decline.
FAILURE OF THE MARKET TO ACCEPT OUR PRODUCTS WOULD ADVERSELY AFFECT OUR
PROFITABILITY.
Historically, all of our operating revenue has come from sales of, and services
related to, our Service Optimization Suite, which enables efficient provisioning
of services in enterprise environments. Our Service Optimization Suite includes
ClickSchedule, ClickFix, ClickAnalyze, ClickPlan, ClickMobile, ClickRoster and
ClickForecast. We continually improve and enhance our Service Optimization Suite
to meet market requirements. Our growth depends on the development of market
acceptance of these products. Sales of our products may not continue to develop
as we anticipate, or at all. Lack of long-term demand for our products would
have a material adverse effect on our business, financial condition and results
of operations.
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20-F ClickSoftware Technologies Ltd. Page 7
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.
In order for us to focus more effectively on our core business of developing and
licensing software solutions, we must 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 increase our
revenues, which would harm our business, financial condition and results of
operations. Even if we establish relationships with these third parties, we may
be unable to attain sufficient focus and resources from the third-party
providers to meet all of our clients' needs as a result of the limited resources
and capacities of many third-party implementation providers. 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 cannot control the level and quality of
service provided by third-party implementation and professional services
partners.
IF WE ARE UNABLE TO MAINTAIN OUR RELATIONSHIPS WITH OUR DISTRIBUTORS, VALUE
ADDED RESELLERS OR IF OUR DISTRIBUTORS' BUSINESSES ARE ADVERSELY AFFECTED BY
DEVELOPMENTS UNRELATED TO US, OUR SALES COULD BE HARMED.
Our marketing strategy includes selling through distributors and value-added
resellers, as well as direct selling by our own sales force. We may not be
successful extending the terms of our various agreements or establishing similar
relationships with other distributors or value-added resellers if our current
agreements are not extended. Changes in our relationships with our distributors,
value-added resellers and agents, or other changes to their respective
businesses could have a material adverse effect on our business, financial
condition or results of operations.
OUR NEED FOR ADDITIONAL FINANCING IS UNCERTAIN, AS IS OUR ABILITY TO OBTAIN
FURTHER FINANCING IF REQUIRED.
Our ability to achieve and maintain profitability using our currently available
balance of cash, cash equivalents and available credit will depend on our
ability to maintain or increase our revenues while continuing to control our
expenses. If we are not successful in doing so, particularly given the
uncertainties regarding future information technology spending by our current
and prospective customers, we will need to raise additional capital to finance
our operations and may not be able to sell additional equity or debt securities.
If we are able to issue equity or debt securities, these securities could have
rights, preferences and privileges senior to those of holders of our ordinary
shares, and the terms of these securities could impose restrictions on our
operations. The sale of additional equity or convertible debt securities would
result in additional dilution to the stock holdings of our shareholders.
Additionally, prior to the issuance of additional equity or convertible debt
securities to entities outside of Israel, we will need to obtain approval from
the Chief Scientist and we may not be able to obtain this consent in the future.
Alternatively, we may seek other forms of financing, such as credit from banks
or institutional lenders. Additional financing may not be available to us in
amounts or on terms acceptable to us, if at all. If we are unable to obtain
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.
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. Competition may
increase in the future as current competitors expand their product offerings and
new companies attempt to 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, financial
condition and results of operations 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.
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20-F ClickSoftware Technologies Ltd. Page 8
FAILURE TO FULLY DEVELOP OR MAINTAIN KEY BUSINESS RELATIONSHIPS COULD LIMIT OUR
ABILITY TO SELL ADDITIONAL LICENSES, THEREBY DECREASING OUR REVENUES AND
INCREASING OUR SALES AND MARKETING COSTS.
We believe that our success in penetrating our target markets depends in part on
our ability to develop and maintain business relationships with software
vendors, resellers, systems integrators, distribution partners and customers. We
are dependent on certain suppliers for the development, supply and support of
third-party software components that are integrated into our solutions. If we
fail to continue developing these relationships, our growth could be limited. We
do not have long-term contracts with some of these suppliers, and they are not
obligated to provide us with products or services for any specified period of
time. We have entered into agreements with third parties relating to the
integration of our products with their product offerings, distribution,
reselling and consulting. We are currently deriving revenues from these
agreements but we may not be able to derive significant revenues in the future
from these agreements. In addition, if any of our software vendors cease
production, cease operations or fail to make timely delivery of orders, we may
not be able to meet our delivery obligations to our customers, and may lose
revenues and suffer damage to our customer relationships. Furthermore, our
growth may be limited if prospective clients do not accept the solutions offered
by our strategic partners.
OUR SALES AND IMPLEMENTATION CYCLES DEPEND ON FACTORS OUTSIDE OUR CONTROL, WHICH
MAY CAUSE QUARTERLY LICENSE AND SERVICE FEES REVENUES TO VARY SIGNIFICANTLY FROM
PERIOD TO PERIOD.
To date, our customers have taken typically from three to nine months to
evaluate our offering before making their purchase decisions. In addition,
depending on the nature and specific needs of a client, the implementation of
our products typically takes six to twelve months. Sales of licenses and
implementation schedules are subject to a number of risks outside our 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 orders by our
customers. The uncertain outcome of our sales efforts and the length of our
sales cycles could result in substantial fluctuations in license revenues.
Historically, a significant portion of our sales in any given quarter occur in
the last two weeks of the quarter; if sales forecasted from a specific client
for a particular quarter are not realized in that quarter, we are unlikely to be
able to generate revenues from alternate sources in time to compensate for the
shortfall. As a result, and due to the relatively large size of some orders, a
lost or delayed sale could have a material adverse effect on our quarterly
revenue and operating results. Moreover, to the extent that significant sales
occur earlier than expected, revenue and operating results for subsequent
quarters could be adversely affected. Further, license revenues for transactions
with long implementation cycles may not be recognized in the quarter booked,
thereby adversely affecting revenues for the quarter booked.
WE DEPEND ON KEY PERSONNEL, AND THE LOSS OF ANY KEY PERSONNEL COULD AFFECT OUR
ABILITY TO COMPETE AND IMPAIR OUR ABILITY TO ATTRACT ADDITIONAL KEY PERSONNEL.
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. The services of our senior management team and
key personnel would be very difficult to replace and the loss of any of these
employees could harm our business significantly. We have employment agreements
with our executive officers. Although these agreements generally require sixty
to ninety days notification prior to departure, relationships with these
officers and key employees are at will and can be terminated by either party
without cause. The loss of any of our key personnel could harm our ability to
execute our business strategy and compete.
IF WE FAIL TO EXPAND OUR PROFESSIONAL SERVICES ORGANIZATION, WE MAY NOT BE ABLE
TO SERVICE CURRENT OR ADDITIONAL CLIENTS.
We cannot be certain that we can attract or retain a sufficient number of highly
qualified professional services personnel to meet our business needs. Clients
that license our software typically engage our professional services
organization to assist with the installation and operation of our software
applications. Our professional services organization also provides assistance to
our clients related to the maintenance, management and expansion of their
software systems. Future growth in licenses of our software will depend in part
on our ability to provide clients with these services. In addition, we will be
required to expand our professional services organization to enable us to
continue to support our existing installed base of customers. If we are unable
to maintain our professional services organization, our ability to support our
service business would be limited. In addition, a lack of professional services
resources on implementations of current customers would result in delays in the
recognition of revenues under contract accounting.
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20-F ClickSoftware Technologies Ltd. Page 9
ANY FUTURE MERGERS WITH OR ACQUISITIONS OF COMPANIES, PRODUCTS OR TECHNOLOGIES
AND THE RESULTANT INTEGRATION PROCESS MAY DISTRACT OUR MANAGEMENT AND DISRUPT
OUR BUSINESS.
Our industry has witnessed a substantial amount of merger and acquisition
activity over the past few years. One of our possible business strategies is to
consider strategic partnerships, alliances, mergers and/or acquisitions of
complementary businesses, products and technologies. Pursuit of such strategies
requires significant investments of management time and attention. Mergers with
or acquisitions of companies involve a number of risks including the difficulty
of assimilating the operations and personnel of the merged or acquired companies
and of maintaining uniform standards, controls and policies. There can be no
assurance that technology or rights acquired by us will be incorporated
successfully into products we introduce or market, that such products will
achieve market acceptance or that we will not encounter other problems in
connection with such acquisitions. If we consummate one or more significant
acquisitions in which the consideration consists of ordinary shares,
shareholders would suffer significant dilution of their interests in us.
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
generate decreased 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. The actual or
anticipated introduction of new products has resulted and will continue to
result in some reformulation of our product offerings. Technology and industry
standards can make existing products obsolete or unmarketable or result in
delays in the purchase of such products. As a result, the life cycles of our
products are difficult to estimate. We must respond to developments rapidly and
continue to make substantial product development investments. As is customary in
the software industry, we have previously experienced delays in introducing new
products and features, and we may experience such delays in the future that
could impair our revenue and operating results. Our business, financial
condition and results of operations will be materially and adversely affected if
we fail to enhance our product functionality to meet our current and future
customer needs.
OUR PRODUCTS COULD BE SUSCEPTIBLE TO ERRORS OR DEFECTS THAT COULD RESULT IN
LOST REVENUES, LIABILITY OR DELAYED OR LIMITED MARKET ACCEPTANCE.
Complex software products such as ours often contain errors or defects,
particularly when first introduced or when new versions or enhancements are
released. In the past, some of our products have contained errors and defects
that have delayed implementation or required us to expend additional resources
to correct the problems. Despite internal testing, testing by current and
potential clients and the history of use by our installed base of customers,
our current and future products may contain as yet undetected serious defects
or errors. Any such defects or errors could result in lost revenues, liability
or a delay in market acceptance of these products, any of which would have a
material adverse effect on our business, financial condition and operating
results. The introduction of products with quality or compatibility problems
could result in reduced revenues and orders, delays in collecting accounts
receivable and additional costs. Despite testing by us or by our customers,
errors or defects may be found in our products after commencement of commercial
deployment. Errors or defects could result in product redevelopment costs and
loss of market demand, delay in market acceptance, loss of revenues, liability
loss of market share, and loss of potential new customers.
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.
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20-F ClickSoftware Technologies Ltd. Page 10
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 United States, and the steps we have
taken may not prevent infringement or misappropriation of our intellectual
property rights.
Our end-user licenses are designed to prohibit unauthorized use, copying or
disclosure of our software and technology in the United States, Israel and
other foreign countries. However, these provisions may be unenforceable under
the laws of some jurisdictions and foreign countries. Unauthorized third
parties may be able to copy some portions of our products, reverse engineer or
obtain and use information and technology that we regard as proprietary. Third
parties could also independently develop competing technology or design around
our technology. If we are unable to successfully detect infringement and/or to
enforce our rights to our technology, we may lose competitive position in the
market. Our means of protecting our intellectual property rights in the United
States, Israel or elsewhere may not be adequate and competing companies may
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 CHANNEL AND STRATEGIC PARTNER STRATEGY MAY EXPOSE US TO ADDITIONAL RISKS
RELATING TO INTELLECTUAL PROPERTY INFRINGEMENT.
Our increased reliance on our channel and strategic partners may increase the
likelihood of the infringement of our intellectual property. As we deepen our
ties with our channel and strategic partners, the number of people who are
exposed to and interact with our software and other intellectual property will
increase. Despite our best efforts to protect our intellectual property, our
channel or strategic partners, or their employees or customers, may copy some
portions of our products or otherwise obtain and use information and technology
that we regard as proprietary. Our channel or strategic partners might also
improperly incorporate portions of our technology into their own products or
otherwise exceed the authorized scope of their licenses to our technology. If
we are unable to successfully detect and prevent infringement and/or to enforce
our rights to our technology, our revenues may be negatively impacted and we
may lose competitive position in the market.
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, financial condition
and results of operations. We believe our products do not infringe the
intellectual property rights of third parties. However, we may not 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 significant 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.
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20-F ClickSoftware Technologies Ltd. Page 11
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 our products may infringe 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 that relate to our products.
IF OUR RELATIONSHIPS WITH OUR KEY CUSTOMERS ARE TERMINATED, OUR REVENUES WILL
DECLINE AND OUR BUSINESS WILL BE ADVERSELY AFFECTED.
During 2005, our three main customers accounted for approximately 13%, 11% and
10%, respectively, of our sales. If for any reason, our relationship with any
of these customers is terminated, or if any of these key customers reduces
purchases of our products, then our business, financial condition and results
of operations would be materially and adversely affected. The impact of the
termination or reduction of our key customer relationships would be intensified
if we were unable to increase sales to other customers in order to offset this
termination or reduction. For more information related to our dependence upon
key customers, see Note 13 to our consolidated financial statements included
elsewhere in this annual report.
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, the
United Kingdom and Australia, 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 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 substantially all of our sales currently are to customers
outside of Israel, political, economic and military conditions in Israel could
nevertheless directly affect our business, financial condition and results of
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 hostile elements in the Palestinian Authority has been taking place.
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20-F ClickSoftware Technologies Ltd. Page 12
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. 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.
Certain of our officers and employees are currently obligated to perform up to
36-45 days of annual reserve duty in the Israel Defense Forces and are subject
to being called for active military duty at any time. The loss or extended
absence of any of our officers and key personnel due to these requirements
could harm our business.
WE ARE AN INTERNATIONAL COMPANY WITH EXPANDING INTERNATIONAL OPERATIONS. OUR
RISK EXPOSURE TO FOREIGN CURRENCY FLUCTUATIONS IS INCREASING, AND WE MAY NOT BE
ABLE TO FULLY MITIGATE THE RISK.
Our revenue from the United Kingdom has grown both in absolute dollar terms as
well as a percentage of total revenues. We are expanding operations in other
areas of Europe, and income and expenses recognized in the European Community
euro are increasing. In 2005, 25% of our costs were incurred in GBP and 5% in
euro. We incur a portion of our expenses, principally salaries and related
personnel expenses in Israel, in NIS. In 2005, 27% of our costs were incurred
in NIS, and we incurred 7% of our costs in Australian dollars. Currency
fluctuations in any of the currencies in which we operate could materially and
adversely affect our business, financial condition and results of operations.
In addition, we have balance sheet exposure related to foreign net assets. We
may be unable to adequately protect ourselves against such risks.
WE ARE INCURRING ADDITIONAL COSTS AND DEVOTING MORE MANAGEMENT RESOURCES TO
COMPLY WITH INCREASING REGULATION OF CORPORATE GOVERNANCE AND DISCLOSURE.
We spend an increased amount of management time and external resources to
understand and comply with changing laws, regulations and standards relating to
corporate governance and public disclosure, including the Sarbanes-Oxley Act of
2002, new SEC regulations and Nasdaq Stock Market rules. Devoting the necessary
resources to comply with evolving corporate governance and public disclosure
standards may result in increased general and administrative expenses and a
diversion of management time and attention to compliance activities.
THE GOVERNMENT PROGRAMS IN WHICH WE CURRENTLY PARTICIPATE AND TAX BENEFITS WE
CURRENTLY RECEIVE REQUIRE US TO SATISFY PRESCRIBED CONDITIONS AND MAY BE
DELAYED, TERMINATED OR REDUCED IN THE FUTURE.
We receive grants from the Government of Israel through the Office of the
Chief Scientist of the Ministry of Industry and Trade (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 may not continue to receive grants at the same rate or at all. The Chief
Scientist's budget has been subject to reductions that may affect the
availability of funds for Chief Scientist grants in the future. The percentage
of our research and development expenditures financed using grants from the
Chief Scientist may decline in the future, and the terms of such grants may
become less favorable. In connection with research and development grants
received from the Chief Scientist, we must make royalty payments to the Chief
Scientist on the revenues derived from the sale of products, technologies and
services developed with the grants from the Chief Scientist. From time to
time, the Government of Israel changes the rate of royalties we must pay, so
we are unable to accurately predict this rate. In addition, our ability to
manufacture products or transfer technology outside Israel without the
approval of the Chief Scientist is restricted under law. Any manufacture of
products or transfer of technology outside Israel will also require us 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.
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20-F ClickSoftware Technologies Ltd. Page 13
WE ANTICIPATE RECEIVING TAX BENEFITS FROM THE GOVERNMENT 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 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 in 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 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 available in the
future at their current levels, or at all.
IT MAY BE DIFFICULT TO ENFORCE A U.S. JUDGMENT AGAINST US, OUR OFFICERS AND
DIRECTORS AND THE ISRAELI ACCOUNTANTS NAMED AS EXPERTS IN THIS ANNUAL REPORT 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 and maintain significant operations in Israel. Some of our
executive officers and directors and the Israeli accountants named as experts
in this annual report reside outside the United States and a significant
portion of our assets and the assets of these persons are located outside the
United States. Therefore, it may be difficult for an investor, or any other
person or entity, to effect service of process on us or any of those persons or
to enforce a U.S. court judgment based upon the civil liability provisions of
the U.S. federal securities laws, against us or any of those persons, in an
Israeli court. Additionally, it may be difficult for an investor or any other
person or entity to enforce civil liabilities under U.S. federal securities
laws in original actions instituted in Israel. We have appointed ClickSoftware
Inc., our U.S. subsidiary, as our agent to receive service of process in any
action against us arising out of our original June 22, 2000 initial public
offering. We have not given our consent for our agent to accept service of
process in connection with any other claim. Furthermore, if a foreign judgment
is enforced by an Israeli court, it will be payable in NIS.
A SIGNIFICANT PORTION OF OUR WORKFORCE IS SUBJECT TO ISRAELI LABOR LAWS, WHICH
MAY LEAD TO CLAIMS FOR ADDITIONAL OVERTIME PAY.
Israeli law provides that employment arrangements with employees not in senior
managerial positions, or whose working conditions and circumstances do not
facilitate employer supervision of their hours of work, must provide for
compensation which differentiates between compensation paid to employees for a
43 hour work week or for maximum daily work hours and compensation for overtime
work. Israeli law also limits the maximum number of hours of overtime. Certain
of our employment compensation arrangements are fixed and do not differentiate
between compensation for regular hours and overtime work. Therefore, we may
face potential claims from these employees asserting that the fixed salaries do
not compensate for overtime work. While there is no certainty that such claims
will prevail, even if they do, we do not believe that these claims would have a
material adverse effect on our business, financial condition and results of
operations.
OUR CHIEF EXECUTIVE OFFICER, INDIVIDUALLY, AND OUR OFFICERS, DIRECTORS AND
AFFILIATED ENTITIES, COLLECTIVELY, OWN A LARGE PERCENTAGE OF OUR ORDINARY
SHARES AND COULD SIGNIFICANTLY INFLUENCE THE OUTCOME OF ACTIONS.
As of December 31, 2005, our executive officers, directors and entities
affiliated with them beneficially owned approximately 22.6% of our outstanding
ordinary shares. Of this amount, approximately 19.3% was owned by our chief
executive officer and chairman of the board, Dr. Moshe BenBassat. Dr. BenBassat
acting individually or these shareholders acting collectively 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.
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20-F ClickSoftware Technologies Ltd. Page 14
WE ARE SUBJECT TO ANTI-TAKEOVER PROVISIONS THAT COULD DELAY OR PREVENT AN
ACQUISITION OF US, EVEN IF AN ACQUISITION WOULD BE BENEFICIAL TO OUR
SHAREHOLDERS.
Provisions of Israeli corporate and tax law and of our articles of association
may have the effect of delaying, preventing or making more difficult any merger
or acquisition of us, even if doing so would be beneficial to our shareholders.
In addition, any merger or acquisition of us will require the prior consent of
the Chief Scientist. 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 us. 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 December 31, 2005, we had 27,634,707 ordinary shares outstanding (net of
39,000 shares held in treasury). In addition, as of December 31, 2005, we had
4,026,810 ordinary shares issuable upon exercise of outstanding options and
warrants, and 614,296 additional ordinary shares reserved for issuance pursuant
to our stock option plans and employee share purchase plan. If we or our
existing shareholders sell a large number of our ordinary shares, the price of
our ordinary shares could fall dramatically. Restrictions under the securities
laws limit the number of ordinary shares available for sale by our shareholders
in the public market. We have filed Registration Statements on Form S-8 to
register for resale the ordinary shares reserved for issuance under our stock
option plans.
IF WE ARE CHARACTERIZED AS A PASSIVE FOREIGN INVESTMENT COMPANY, OUR U.S.
SHAREHOLDERS WILL BE SUBJECT TO ADVERSE TAX CONSEQUENCES.
If, for any taxable year, either, (1) 75% or more of our gross income is
passive income or (2) 50% or more of the fair market value of our assets,
including cash (even if held as working capital), produce or are held to
produce passive income, we may be characterized as a "passive foreign
investment company" ("PFIC") for United States federal income tax purposes.
Passive income includes dividends, interest, royalties, rents annuities and the
excess of gains over losses from the disposition of assets, which produce
passive income. For purposes of the asset test, cash is considered to be an
asset that produces passive income. As a result of our cash position and the
decline in the value of our assets, we may be deemed to be a PFIC for U.S.
federal income tax purposes.
If we are characterized as a PFIC, our shareholders who are residents of the
United States will be subject to adverse U.S. tax consequences. Our treatment
as a PFIC could result in a reduction in the after-tax return to shareholders
resident in the United States and may cause a reduction in the value of such
shares. If we were to be treated as a PFIC, our shareholders will be required,
in certain circumstances, to pay an interest charge together with tax
calculated at maximum rates on certain "excess distributions" including any
gain on the sale of ordinary shares. In order to avoid this tax consequence,
they (1) may be permitted to make a "qualified electing fund" election (however
we do not currently intend to take the action necessary for our shareholders to
make a "qualified electing fund" election, in which case, in lieu of such
treatment they would be required to include in their taxable income certain
undistributed amounts of our income) or (2) may elect to mark-to-market the
ordinary shares and recognize ordinary income (or possible ordinary loss) each
year with respect to such investment and on the sale or other disposition of
the ordinary shares. Prospective investors should consult with their own tax
advisors with respect to the tax consequences applicable to them of investing
in our ordinary shares.
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20-F ClickSoftware Technologies Ltd. Page 15
ITEM 4. INFORMATION ON THE COMPANY
4A. History and development
Our corporate name is ClickSoftware Technologies Ltd. for both legal and
commercial purposes. We were incorporated as a company under the laws of the
State of Israel in 1979 and are subject to the Israeli Companies Law - 1999
("Companies Law"). Our principal executive offices are located at 34 HaBarzel
Street, Tel Aviv 69710, Israel, and the telephone number at that location is
+972-3-765-9400. Our website is located at http://www.clicksoftware.com. Our
wholly owned U.S. subsidiary, ClickSoftware Inc., is located at 35 Corporate
Drive, Suite 140, Burlington, MA.
Our capital expenditures for fiscal years 2005, 2004, and 2003 amounted to $0.4
million, $0.6 million, and $0.2 million, respectively. These expenditures were
primarily for hardware and software in our Israel and worldwide offices.
4B. Business overview
We are a leading provider of workforce and service management products and
solutions. Our products and solutions incorporate best-of-breed business
practices, key business functions of field service operations, and
sophisticated decision-making algorithms that enable our clients to more
efficiently manage their field service operations in a scalable, integrated
manner.
Our end-to-end service chain optimization is designed to increase service
revenue and customer responsiveness while reducing costs. Our Service
Optimization suite includes strategic and tactical workforce planning,
optimized service scheduling, intelligent problem resolution, mobile workforce
management, and business analytics, connecting various organizational levels
and all functions, from executive strategy to operational execution.
We have developed our service chain optimization solutions through years of
experience in a variety of service operations. The result is a highly advanced
technology with the flexibility to model and accommodate varying business types
and processes. The ease with which it can be integrated with leading customer
relationship management (CRM) and enterprise resource planning (ERP) solutions,
often with standard interface adaptors, enables our customers to accelerate the
deployment of the solution.
A service operation is ultimately measured by its performance at the day of
service. Our products are mission critical applications that manage all incoming
jobs from the moment a job is opened until it is successfully closed. It
generates appointment time for the customer, assigns the job to the right
technician, designs the optimal route for the technician to minimize travel, and
monitors progress during the day.
As the day develops, emergencies may arise, jobs may take longer or shorter
than expected, and traffic problems may cause unexpected delays. Utilizing real
time updates from the technician's mobile devices and location-reporting
devices, our products offer comprehensive coverage to address these challenges
and help ensure that the work-plan is continually optimized. While other
service management applications, such as CRM , Asset Management, or Inventory
Management, manage primarily data processing aspects, we believe our products
drive decision-making processes. We believe our solutions have become the
backbone of daily operations management in many leading organizations worldwide
by addressing the fundamental question of job fulfillment: Who does What, for
Whom, With what Where and When.
The decision-making support our products offer does not start on the day of
service. By the time we reach the day of service, the workforce's size and
skill mix have already been decided down to the name of the individuals and the
shift each one of them will be staffing on that day. This capacity is the
result of a sequence of decisions, some of which may have been made as long as
a year or more in advance. For instance, the weekly/monthly shifts are staffed
several weeks or months prior to the day of service.
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20-F ClickSoftware Technologies Ltd. Page 16
Prior to staffing the shifts for a given week or month, we first need to make
sure people will be available to work on particular days, taking into account
parameters such as vacation and training. Hiring options at this stage are
fairly limited. This stage is the "master" planning, also known as tactical
resource planning.
Long before that, up to a year or more in advance, capacity planning takes
place, i.e. determining the size and the skill mix in each territory as a
function of the company's strategic plan, e.g. expanding/shrinking business
lines or territories, new product introduction, etc. At this stage, sufficient
time is available for hiring and training new employees or relocating or
re-training existing employees.
For each of the above stages, a key input is demand forecasting by job type and
territories at the time granularity that is required for that stage. The above
sequence, together with the daily service delivery decisions, establishes the
essence of the service chain decision making, a concept pioneered by our staff
in the 1990's, and for which a patent was awarded (see Intelectual Property
below).
SERVICE OPTIMIZATION SOLUTIONS SUITE:
Our Service Optimization solutions suite includes:
ClickSchedule optimizes service scheduling and routing for improving workforce
productivity by balancing customer, service and asset resources, and
organizational preferences, including contractual commitments, priority, drive
time, skills, and service and asset resources availability. Configuration
capabilities, a high degree of scalability and use of standard eXtensible
Markup Language (XML) interfaces are designed to improve integration with
enterprise systems and deployment according to organizational business policies
and processes. ClickSchedule accounted for more than 15% of our revenues in
2005.
ClickAnalyze provides service business analytics for workforce performance
measurement and strategic decision support. ClickAnalyze enables drill-down
analysis of key performance indicators, including resource productivity,
operational costs, and responsiveness to customers. Integrated within the
Service Optimization suite, ClickAnalyze provides executive level summaries as
well as detailed analysis by territory, job type, time frame and other
criteria.
ClickPlan provides interactive and automated workforce planning for staffing
and deployment of the field workforce based on forecasted workload. ClickPlan
is designed to enable service organizations to resolve workforce shortages and
surpluses weeks and months in advance. Comparing available resources to
forecasted workloads, ClickPlan helps determine the best strategy to ensure the
right people are in the right place, at the right time.
ClickForecast provides field service workload forecasting to help companies
project workforce capacity. ClickForecast can combine historical service
workload with future business events to create a forecast for each territory,
job type, or business unit. ClickForecast enables service managers, marketing,
and sales to collaboratively determine the demand levels of their customers,
and create multiple forecast scenarios, each with different business
assumptions.
ClickFix provides intelligent diagnostics and problem resolution for reducing
service costs. ClickFix enables faster resolution of customer issues at
multiple levels of service contact, from the call center to the field. Based on
an intelligent engine that utilizes specific knowledge about our customers'
equipment, ClickFix diagnoses and resolves problems independent of the user's
skills, experience and knowledge. Accessibility via the internet empowers
customers to resolve problems themselves at any time of day, and often without
a service resource, requiring fewer onsite visits.
ClickMobile provides wireless workforce management for monitoring field
workforce activities and reducing the labor of dispatching personnel.
ClickMobile enables job detail notification from the field and allows for field
updates even when service resources are out of wireless coverage. Assignments
created in ClickSchedule are dispatched to field devices based on configurable
workflows while enabling real-time visibility into workforce activity including
job status, start and end time.
ClickLocate (LBS), released in 2006, captures the location information of a
field service engineer and/or his or her vehicle and integrates it with
ClickSchedule for use in optimized scheduling. LBS then enables service
organizations to improve their service operations by allowing them to make
decisions and take actions based on location information including, near
real-time engineer locations. In effect, LBS enables service managers to "see"
the current location of the entire mobile workforce at one time.
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20-F ClickSoftware Technologies Ltd. Page 17
ClickRoster provides interactive and automated workforce shift planning based
on forecasted workload, planning decisions, working contracts, rules and
regulations and engineer preferences.
Service Optimization Suite: In January 2005, we released version 7.5 of our
Service Optimization Suite that expands on previous versions of the product
suite with feature and user interface enhancements, including a more
configurable schedule optimizer, real time key performance indicator monitor,
and enhanced support for multi-lingual implementations.
Customers
We sell our products to a broad base of customers representing a variety of
industries with unique needs, including telecommunications, utilities and
energy and high-technology service providers, as well as the markets listed
below.
Principal Markets
Our service optimization solutions are utilized by leading organizations in a
number of service industry segments, including: telecommunications, utilities
and energy, insurance, high-technology, computer and office equipment,
industrial equipment, medical equipment, building automation, aerospace &
defense, and home services. Our solutions are designed to deliver improvements
in:
o field workforce productivity
o responsiveness to customers
o quality of service delivered
o profitability of the service operation
o reduction in missed customer commitments.
See Item 5 - Operating and Financial Review and Prospects - for a breakdown of
revenues by geographic market.
Sales and Marketing Channels
We market and sell our products mostly through our direct sales force located
in North America, Europe and the Asia Pacific region, as well as through
reseller agreements with partners. Over the past 24 months, we have
significantly increased our efforts to create and strengthen partner relations.
Our multidisciplinary sales teams consist of field sales executives, sales
support engineers and internal sales staff. The internal sales staff is
responsible for generating leads and qualifying prospective clients. Sales
support engineers assist the sales executives in the technical aspects of the
sales process, including preparing demonstrations and technical proposals. Our
sales executives are responsible for completing the sales process and managing
the post-sale client relationship, which consists of ongoing relationship
management and the sale of additional licenses and products, as clients require
additional resources. Our management also takes an active role in our sales
efforts. The knowledge gained by our sales and marketing force is also
communicated to our product marketing group, which guides our development team.
This enables our organization to align the functionality of our products with
customer needs.
We typically direct our sales and marketing efforts to the client's executive
officers, including the vice president of customer service, the chief
information officer, the chief financial officer and other senior executives
responsible for improving customer service at our clients' organizations. In
order to effectively promote product awareness, we engage in marketing
activities in a wide variety of areas, including public relations and analyst
relations, email campaigns, web seminars with our customers and industry
analysts, newsletters and advertising creation and placement, direct mailings
and trade shows.
Our business development organization supports joint marketing activities with
our business partners. Our business relationships with large ERP and CRM
vendors, such as SAP A.G., enable us to use our partners' market presence and
sales channels to create additional revenue opportunities. Our strategy is
based on having approved certified adaptors that enable rapid integration and
implementation of our products into certain ERP and CRM systems.
We also market our products and services through resellers. Our reseller
agreements generally provide the parties with the right to use each other's
name in marketing and advertising materials, and to conduct joint marketing
programs. We provide sales materials and training to resellers on the
marketing, selling and implementation of our software solutions. We believe
these relationships will extend our presence and brand name in new and existing
markets.
We have also established relationships with large System Integrator (SI)
organizations such as Accenture Ltd. and International Business Machines
Corporation (IBM). These partners have committed various levels of resources to
integrate, customize and implement our solutions. Depending on the strength of
the relationship, we have co-invested in jointly developing industry-specific
solutions, training and certifying their professional services teams,
developing co-marketing programs, and incorporating our products into their
marketing/referral strategies.
At the end of the second quarter of 2004, we formalized a strategic alliance
with IBM pursuant to which we teamed with IBM to resell our workforce
optimization solutions. In connection with this strategic alliance, we
established a Project Office with IBM to manage the day-to-day affairs in
connection with the relationship. We issued 100,000 of our ordinary shares to
IBM for a purchase price of 0.02 NIS per share and agreed to issue an
additional 100,000 of our ordinary shares to IBM for a purchase price of 0.02
NIS per share upon the first anniversary of the initial issuance (the "Second
Tranch"). We also issued IBM 250,000 warrants that are exercisable into
ordinary shares with an exercise price of $2.38 per share. Immediately upon
entering into the strategic alliance, 62,500 of these warrants immediately
vested and became exercisable. At the end of each of
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20-F ClickSoftware Technologies Ltd. Page 18
the three years following the warrant issuance, up to 62,500 warrants may
become exercisable based on the attainment of certain revenue targets relating
to revenue generated from the strategic alliance. Since the revenue targets for
the first year were not achieved, 62,500 of the 250,000 warrants were not
exercisable and have expired. We recently renegotiated the fees, terms and
conditions of our alliance agreements with IBM relating to the Project Office,
and as part of the new agreement, the Second Tranch of shares has been
cancelled. See exhibits 4.19, 4.20, 4.21, 4.22, 4.23 and 4.24 to this annual
report.
We continue to value our relationships with our other channel partners, and
believe that these channel relationships will be key contributors to our future
growth.
Competition
The market for our products is competitive and rapidly changing. Competition
may increase in the future as the service optimization market gains size and
increased business focus, current competitors expand their product offerings,
and new companies enter the market.
The principal competitive factors in the service optimization industry are:
o the technological capabilities and performance of the solution;
o installed base, domain expertise and experience with large-scale
implementations; and
o the acceptance and adaptability of the service optimization solution
to the solution offerings of large SIs and CRM/ERP vendors, and the
ability to form marketing alliances with the foregoing.
We believe our solutions compare favorably based on these competitive factors
and that key competitive factors include a broad base of users, strategic
alliances, key reference customers, interoperability, integration of
complementary products and services, technological leadership, product
performance, price, customer support, name recognition, relationships with
partners and distribution channels and the ability to respond quickly to
emerging opportunities.
Our current and potential competitors include:
o Direct competitors in the service optimization space, including
Service Power Technologies plc. Vidus Limited, which was acquired by
@Road, and Wishbone, which was acquired by Indus International Inc.
o Software application vendors that offer field force management
solutions with certain optimization modules, including Viryanet Ltd.
and MDSI Mobile Data Solutions Inc.
o Traditional ERP and CRM software application vendors, including
Siebel and Oracle; and
o Systems integrators and internal information technology departments
that may elect to develop a solution in-house.
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 we do.
Competition could result in price reductions, fewer customer orders, reduced
gross margin and loss of market share, any of which could cause our business,
financial condition and results of operations to suffer. We may not be able to
compete successfully, and competitive pressures may harm our business. In
addition, our market is characterized by rapid technological change, dynamic
client needs, mergers and acquisitions, and frequent introductions of new
products and product enhancements, which can make existing products, including
ours, obsolete or unmarketable.
Intellectual Property
We believe that the improvement of our existing products and technologies and
the development of new products are important in establishing and maintaining a
competitive advantage. We rely on a combination of trade secrets, copyrights,
trademarks, patents and intellectual property law, together with non-disclosure
and invention assignment agreements, to establish and protect the technology
used in our products.
We own US patent 6,985,872, titled "A METHOD AND SYSTEM FOR ASSIGNING HUMAN
RESOURCES TO PROVIDE SERVICES". The patent describes a system that unifies the
analysis, forecasting, planning, scheduling and execution of service
operations, leading to optimized performance across long and short time scales,
and enabling agile and effective collaboration of different roles and
stake-holders in the service management world.
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20-F ClickSoftware Technologies Ltd. Page 19
We have one issued patent (referred to above) and one patent application
pending. As we continue to develop new applications of our products, we will
consider additional patent applications. Patents may not issue from any of
these pending applications and, even if patents do issue, the claims allowed
may not be sufficiently broad to protect our technology. In addition, patents
issued to us may be challenged, invalidated or circumvented, and the rights
granted thereunder may not adequately protect us.
We own U.S. trademark registrations for the marks AITEST, CLICKSCHEDULE,
CLICKANALYZE, CLICKFIX, CLICKFORECAST and CLICKPLAN, and have filed
applications for registration of the mark CLICKMOBILE. In the European
Community, we own trademark registrations for CLICKFIX, CLICKSCHEDULE,
CLICKANALYZE, CLICKFORECAST, and CLICKPLAN, and a U.K. trademark for
CLICKSOFTWARE.
Although we rely on copyright, trade secret and trademark law to protect our
technology, we believe that factors such as the technological and creative
skills of our personnel, new product developments, frequent product
enhancements and reliable product maintenance are more essential to
establishing and maintaining a technology leadership position. Others may
develop technologies that are similar or superior to our technology. See Item
3D - Risk factors - "Our intellectual property could be used by third parties
without our consent because protection of our intellectual property is limited"
and "Competition".
We generally enter into nondisclosure agreements with our customers, partners,
employees and consultants and generally control access to and distribution of
our software, documentation and other proprietary information.
Our end-user licenses are designed to prohibit unauthorized use, copying and
disclosure of our software and technology in the United States, Israel and
other foreign countries. However, these provisions may be unenforceable under
the laws of some jurisdictions and foreign countries. Unauthorized third
parties may be able to copy some portions of our products or reverse engineer
or obtain and use information and technology that we regard as proprietary.
Third parties could also independently develop competing technology or design
around our technology. If we are unable to successfully detect infringement
and/or to enforce our rights to our technology, we may lose competitive
position in the market. Our means of protecting our intellectual property
rights in the United States, Israel or elsewhere may not be adequate and that
competing companies may 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.
From time to time, we may encounter disputes over rights and obligations
concerning intellectual property. We also indemnify most of our customers
against any future claim that our products infringe the intellectual property
rights of others. We believe our products do not infringe upon the intellectual
property rights of third parties. However, we cannot assure you that we may not
prevail in all future intellectual property disputes. We have not conducted an
exhaustive search for existing patents and other intellectual property
registrations, and our products may infringe 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 that
relate to our products.
Substantial litigation regarding technology rights exists in the software
industry, and we expect that software products may be increasingly subject to
third-party infringement and ownership claims as the number of competitors in
our industry segment grows and the functionality of products in different
industry segments overlap. In addition, our competitors may file or have filed
patent applications that cover aspects of their technology that they may claim
our technology infringes. Third parties may assert infringement or competing
ownership claims with respect to our products and technology. Any such claims,
with or without merit, could be time-consuming to defend, result in costly
litigation, and divert management's attention and resources or cause product
shipment delays. In the event of an adverse ruling in any such litigation, we
might be required to pay substantial damages, discontinue the use and sale of
infringing products, expand significant resources to develop non-infringing
technology or obtain licenses to or pay royalties to use a third party's
technology. Such royalty or licensing agreements may not be available on terms
acceptable to us, if at all. A successful claim of patent or copyright
infringement against us could significantly harm our business. See Item 3D -
Risk factors - "Our technology and other intellectual property may be subject
to infringement claims".
Regulation
Our business is also effected by government regulations. We receive grants from
the Government of Israel through 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 may not continue to receive
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20-F ClickSoftware Technologies Ltd. Page 20
grants at the same rate or at all. The Chief Scientist's 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. For further
information related to the effect of government regulations on our business,
see Item 3D - Risk factors - "The government programs in which we currently
participate and tax benefits we currently receive require us to satisfy
prescribed conditions and may be delayed, terminated or reduced in the future."
4C. Organizational structure
Our directly and indirectly held principal operating wholly-owned subsidiaries
and their countries of incorporation are:
o ClickSoftware Technologies Inc. (United States)
o ClickSoftware Central Europe GmbH (Germany)
o ClickSoftware Europe Limited (United Kingdom)
o ClickSoftware Belgium N.V. (Belgium)
o ClickSoftware Australia Pty Limited (Australia).
4D. Property, plants and equipment
We have a lease for approximately 8,800 square feet of office space in
Burlington, Massachusetts that expires in May 2009 and is used for sales,
marketing and implementation activities for the North American market. We also
have a lease for approximately 20,000 square feet of office space in Tel Aviv,
Israel that expires in June 2007, all of which is used for management,
marketing, sales, research and development.
Our U.K. subsidiary currently operates from a leased facility of approximately
3,800 square feet in Slough, near London, which is used for sales, marketing
and implementation activities for the European market. We also lease additional
smaller offices in various sites throughout Europe and Asia. We consider that
our current office space is sufficient to meet our anticipated needs for the
foreseeable future and is suitable for the conduct of our business.
ITEM 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Overview
We are specialists in the area of service optimization solutions and derive
revenues from the licensing of our software products and the provision of
consulting and support services.
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 2 of the notes to our consolidated financial statements
attached hereto).
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 software
updates. 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 support contracts typically renew automatically for successive
12-month periods unless the customer informs us of its desire not to renew
annual support.
Our revenues grew by 6% in 2005. However, revenue was slower than expected due
to lower revenues in North America caused by longer sales cycles and the fact
that slower than anticipated ramping up of our channel sales.
As in previous years, we believe that our performance in 2006 will primarily
depend on our ability to continue attracting customers and implementing service
optimization solutions.
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20-F ClickSoftware Technologies Ltd. Page 21
We restated our financial statements for 1999, 2000, 2001 and for the first six
months of 2002 and filed an amendment to our Form 10-K for the three years
ended 1999, 2000 and 2001 on January 24, 2003. The financial results provided
in this annual report reflect this restatement. See note 3 of the notes to our
consolidated financial statements that are included on the Form 10-K/A for the
year December 31, 2001 that we filed the SEC on January 24, 2003.
In March 2005, we announced that we are eligible to be considered a "foreign
private issuer" under U.S. Securities laws. As a foreign private issuer, we
will continue to comply with all applicable U.S. securities laws for financial
and other information disclosure. Our U.S. periodic reporting requirements will
consist of filing this annual report on Form 20-F, and filing Form 6-K for our
quarterly operating results and for any information made public or generally
distributed to security holders. Under the foreign private issuer rules, we are
not required to file our periodic reports with the SEC on Forms 10-K and 10-Q,
or current reports on Form 8-K.
As of December 31, 2005, our cash and cash-equivalents, and short and long-term
investments increased to $13.8 million from $12 million as of December 31,
2004.
With more transactions involving larger customers and generating larger
transactions, and with the greater involvement of our channel partners in many
of the transactions, the results of any quarter will be more difficult to
predict and will not necessarily be indicative of full-year performance.
Because a significant portion 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, if revenue
levels fall below expectations, net income may be disproportionately affected.
Our reporting currency is the U.S. dollar. A significant portion of our
research and development expenses and other expenses are incurred in NIS, and a
portion of our revenues and expenses are incurred in British pounds, euro and
Australian dollars. The results of our operations are subject to fluctuations
in these exchange rates, which are influenced by various global economic
factors.
Critical Accounting Policies
In preparing our consolidated financial statements, we are required to make
estimates, judgments and assumptions that affect the reported amounts of
revenues and expenses, assets and liabilities and contingent assets and
liabilities at the date of the financial statements.
On an ongoing basis, we evaluate our estimates, judgments and assumptions,
including those related to revenue recognition, and bad debt provisions. We
base our estimates, judgments and assumptions on historical experience and
forecasts, and on various other factors that are believed to be reasonable
under the circumstances. Actual results may differ from these estimates under
different assumptions or conditions. We believe that the following critical
accounting policies affect our more significant estimates, judgments and
assumptions used in the preparation of our consolidated financial statements.
Revenue Recognition
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 the rights to use our
software and sales of professional services, including consulting,
implementation and training. 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
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20-F ClickSoftware Technologies Ltd. Page 22
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.
The Company generally does not grant right-of-return to its customers. The
Company generally provides a warranty period for three months at no extra
charge. As of December 31, 2005 and 2004, the provision for warranty cost is
immaterial.
Arrangements that include professional services are evaluated to determine
whether those services are essential to the functionality of other elements of
the arrangement. When services are considered essential, revenue under the
arrangement is recognized using contract accounting. When services are not
considered essential, the revenue allocable to the software services is
recognized as the services are performed.
Revenue from software licenses that require significant customization,
integration and implementation are recognized based on SOP 81-1 "Accounting for
Performance of Construction-Type and Certain Production-Type Contracts," using
contract accounting on the percentage-of-completion method, based on the
relationship of actual working hours incurred, to total working hours estimated
to be incurred over the duration of the contract. In recognizing revenues based
on the percentage-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 services 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. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are first
determined, in the amount of the estimated loss on the entire contract.
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.
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts using estimates that we make
based on factors we believe appropriate, such as the composition of the
accounts receivable aging, historical bad debts, changes in payment patterns,
customer creditworthiness and current economic trends. If we used different
assumptions, or if the financial condition of customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
provisions for doubtful accounts would be required and would increase our bad
debt expense.
Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123(R) that requires employee share-based equity awards to be accounted for
under the fair value method, and eliminates the ability to account for these
instruments under the intrinsic value method prescribed by APB Opinion No. 25
and allowed under the original provisions of SFAS No. 123. SFAS No. 123(R)
requires the use of an option pricing model for estimating fair value, which is
then amortized to expense over the service periods. Had we adopted SFAS 123(R)
in prior periods, the impact of that standard would have approximated the
impact of SFAS 123 as described in the disclosure of pro forma net income and
income per share above. SFAS No. 123(R) allows for either prospective
recognition of compensation expense or retrospective recognition. In the first
quarter of 2006, we began to apply the prospective recognition method and
implemented the provisions of SFAS No. 123(R). In January 2005, the SEC issued
SAB No. 107, that provides supplemental implementation guidance for SFAS No.
123(R). SFAS No. 123(R) will be effective for us beginning in the first quarter
of fiscal 2006.
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20-F ClickSoftware Technologies Ltd. Page 23
During December 2005, the Board of Directors decided to accelerate the vesting
of unvested employee stock options granted to employees and officers (see note
12D to the financial statements). The vesting acceleration enables us to avoid
recognizing in our income statement compensation expense associated with these
options in future periods, upon adoption of SFAS 123(R) in January 2006. As a
result of this change, we expect to reduce the stock option expense it otherwise
would have been required to record by approximately $2 million over a four year
period. This estimate is subject to change and is based on estimated value
calculations using the Black-Scholes methodology.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections." SFAS No. 154 replaces APB Opinion No. 20. "Accounting Changes" and
SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements." SFAS
No. 154 requires retrospective application to prior periods' financial
statements of changes in accounting principle, unless it is impracticable to
determine either the period-specific effects or the cumulative effect of the
change. We do not expect the adoption of SFAS No. 154 will have any material
impact on its consolidated financial statements.
In November 2005, the FASB issued FSP FAS 115-1 and FAS 124-1, "The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments"
("FSP 115-1 and 124-1"), which clarifies when an investment is considered
impaired, whether the impairment is other than temporary, and the measurement of
an impairment loss. It also includes accounting considerations subsequent to the
recognition of an other-than-temporary impairment and requires certain
disclosures about unrealized losses that have not been recognized as
other-than-temporary impairments. FSP 115-1 and 124-1 are effective for all
reporting periods beginning after December 15, 2005. At December 31, 2005, we
had no unrealized investment losses that had not been recognized as
other-than-temporary impairments in its available-for-sale securities. We do not
anticipate that the implementation of these statements will have a significant
impact on our business, financial position and results of operations.
5A. Results of operations
Our operating results for each of the five years ended December 31, 2005, 2004,
2003, 2002 and 2001 expressed as a percentage of revenues are as follows:
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
2005 2004 2003 2002 2001
Revenues:
Software license 34% 47% 47% 45% 65%
Services 66% 53% 53% 55% 35%
-----------------------------------------------------
Total Revenues 100 100 100 100 100
-----------------------------------------------------
Cost of Revenues:
Software license 6 5 4 6 4
Services 34 28 30 37 31
-----------------------------------------------------
Total cost of revenues 40 33 34 43 35
-----------------------------------------------------
Gross Profit 60 67 66 57 65
-----------------------------------------------------
Operating Expenses:
Research and Development
expenses, net 13 12 8 18 18
Selling and Marketing expenses 42 39 35 66 69
General and Administrative
expenses 13 13 16 20 22
Restructuring and assets impairment - - - 17 2
Amortization of deferred Stock-based
Compensation 0 0 0 2 2
-----------------------------------------------------
Total Operating Expenses 68 64 59 123 113
-----------------------------------------------------
Operating (Loss) Income (8) 3 7 (66) (48)
Interest and other income, net - 1 1 2 4
-----------------------------------------------------
Net (Loss) Income (8%) 4% 8% (64%) (44%)
-----------------------------------------------------
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20-F ClickSoftware Technologies Ltd. Page 24
Revenues
Revenue Breakdown
-----------------
-------------------------------------------------------------------------------
2005 % Change 2004 % Change 2003
---- -------- ---- -------- ----
(In thousands)
Revenues:
Software license $8,235 (22%) $10,603 0% $10,622
Percentage of total revenues 34% 47% 47%
Services 15,832 31% 12,102 3% 11,788
Percentage of total revenues
66% 53% 53%
--------------- --------------- --------------
Total Revenues $ 24,067 6% $ 22,705 1% $ 22,410
--------------- --------------- --------------
Revenues increased 6% to $24.1 million in 2005, compared with $22.7 million in
2004, and $22.4 million in 2003. The moderate growth rates we achieved in 2005
and 2004 were due to the fact that our channel sales did not grow as quickly as
anticipated and weak sales in North America due to longer sales cycles.
Revenues By Territory
---------------------
-------------------------------------------------------------------------------
2005 % 2004 % 2003 %
---- - ---- - ---- -
Revenues Revenues Revenues
-------- -------- --------
(In thousands)
Revenues:
North America $6,477 27% $6,998 31% $10,239 46%
Europe 12,706 53% 12,056 53% 9,155 41%
Israel 107 0% 12 0% 71 0%
Asia Pacific
and Africa 4,777 20% 3,639 16% 2,945 13%
------------ ------------- ----------
Total Revenues $24,067 100% $22,705 100% $22,410 100%
------------ ------------- ----------
In 2005, 53% of our revenues were generated in Europe (with 30% in the United
Kingdom, 14% in Germany), 27% in North America (with 23% in the United States),
and 20% in Asia Pacific and Africa. The slight increase in the percentage of
revenues from the Asia Pacific in 2005 is due to increased sales of our products
to new and existing customers.
In 2004, 53% of our revenues were generated in Europe (with 22% in the United
Kingdom, 20% in Germany), 31% in North America (with 23% in the United States),
and 16% in Asia Pacific and Africa. The increase in the percentage of revenues
from the European region in 2004 is the result of a few large orders that we
sold directly and through our channel partners, and the sale of our products
into new vertical market industries.
In 2003, 46% of our revenues were generated in North America (with 36% in the
United States), 41% in Europe (with 19% in the United Kingdom, 10% in Germany
and 8% in the Netherlands), and 13% in Asia Pacific and Africa.
Software Licenses
As reflected in the table entitled "Revenue Breakdown", above, software license
revenues were $8.2 million or 34% of revenues in 2005, compared with $10.6
million or 47% of revenues in 2004, and $10.6 million or 47% of revenues in
2003. The decrease in software license revenues from 2004 to 2005 by $2.4
million or 22% was primarily due to the fact that a larger portion of our
business involves significant implementation services that are recognized under
contract accounting methods, resulting in slower recognition.
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20-F ClickSoftware Technologies Ltd. Page 25
Services
Service revenues in 2005 were $15.8 million or 66% of revenues, compared with
$12.1 million or 53% of revenues in 2004, and $11.8 million or 53% of revenues
in 2003. The increase in service revenues from 2004 to 2005 is primarily due to
increased implementation services and an increase in post-contract support
agreements.
Cost of Revenues
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,
equipment costs and royalties payments to the Chief Scientist.
Cost of revenues was $9.8 million or 40% of gross revenues in 2005, compared
with $7.5 million or 33% of revenues in 2004, and $7.6 million or 34% of
revenues in 2003. The increase in the cost of revenues from 2004 to 2005 is
primarily due to higher costs associated with our services and an increase in
third-party licenses and adaptors costs. We expect our cost of revenues on an
absolute basis to continue to increase in 2006 as a natural consequence of the
projected growth of our revenues.
Cost of Software Licenses
Cost of software license revenues were $1.5 million or 6% of revenues in 2005,
compared with $1.1 million or 5% of revenues in 2004, and $955,000 or 4% of
revenues in 2003. The increase in cost of software license revenues from 2004 to
2005 despite the decrease in software license revenues was primarily due to an
increase in revenues from third party licenses and adaptors to other ERP and CRM
systems sold during these years, resulting in higher third party costs.
Cost of Services
Cost of service revenues were $8.3 million or 34% of revenues in 2005, compared
with $6.4 million or 28% of revenues in 2004, and $6.6 million or 30% of
revenues in 2003. The increase in the cost of services from 2004 to 2005 by $1.9
million or 29% was primarily due to increased demand for our services. As a
result, we increased our related payroll expenses by $0.6 million, and increased
our use of third party contractors by $1 million. In addition, there was an
increase in royalties paid to the Chief Scientist. The decrease in the cost of
services from 2003 to 2004 by $0.2 million or 4% was primarily due to the
decrease of our consulting activities during 2004 and primarily resulted from
$0.1 million in decreased related payroll expenses and $0.1 million from other
implementation related costs.
Gross profit
Gross profit was $14.3 million or 60% of revenues in 2005, compared with $15.2
million, or 67% of revenues, in 2004, and $14.8 million, or 66% of revenues, in
2003. The decrease in gross profit from 2004 to 2005 by $0.9 million or 6% was
primarily due to a change in the revenue mix in favor of lower-margin services
revenues. The increase in gross profit from 2003 to 2004 by $0.4 million, or 3%,
was due to higher service revenues and higher margins on service revenues. The
slight increase in gross margins from 2003 to 2004 resulted from higher-margin
from services activities due to higher revenues from post-contract support
agreements.
Operating Expenses
Operating expenses are categorized into research and development expenses,
selling and marketing expenses, general and administrative expenses, and share
based compensation.
Total operating expenses were $16.4 million or 68% of revenues in 2005, compared
with $14.4 million or 64% of revenues in 2004, and $13.3 million or 59% of
revenues in 2003.
The increase in operating expenses from 2004 to 2005 by $2.0 million or 13% and
from 2003 to 2004 by $1.1 million or 8%, mainly reflects an increase in our
selling and marketing expenses activities as we expand our activities and
personnel to support these efforts and an increase in research and development
activities during these years. The increase in operating expenses from 2003 to
2004 was partially offset by a decrease in general and administrative expenses.
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20-F ClickSoftware Technologies Ltd. Page 26
Research and Development Expenses, Net
Research and development expenses consist primarily of personnel costs to
support product development, net of grants received from the Chief Scientist. In
return for some of these grants, we are obligated to pay the Israeli government
royalties as described below which are included in cost of revenues. Software
research and development costs incurred prior to the establishment of technology
feasibility are included in research and development expenses as incurred.
Software development costs incurred subsequent to the establishment of
technological feasibility through the period of general market availability of
the products are capitalized, if material, after consideration of various
factors, including net realizable value. To date, software development costs
that are eligible for capitalization have not been material and have been
expensed.
Research and development expenses, net of related grants, were $3.1 million or
13% of revenues in 2005, compared with $2.7 million or 12% of revenues in 2004,
and $1.9 million or 8% of revenues in 2003. Research and development expenses,
prior to participation grants from the Office of the Chief Scientist of the
Government of Israel, totaled $3.6 million for the year ended December 31, 2005,
compared with $3.1 million for the year ended December 31, 2004, and $2.4
million for the year ended December 31, 2003. We received or accrued grants from
the Chief Scientist in the amount of $0.5 million in 2005, compared with $0.4
million in 2004, and $0.5 million in 2003. The increase in research and
development expenses from 2004 to 2005 by $0.4 million, or 15%, was primarily
due to an increase in the number of our research and development personnel and
related payroll costs, which resulted in an increase of $0.6 million in payroll,
an increase of $0.1 million in grants received from the Office of the Chief
Scientist and a decrease of $0.1 million in other costs. The increase in
research and development expenses from 2003 to 2004 by $0.8 million, or 42%, was
primarily due to an increase in the number of our research and development
personnel and related payroll costs, which resulted in an increase of $0.5
million in payroll, a decrease of $0.2 million in grants received from the
Office of the Chief Scientist and an increase of $0.1 million in other costs.
Selling and Marketing Expenses
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.
Selling and marketing expenses were $10.1 million or 42% of revenues in 2005,
compared with $8.9 million or 39% of revenues in 2004, and $7.8 million or 35%
of revenues in 2003. The increase in the selling and marketing expenses from
2004 to 2005 by $1.2 million or 13% was due to an increase in the number of
employees that resulted in an increase of $0.8 in related payroll expenses and
an increase in our selling and marketing expenses activities by $0.4 million.
The increase in the selling and marketing expenses from 2003 to 2004 by $1.1
million or 14% was due to an increase in the number of employees that resulted
in an increase of $0.5 in related payroll expenses and an increase in our
selling and marketing expenses activities by $0.6 million.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel and related
costs for corporate functions, including information services, finance, legal,
accounting, human resources, facilities, provision for doubtful accounts and
costs related to our status as a public company.
General and administrative expenses were $3.1 million or 13% of revenues in
2005, compared with $2.8 million or 13% of revenues in 2004, and $3.5 million or
16% of revenues in 2003. General and administrative expenses included $3,000 as
a reduction in provision in bad debt charges in 2005, the amount of $180,000 as
a reduction in provision in bad debt charges in 2004, and $220,000 in bad debt
charges in 2003. General and administrative expenses without bad debt charges
were $3.1 million in 2005, $3.0 million in 2004, and $3.3 million in 2003. The
increase of $0.1 million in general and administrative expenses from 2004 to
2005, excluding bad debt charges, was primarily due to an increase in payroll
expenses of $0.2 million and a decrease of $0.1 million in other general and
administrative expenses. The decrease of $0.3 million in general and
administrative expenses from 2003 to 2004, excluding bad debt charges, was
primarily due to a decrease in payroll expenses of $0.4 million and a decrease
of $0.1 million in other general and administrative expenses offset by an
increase of $0.2 million in legal and consultancy costs.
________________________________________________________________________________
20-F ClickSoftware Technologies Ltd. Page 27
Amortization of stock-based compensation
Amortization of stock-based compensation represents the aggregate difference, at
the date of grant, between the respective exercise prices 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.
Stock-based compensation expenses for the year ended December 31, 2005 amounted
to $19,000 compared with stock-based compensation expenses of $9,000 for
recorded deferred stock-compensation for the year ended December 31, 2004.
Stock-based compensation expenses for the year ended December 31, 2003 amounted
to $101,000 of previously recorded deferred stock-compensation. The decrease in
share-based compensation expenses in 2004 over previous years is attributed to
the fact that the amortization of the share-based compensation progressively
decreases over the four-year amortization period.
Due to the grant of shares and exercisable options to IBM, we recorded a
deferred stock compensation charge of $342,000 in 2004, of which $116,000 and
$56,000 were amortized during 2005 and 2004 as a deduction of revenues.
Due to the adoption of FASB Statement No. 123R (Share-Based Payment) in January
2006, we expect to record a cost of $0.8 million associated with outstanding
options as of the end of 2005. This cost will be recorded over a period of four
years commencing in 2006. The expected costs will be recorded directly to the
relevant expense items.
Interest and Other Income, Net
Interest and other income includes interest income earned on our cash, cash
equivalents and short and long-term investments, offset by interest expense, and
also include the effects of foreign currency fluctuations.
Interest income net of interest expenses, was $122,000 or 0% of revenues in
2005, compared with $179,000 or 1% of revenues in 2004, and $259,000 or 1% of
revenues in 2003. The decrease in interest income from 2004 to 2005 is
attributable to losses from currency fluctuations in 2005 compared to 2004,
which was partially mitigated by an increase in interest income in 2005. The
decrease in interest income from 2003 to 2004 is attributable to the lower gains
from currency fluctuations in 2004 compared to the previous year, which was
partially mitigated by an increase in interest income in 2004.
Income Taxes
Our tax rate will mainly reflect a mix of the U.S. statutory tax rate on our
U.S. income, the U.K statutory tax rate on our U.K. income, the Belgium
statutory tax rate on our Belgian income, the German statutory tax rate on our
German income, the Australian tax rate on our Australian income and the Israeli
tax rate discussed elsewhere in this annual report.
As of December 31, 2005, net operating loss carry forwards in Israel amounted to
approximately $22.4 million compared with $21.6 million in 2004. Additional tax
loss carry forwards of approximately $26 million and $7.4 million remain
attributable to our U.S. subsidiary and the European subsidiaries, respectively.
The Israeli and the European net operating loss carry forwards have no
expiration date. The U.S. net operating loss carry forwards will expire
gradually from 2008 through 2025.
Net Income (Loss)
Net loss for 2005 was $2.0 million or 8% of revenues, compared with a net income
of $0.9 million or 4% of revenues in 2004, and net income of $1.7 million or 8%
of revenues in 2003.
5B. Liquidity and capital resources
Our cash and investments increased by $1.8 million or 15% to $13.8 million,
compared with $12.0 million as of December 31, 2004. Our cash and investments
increased by $0.3 million or 3% to $12.0 million, compared with $11.7 million as
of December 31, 2003. Our primary sources of cash and investments, net, during
2005 were cash flows of $2.0 million generated from operations and $0.2 million
from exercises of employee stock options. Our primary sources of cash and
investments during 2004 were cash flows of $ 0.7 million generated from
operations and $0.3 million from exercises of employee stock options and
employee share purchase plans ("ESPP).
________________________________________________________________________________
20-F ClickSoftware Technologies Ltd. Page 28
As of December 31, 2005, we had cash and cash equivalents of approximately $10.4
million, short-term investments of approximately $3.1 million and long-term
investments of approximately $0.3 million. As of December 31, 2005,
approximately $0.3 million in long-term investments had been deposited with
banks to secure letters of credit totaling approximately $0.5 million, which are
described below. Our cash, short-term investments and long-term investments are
invested or deposited in low-risk and predominantly U.S-dollar denominated
investments and bank deposits.
Cash and Investments
--------------------
December 31,
------------
-----------------------------------------------------------------------
2005 % Change 2004 % Change 2003
---- -------- ---- -------- ----
(In thousands)
Cash and cash equivalents $10,467 $ 4,196 $ 7,695
Short-term investments 3,111 7,533 3,394
Long-term investments 264 264 580
------------- ------------- --------------
Total Cash and investments $13,842 15% $11,993 3% $ 11,669
------------- ------------- --------------
For the year ended December 31, 2005, net cash provided by operations was $2.0
million, comprised of net loss of $2.0 million, a decrease in trade receivables
of $1.2 million, an increase in other receivables of $0.1 million, an increase
in accounts payable of $ 0.2 million, and an increase in deferred revenues of
$2.1 million, which was partially offset by non-cash charges of $0.6 million.
For the year ended December 31, 2004, net cash provided by operations was $0.7
million, comprised of net income of $0.9 million, an increase in trade
receivables of $2.0 million, an increase in other receivables of $0.3 million,
an increase in accounts payable of $0.7 million, and an increase in deferred
revenues of $0.7 million, which was partially offset by non-cash charges of $0.7
million.
For the year ended December 31, 2003, net cash provided by operations was $4.2
million, comprised of our net income of $1.7 million, a decrease in trade
receivables of $0.7 million, a decrease in other receivables of $0.5 million, a
decrease in accounts payable of $1.3 million, and an increase in deferred
revenues of $1.9 million, which was partially offset by non-cash charges of $0.7
million.
Net cash provided by investment activities was $4 million in 2005, consisting of
$4.4 million generated primarily from bank deposits and $0.4 million used for
leasehold improvements and purchases of equipment and systems, including
computer equipment and fixtures and furniture. Net cash used in investment
activities was $4.5 million in 2004, of which $3.9 million was primarily
invested in bank deposits and $0.6 million invested in leasehold improvements
and purchases of equipment and systems, including computer equipment and
fixtures and furniture. Net cash used in investment activities was $0.9 million
in 2003, of which $0.7 million was primarily invested in bank deposits and $0.2
million invested in leasehold improvements and purchases of equipment and
systems, including computer equipment and fixtures and furniture.
Net cash provided by financing activities was $0.2 million in 2005, as a result
of the employee options exercises. Net cash provided by financing activities was
$0.3 million in 2004, as a result of the employee options exercises and ESPP
purchases. Net cash provided by financing activities was $1.1 million in 2003,
as a result of the employee options exercises and ESPP purchases.
As of December 31, 2005, we had outstanding trade receivables of approximately
$4.1 million, which represented approximately 17% of 2005 total revenues. As of
December 31, 2004, we had outstanding trade receivables of approximately $5.3
million, which represented approximately 23% of 2004 total revenues. As of
December 31, 2003, we had outstanding trade receivables of approximately $3.4
million, which represented approximately 15% of 2003 total revenues. Our trade
receivables are typically between 30 and 60 days, although we also negotiate
longer payment plans with some of our clients. Days sales outstanding ("DSO"),
calculated based on revenues for the most recent quarter and accounts receivable
at the balance sheet date, decreased to 63 DSO as of December 31, 2005, compared
with 70 DSO as of December 31, 2004, and 48 DSO as of December 31, 2003. The
increase in DSO during recent years is due to the timing of invoicing of new
orders in the quarter, which are increasingly occurring near the end of the
quarter.
As of December 31, 2005, we had no material commitments for capital
expenditures.
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20-F ClickSoftware Technologies Ltd. Page 29
Since inception, we have received aggregate payments from the Government of
Israel through the Office of the Chief Scientist of the Ministry of Industry and
Trade in the amount of $7.7 million related to research and development. In
return for the Government of Israel participation, we are committed to pay
royalties at a rate of 3% to 5% of sales of the developed product, up to
100%-150% of the amount of grants received with annual interest of LIBOR as of
the date of approval for programs approved from 1999 and thereafter. As of
December 31, 2005, we had paid or accrued royalties related to the results of
research and development in the amount of $4.8 million. The estimated current
net commitment is approximately $2.9 million. The refund of the grant is
contingent on future sales, and we have no obligation to refund these grants, if
sufficient sales are not generated.
Our capital requirements depend on numerous factors, including market demand and
acceptance of our products, the resources we devote to developing, marketing,
selling and supporting our products, the timing and extent of establishing
additional international operations and investments in computers and office
equipment. We intend to continue investing significant resources in our selling
and marketing, research and development operations in the future and investments
in computers and office equipment. In 2003, we became profitable and in 2004 we
maintained profitability. However, in 2005, we generated a net loss. We may not
be able to return to or maintain profitability, as our ability to return or
maintain our profitability on a quarterly basis is largely dependent on the
receipt of large orders in each quarter and our ability to control our expenses.
If we are not successful in doing so, we will be required to seek new, external
sources of financing, which may not be available to us on favorable terms, or at
all. If additional funds are raised through the issuance of equity or debt
securities, these securities could have rights, preferences and privileges
senior to those of holders of ordinary shares, and the terms of these securities
could impose restrictions on our operations. The sale of additional equity or
convertible debt securities could result in additional dilution to out
shareholders.
We believe that we will have sufficient cash to fund our operations for at least
the next 12 months.
5C. Research and development
We have invested significant time and resources in creating a structured process
for undertaking all product development projects. These include documenting
product requirements, specifying product features and workflow, developing the
software, performing quality assurance and creating documentation and packaging.
Our research and development center in Israel is ISO 9001 compliant and
continuously updates its software development procedures to maintain an ongoing
improvement process and high quality products.
Our future research and development strategies will concentrate on strengthening
our product offerings in decision support, forecasting, capacity planning and
monitoring and schedule optimization; continuing to enhance the technology and
scalability of our products; and continuing the development of offerings for
specific vertical industries. The company invested $3.1 million in 2005, $2.7
million in 2004 and $1.9 million in 2003 for research and development.
5D. Trend information
We are operating in a market that we believe is mostly untapped. We are seeing
increasing demand for cost-effective solutions in the service workforce
optimization markets, based on recently issued requests for proposals. Our
customers are seeking turnkey end-to-end solutions. With our service
optimization suite and our mobile and location-based services, we believe we are
well-positioned to cover these needs.
Large system integrators are building practices around the service optimization
market, another positive indication of the traction in this market. Our strategy
is to continue to increase marketing efforts through our channels and large
system integrators. We intend to expand our marketing and implementation
capacity through these third parties, and expect to enhance sales by taking
advantage of the market presence of these third parties.
Our quarterly results of operations may be subject to significant fluctuations
due to several factors, primarily the timing of large orders, which represent a
significant percentage of our revenues, customer budget cycles and impact on the
timing for buying decisions, competitive pressures, the ability of our partners
to become effective in selling and marketing our products, and other factors.
________________________________________________________________________________
20-F ClickSoftware Technologies Ltd. Page 30
The portion of services revenues increased over the past two years, while the
portion of license revenues decreased, as we received large orders that involve
significant implementation efforts. As we continue to win large deals, we
anticipate an increase in services, given that large customers require
significant implementation efforts. We expect license and professional services
revenues to grow in absolute terms, while maintaining license and professional
services ratios comparable to 2005.
Our largest vertical market has traditionally been the telecommunications
market. However, in the last two years, we have seen strong demand in the
utility market as a result of deregulation and modernization trends. We believe
that this trend will continue. We are experiencing longer sales cycles in the
North American market compared to Europe. We believe that this is due to general
deregulation of utilities companies in Europe, as well as consolidation in telco
and utilities industries in North America, resulting in longer purchasing
cycles. In addition, we see a positive trend in developing countries, such as
China and India and we will approach those markets mainly through channels.
5E. Off-balance sheet arrangements
Except for the arrangements with the Chief Scientist and the performance bonds
to certain customers as discussed in Item 5B above and Item 5F below, we do not
have any off-balance sheet arrangements.
5F. Contractual obligations
We have various commitments primarily related to guarantees, letters of credit
and capital lease obligations. The following table provides details regarding
our contractual cash obligations and other commercial commitments as of December
31, 2005:
-----------------------------------------------------------------------------
| | | Amount of Commitment Expiration |
| Commercial | Total Amounts | Per Period (in thousands) |
| Commitments | Committed (in |-----------------------------------|
| | thousands) | 2006 | 2009 |
|----------------------|------------------|------------------|----------------|
| Guarantees/Letters | | | |
| of Credit | $511 | $470 | $41 |
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
| Contractual | |
| ----------- | Payments Due By Period (in thousands) |
| Obligations | ------------------------------------- |
| ----------- | |
|--------------------|--------------------------------------------------------|
| | Total Less than 1-2 years 3 year |
| | ----- 1 year -------- ------ |
| -------------------|--------------------------------------------------------|
| Lease Obligations | $919 $476 $389 $54 |
-----------------------------------------------------------------------------
We have entered into standby letter of credit agreements with banks and
financial institutions primarily relating to the guarantee of future performance
on certain contracts. As of December 31, 2005, contingent liabilities on
outstanding letter of credit agreements aggregated approximately $0.5 million.
Most of these obligations are scheduled to expire during 2006. We do not expect
to renew most of these letters of credit. The letters of credit are secured by
$0.3 million in deposits to cover potential payments under the guarantees.
As permitted under Israeli law, we have agreements whereby we indemnify our
officers and directors for certain events or occurrences while the officer or
director is, or was serving, at our request in such capacity. The
indemnification period covers all pertinent events and occurrences during the
officer's or director's lifetime. We have director and officer insurance
coverage that may limit our exposure and may enable us to recover a portion of
any future amounts paid. In addition to the insurance coverage, we have agreed
to indemnify our directors in an amount not to exceed $20 million, for all
persons and all events to be indemnified, for certain events and occurrences
while the director is, or was serving, at our request in such capacity in
accordance with the Indemnification Agreements entered into with the directors,
which are substantially in the form of the Amended Form of Indemnification
Agreement filed as Exhibit 4.12 to this annual report.
________________________________________________________________________________
20-F ClickSoftware Technologies Ltd. Page 31
5G. Safe Harbor
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual 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 annual
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 with respect to future events, the outcome of
which are subject to certain risks that may have a significant impact on our
business, operating results or financial condition, including the risk factors
described in Item 3D - Risk factors. Investors are cautioned that our
forward-looking statements are inherently uncertain. Should one or more of the
risks that we describe in this annual report or other 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.
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
6A. Directors and senior management
Senior Management
The members of our executive management are as follows:
Name Age Position
- ---- --- --------
Dr. Moshe BenBassat 58 Chief Executive Officer and Chairman of the Board
Shmuel Arvatz 43 Executive Vice President and Chief Financial Officer
Hannan Carmeli 47 Chief Operating Officer
David Schapiro 48 Executive Vice President, Marketing, Products, and
Business Development
DR. MOSHE BENBASSAT co-founded ClickSoftware and has served as our Chairman and
Chief Executive Officer since inception. From 1987 to 1999, Dr. BenBassat served
as a Professor of Information Systems at the Faculty of Management at Tel-Aviv
University. Dr. BenBassat has also held academic positions at the University of
Southern California and the University of California in Los Angeles. From 1996
to January 1999, Dr. BenBassat also served as a board member of Tadiran
Telecommunications Inc., a telecommunications company. From 1990 to 1996, Dr.
BenBassat served as a board member of Tadiran Electronic Systems Ltd., a defense
electronics company. Dr. BenBassat holds Bachelor of Science, Master of Science
and PhD. degrees in Mathematics and Statistics from Tel-Aviv University.
SHMUEL ARVATZ has served as our Executive Vice President and Chief Financial
Officer since October 2002. Prior to joining ClickSoftware, Mr. Arvatz served as
the Chief Financial Officer at Shrem, Fudim, Kelner Technologies Ltd., a leading
investment house in Israel. From June 1999 to February 2001, Mr. Arvatz served
as Executive Vice President and Chief Financial Officer of Tecnomatix
Technologies Ltd. (NASDAQ: TCNO), a provider of software e-manufacturing
solutions. From 1990 to 1999, Mr. Arvatz served as Vice President and Chief
Financial Officer at ADC Israel Ltd. (previously Teledata Communications Ltd., a
telecommunications equipment provider which was acquired by ADC Telecom Inc. in
1998). Mr. Arvatz holds a B.A. in Accounting and Economics from Bar-Ilan
University in Tel Aviv, Israel.
HANNAN CARMELI serves as our COO since March 2006. Previously, he served as our
Executive Vice President of Sales & Professional Services since August 2004.
Prior to this position, he managed our Professional Services organizations
worldwide since the beginning of 2001. From August 1996 to December 2000, Mr.
Carmeli held various executive roles including General Manager of the TechMate
Division as well as Manager of Product Services and Operations. Prior to joining
us, Mr. Carmeli held R&D and field positions with various software vendors
ranging from software development through product management and sales
management. Mr. Carmeli holds a Bachelor of Science degree from the Technion
Institute of Technology in Haifa, Israel and a Master of Science degree in
Computer Science from Boston University.
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20-F ClickSoftware Technologies Ltd. Page 32
DAVID SCHAPIRO has served as our Executive Vice President of Markets & Products
since April 2001, and our Executive Vice President of Business Development since
April 2004. Prior to this position and since 1994, he held various executive and
management roles at ClickSoftware, including Senior Vice President of Product
Development, ClickSchedule Division General Manager, and Vice President of
Business Development. From 1984 until 1994, Mr. Schapiro served in positions at
Applied Materials, a semiconductor equipment manufacturer, Scitex Corporation, a
digital printing system company, and ClickSoftware. Mr. Schapiro received a
Bachelor of Science degree in Mathematics and Computer Science from Tel-Aviv
University, and a Master of Science degree in Computer Science from Bar-Ilan
University. Mr. Schapiro recently resigned from our company.
Executive officers serve at the discretion of the Board. The employment of each
of our executive officers is at will and may be terminated at any time, with or
without cause, subject to contractual notice provisions. There are no family
relationships between any of our directors or executive officers.
Directors
Our Articles of Association currently provide for a board of directors of not
less than two members nor more than eleven members. We have a classified board
of directors as set forth below:
NAME OF DIRECTOR AND CLASS TERM EXPIRES AGE
- --------------------------------- ---------------- ------
James W. Thanos, Class I 2007 57
Roni A. Einav, Class II 2008 62
Gil Weiser, Class II 2008 64
Moshe BenBassat, Class III 2006 58
Israel Borovich, external director 2007 64
Naomi Atsmon, external director 2006 53
Dan Falk, external director 2006 61
JAMES THANOS has served as Executive Vice President, Worldwide Field Operations
of BroadVision, Inc., an ecommerce software company from October 1999 to June
2002. From March 1998 to October 1999, Mr. Thanos served as BroadVision's Vice
President and General Manager, Americas. Prior to working for BroadVision, Mr.
Thanos served as Senior Vice President of Worldwide sales at Aurum Software, a
sales force automation company. Mr. Thanos is a member of the board of directors
of SupportSoft, Covigna, and PilotSoftware. Mr. Thanos holds a Bachelor of Arts
degree in International Relations and a Bachelor of Arts degree in Behavioral
Sciences from Johns Hopkins University.
RONI EINAV is the General Manager of Einav High-Tec Assets Ltd., an investment
company focused on technology ventures, founded by him in 1995. From 1983 to
April 1999, Mr. Einav served as Chairman of the Board of Directors of New
Dimension Software, Ltd., a systems software company he had founded, which was
subsequently acquired by BMC Software for over $650 million. Mr. Einav serves on
the board of directors of XciTel, Eurekify, and Motivia, and is on the advisory
boards of Xenia and Cogniview. Mr. Einav has also played a key role in founding
approximately a dozen other software companies, including Liraz Computers,
Jacada Ltd., UDS, XciTel, CePost, CeDimension, ComDa, Computer Systems and Einav
Systems. Mr. Einav was a Major in the Israeli Defense Forces and served as a
systems analyst in a research and development division. Mr. Einav holds a
Bachelor of Science degree in Management and Industrial Engineering as well as a
Master of Science degree in Operations Research from the Technion Institute,
Haifa, Israel.
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20-F ClickSoftware Technologies Ltd. Page 33
GIL WEISER has served as a director of ClickSoftware since May 2003. Mr. Weiser
has been active in the high tech environment for the past thirty years, with
experience ranging from design engineering to management of international
companies, as well as community and public activities, from serving the
Shevach/Mofet High School to chairing the Haifa University Executive Board. Mr.
Weiser is currently chairman or a member of the board of directors of the
following companies: Fundtech, a software company; BBP, a subsidiary of
Fundtech; Carmel, a company connected with Haifa University; OptiBase, a video
communication company, and Formula Systems, a holding and managing company in
the technology space. Mr. Weiser was also a member of the board of directors of
the Tel Aviv Stock Exchange (2002-2004). From January to December 2002, Mr.
Weiser was the Acting Vice Chairman for ORAMA, an international investment
banking group. From 1995 to 2000, Mr. Weiser served as Chief Executive Officer
of Hewlett-Packard Israel, a technology company. From 1993 to 1995, Mr. Weiser
served as Chief Executive Officer of Fibronics Corporation, a communication
company. From 1976 to 1993, Mr. Weiser served as Chief Executive Officer of
Digital Israel, a computing company. Mr Weiser is Chairman of the Executive
Committee of Haifa University. Mr. Weiser was the Vice Chairman of the Israel
Management Center, heading the multi-national forum, and is a member of the
Israel High-Tech Association Executive Committee. Mr. Weiser holds a Bachelor of
Science degree in Electrical Engineering from the Technion Institute and a
Master of Science degree in Electronics/Computers from the University of
Minnesota in Minneapolis.
DR. ISRAEL BOROVICH has served as a director since July 1997 and as an external
director according to the Israeli Companies Law since July 2001. Dr. Borovich
currently serves as Chairman of the Board of Elal Israel Airlines Ltd. From 1988
until 2004, Dr. Borovich served as President and CEO of Arkia Israeli Airlines
Ltd. and Knafaim-Arkia Holdings Ltd., an investment management company. Dr.
Borovich currently serves as a director of Issta Lines Israel Students Travel
Company Ltd., Arkia International (1981) Ltd. and other companies of Arkia's
group in the aviation and tourism business. Dr. Borovich also serves as Chairman
of Granit Hacarmel Investments Ltd. and Sonol Israel Ltd., an investment
management company. Dr. Borovich also serves as a director of Knafaim-Arkia
Holdings, Ltd., an investment management company, Maman-Cargo Terminals
&Handling Ltd. and Ayalon Highways (Israel) Ltd. Dr. Borovich served as a
Professor on the Faculty of Management of Tel Aviv University. Dr. Borovich
holds Bachelor of Science, Master of Science and Ph.D. degrees in Industrial
Engineering from the Polytechnic Institute in Brooklyn.
NAOMI ATSMON was employed by Amdocs Ltd., a customer care and software company,
from 1986 until the end of 2002. From 1997 until 2002, Ms. Atsmon served as a
division President at Amdocs Ltd., managing large scale billing projects for
telephone companies in North America and Europe, with overall responsibility for
the profit and loss statement of the division. From 1994 until 1997, Ms. Atsmon
served as a Vice President at Amdocs Ltd. From 1991 until 1994, she was a
director for Amdocs Ltd. n charge of software development and customer relations
with one of the largest telephone companies in the United States. Prior to
joining Amdocs Ltd., Ms. Atsmon was a project manager at Bank Hapoalim, in
charge of a large financial project for the bank controller. From 1976 to 1981,
Ms.Atsmon was a system analyst with Agrexco Ltd. Ms. Atsmon also currently
serves as a board member of Jacada Ltd., a software provider. Ms. Atsmon holds a
Bachelor of Science degree in Management & Industrial Engineering from the
Technion Institute, and studied business administration at Tel-Aviv University.
DAN FALK served as the Chairman of the Board Directors of Atara Technology
Ventures Ltd., an Israeli company engaged in investment in advanced technology
enterprises from 2000 to May 2003. He is also a member of the Boards of
Directors of Orbotech Ltd., Nice Systems Ltd., Orad Ltd, Netafim, Plastopil
Cooperative Society, Dmatek, Ltd., Dor Chemicals Ltd., Attunity Ltd., Visionix
Ltd., Jacada Ltd., Ormat Technology Inc. (publicly traded on NYSE), and Poalim
Ventures I.From July 1999 to November 2000, Mr. Falk served as President and
Chief Operating Officer of Sapiens International Corporation N.V., a company
engaged in the development of software solutions for large-scale, cross-platform
systems. Mr. Falk was Executive Vice President of Orbotech, a high technology
company, from August 1995 to July 1999, and between June 1994 and August 1995
served as its Executive Vice President and Chief Financial Officer. From October
1992 until June 1994, Mr. Falk was Vice President and Chief Financial Officer of
Orbotech. Mr. Falk was Director of Finance and Chief Financial Officer of Orbot
Systems, predecessor of Orbotech Ltd., from 1985 until 1992. Mr. Falk received a
Master of Business Administration degree in 1973 from the Hebrew University
School of Business and had 15 years experience in finance and banking, including
senior positions at Israel Discount Bank Ltd., prior to joining Orbot.
6B. Compensation
The aggregate compensation paid to all our directors and officers during 2005
was approximately $0.9 million in salaries, directors' fees, and bonuses. In
addition, we granted 234,000 options to our officers and directors at an average
exercise price of $1.46 per share. Options expire 10 years after the date of the
grant.
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20-F ClickSoftware Technologies Ltd. Page 34
The employment agreements of the executive officers provide that the employment
relationship is "at-will" and may be terminated at any time by either the
Company or the executive. The agreements provide that in the event the executive
resigns his employment from the company or the executive is terminated by the
Company without cause, the executive will be entitled to severance payments in
amounts equal to twelve months of annual base salary as of the date of
termination for Dr. BenBassat and three months of base salary as of the date of
termination for Mr. Arvatz, Mr. Carmeli and Mr. Schapiro (plus, in the case of
Mr. Arvatz, Mr. Carmeli and Mr. Schapiro, a severance amount due in accordance
with applicable law). Our executive officers participate in a bonus plan in
which they will receive bonuses based on achieving company goals on revenues and
operating profit, and based on achieving personal goals. CEO goals are
determined on a yearly basis by the Compensation Committee, and goals of the
executive officers are set by the CEO.
6C. Board practices
There are no service contracts between us or any of our subsidiaries and our
directors in their capacity as directors providing for benefits upon termination
of employment, except for the termination provisions included in the employment
agreement of officers that also act as directors and that concern solely their
termination from their positions as employees.
We have entered into indemnification agreements with our directors and senior
management in an attempt to ensure continued service in an effective manner. The
indemnification agreements provide protection against personal liability due to
an act performed or failure to act in the capacity as a director or officer.
Audit Committee
The audit committee consists of Ms. Atsmon, Dr. Borovich, Mr. Falk and Mr.
Weiser, each of whom is "independent," as such term is defined under Rule
4200(a)(15) of the listing standards of the National Association of Securities
Dealers. Our board of directors has determined that Mr. Falk also qualifies as a
"financial expert" within the meaning of SEC and Nasdaq rules. The audit
committee provides assistance to the Board of Directors in fulfilling its legal
and fiduciary obligations with respect to matters involving the accounting,
auditing, financial reporting and internal control functions of our company and
our subsidiaries as well as complying with the legal requirements under Israeli
law and the Sarbanes-Oxley Act of 2002. Functions of the audit committee
include:
o To assist our board of directors to oversee our accounting and
financial policies, internal controls, and financial reporting
practices.
o To maintain and facilitate communication between our board of
directors and our financial management and our auditors.
o Through, among other things, consultation with our internal and
external auditors, to detect irregularities in the management of our
business and our internal controls procedures.
o To communicate on a regular basis with our outside auditors and review
their operation and remuneration.
o To decide whether to approve acts or related-party transactions
involving directors, executive officers, controlling shareholders and
third parties.
Our audit committee convenes at least once per quarter to review our quarterly
financial results and to address other matters within the committee's
responsibilities.
Compensation Committee
Our compensation committee is comprised of James Thanos, Gil Weiser, and Israel
Borovich, and meets as necessary several times per year regarding employee
compensation matters.
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20-F ClickSoftware Technologies Ltd. Page 35
6D. Employees
At December 31, 2005, we employed 180 full time employees. Of these employees,
107 were based in our facilities in Israel, 31 in the United States, 14 in Asia
Pacific and 28 in Europe. The following is a detailed breakdown of persons
employed by main category of activity:
YEAR ENDED DECEMBER 31,
Department 2005 2004 2003
Services 70 55 42
Research & Development 46 34 34
Sales and Marketing 40 43 29
General and Administrative 24 22 20
------------------------------------------------
Total 180 154 125
------------------------------------------------
We believe that our relations with our employees are good. Neither our employees
nor we are party to any collective bargaining agreements, except for provisions
of such agreements that are applicable to the industry by virtue of extension
orders issued under applicable Israeli laws.
Israeli law and certain provisions of the nationwide collective bargaining
agreements between the Histadrut (General Federation of Labor in Israel) and the
Coordinating Bureau of Economic Organizations (the Israeli federation of
employers' organizations) apply to our Israeli employees. These provisions
principally concern the maximum length of the work day and the work week,
minimum wages, paid annual vacation, contributions to a pension fund, insurance
for work-related accidents, procedures for dismissing employees, determination
of severance pay and other conditions of employment. We provide our employees
with benefits and working conditions above the required minimums. Furthermore,
pursuant to such provisions, the wages of most of our employees are subject to
cost of living adjustments, based on changes in the Israeli CPI. The amounts and
frequency of such adjustments are modified from time to time. Israeli law
generally requires the payment of severance pay upon the retirement or death of
an employee or upon termination of employment by the employer or, in certain
circumstances, by the employee. We currently fund our ongoing severance
obligations for our Israeli employees by making monthly payments for insurance
policies and severance funds. Severance payment expenses amounted to $352,000 in
2005, $336,000 in 2004, and $234,000 in 2003.
Israeli law also provides that employment arrangements with employees not in
senior managerial positions, or whose working conditions and circumstances do
not facilitate employer supervision of their hours of work, must provide for
compensation that differentiates between compensation paid to employees for a 43
hour work week or for maximum daily work hours and compensation for overtime
work. Certain of our employment compensation arrangements are fixed and do not
differentiate between compensation for regular hours and overtime work.
Therefore, we may face potential claims from these employees asserting that the
fixed salaries do not compensate for overtime work.
6E. Share ownership
As of April 17, 2006, each of the individuals listed in Item 6A beneficially
owned less than 1% of our ordinary shares, with the exception of Dr. Moshe Ben
Bassat, who owns 4,571,630 shares and 1,025,059 options.
We have established a number of employee option plans containing terms and
conditions for the vesting and exercising of options granted to employees for
the purchase of our ordinary shares.
We adopted a new option plan in 2000. In April 2003, we commenced a voluntary
stock option exchange program for our employees. Under the program participating
employees were given the opportunity to have unexercised stock options
previously granted to them cancelled, and to receive replacement options at a
future date. Replacement options were granted at a ratio of between 50% and 5%
for each option cancelled, at an exercise price equal to the fair market value
of our ordinary shares on the date of the re-grant. Pursuant to the terms of the
offer, 279,118 options were cancelled at May 2003. We granted 39,840 replacement
options in December 2003 at an exercise price of $4.39. During 2003, the board
of directors increased the reserve for grants under its umbrella option plan,
the Amended and Restated 2000 Share Option Plan (the "ESOP"), by 400,000 options
effective January 1, 2004. During 2005, the board of directors increased the
reserve for grants under ESOP, by 450,000 options effective January 1, 2006.
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20-F ClickSoftware Technologies Ltd. Page 36
Options generally have a term of between seven and ten years. Earlier
termination may occur if the employee's employment with us is terminated or if
certain corporate changes or transactions occur. Our board of directors
determines the grant and the exercise price at the time the options are granted.
The exercise price per share is usually granted at the approximate fair market
value of the shares on the date of grant, as determined by the closing price for
our ordinary shares as reported by Nasdaq on the date prior to the date of grant
for incentive stock options.
Each stock option agreement specifies the date and period over which the option
becomes exercisable. Options granted by us generally vest over a period of four
years. Vesting is conditional upon employee remaining continuously employed by
the company or its subsidiaries.
On December 5, 2005, the board of directors approved the accelerated vesting of
unvested employee stock options granted to employees and officers with exercise
prices of $1.75 or above. Options to purchase approximately 0.8 million shares
became exercisable immediately. The accelerated options, which are considered
vested as of December 5, 2005, have exercise prices ranging from $1.75 to $4.25
per share. The number and exercise prices of the shares involved are unchanged.
The vesting acceleration enables us to avoid recognizing in our income statement
compensation expense associated with these options in future periods, upon
adoption of FASB Statement NO. 123R (Share-Based Payment) in January 2006. As a
result of this change, we expect to reduce the after tax stock option expense we
otherwise would have been required to record by approximately $2 million over a
4-year period. This estimate is subject to change and is based on estimated
value calculations using the Black-Scholes methodology.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
7A. Major shareholders
The following table sets forth, as of April 17, 2006, the total number of
ordinary shares beneficially owned by (i) all shareholders known to us to own
more than 5% of our outstanding ordinary shares, and (ii) all of our directors
and executive officers as a group.
Ordinary Shares Beneficially Owned
----------------------------------
Name and Address Number Percent
- ---------------- ------ -------
Dr. Moshe BenBassat (1) 5,596,689 19.5%
Austin W. Marxe and David M. Greenhouse (2) 4,622,397 16.8%
G. Nicholas Farwell (3) 3,008,100 10.9%
Officers and directors as a group (4) 6,589,281 23.1%
(10 persons)
(1) Includes, in addition to the ordinary shares held by Dr. BenBassat (i)
1,025,059 options for ordinary shares held by Dr. BenBassat that are
exercisable within 60 days of the date stated above and (ii) 2,246,887
ordinary shares held by Idit BenBassat, which may be deemed to be
beneficially owned by Dr. BenBassat.
(2) As reported on Amendment No. 2 to the Schedule 13G filed with the SEC
on February 14, 2006 in a joint filing by Austin W. Marxe and David M.
Greenhouse. Messrs. Marxe and Greenhouse own the ordinary shares
through various investment vehicles.
(3) As reported on Schedule 13G filed with the SEC on January 27, 2005 by
G. Nicholas Farwell.
(4) Includes (i) 1,973,287 ordinary shares for which options granted to
officers and directors are exercisable within 60 days of the date stated
above, and (ii) 2,246,887 ordinary shares held by Idit BenBassat, which may
be deemed to be beneficially owned by Dr. BenBassat. Does not include
244,041 ordinary shares for which options granted to officers and directors
are outstanding but are not currently or within 60 days exercisable.
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20-F ClickSoftware Technologies Ltd. Page 37
Changes in the percentage of ownership of major shareholders during the past
three years were as follows:
- -----------------------------------------------------------------------------------------
| 31-Dec 31-Dec |
| 2002 2005 |
| % % |
| ------- ------- |
| Total shares 26,373,249 27,634,707 |
| |
| Genisys Partners 2,871,270 10.9% |
| Oak Investment Partners 4,724,025 17.9% |
| Liberty Wagner 1,660,000 6.3% 1,250,000 4.5% |
| G.Nicolas Farwell 3,008,100 10.9% |
| Marxe, Austin W. & Greenhouse, David M. 4,622,397 16.7% |
- -----------------------------------------------------------------------------------------
Our major shareholders do not have different voting rights from each other or
other shareholders.
7B. Related party transactions
During the past three years, we have engaged in no material commercial
transactions with related parties, nor are there any outstanding loans to
related parties concerning this period of time.
The following table sets forth information with respect to transactions
between the Company and Nester Ltd., a company controlled by Dr. Moshe
BenBassat:
YEAR ENDED DECEMBER 31,
2005 2004 2003
---- ---- ----
(in thousands)
Amounts received by the Company from Nester for
general and administrative expenses: $74 $86 $83
Amounts received by Nester from the Company for
the purchase of office equipment: $10 - -
7C. Interests of experts and counsel
Not applicable.
ITEM 8. FINANCIAL INFORMATION
8A. Consolidated statements and other financial information
See Item 18 - Financial Statements.
Export sales
Export sales in 2005 were $24.0 million or 99.6% of net revenue, compared with
$22.7 million or 100% of net sales in 2004, and $22.3 million, or 99.7 % of net
sales in 2003.
Dividends
We currently intend to retain earnings, if any, for use in our business. We have
never declared or paid cash dividends and have no intention to pay any cash
dividends on our capital stock in the foreseeable future.
Legal Proceedings
On August 25, 2003, a complaint was filed against us, one of our officers and
one of our former officers in the United States District Court for the
District of Massachusetts. None of the defendants were served and the
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20-F ClickSoftware Technologies Ltd. Page 38
case was dismissed on June 22, 2005. The complaint was purportedly brought on
behalf of investors who purchased our securities between June 22, 2000 and
October 21, 2002 and contained various allegations, including violations of the
Exchange Act and common law claims with respect to our financial results for
2000, 2001 and the first six months of 2002.
From time to time, we are involved in various routine legal proceedings
incidental to the ordinary course of our business. We do not believe that the
outcome of these pending legal proceeding will have a material adverse effect on
our business or consolidated financial condition
8B. Significant changes
Except as disclosed elsewhere in this annual report, there have been no other
significant changes since December 31, 2005.
ITEM 9. THE OFFER AND LISTING
9A. Offer and listing details
Our ordinary shares are listed for trading on Nasdaq. The following table sets
forth for the periods listed the high and low closing prices of our ordinary
shares on Nasdaq. These prices are over-the-counter market quotations which
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not necessarily represent actual transactions.
High Low
---- ---
ANNUAL INFORMATION
2001 2.72 0.56
2002 2.25 0.08
2003 4.95 0.12
2004 5.28 1.20
2005 2.89 1.28
QUARTERLY INFORMATION
First quarter 2004 5.28 3.25
Second quarter 2004 4.14 2.06
Third quarter 2004 3.01 1.20
Fourth quarter 2004 3.02 1.73
First quarter 2005 2.89 2.05
Second quarter 2005 2.41 1.67
Third quarter 2005 1.99 1.61
Fourth quarter 2005 1.95 1.28
MONTHLY INFORMATION
October 2005 1.66 1.33
November 2005 1.56 1.28
December 2005 1.95 1.50
January 2006 2.00 1.47
February 2006 1.57 1.40
March 2006 2.00 1.40
9B. Plan of distribution
Not applicable.
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20-F ClickSoftware Technologies Ltd. Page 39
9C. Market for ordinary shares
Our ordinary shares have been quoted on the NASDAQ SmallCap Market under the
symbol CKSW since August 29, 2002 (except between November 6, 2002 and March 6,
2003, when they were quoted under the symbol CKSWE).
9D. Selling shareholders
Not applicable.
9E. Dilution
Not applicable.
9F. Expenses of the issue
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
10A. Share capital
Not applicable
10B. Memorandum and articles of association
Board of Directors
The Companies Law requires that certain transactions, actions and arrangements
be approved as provided for in a company's articles of association and in
certain circumstances by the audit committee, by the board of directors itself
and by the shareholders. The vote required by the audit committee and the board
of directors for approval of such matters, in each case, is a majority of the
disinterested directors participating in a duly convened meeting.
The Companies Law requires that a member of the board of directors or senior
management of the company promptly disclose any personal interest that he or she
may have (either directly or by way of any corporation in which he or she is,
directly or indirectly, a 5% or greater shareholder, director or general manager
or in which he or she has the right to appoint at least one director or the
general manager) and all related material information known to him or her, in
connection with any existing or proposed transaction by the company. In
addition, if the transaction is an extraordinary transaction (that is, a
transaction other than in the ordinary course of business, otherwise than on
market terms, or is likely to have a material impact on the company's
profitability, assets or liabilities), the member of the board of directors or
senior management also must disclose any personal interest held by his or her
spouse, siblings, parents, grandparents, descendants, spouse's descendants and
the spouses of any of the foregoing.
Once the member of the board of directors or senior management complies with the
above disclosure requirement, a company may approve the transaction in
accordance with the provisions of its articles of association. If the
transaction is with a third party in which the member of the board of directors
or senior management has a personal interest, the approval must confirm that the
transaction is not adverse to the company's interest. Furthermore, if the
transaction is an extraordinary transaction, then, in addition to any approval
stipulated by the articles of association, it also must be approved by the
company's audit committee and then by the board of directors, and, under certain
circumstances, by a meeting of the shareholders of the company.
Our Articles of Association provide that, all actions done bona fide at any
meeting of the Board of Directors or by a committee thereof or by any person(s)
acting as Director(s) will, notwithstanding that it may afterwards be discovered
that there was some defect in the appointment of the participants in such
meeting or any of them or any person(s) acting as aforesaid, or that they or any
of them were disqualified, be as valid as if there were no such defector
disqualification.
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20-F ClickSoftware Technologies Ltd. Page 40
Our Articles of Association provide that a Director who has a personal interest
in a matter which is brought for discussion before the Board of Directors may
participate in said discussion, provided that he shall neither vote in nor
attend discussions concerning the approval of the activities or arrangements in
which he or she has a personal interest. If said Director did vote or attend as
aforesaid, the approval given to the aforesaid activity or arrangement will be
invalid.
Our Articles of Association provide that, subject to the Companies Law, the
Board of Directors may delegate its authorities in whole or in part to such
committees of the Board of Directors as it deems appropriate, and it may from
time to time revoke such delegation. To the extent permitted by the Companies
Law, the Board of Directors may from time to time confer upon and delegate to a
President, CEO, COO or other Executive Officer then holding office, such
authorities and duties of the Board of Directors as they may deem fit, and they
may delegate such authorities and duties for such period and for such purposes
and subject to such conditions and restrictions which they consider in the bests
interests of the Company, without waiving the authorities of the Board of
Directors with respect thereto.
Arrangements regarding compensation of Directors require the approval of the
Compensation Committee, Audit Committee, Board of Directors and the
shareholders.
Description of Securities
The share capital of the Company is NIS 2,100,000, divided into: (i) 97,000,000
Ordinary Shares of NIS 0.02 nominal value each ("Ordinary Shares"); (ii)
3,000,000 Non-Voting Ordinary Shares of NIS 0.02 nominal value each, and (iii)
5,000,000 Special Preferred Shares of NIS 0.02 nominal value each.
Our Ordinary Shares do not have preemptive rights. The ownership or voting of
Ordinary Shares by nonresidents of Israel or foreign owners is not restricted or
limited in any way by our Memorandum of Association or Articles of Association,
or by the laws of the State of Israel.
Transfer of Shares and Notices. Fully paid up Ordinary Shares may be freely
transferred pursuant to our Articles of Association unless such transfer is
restricted or prohibited by another instrument. Each shareholder registered in
the shareholders' register is entitled to receive at least 10 days and not more
than 60 days prior notice of any General Meeting of shareholders. For purposes
of determining the shareholders entitled to notice and to vote at such meeting,
the Board of Directors will fix the record date not more than 60 nor less than
10 days prior to the date of such meeting.
Election of Directors. The Ordinary Shares do not have cumulative voting rights
in the election of Directors. As a result, the holders of Ordinary Shares that
represents more than 50% of the voting power have the power to elect all the
Directors.
Dividend and Liquidation Rights. The Board of Directors may declare a dividend
to be paid to the holders of Ordinary Shares according to their rights and
interests in our profits. The Directors may from time to time pay to the
shareholders on account of the next forthcoming dividend such interim dividends
as, in their judgment, the position of the Company justifies. All dividends
unclaimed for one year after having been declared may be invested or otherwise
used by the Directors for the benefit of the Company until claimed. No unpaid
dividend or interest shall bear interest as against the Company.
Voting, Shareholders' Meetings and Resolutions.
Each shareholder has one vote for each share of which he is the holder, subject
to any rights or restrictions attached to any class or classes of shares. No
business shall be transacted at any General Meeting unless a quorum is present
when the meeting proceeds to business. The quorum at any Meeting shall be two
shareholders present in person or by proxy, holding or representing at least 33%
of the total voting rights in the Company. A meeting adjourned for lack of
quorum is adjourned to the same day in the next week at the same time and place,
or any time and hour as the Board of Directors shall designate and state in a
notice to the shareholders entitled to vote at the original meeting, and if, at
such adjourned meeting, a quorum is not present within half an hour from the
time appointed for holding the meeting any two shareholders present in person or
by proxy shall constitute a quorum. Notwithstanding the aforesaid, if a General
Meeting is convened at the demand of shareholders as permitted by of the
Companies Law, then a quorum at such adjourned meeting shall be one or more
shareholders holding in the aggregate at least 5% of the issued share capital of
the Company and at least 1% of the voting rights in the Company or one or more
shareholders who hold in the aggregate at least 5% of the voting rights in the
Company.
Except for External Directors (as defined in the Companies Law), all directors
shall be classified, with respect to the time for which they severally hold
office, into three classes, as nearly equal in number as possible, with
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20-F ClickSoftware Technologies Ltd. Page 41
the members of each class to hold office until their successors have been duly
elected and qualified. At each Annual Meeting, the class of directors whose term
expires at that meeting shall be elected to hold office for a term expiring at
the Annual Meeting of the Company held in the third year following the year of
their election and until their successors have been duly elected and qualified.
General Meetings are held at least once in every calendar year at such time
(within a period of 15 months after the holding of the last preceding General
Meeting), and at such time and place as may be determined by the Board of
Directors. At a General Meeting, decisions shall be adopted only on matters that
were specified on the agenda. The board of directors is obligated to call
extraordinary general meeting of the shareholders upon a written request in
accordance with the Companies Law. The Companies Law provides that an
extraordinary general meeting of shareholder may be called by the board of
directors or by a request of two directors or 25% of the directors in office, or
by shareholders holding at least 5% of the issued share capital of the company
and at least 1% of the voting rights, or of shareholders holding at least 5% of
the voting rights of the company.
Except as otherwise provided in the Articles, any resolution (such as amending
the Articles, except for the provision described in the paragraph below which
requires the affirmative vote of at least 66 2/3% of those present)at a General
Meeting shall be deemed adopted if approved by the holders of a majority of the
voting rights in the Company represented at the meeting in person or by proxy
and voting thereon.
Any business combination with any interested shareholder for a period of three
years following the time that such shareholder became an interested shareholder
requires the authorization of the Board of Directors and authorization at a
General Meeting (not by written consent) by the affirmative vote of at least 66
2/3% of the outstanding voting shares which is not owned by the interested
shareholder, unless (i) prior to such time that such shareholder became an
interested shareholder, the Board of Directors approved either the business
combination or the transaction which resulted in the shareholder becoming an
interested shareholder or (ii) upon consummation of the transaction which
resulted in the shareholder becoming an interested shareholder, the interested
shareholder owned at least 85% of the voting shares of the Company outstanding
at the time the transaction commenced (excluding for purposes of determining the
number of shares outstanding those shares owned (i) by persons who are directors
and also officers and (ii) certain employee share plans).
10C. Material contracts not in the ordinary course of business
We have entered into an employment agreement with Moshe BenBassat, our Chief
Executive Officer. The agreement provides that the employment relationship is
"at-will" and may be terminated at any time by either us or Dr. Ben Bassat with
or without cause. The agreement provides that in the event Dr. Ben Bassat's
employment is terminated other than for cause, he will be entitled to severance
payments in amounts equal to twelve months of annual base salary as of the date
of termination. Dr. BenBassat is entitled to full acceleration of option vesting
in the event of a change in control. The right to receive the contractual
severance benefits set forth above will immediately terminate if Dr. Ben Bassat
is terminated for cause, as defined in the employment agreements.
10D. Exchange controls
There are currently no Israeli currency control restrictions on payments of
dividends or other distributions with respect to our ordinary shares or the
proceeds from the sale of shares, except for the obligation of Israeli residents
to file reports with the Bank of Israel regarding certain transactions. However,
legislation remains in effect pursuant to which currency controls can be imposed
by administrative action at any time.
Non-residents of Israel who purchase our securities with non-Israeli currency
will be able to repatriate dividends (if any), liquidation distributions and the
proceeds of any sale of such securities, into non-Israeli currencies at the rate
of exchange prevailing at the time of repatriation, provided that any applicable
Israeli taxes have been paid (or withheld) on such amounts.
Neither our Articles of Association nor the laws of the State of Israel restrict
in any way the ownership or voting of ordinary shares by non-residents of
Israel, except with respect to citizens of countries that are in a state of war
with Israel.
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20-F ClickSoftware Technologies Ltd. Page 42
10E. Taxation
The following is a summary of the current tax structure, which is applicable to
companies in Israel, with special reference to its effect on us and our group
companies. The following also contains a discussion of material Israeli and U.S.
tax consequences to our shareholders and government programs from which we and
some of our group companies benefit. The following also contains a discussion of
certain Israeli and U.S. tax consequences to persons purchasing our ordinary
shares. To the extent that the discussion is based on new tax legislation, which
has yet to be subject to judicial or administrative interpretation, there can be
no assurance that the views expressed in the discussion will accord with any
such interpretation in the future. The discussion is not intended and should not
be construed as legal or professional tax advice and is not exhaustive of all
possible tax considerations. In July 2002, the Israeli Parliament approved a law
enacting extensive changes to Israel's tax law (the "Tax Reform Legislation")
generally effective January 1, 2003. Among the key provisions of the Tax Reform
Legislation are (i) changes which may result in the imposition of taxes on
dividends received by an Israeli company from its foreign subsidiaries; and (ii)
the introduction of the "controlled foreign corporation" concept according to
which an Israeli company may become subject to Israeli taxes on certain income
of a non-Israeli subsidiary if the subsidiary's primary source of income is
passive income (such as interest, dividends, royalties, rental income or capital
gains). An Israeli company that is subject to Israeli taxes on the income of its
non-Israeli subsidiaries will receive a credit for income taxes paid/withheld or
that will be paid/withheld by the subsidiary in its country of residence,
according to the terms and conditions determined in the Israeli Tax Ordinance.
The following summary is included herein as general information only and is not
intended as a substitute for careful tax planning. Accordingly, each investor
should consult his or her own tax advisor as to the particular tax consequences
to such investor of the purchase, ownership or sale of an ordinary share,
including the effect of applicable state, local, foreign or other tax laws and
possible changes in tax laws.
Israel Corporate Tax Considerations
- -----------------------------------
General Corporate Tax Structure
Income not eligible for "Approved enterprise" benefits is taxed at a regular
rate of 34%. On July 25, 2005 an amendment to the Israeli tax law was approved
by the Israeli parliament, which reduces the tax rates imposed on Israeli
companies to 31% for 2006, This amendment states that the corporate tax rate
will be further reduced in subsequent tax years as follows: in 2007 29%, in 2008
27%, in 2009 26% and thereafter 25%. This change does not have a material effect
on the Company's financial statements. However, the effective rate of tax
payable by a company which derives income from an "Approved Enterprise" may be
considerably lower - see discussion below.
Law for the Encouragement of Capital Investments, 1959
General. certain of our production and development facilities have been granted
approved enterprise status pursuant to the Law for the Encouragement of Capital
Investments, 1959 (the "Investment Law"). The Investment Law provides that a
capital investment in eligible facilities may, upon application to the
Investment Center of the Ministry of Industry and Trade of the State of Israel,
or the Investment Center, be designated as an Approved Enterprise. Each
certificate of approval for an Approved Enterprise relates to a specific
investment program delineated both by its financial scope, including its capital
sources, and by its physical characteristics, e.g., the equipment to be
purchased and utilized pursuant to the program. The tax benefits derived from
any such certificate of approval relate only to taxable income attributable to
the specific Approved Enterprise.
Subject to certain provisions concerning income and subject to the Alternative
Benefits (see below), any distributed dividends are deemed attributable to the
entire enterprise, and the effective tax rate and the effective withholding tax
rates represent the weighted combination of the various applicable tax rates.
Tax Benefits. Taxable income of a company derived from an Approved Enterprise is
subject to company tax at the rate of up to 25%, instead of the tax rates under
the "General Corporate Tax Structure" above, for a certain period of time. The
benefit period is a period of seven years commencing in the year in which the
Approved Enterprise first generates taxable income. The benefits may be shorter
as it is limited to 12 years from the commencement of production of the Approved
Enterprise or 14 years from the date of approval, whichever is earlier. Under
certain circumstances (as further detailed below), the benefit period may extend
to a maximum of ten years from the commencement of the benefit period. A company
which operates under more than one approval or that has capital investments
which are only partly approved (such a company being designated as a Mixed
Enterprise), may have an effective company tax rate that is the result of a
weighted combination of the various applicable rates.
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20-F ClickSoftware Technologies Ltd. Page 43
A company owning an approved enterprise which was approved after April 1, 1986
may elect to forego the entitlement to grants or state guarantees and apply for
an alternative package of tax benefits. These benefits provide that
undistributed income from the approved enterprise is fully tax exempt from
corporate tax for a defined period, which ranges between two and ten years from
the first year of taxable income, subject to the limitations described above,
depending principally upon the geographic location within Israel and the type of
the approved enterprise. Upon expiration of such period, the approved enterprise
is eligible for a beneficial tax rate (25% or lower in the case of an FIC, as
described below), for the remainder of the otherwise applicable period of
benefits, as described above.
Should the percentage of share capital of the companies having Approved
Enterprises held by foreign shareholders exceed 25%, future Approved Enterprises
of such companies would qualify for reduced tax rates for an additional three
years, after the seven years mentioned above. The company tax rate applicable to
income earned from Approved Enterprise programs (currently, for programs on
which an application for an approved enterprise status was submitted before
December 31, 2004) in the benefit period by a company meeting these
qualifications is as follows:
% of Foreign Ownership Tax Rate
Over 25% but less than 49% 25%
49% or more but less than 74% 20%
74% or more but less than 90% 15%
90% or more 10%
Entitlement to these benefits is subject to the final ratification of the
Investment Center, and is conditioned upon fulfillment of all terms of the
approved program. However, there can be no assurance that our group companies
which enjoy Approved Enterprise benefits will obtain approval for additional
Approved Enterprises, or that the provisions of the Investment Law will not
change with respect to future approvals, or that the above-mentioned
shareholding portion will be reached for each subsequent year. In the event of
our failure to comply with these conditions, the tax and other benefits could be
canceled, in whole or in part, and we might be required to refund the amount of
the canceled benefits, together with the addition of CPI linkage difference and
interest. We believe that our Approved Enterprise substantially complies with
all such conditions at present, but there can be no assurance that it will
continue to do so. The undistributed income derived from each of our approved
enterprise programs is tax-exempt for a two year period beginning with the first
year in which it generates otherwise taxable income and is subject to a reduced
tax rate for the remainder of the benefit period.
A company that pays a dividend out of income derived from the Approved
Enterprise(s) during the tax exemption period will be subject to deferred
company tax in respect of the amount distributed (including the recipient's tax
thereon) at the rate which would have been applicable had such company not
elected the Alternative Package. This rate is generally 10% to 25%, depending on
the extent to which non-Israeli shareholders hold such company's shares.
The dividend recipient is taxed at the reduced rate applicable to dividends from
Approved Enterprises (generally 15% as compared to 25% for individuals or an
exemption for companies), if the dividend is distributed during the tax benefit
period or within 12 years after this period. However, the limitation does not
apply if the company qualifies as a foreign investors' company. This tax must be
withheld by such company at source, regardless of whether the dividend is
converted into foreign currency.
Subject to certain provisions concerning income subject to Mixed Enterprises,
all dividends are considered to be attributable to the entire enterprise and the
effective tax rate on the dividend is the result of a weighted combination of
the various applicable tax rates. However, such company is not obliged to
distribute exempt retained profits under the Alternative Package, and such
company may generally decide from which year's profits to declare dividends.
Each application to the Investment Center is reviewed separately, and a
decision as to whether or not to approve such application is based, among
other things, on the then prevailing criteria set forth in the Investment
Law, on the specific objectives of the applicant company set forth in such
application and on certain financial criteria of the applicant company.
Accordingly, there can be no assurance that any such
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application by any of our group companies will be approved. In addition, the
benefits available to an Approved Enterprise are conditional upon the
fulfillment of certain conditions stipulated in the Investment Law and its
regulations and the criteria set forth in the certificate of approval, as
described above. In the event that these conditions are violated, in whole or
in part, a company with an Approved Enterprise would be required to refund
the amount of tax benefits, with the addition of the Israeli consumer price
index linkage differences and interest.
A company which qualifies as a foreign investment company (FIC) is a company,
like us, in which more than 25% of the share capital (in terms of shares, rights
to profit, voting and appointment of directors) and of the combined share and
loan capital is owned, directly or indirectly, by non-residents of Israel and is
therefore entitled to further tax benefits relating to its approved enterprises.
Such a company will be eligible for an extension of the period of tax benefits
for its approved enterprises (up to ten years) and further tax benefits, should
the level of foreign ownership in it increase above 49%.
Notwithstanding the foregoing, proceeds received from the sale of our products
may be deemed to be royalties under the domestic law of the country of residence
of the purchaser/licensee or under an applicable tax treaty and as such subject
to withholding tax in such country.
Where withholding tax is paid by our company to the country of residence of the
purchaser/licensee, such tax would generally be creditable by our company for
Israeli income tax purposes, pursuant to any relevant income tax treaty and
under Israeli law against income derived from the same source. However, where we
do not have taxable income for Israeli tax purposes because of the application
of a tax exemption available to an Approved Enterprise or because of losses for
tax purposes, we would have no Israeli tax liability against which to credit the
foreign tax withheld and paid by us. Furthermore, under Israeli law, we cannot
carry forward such unused credit to future tax years.
From time to time, the Government of Israel has discussed reducing the benefits
available to companies under the Investment Law and currently such proposal is
pending. The termination or substantial reduction of any of the benefits
available under the Investment Law could have a material adverse effect on
future investments by our company in Israel.
Notwithstanding the foregoing, on March 29, 2005, the Israeli Parliament passed
an amendment to the Investment Law, which revamps the Israeli tax incentives
for future industrial and hotel investments (the "2005 amendment"). A tax
"holiday" package can now be elected for up to 15 years for a "Privileged
Enterprise" as defined in the 2005 amendment, if certain conditions are met,
without needing to obtain approval. The extent of the tax benefits available
depends upon the level of foreign investment.
The 2005 amendment became effective on April 1, 2005. Taxpayers may, under
certain conditions, claim Privileged Enterprise status for new and expanded
enterprises with respect to 2004 or subsequent years, unless the Investment
Center granted such taxpayer Approved Enterprise status prior to December 31,
2004.
Subject to certain conditions, various alternative tax-only benefit packages
can now be elected with respect to investments in a "Privileged Enterprise",
without prior approval. Companies in industry or tourism in Israel may elect
between:
* Tax "holiday" package - for a "Privileged Enterprise": a tax exemption
applies to undistributed profits for 2 to 15 years depending on geographical
location of the "Privileged Enterprise" and the level of foreign ownership.
Company tax rates of between 10% and 25% apply to distributed exempt profits or
profits derived subsequent to the exempt period. The total period of tax
benefits is 7 to 15 years, or
* Grant / Reduced tax package - for an "Approved Enterprise": Fixed asset
grants of between 20% and 32% for enterprises in a development area and reduced
company tax rates between 0% and 25% for 7 to 15 years. Dividend withholding
tax also applies at a rate of 4% or 15% depending on the package selected.
GRANTS UNDER THE LAW FOR THE ENCOURAGEMENT OF INDUSTRIAL RESEARCH AND
DEVELOPMENT, 1984.
Israeli tax laws have allowed, under certain conditions, a tax deduction for
expenditures (including capital expenditures) in scientific research and
development projects, if the expenditures are approved or funded by the
Government of Israel and the research and development is for the promotion of
the enterprise and is carried out by or on behalf of the company seeking such
deduction. Expenditures not approved as above or funded are deductible in equal
portions over a three-year period.
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Under the law for the Encouragement of Industrial Research and Development,
1984 (the "Research Law"), research and development programs that meet
specified criteria and are approved by a committee of the Chief Scientist, are
eligible for grants of up to 50% of the program's expenses. Under the
provisions of Israeli law in effect until 1996, royalties of 2%-3% of the
revenues derived in connection with products developed according to, or as a
result of, a research and development program funded by the Chief Scientist had
to be paid to the State of Israel. Pursuant to an amendment effected in 1996
effective with respect to Chief Scientist programs funded in or after 1994,
royalties at the rate of 3% during the first three years, 4% over the following
three years and 5% in or after the seventh year of the revenues derived in
connection with products developed according to such programs are payable to
the State of Israel. The maximum aggregate royalties will not exceed 100% (or,
for funding prior to 1994, 100%-150%) of the dollar-linked value of the total
grants received. Pursuant to an amendment effected in 2000, effective with
respect to Chief Scientist programs funded in or after 2000, the royalty rates
described above were updated to 3% during the first three years and 3.5% in or
after the fourth year, of the revenues derived in connection with products
developed under such programs. Pursuant to an amendment effected on January 1,
1999, effective with respect to Chief Scientist programs approved in or after
1999, funds received from the Chief Scientist shall bear annual interest at a
rate equal to LIBOR for twelve months.
Generally, the Research Law requires that the manufacturing of any product
developed through research and development funded by the Government of Israel
shall be in Israel. It also provides that know-how from the research and
development that is used to produce the product may not be transferred to third
parties without the approval of a research committee of the Chief Scientist.
Such approval is not required for the export of any products resulting from
such research and development.
However, under the Regulations, in the event that any portion of the
manufacturing is not performed in Israel, if approved by the Chief Scientist,
we would be required to pay an increased royalty at the rates of 120%, 150% or
300% of the grant if the manufacturing portion that is performed outside of
Israel is less than 50%, between 50% and 90% and more than 90%, respectively.
In 2002, the Research Law was amended to, among other things, enable companies
applying for grants from the Chief Scientist to seek prior approval for
conducting manufacturing activities outside of Israel without being subject to
increased royalties. However, this amendment will not apply to any of our
existing grants. In addition, the amendment provides that one of the factors to
be taken into consideration by the Chief Scientist in deciding whether to
approve a grant application is the percentage of the manufacturing of the
relevant product that will be conducted outside of Israel. Accordingly, should
we seek additional grants from the Chief Scientist in connection with which we
also seek prior approval for manufacturing products outside of Israel, we may
not receive such grant or may receive a grant in an amount that is less than
the amount we sought.
LAW FOR THE ENCOURAGEMENT OF INDUSTRY (TAXES), 1969
Pursuant to the Law for the Encouragement of Industry (Taxes), 1969, a company
qualifies as an "Industrial Company" if it is a resident of Israel and at least
90% of its gross income in any tax year (exclusive of income from certain
defense loans, capital gains, interest and dividends) is derived from an
"industrial enterprise" it owns. An "industrial enterprise" is defined as an
enterprise whose major activity, in a given tax year, is industrial
manufacturing.
We believe that we currently qualify as an Industrial Company. Accordingly, we
are entitled to certain tax benefits, including a deduction of 12.5% per annum
on the purchase of patents or certain other intangible property rights (other
than goodwill) used for the development or promotion of the industrial
enterprise over a period of eight years beginning with the year in which such
rights were first used.
The tax laws and regulations dealing with the adjustment of taxable income for
local inflation provide that an industrial enterprise is eligible for special
rates of depreciation deductions. These rates vary in the case of plant and
machinery according to the number of shifts in which the equipment is being
operated and range from 20% to 40% on a straight-line basis, or 30% to 50% on a
declining balance basis (instead of the regular rates which are applied on a
straight-line basis).
Moreover, industrial enterprises which are approved enterprises (see below)
can choose between (a) the special rates referred to above and (b)
accelerated regular rates of depreciation applied on a straight-line basis
with respect to property and equipment, generally ranging from 200% (with
respect to equipment) to 400% (with respect to buildings) of the ordinary
depreciation rates during the first five years of service of these
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assets, provided that the depreciation on a building may not exceed 20% per
annum. In no event may the total depreciation exceed 100% of the cost of the
asset.
In addition, Industrial Companies may (i) amortize the cost of purchased
know-how and patents over an eight-year period for tax purposes, (ii) elect to
file consolidated tax returns with additional related Israeli Industrial
Companies and (iii) deduct expenses related to public offerings in equal
amounts over three-years.
Eligibility for benefits under the Encouragement of Industry Law is not
contingent upon the approval of any governmental authority. No assurance can be
given that we will continue to qualify as an Industrial Company, or will avail
ourselves of any benefits under this law in the future or that Industrial
Companies will continue to enjoy such tax benefits in the future.
EMPLOYEE STOCK OPTIONS
Effective from January 1, 2003, the Tax Reform Legislation enables a company to
grant options through one of three tax tracks:
(a) the income tax track through a trustee pursuant to which the optionee pays
income tax rate (according to the marginal tax rate of the optionee- up to 49%
tax) plus payments to the National Insurance Institute and health tax on the
profit gained upon the earlier to occur of the transfer of the options or the
underlying shares from the trustee to the optionee or the sale of the options
or the underlying shares by the trustee, and the company may recognize expenses
pertaining to the options for tax purposes. The options (or upon their
exercise, the underlying shares), must be held by a trustee for a period of 12
months commencing from the end of the year in which the options were granted;
or
(b) the capital gains tax track through a trustee pursuant to which the
optionee pays capital gains tax at a rate of 25% on the profit upon, the
earlier to occur of the transfer of the options or the underlying shares from
the trustee to the optionee or the sale of the options or the underlying shares
by the trustee. The optionee is not required to make payments to the National
Insurance Institute and health tax. The Company may not recognize expenses
relating to the options for tax purposes. The options (or upon their exercise,
the underlying shares), must be held by a trustee for a period of 24 months
commencing from the end of the year in which the options were granted; or
(c) the income tax track without a trustee pursuant to which the optionee pays
income tax rate (according to the marginal tax rate of the optionee up to 49%
tax) plus payments to the National Insurance Institute and health tax on the
profit upon the sale of the underlying shares, and the company may not
recognize expenses pertaining to the options for tax purposes.
In accordance with the provisions of the Tax Reform Legislation, if a company
has selected the capital gains track, the company must continue granting
options under the selected capital gains track until the end of the year
following the year in which the first grant of options under that trustee track
will be made. Notwithstanding the above, the company may at any time also grant
options under the provisions of the income tax track without a trustee.
The above rules apply only to employees, including officer holders but
excluding controlling shareholders.
TAXATION UNDER INFLATIONARY CONDITIONS
The Income Tax Law (Inflationary Adjustments), 1985 ("Inflationary Adjustments
Law") is intended to neutralize the erosion of capital investments in business
and to prevent tax benefits resulting from deduction of inflationary interest
expenses. This law applies a supplementary set of inflationary adjustments to
the normal taxable profits computed under regular historical cost principles.
Under the Inflationary Adjustments Law, results for tax purposes are measured
in real terms, in accordance with the changes in the consumer price index. In
addition, subject to certain limitations, depreciation of fixed assets and
losses carried forward are adjusted for inflation on the basis of changes in
the consumer price index.
The salient features of the Inflationary Adjustments Law can be described
generally as follows:
A special tax adjustment for the preservation of equity, based on changes in
the CPI, whereby certain corporate assets are classified broadly into fixed
(inflation-resistant) assets and non-fixed assets. Where
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shareholders' equity, (as defined in the Inflationary Adjustment Law), exceeds
the depreciated cost of fixed assets (as defined in the Inflationary Adjustment
Law), a tax deduction which takes into account the effect of the annual rate of
inflation on such excess is allowed (up to a ceiling of 70% of taxable income
for companies in any single year, with the unused portion carried forward on a
CPI-linked basis, without limit). If the depreciated cost of such fixed assets
exceeds shareholders' equity, then such excess, multiplied by the annual
inflation rate, is added to taxable income.
Subject to certain limitations, depreciation deductions on fixed assets and
losses carried forward are adjusted for inflation based on the increase in the
consumer price index (from the beginning of the 1982 fiscal year, and as of the
1985 fiscal year, with respect to equipment); and gains on the sale of certain
traded securities are taxable. However, dealers in securities are subject to
the regular tax rules applicable to business income in Israel.
Results for tax purposes are measured in real terms, in accordance with the
changes in the CPI. We are taxed under this law. The discrepancy between the
change in (i) the CPI and (ii) the exchange rate of the Israeli currency to the
dollar, each year and cumulatively, may result in a significant difference
between taxable income and other items as denominated in dollars as reflected
in our financial statements (which are reported in dollars). In addition,
subject to certain limitations, depreciation of fixed assets and losses carried
forward are adjusted for inflation on the basis of changes in the Israeli CPI.
TAXATION OF OUR SHAREHOLDERS
CAPITAL GAINS AND INCOME TAXES; ESTATE AND GIFT TAX
Israeli law imposes a capital gains tax on the sale of capital assets. The law
distinguishes between the Real Gain and the Inflationary Surplus. The Real Gain
is the excess of the total capital gain over the Inflationary Surplus, computed
on the basis of the increase of the consumer price index between the date of
purchase and date of sale. The Inflationary Surplus accumulated until December
31, 1993 is taxed at a rate of 10% for residents of Israel (reduced to no tax
for non-residents if calculated according to the exchange rate of the foreign
currency lawfully invested in shares of an Israeli resident company, instead of
the consumer price index). Inflationary Surplus accumulated from and after
December 31, 1993 is exempt from any capital gains tax, while the Real Gain is
added to ordinary income, which effective until December 31 2002 is taxed at
the marginal rate of up to 49% for individuals and 34% for corporations in
2005.
Until January 1, 2003, the basic capital gains tax rate applicable to
corporations was 36% and the capital gains tax rate for individuals was based
on the individual's tax bracket up to 50%. For 2005, the basic capital gains
tax rate applicable to corporations was 34%. Since January 1, 2003, the real
capital gains tax rate for both individuals and corporations is 25%. Specific
tax rates apply to sales of publicly traded securities as described below.
These tax rates are subject to the provisions of any applicable bilateral
double taxation treaty. The Convention Between the Government of the United
States of America and the Government of Israel with Respect to Taxes on Income
(the "U.S.-Israel Tax Treaty") is discussed below.
Under current law, as of January 1, 2003, so long as our ordinary shares are
listed on a stock exchange the sale of these shares is subject to 15% tax in
case the shares were purchased after December 31, 2002. For shares purchased
before that date, the sale will be subject to a blended tax in which the
portion of the gain accrued until December 31, 2002 will be exempt from Israeli
capital gains tax and the portion of the real gain accrued from January 1, 2003
until the date of sale will be subject to 15% tax. The taxable real gain will
be based on the difference between the adjusted average value of the shares
during the last three trading days before January 1, 2003 (or the adjusted
original cost if it is higher than the adjusted average value) and the value of
the shares at the date of sale. In the event the above mentioned calculation
creates a loss, such loss can only be offset against a capital gain from other
traded securities according to the provisions of the Israeli law. The amount of
the loss is limited to the difference between the adjusted average value and
the value of the shares at the date of sale.
However, as of January 1, 2003, non-residents of Israel will be exempt from
capital gains tax in relation to the sale of our ordinary shares for so long
as (a) our ordinary shares are listed for trading on a stock exchange outside
of Israel, (b) the capital gains are not accrued or derived by the
non-resident shareholder's permanent enterprise in Israel, (c) the ordinary
shares in relation to which the capital gains are accrued or derived were
acquired by the non-resident shareholder after the initial listing of the
ordinary shares on a stock exchange outside of Israel and (d) neither the
shareholder nor the particular capital gain is otherwise subject to certain
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sections of the Israeli Income Tax Ordinance. In addition, under the
U.S.-Israel Tax Treaty, the sale, exchange or disposition of ordinary shares
by a person who qualifies as a resident of the United States within the
meaning of the U.S.-Israel Tax Treaty and who is entitled to claim the
benefits afforded to such resident by the U.S.-Israel Tax Treaty ("Treaty U.S.
Resident") will not be subject to Israeli capital gains tax unless (a) such
Treaty U.S. Resident is an individual and was present in Israel for more than
183 days during the relevant taxable year or (b) such Treaty U.S. Resident
holds, directly or indirectly, shares representing 10% or more of our voting
power during any part of the 12-month period preceding such sale, exchange or
disposition. A sale, exchange or disposition of ordinary shares by a Treaty
U.S. Resident who is an individual and was present in Israel for more than 183
days during the relevant taxable year or who holds, directly or indirectly,
shares representing 10% or more of our voting power at any time during such
preceding 12-month period would be subject to such Israeli tax, to the extent
applicable, unless the aforementioned exemption from capital gain tax for
shares listed on the Tel-Aviv Stock Exchange applies.
Individuals who are non-residents of Israel are subject to a graduated income
tax on income accrued or derived from sources in Israel. On the distribution
of dividends other than stock dividends, income tax at the rate of 25% (15% in
the case of dividends distributed from the taxable income attributable to an
Approved Enterprise) is withheld at source, unless a different rate is
provided in a treaty between Israel and the shareholder's country of
residence. Under the U.S.-Israel Tax Treaty, the maximum rate of withholding
tax on dividends, not generated by an Approved Enterprise, that are paid to a
Treaty U.S. Resident corporation holding 10% or more of our voting stock for a
certain period prior to the declaration and payment of the dividend, is 12.5%.
A non-resident of Israel who has interest, dividend or royalty income derived
from or accrued in Israel, from which tax was withheld at source, is generally
exempt from the duty to file tax returns in Israel in respect of such income,
provided such income was not derived from a business conducted in Israel by
the taxpayer.
Israel presently has no estate or gift tax.
United States Federal Tax Income Considerations
- -----------------------------------------------
The following discussion is a summary of the material United States federal
income tax consequences of purchasing, holding and disposing of our ordinary
shares. This section is based on the United States Internal Revenue Code of
1986, as amended (the "Code"), Treasury regulations, judicial decisions and
published positions of the United States Internal Revenue Service (the "IRS"),
all as in effect on the date hereof. This discussion does not address all
aspects of United States federal income taxation (including potential
application of the alternative minimum tax) that may be relevant to a
particular shareholder based on such shareholder's particular circumstances. In
particular, the following discussion does not address the United States federal
income tax consequences of purchasing, holding or disposing of our ordinary
shares to shareholders who own (directly, indirectly or through attribution)
10% or more of our outstanding voting stock or who are broker-dealers,
insurance companies, tax-exempt organizations, banks and other financial
institutions, a person who holds our ordinary shares as part of a straddle,
constructive sale, hedge or conversion transaction, a United States expatriate,
a partnership or other pass through entity or U.S. Holders (as defined below)
whose functional currency is not the U.S. dollar. The following discussion also
does not address any aspect of state, local or non-United States tax laws.
Further, this summary generally considers only a U.S. Holder that will own our
ordinary shares as capital assets (generally, assets held for investment). Each
prospective investor should consult its tax advisor with respect to the
specific United States federal, state and local tax consequences of purchasing,
holding or disposing of our ordinary shares.
Taxation of U.S. Holders
For purposes of this discussion, a "U.S. Holder" means any beneficial owner of
our ordinary shares that is not a partnership and that is for United States
federal income tax purposes, is: (i) a citizen or resident of the United
States; (ii) a corporation (or other entity or arrangement treated as a
corporation or partnership)organized in or under the laws of the United States
or any state thereof or the District of Columbia; (iii) an estate the income
of which is subject to United States federal income taxation regardless of
source; or (iv) a trust, if a United States court is able to exercise primary
supervision over its administration and one or more United States persons have
the authority to control all of its substantial decisions or a trust that was
in existence on August 10, 1996 and validly elected to continue to be treated
as a domestic trust. A "Non-U.S. Holder" is any beneficial owner other than a
U.S. Holder. If a partnership or any other entity or arrangement treated as a
partnership holds our ordinary shares, the United States federal income tax
treatment of a partner generally will depend upon the status of the partner
and the activities of the partnership. If you are a partner in a partnership
holding our ordinary shares, you should consult your tax advisor.
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DISTRIBUTIONS. We do not anticipate that we will make dividend distributions
to shareholders in the foreseeable future. If we do make any such
distributions, the gross amount of such distributions (before reduction for
any Israeli withholding tax) will be included in the gross income of U.S.
Holders as dividend income to the extent of our earnings and profits, as
calculated under United States federal income tax principles. Such dividends
will not qualify for the dividends received deduction available in certain
circumstances to corporate holders. "Qualified dividend income" received by
individual U.S. Holders (as well as certain trusts and estates) for taxable
years beginning on or before December 31, 2008 generally will be taxed at a
preferential U.S. federal income tax rate (a maximum rate of 15 per cent.)
provided certain conditions are met, including a minimum holding period. For
this purpose, dividends paid by the Company will be "qualified dividend
income" provided that the Company is eligible with respect to substantially
all of its income for the benefits of the U.S.-Israel Tax Treaty and the
Company is not considered during the year the dividend is paid, or in the
preceding year, a "passive foreign investment company". U.S. Holders are urged
to consult their tax advisers regarding the availability of the preferential
rate in their particular circumstances. Subject to the PFIC discussion below,
to the extent that any such distribution exceeds our earnings and profits,
such distribution will be treated as a non-taxable return of capital to the
extent of the U.S. Holder's adjusted basis in our ordinary shares and
thereafter as taxable capital gain. For United States federal income tax
purposes, the amount of any dividend that we pay in NIS to a U.S. Holder will
equal the U.S. dollar value of such NIS at the exchange rate in effect on the
date the dividend is considered to be received by the U.S. Holder, regardless
of whether the NIS are actually converted into U.S. dollars at that time. A
U.S. Holder who receives a foreign currency distribution and converts the
foreign currency into U.S. dollars subsequent to receipt will have foreign
exchange gain or loss, based on any appreciation or depreciation in the value
of the foreign currency against the U.S. dollar, which will generally be
United States source ordinary income or loss.
CREDIT FOR ISRAELI TAXES WITHHELD. Any dividends that we pay to a U.S. Holder
with respect to our ordinary shares generally will be treated for United
States federal income tax purposes as foreign-source income. Subject to
certain conditions and limitations, any Israeli taxes withheld or paid with
respect to dividends on our ordinary shares generally will be eligible for
credit against the U.S. Holder's United States federal income tax liability.
Such limitations include extensive separate computation rules under which
foreign tax credits allowable with respect to specific classes of
foreign-source income cannot exceed the United States federal income taxes
otherwise payable with respect to such classes of income. Subject to the
particular circumstances of a U.S. Holder, any dividends with respect to our
ordinary shares generally will be classified as "passive income" or, in the
case of certain U.S. Holders, "financial services income". However, for
taxable years beginning after December 31, 2006 dividends distributed by the
Company to U.S. Holders would generally constitute "passive category income,"
but could, in the case of certain U.S. Holders, constitute "general category
income". The rules relating to computing foreign tax credit or deducting
foreign taxes are extremely complex, and U.S. Holders are urged to consult
their own tax advisors regarding the availability of foreign tax credits with
respect to any Israeli tax withheld from payment.
Alternatively, a U.S. Holder may elect to claim a United States tax deduction
for any such Israeli tax, but only for a tax year in which the U.S. Holder
elects to do so with respect to all foreign income tax as paid. In addition, a
non-corporate U.S. Holder cannot elect to deduct Israeli taxes if such U.S.
Holder does not itemize deductions.
DISPOSITIONS. If you are a U.S. Holder and you sell, exchange or otherwise
dispose of our ordinary shares, you will recognize capital gain or loss for
U.S. Federal income tax purposes equal to the difference between the dollar
value of the amount that you realize and your adjusted tax basis, determined
in dollars, in those ordinary shares. Capital gain or loss will be short-term
or long-term depending on whether you hold the Shares for more than one year.
Long-term capital gains of individuals are eligible for reduced rates of
taxation, with respect to taxable years beginning on or before December 31,
2008. The deductibility of capital losses is subject to limitations. In
general, any gain or loss recognized by a U.S. Holder on the sale or other
disposition of our ordinary shares will be United States-source income or loss
for purposes of the United States federal foreign tax credit limitation.
However, a U.S. Holder who is also a Treaty U.S. Resident and who sells our
ordinary shares in Israel may elect to treat gain from the sale or other
disposition of our ordinary shares as foreign-source income for purposes of
the United States federal foreign tax credit limitations. U.S. Holders should
consult their tax advisors regarding the application of the United States
federal foreign tax credit limitation to gain or loss recognized on the
disposition of our ordinary shares and the treatment of any foreign currency
gain or loss on any NIS received in respect of the sale or other disposition
of our ordinary shares.
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Passive Foreign Investment Company Status
The Code provides special antideferral rules regarding certain distributions
received by U.S. persons with respect to, and sales and other dispositions
(including pledges) of, stock of a passive foreign investment company
("PFIC"). Generally a non-United States corporation is treated as a PFIC for
United States federal income tax purposes in any taxable year in which either
(i) 75% or more of its gross income (including the pro rata gross income of
any company (domestic or foreign) in which such corporation is considered to
own 25% or more of the stock by value) for the taxable year is passive income,
generally referred to as the "income test," or (ii) 50% or more of the average
value of its assets (including the pro rata value of the assets of any company
in which such corporation is considered to own 25% or more of the stock by
value) during the taxable year, measured at the end of each quarter, produce
or are held for the production of passive income in the taxable year,
generally referred to as the "asset test".
There is no assurance that we are not a PFIC, and U.S. Holders of our ordinary
shares should consult their tax advisors about the PFIC rules, including the
possibility, and advisability of, and the procedure and timing for making
certain elections that may alleviate some of the tax consequences of the PFIC
rules in connection with their holding of ordinary shares, including options
to acquire our ordinary shares.
Taxation of Non-U.S. Holders
Subject to the discussion below with respect to the United States backup
withholding tax, a Non-U.S. Holder (i.e., any person other than a U.S. Holder)
generally will not be subject to United States federal income tax on dividends
from us, if any, or gain from the sale or other disposition of ordinary
shares, unless (i) such income is effectively connected with the conduct by
the Non-U.S. Holder of a United States trade or business, and in the case of a
resident of a country which has an income tax treaty with the United States,
such income is attributable to a permanent establishment (or in the case of an
individual, a fixed place of business) in the United States; or (ii) with
respect to any gain on the sale or other disposition of ordinary shares
realized by an individual Non-U.S. Holder, such individual Non-U.S. Holder is
present in the United States for 183 days or more in the taxable year of the
sale or other disposition and meets certain other conditions.
Backup Withholding and Information Reporting
Under the Code, United States tax information reporting and "backup
withholding" at the appropriate rate (currently 28%) may generally apply to
payments of dividends on, and the proceeds of dispositions of, our ordinary
shares made within the United States, by a United States payor or through
certain United States-related financial intermediaries to both U.S. Holders
and Non-U.S. Holders, other than exempt recipients. Backup withholding will
not apply, however, to a holder who furnishes a correct taxpayer
identification number or certificate of foreign status and makes any other
required certification or who is otherwise exempt from backup withholding.
Generally, a U.S. Holder will provide such certification on IRS Form W-9, and
a non-U.S. Holder will provide such certification on IRS Form W-8. Backup
withholding is not an additional tax. Any amounts withheld under the United
States backup withholding rules will be allowed as a refund or credit against
the U.S. Holder's or the non-U.S. Holder's United States federal income tax
liability, provided the required information is furnished to the IRS.
10F. Dividends and paying agents
Not applicable.
10G. Statement by experts
Not applicable.
10H. Documents on display
We are subject to certain of the information reporting requirements of the
Exchange Act, as amended. As a foreign private issuer, we are exempt from the
rules and regulations under the Exchange Act prescribing the furnishing and
content of proxy statements, and our officers, directors and principal
shareholders are exempt from the reporting and "short-swing" profit recovery
provisions contained in Section 16 of the Exchange Act, with respect to their
purchase and sale of our shares. In addition, we are not required to file
reports and financial statements with the SEC as frequently or as promptly as
U.S. companies whose securities are registered under the Securities Exchange
Act. However, we are required to file with the SEC, within six months after
the end of each fiscal year, an annual report on Form 20-F containing
financial statements audited by an independent accounting firm. We publish
unaudited interim financial information after the end of each quarter. We
furnish this quarterly financial information to the SEC under cover of a Form
6-K.
________________________________________________________________________________
20-F ClickSoftware Technologies Ltd. Page 51
You may read and copy any document we file with the SEC at its public
reference facilities at, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
the SEC's regional offices at 500 West Madison Street, Suite 1400, Chicago, IL
60661-2511. You may also obtain copies of the documents at prescribed rates by
writing to the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The SEC also maintains a web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC. The address of this web
site is http://www.sec.gov. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference facilities.
10I. Subsidiary information
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the ordinary course of our operations, we are exposed to certain market
risks, primarily changes in foreign currency exchange rates and interest
rates.
Foreign Currency Exchange Rate Risk. We develop products in Israel and sell
them primarily in North America, Europe, and the Asia Pacific and Africa
regions. As a result, our financial results could be affected by factors such
as changes in foreign currency exchange rates or weak economic conditions in
foreign markets. In 2005, 45% of our revenues and 37% of our expenses were
denominated in US dollars. Since our financial results are reported in U.S.
dollars, fluctuations in the rates of exchange between the dollar and
non-dollar currencies may have a material adverse effect on our business,
financial conditions and results of operations. The exposure to currency
exchange rate changes is diversified due to the number of different countries
and currencies in which we conduct business. The main currencies are US$, NIS,
GBP and EURO.
In addition, we have balance sheet exposure arising from assets and
liabilities denominated in currencies other than US dollars, mainly in Euro,
British pounds and Australian dollars. Any change between the conversion rates
between the U.S. dollar and these currencies may create financial gain or
loss. We enter from time to time into forward contracts related to foreign
currencies in order to protect against monetary balances denominated in
foreign currencies, and certain forecasted transactions. We do not participate
in any speculative investments. The net value of the forwards as of December
31, 2005 was not material.
Interest Rate Risk. As of December 31, 2005, we had cash, cash equivalents and
short-term investments of $13.6 million, which consist of cash and highly
liquid short-term investments. Of this, a total of $2.3 million is denominated
in non-dollar currencies. We believe a substantial decrease in market interest
rates would have an immaterial impact on our business, financial condition and
results of operations.
The following table provides information about our investment portfolio, cash,
and investments as of December 31, 2005 and presents principal cash flows and
related weighted averages interest rates by expected maturity dates.
YEAR OF MATURITY 2005
(in thousands of dollars)
A) Cash, cash equivalents and investments portfolio:
- ----------------------------------------------------
Cash and cash equivalents $10,467
Average interest rate 3.4%
Bank deposits $3,375
Average interest rate 3.4%
B) Long-term debts:
- -------------------
None.
________________________________________________________________________________
20-F ClickSoftware Technologies Ltd. Page 52
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
________________________________________________________________________________
20-F ClickSoftware Technologies Ltd. Page 53
PART TWO
--------
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
AND USE OF PROCEEDS
None.
ITEM 15. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and
Chief Financial Officer have evaluated the effectiveness of our disclosure
controls and procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act) as of December 31, 2005 (the Evaluation
Date). Based on such evaluation, those officers have concluded that, as of the
Evaluation Date, our disclosure controls and procedures are effective in
recording, processing, summarizing and reporting, on a timely basis,
information required to be included in periodic filings under the Exchange
Act.
(b) Management's Annual Report on Internal Control Over Financial Reporting
Not applicable.
(c) Attestation Report of the Registered Public Accounting Firm
Not applicable.
(d) Changes in Internal Control Over Financial Reporting.
During the year ended December 31, 2005, there were no changes in our internal
control over financial reporting that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 16A. Audit Committee Financial Expert.
Our audit committee is comprised of Dan Falk, Naomi Atsmon, Israel Brorovich
and Gil Weiser. Our board of directors has determined that Mr. Falk qualifies
both as an independent member of the audit committee and as an audit committee
financial expert, as such terms are defined under Exchange Act rules. Mr. Falk
also qualifies as an independent directors as required by the Nasdaq rules.
ITEM 16B. Code of Ethics, Standards of Business Conduct.
We have adopted a written code of ethics that applies to our principal
executive officer, principal financial officer, principal controller, and to
persons performing similar functions. Our Code of Business Conduct and Ethics
is posted on our website.
ITEM 16C. Principal Accountant Fees and Services.
Brightman Almagor & Co., a member of Deloitte Touche Tohmatsu, has served as
our independent public accountants for each of the three years ended December
31, 2005.
________________________________________________________________________________
20-F ClickSoftware Technologies Ltd. Page 54
Audit Fees.
Audit fees in 2005 amounted to approximately $75,000 and primarily related to
professional services rendered in connection with the audit of our financial
statements for the fiscal year ended December 31, 2005 and the review of our
financial statements during fiscal year 2005. Audit fees in 2004 amounted to
approximately $65,000 for professional services rendered in connection with
the audit of our financial statements for the fiscal year ended December 31,
2004 and the review of our financial statement included in quarterly reports
on Form 10-Q during fiscal year 2004.
Audit-Related Fees.
None.
Tax Fees.
Tax fees billed to us by Brightman Almagor in 2005 amounted to approximately
$4,000 and primarily related to tax services. In addition, Deloitte Touche of
Boston billed us approximately $52,000 for tax advice and tax planning
services in 2005. Tax fees billed to us by Brightman Almagor in 2004 amounted
to approximately $5,500 and primarily related to tax services. In addition,
Deloitte Touche of Boston billed us approximately $35,000 for tax advice and
tax planning services in 2004.
All Other Fees.
All other fees amounted to approximately $17,000 in 2005 and primarily related
to Sarbanes-Oxley implementation and consulting relating to Chief Scientist
requests. All other fees amounted to an aggregate of approximately $9,000 in
2004 and primarily related to Sarbanes Oxley compliance.
Pre-Approval of Auditors' Compensation.
Our audit committee is responsible for pre-approving audit and non-audit
services provided to us by our independent auditors and, if requested by the
board of directors, is also responsible for pre-approving services provided by
other public accounting firms (or subsequently approving non-audit services in
those circumstances where a subsequent approval is necessary and permissible).
Absent such a request from the board of directors, our management approves the
non-audit services provided to the Company by accountants other than the
auditors. 100% of the non-audit services provided to us by the independent
auditors in 2005 and 2004 were either pre-approved by the full audit
committee, or by Dan Falk, who was delegated by the Audit Committee to approve
the non-audit services provided by independent auditors.
ITEM 16D. Exemptions from the Listing Standards for Audit Committees
Not applicable.
ITEM 16E. Purchase of Equity Securities by the Issuer and Affiliated
Purchasers
Not applicable.
________________________________________________________________________________
20-F ClickSoftware Technologies Ltd. Page 55
PART THREE
----------
ITEM 17. FINANCIAL STATEMENTS
Not applicable.
ITEM 18. FINANCIAL STATEMENTS
The following consolidated financial statements, and the related notes
thereto, and the Report of Independent Public Accountants are filed as a part
of this annual report.
Report of Independent Registered Public Accounting Firm...................57
Consolidated Balance Sheets...............................................58
Consolidated Statements of Operations.....................................59
Consolidated Statements of Changes in Shareholders' Equity................60
Consolidated Statements of Cash Flows.....................................61
Notes to Consolidated Financial Statements................................62
________________________________________________________________________________
20-F ClickSoftware Technologies Ltd. Page 56
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of
ClickSoftware Technologies Ltd.
We have audited the accompanying consolidated balance sheets of ClickSoftware
Technologies Ltd. ("the Company") and its subsidiaries as of December 31, 2005
and 2004 and the related statements of operations, changes in shareholders'
equity and cash flows for each of the three years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Company and its
subsidiaries as of December 31, 2005 and 2004 and the consolidated results of
their operations and their consolidated cash flows for each of the three years
then ended, in conformity with U.S. generally accepted accounting principles.
Brightman Almagor & Co.
Certified Public Accountants
A member of Deloitte Touche Tohmatsu
Tel Aviv, Israel
February 16, 2006
________________________________________________________________________________
20-F ClickSoftware Technologies Ltd. Page 57
CLICKSOFTWARE TECHNOLOGIES LTD.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
DECEMBER 31,
2005 2004
---- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (note 3) $ 10,467 $ 4,196
Short-term investments (note 4 & note 11b) 3,111 7,533
Trade receivables, net of allowance for doubtful accounts of $225 and $300 as of
December 31, 2005 and 2004, respectively (note 5) 4,118 5,317
Other receivables and prepaid expenses (note 6) 1,083 982
----------------------------
Total current assets 18,779 18,028
LONG-TERM INVESTMENTS (NOTE 7 & NOTE 11B) 264 264
SEVERANCE PAY DEPOSITS (NOTE 8) 960 890
PROPERTY AND EQUIPMENT, NET (NOTE 9) 1,001 1,067
============================
Total assets $21,004 $20,249
============================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses (note 10) $ 4,924 $ 4,731
Deferred revenues 5,031 2,969
----------------------------
Total current liabilities 9,955 7,700
----------------------------
LONG-TERM LIABILITIES
Accrued severance pay (note 8) 1,786 1,677
----------------------------
Total liabilities 11,741 9,377
----------------------------
COMMITMENTS AND CONTINGENCIES (NOTE 11)
SHAREHOLDERS' EQUITY: (NOTE 12)
Special preferred shares NIS 0.02 par value
Authorized - 5,000,000 as of December 31, 2005 and 2004;
no issued and outstanding shares as of December 31, 2005 and 2004;
Ordinary shares of NIS 0.02 par value:
Authorized -- 100,000,000 as of December 31, 2005 and 2004;
Issued - 27,673,707 shares as of December 31, 2005 and
27,442,159 as of December 31, 2004;
Outstanding - 27,634,707 shares as of December 31, 2005 and
27,403,159 shares as of December 31, 2004; 111 110
Additional paid-in capital 71,220 70,930
Deferred stock compensation (216) (309)
Accumulated deficit (61,809) (59,816)
----------------------------
9,306 10,915
Treasury shares, at cost: 39,000 shares (43) (43)
----------------------------
Total shareholders' equity 9,263 10,872
----------------------------
Total liabilities and shareholders' equity $21,004 $20,249
============================
The accompanying notes are an integral part of these consolidated financial statements.
________________________________________________________________________________
20-F ClickSoftware Technologies Ltd. Page 58
CLICKSOFTWARE TECHNOLOGIES LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
YEAR ENDED DECEMBER 31,
2005 2004 2003
Revenues (note 13):
Software license $8,235 $10,603 $10,622
Services 15,832 12,102 11,788
-----------------------------------------------------
Total revenues 24,067 22,705 22,410
-----------------------------------------------------
Cost of revenues:
Software license 1,541 1,109 955
Services 8,251 6,395 6,631
-----------------------------------------------------
Total cost of revenues 9,792 7,504 7,586
-----------------------------------------------------
-----------------------------------------------------
Gross profit 14,275 15,201 14,824
-----------------------------------------------------
Operating expenses:
Research and development expenses 3,635 3,069 2,434
Less - participation by the Chief Scientist of
the Government of Israel (note 11a) 507 359 523
-----------------------------------------------------
Research and development expenses, net 3,128 2,710 1,911
Selling and marketing expenses 10,124 8,939 7,836
General and administrative expenses 3,119 2,809 3,494
Amortization of deferred stock-based compensation (1) 19 9 101
-----------------------------------------------------
Total operating expenses 16,390 14,467 13,342
-----------------------------------------------------
Operating (loss) income (2,115) 734 1,482
Interest and other income, net 122 179 259
-----------------------------------------------------
Net (loss) income $ (1,993) $ 913 $1,741
-----------------------------------------------------
-----------------------------------------------------
Basic net (loss) income per share $ (0.07) $ 0.03 $0.07
-----------------------------------------------------
Diluted net (loss) income per share $ (0.07) $ 0.03 $0.06
-----------------------------------------------------
Shares used in computing basic net (loss) income per share 27,514,262 27,202,804 25,847,758
-----------------------------------------------------
Shares used in computing diluted net (loss) income per
share 27,514,262 28,336,450 26,874,351
-----------------------------------------------------
(1) Amortization of deferred stock-based compensation would be further classified as follows:
YEAR ENDED DECEMBER 31,
2005 2004 2003
---- ---- ----
Cost of revenues $ - $ - $7
Research and development expenses - - 15
Selling and marketing expenses - - 4
General and administrative expenses 19 9 75
-----------------------------------------------------
Total $ 19 $ 9 $101
-----------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
________________________________________________________________________________
20-F ClickSoftware Technologies Ltd. Page 59
CLICKSOFTWARE TECHNOLOGIES LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands, except share data)
NUMBER OF ADDITIONAL
ORDINARY SHARE PAID-IN DEFERRED ACCUMULATED TREASURY
SHARES CAPITAL CAPITAL COMPENSATION DEFICIT SHARES TOTAL
---------------------------------------------------------------------------------------------------
Balance as of
December 31, 2002 26,373,249 $ 102 $69,196 $ (101) $ (62,470) $(43) $ 6,684
Employee options exercised 306,684 4 1,001 - - - 1,005
Employee Stock purchase
plan 401,022 3 79 - - - 82
Amortization of deferred
compensation - - - 101 - - 101
Net Income - - - - 1,741 - 1,741
---------------------------------------------------------------------------------------------------
Balance as of
December 31, 2003 27,080,955 $ 109 $70,276 $ - (60,729) $(43) $ 9,613
Employee options exercised 164,023 - 173 - - - 173
Employee Stock purchase
plan 58,181 1 107 - - - 108
Shares issued to IBM 100,000 - - - - - -
Deferred stock
compensation related to
stock option grants to
consultants - - 374 (374) - - -
Amortization of deferred
compensation(1) - - - 65 - - 65
Net Income - - - - 913 - 913
---------------------------------------------------------------------------------------------------
Balance as of
December 31, 2004 27,403,159 $ 110 $70,930 $ (309) $ (59,816) $(43) $ 10,872
Employee options exercised 231,548 248 249
1 - - -
Deferred stock
compensation related to
stock option grants to
consultants - - 42 (42) - - -
Amortization of deferred
compensation(1) - - - 135 - - 135
Net Loss - - - - (1,993) - (1,993)
---------------------------------------------------------------------------------------------------
Balance as of December 31,
2005 27,634,707 $ 111 $71,220 $ (216) $ (61,809) $(43) $ 9,263
---------------------------------------------------------------------------------------------------
(1) $116,000 of amortization of deferred compensation is deducted from Revenues.
The accompanying notes are an integral part of these consolidated financial statements.
________________________________________________________________________________
20-F ClickSoftware Technologies Ltd. Page 60
CLICKSOFTWARE TECHNOLOGIES LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
YEAR ENDED DECEMBER 31,
2005 2004 2003
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Adjustments to reconcile net (loss) income to net cash provided
by operating activities:
Net (loss) income $ (1,993) $ 913 $1,741
Depreciation 425 406 551
Amortization of deferred compensation 135 65 101
Unrealized (gain) loss from investments - 58 (21)
Severance pay, net 39 76 16
Other 35 37 -
Trade receivables 1,199 (1,955) 681
Other receivables (101) (260) 532
Accounts payable and accrued expenses 193 654 (1,292)
Deferred revenues 2,062 694 1,864
------------------------------------------------
Net cash provided by operating activities 1,994 688 4,173
------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from realization of (purchase) of investments 4,422 (3,881) (724)
Purchases of equipment (394) (587) (224)
------------------------------------------------
Net cash provided by (used in) investing activities 4,028 (4,468) (948)
------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term debt (net) - - (17)
Employee and ESPP options exercised 249 281 1,087
------------------------------------------------
Net cash provided by financing activities 249 281 1,070
------------------------------------------------
Increase (decrease) in cash and cash equivalents 6,271 (3,499) 4,295
Cash and cash equivalents at beginning of year 4,196 7,695 3,400
------------------------------------------------
Cash and cash equivalents at end of year $ 10,467 $ 4,196 $7,695
------------------------------------------------
Supplemental cash flow information:
Cash paid for interest $1 $2 $10
------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
________________________________________________________________________________
20-F ClickSoftware Technologies Ltd. Page 61
CLICKSOFTWARE TECHNOLOGIES LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AS OF DECEMBER 31, 2005 AND 2004 AND
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003)
(IN THOUSANDS OF DOLLARS)
NOTE 1 -- GENERAL
ClickSoftware Technologies Ltd. (the "Company" or "ClickSoftware") was
incorporated in Israel and is a leading provider of end-to-end service
optimization software. The ClickSoftware Service Optimization suite consists
of ClickSchedule, which enables companies to automate and optimize their
service resources; ClickAnalyze, ClickPlan ClickForecast and ClickRoster,
which enable corporate decision makers to intelligently analyze past
performance, monitor current performance, and effectively plan for future
service needs; ClickFix, a diagnostic and trouble-shooting tool, and
ClickMobile, which empower service personnel by providing real-time
information and solutions for service related issues. ClickSoftware products
are used by a wide array of companies, including customers in the
telecommunications, utilities, financial services, aerospace, defense,
semi-conductor, and home service industries.
In June 2000, the Company completed an initial public offering of its ordinary
shares (the "IPO").
The consolidated financial statements include the financial statements of the
Company and its wholly owned subsidiaries in the United States (ClickSoftware,
Inc.), in the United Kingdom (ClickSoftware Europe Limited), in Germany
(ClickSoftware Central Europe, GmbH), in Belgium (ClickSoftware Belgium, N.V.)
and in Australia (ClickSoftware Australia PTY, Ltd, a wholly owned subsidiary
of ClickSoftware, Inc.). The subsidiaries are primarily engaged in the sale
and marketing of the Company's products in North America, Europe and the rest
of the world.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The financial statements have been prepared in conformity with accounting
principles generally accepted in the United States.
Principles of consolidation
The financial statements include the accounts of the Company and its wholly
owned subsidiaries. All significant material intercompany balances and
transactions have been eliminated.
Financial statements in U.S. dollars
The reporting currency of the Company is the U.S. dollar ("dollar"). The
dollar is the functional currency of the Company and its subsidiaries.
Transactions and balances originally denominated in dollars are presented at
their original amounts. Non-dollar transactions and balances are remeasured
into dollars in accordance with the principles set forth in Statement of
Financial Accounting Standards ("SFAS") No. 52. All exchange gains and losses
from translation of monetary balance sheet items resulting from transactions
in non-dollar currencies are recorded in the statement of operations as they
arise.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and cash equivalents
Cash equivalents consist of short-term, highly liquid investments that are
readily convertible into cash with original maturities of three months or
less. Bank deposits with maturities of more than three months but less than
one year are included in short-term investments.
________________________________________________________________________________
20-F ClickSoftware Technologies Ltd. Page 62
Concentration of credit risk
Financial instruments, which potentially subject the Company to credit risk,
consist principally of cash instruments and accounts receivable. The Company
maintains cash and cash equivalents and investments with major financial
institutions and limits the amount of credit exposure with any institution.
The accounts receivable are derived from sales to a large number of customers,
mainly large industrial corporations and their suppliers located mainly in
Europe and the United States. The Company generally does not require
collateral. The Company performs ongoing credit evaluations of its customers
and maintains an allowance for doubtful accounts which management believes
adequately covers all anticipated losses in respect of trade receivables.
Property and equipment
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, ranging
from three to 16 years. Leasehold improvements are amortized using the
straight-line method, over the shorter of the lease term, including renewal
options, or the useful lives of the improvements.
The Company complies with provisions of SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This statement requires that
long-lived assets and certain identifiable intangible assets be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to undiscounted future net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the
assets exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less cost to sell.
Software research and development costs
Software research and development costs incurred prior to the establishment of
technological feasibility are included in research and development expenses.
The Company defines establishment of technological feasibility as the
completion of a working model. Software development costs incurred subsequent
to the establishment of technological feasibility through the period of
general market availability of the products are capitalized, if material,
after consideration of various factors, including net realizable value. To
date, software development costs that are eligible for capitalization have not
been material and have been expensed.
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.
Revenue from software licenses that require significant customization,
integration and installation are recognized based on SOP 81-1 "Accounting for
Performance of Construction - Type and Certain Production - Type Contracts",
using contract accounting on the percentage of completion method, based on the
relationship of actual working hours incurred, to total working hours
estimated to be incurred over the duration of the contract. Provisions for
estimated losses on uncompleted contracts are made in the period in which such
losses are first determined, in the amount of the estimated loss on the entire
contract.
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, the Company considers
all arrangements with extended payment terms greater than nine months not to
be fixed or determinable.The Company also enters into license arrangements
with resellers whereby revenues are recognized upon sale through to the end
user by the reseller.
________________________________________________________________________________
20-F ClickSoftware Technologies Ltd. Page 63
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.
Basic and diluted net income (loss) per share
Basic and diluted net income (loss) per share are presented in conformity with
SFAS No. 128 "Earnings per Share" for all years presented. Basic and diluted
net income (loss) per share have been computed using the weighted-average
number of ordinary shares outstanding during the year. (See note 12).
Outstanding share options and shares issued and reserved for outstanding share
options have been excluded from the calculation of basic and diluted net
income (loss) per share to the extent such securities are anti-dilutive. The
total number of shares excluded from the calculations of diluted net income
(loss) per share were 3,251,562, 2,917,216 and 2,044,623 for the years ended
December 31, 2005, 2004 and 2003, respectively.
Fair value of financial instruments
The financial instruments of the Company consist mainly of cash and cash
equivalents, short-term and long-term investments, current and non-current
accounts receivable, accounts payable. In view of their nature, the fair value
of the financial instruments included in working capital of the Company is
usually identical or close to their carrying amounts.
Stock-based compensation
The Company accounts for employee stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and in accordance with FASB Interpretation No. 44. Pursuant to
these accounting pronouncements, the Company records compensation for stock
options granted to employees over the vesting period of the options based on
the difference, if any, between the exercise price of the options and the
market price of the underlying shares at that date. Deferred compensation is
amortized to compensation expense over the vesting period of the options.
If stock-based compensation had been measured under the alternative fair value
accounting method provided for under SFAS No. 123, "Accounting for Stock-Based
Compensation", as amended by SFAS 148, the Company's net Income (loss) and
basic and diluted net Income (loss) per share would have been increased or
decreased to the following pro-forma amounts:
2005 2004 2003
---- ---- ----
(in thousands, except per share amounts)
Net (loss) income
As reported $(1,993) $913 $1,741
Add - stock based compensation determined under
APB 25 19 9 101
Option Acceleration Expense (note 12D) (2,018) - -
Deduct - stock based compensation determined
under SFAS 123 (1,232) (1,068) (419)
------ ------ ----
Pro-forma $(5,224) $(146) $1,423
------- ----- ------
Basic net (loss) income per share
As reported $(0.07) $0.03 $0.07
Pro-forma $(0.19) $(0.01) $0.05
Diluted net (loss) income per share
As reported $(0.07) $0.03 $0.06
Pro-forma $(0.19) $(0.01) $0.05
________________________________________________________________________________
20-F ClickSoftware Technologies Ltd. Page 64
Under SFAS 123, the fair market value of each option grant is estimated on the
date of grant using the "Black-Scholes option pricing" method with the
following weighted-average assumptions:(1) expected life of 5 years (2004 - 5,
2003 - 5); (2) dividend yield of 0% (3) expected volatility of 133% (2004 -
147%, 2003 - 151% ) and (4) risk-free interest rate of 4.1% (2004 - 3.1%, 2003
- - 3.1%).
Income taxes
The Company accounts for income taxes, in accordance with the provisions of
SFAS 109 "Accounting for Income Taxes," under the liability method of
accounting. Under the liability method, deferred taxes are determined based on
the differences between the financial statement and tax basis of assets and
liabilities at enacted tax rates in effect in the year in which the
differences are expected to reverse. Valuation allowances are established,
when necessary, to reduce deferred tax assets to amounts expected to be
realized.
Recent accounting pronouncements
In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123(R) that requires employee share-based equity awards to be accounted
for under the fair value method, and eliminates the ability to account for
these instruments under the intrinsic value method prescribed by APB Opinion
No. 25 and allowed under the original provisions of SFAS No. 123. SFAS No.
123(R) requires the use of an option pricing model for estimating fair value,
which is then amortized to expense over the service periods. Had the Company
adopted SFAS 123(R) in prior periods, the impact of that standard would have
approximated the impact of SFAS 123 as described in the disclosure of pro
forma net income and income per share above. SFAS No. 123(R) allows for either
prospective recognition of compensation expense or retrospective recognition.
In the first quarter of 2006, the Company began to apply the prospective
recognition method and implemented the provisions of SFAS No. 123(R). In
January 2005, the SEC issued SAB No. 107, which provides supplemental
implementation guidance for SFAS No. 123(R). SFAS No. 123(R) will be effective
for the Company beginning in the first quarter of fiscal 2006.
In December 2005, the board of directors decided to accelerate the vesting of
unvested employee stock options granted to employees and officers (see note
12D). The vesting acceleration enables the Company to avoid recognizing in its
income statement compensation expense associated with these options in future
periods, upon adoption of SFAS 123(R) in January 2006. As a result of this
change, the Company expects to reduce the after tax stock option expense it
otherwise would have been required to record by approximately $2 million over
a 4 year period. This estimate is subject to change and is based on estimated
value calculations using the Black-Scholes methodology.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections." SFAS No. 154 replaces APB Opinion No. 20. "Accounting Changes"
and SFAS No. 3, "Reporting Accounting Changes in Interim Financial
Statements." SFAS No. 154 requires retrospective application to prior periods'
financial statements of changes in accounting principle, unless it is
impracticable to determine either the period-specific effects or the
cumulative effect of the change. The Company does not expect the adoption of
SFAS No. 154 will have any material impact on its consolidated financial
statements.
In November 2005, the FASB issued FSP FAS 115-1 and FAS 124-1, "The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments"
("FSP 115-1 and 124-1"), which clarifies when an investment is considered
impaired, whether the impairment is other than temporary, and the measurement
of an impairment loss. It also includes accounting considerations subsequent
to the recognition of an other-than-temporary impairment and requires certain
disclosures about unrealized losses that have not been recognized as
other-than-temporary impairments. FSP 115-1 and 124-1 are effective for all
reporting periods beginning after December 15, 2005. At December 31, 2005, the
Company had no unrealized investment losses that had not been recognized as
other-than-temporary impairments in its available-for-sale securities. The
Company does not anticipate that the implementation of these statements will
have a significant impact on its business, financial condition and results of
operations.
________________________________________________________________________________
20-F ClickSoftware Technologies Ltd. Page 65
NOTE 3 -- CASH AND CASH EQUIVALENTS
DECEMBER 31,
2005 2004
---- ----
(in thousands)
In U.S. Dollars $8,184 $3,422
In British Pounds 295 164
In Australian Dollars 425 353
In Israeli Shekels 186 154
In Euro 1,377 103
-------------------------
$10,467 $4,196
=========================
The cash balances bear interest at an average annual rate of 3.4%.
NOTE 4 -- SHORT-TERM INVESTMENTS
DECEMBER 31,
2005 2004
---- ----
(in thousands)
Bank Deposits (see also note 11b) $ 3,111 $ 7,533
------------------------
$ 3,111 $ 7,533
========================
The bank deposits bear interest at an average annual rate of 3.4%.
NOTE 5 -- ALLOWANCE FOR DOUBTFUL ACCOUNTS
DECEMBER 31,
2005 2004
---- ----
Balance at Beginning of Year (in thousands)
$300 $735
Increase (Decrease) to allowance 3 (180)
Write-offs (78) (255)
-------------------------
Balance at Year end $225 $300
=========================
NOTE 6 -- OTHER RECEIVABLES AND PREPAID EXPENSES
DECEMBER 31,
2005 2004
---- ----
(in thousands)
Prepaid expenses $784 $764
Government participation and other
government receivables 200 40
Employees 12 127
Other receivables 87 51
------------------------
$1,083 $982
========================
________________________________________________________________________________
20-F ClickSoftware Technologies Ltd. Page 66
NOTE 7 -- LONG-TERM INVESTMENTS
DECEMBER 31,
2005 2004
---- ----
(in thousands)
Bank Deposits (see also note 11b) $264 $264
-----------------------
$264 $264
=======================
The bank deposits bear interest at an average annual rate of 3.4%.
NOTE 8 - ACCRUED SEVERANCE PAY
Under Israeli law and labor agreements, the Company is required to make
severance payments to its dismissed employees and employees leaving its
employment in certain other circumstances. The Company's severance pay
obligation to its employees, which is calculated on the basis of the salary of
each employee for the last month of the reported period multiplied by the
years of such employee's employment, is reflected by the accrual presented in
the balance sheet and is partially funded by deposits with insurance companies
and provident funds.
Severance pay expenses amounted to $352, $336 and 234 for the years ended
December 31, 2005, 2004 and 2003, respectively.
NOTE 9 -- PROPERTY AND EQUIPMENT, NET
DECEMBER 31,
2005 2004
---- ----
(in thousands)
Cost
Computers and office equipment $2,766 $2,822
Leasehold improvements 559 563
Motor vehicles 126 328
------------------------
$3,451 $3,713
Accumulated Depreciation 2,450 2,646
------------------------
$1,001 $1,067
========================
NOTE 10 -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES
DECEMBER 31,
2005 2004
---- ----
(in thousands)
Suppliers $2,139 $1,242
Employee and related expenses 1,398 1,117
Government commitment 350 734
Accrued royalties 838 734
Accrued restructuring 91 91
Other 108 813
------------------------
$4,924 $4,731
========================
________________________________________________________________________________
20-F ClickSoftware Technologies Ltd. Page 67
NOTE 11 -- COMMITMENTS AND CONTINGENCIES
A: In connection with its research and development, the Company received
grants from the State of Israel in the total amount of $7,720. The Company
is committed to pay royalties at a rate of 3% to 5% of sales of the
developed product, up to 100% - 150% of the amount of grants received plus
annual interest of LIBOR as of the date of approval for programs approved
from 1999 and thereafter. The Company so far has paid or accrued royalties
through December 31, 2005 of $4,780. The total additional contingent
liability to pay royalties is $2,940. The payment of such additional
royalties is contingent on future sales and the Company has no obligation
to refund these grants, if sufficient sales are not generated.
B: The Company has entered into standby letters of credit agreements with
banks and financial institutions relating to the guarantee of future
performance on certain contracts. As of December 31, 2005, contingent
liabilities on outstanding letter of credit agreements which expire after
December 31, 2006 aggregated approximately $0.5 million. The letters of
credit are secured by $0.3 million in deposits to cover any potential
payments under the guarantees.
C: The Company operates from leased facilities in Israel, the United States,
United Kingdom, Germany and Australia, for periods expiring in the years
2006 through 2009. Minimum future rental payments, as of December 31, 2005
are as follows:
(in thousands)
-------------------
2006 $476
2007 233
2008 & 2009 210
-------------------
$919
===================
Rent expense amounted to $579, $566 and $620 for the years ended December
31, 2005, 2004 and 2003, respectively.
D: On August 25, 2003, a complaint was filed against us, one of our officers
and one of our former officers in the United States District Court for the
District of Massachusetts. None of the defendants were served., and the
case was dismissed on June 22, 2005. The complaint was purportedly brought
on behalf of investors who purchased our securities between June 22, 2000
and October 21, 2002 and contained various allegations, including
violations of the Exchange Act and common law claims with respect to our
financial results for 2000, 2001 and the first six months of 2002.
From time to time, we are involved in various routine legal proceedings
incidental to the ordinary course of our business. We do not believe that the
outcome of these pending legal proceeding will have a material adverse effect
on our business or consolidated financial condition
NOTE 12 -- SHAREHOLDERS' EQUITY
A. PUBLIC OFFERING
On June 2000, the Company completed an IPO with total net proceeds of $28.2
million.
________________________________________________________________________________
20-F ClickSoftware Technologies Ltd. Page 68
B. SHARE CAPITAL
Share capital is comprised of ordinary shares of NIS 0.02 par value.
C. EMPLOYEE STOCK PURCHASE PLAN
During 2000, the board of directors approved the ESPP, effective August 2000.
Under the ESPP, the maximum number of shares to be made available is 800,000
with an annual increase to be added on the first day of each year commencing
2001 equal to the lesser of 2% shares or 500,000 of the outstanding shares on
such date or a lesser amount determined by the board of directors. During
2003, the board of directors decided to increase the ESPP pool by 250,000
shares effective January 1, 2004.
Employees are eligible to participate in the ESPP if they are employed by the
Company or its U.S subsidiary for at least 20 hours per week and more than 5
months in any calendar year. Employee stock purchases are made through payroll
deductions. Under the terms of the ESPP, employees may not deduct an amount
exceeding $25,000 in total value of stock in any one year and may not purchase
more than 5,000 shares during any six-month offering period. The purchase
price of the stock will be 85% of the lower of the fair market value of an
ordinary share on the first day of the offering period and the fair market
value on the last day of the offering period. The offering period was
determined to be six months. The ESPP shall terminate in 2010, unless
terminated earlier by the board of directors.
As of January 1, 2004, 766,691 ordinary shares were issued under the ESPP, and
an additional 383,309 ordinary shares are reserved for issuance. During 2004,
the Company board of directors resolved to temporarily cease the Company's
ESPP program.
D. EMPLOYEE, DIRECTORS, AND CONSULTANT OPTION PLANS
The Company adopted new option plans in 2000. Under these plans, the Company
granted 657,000, 886,100, 1,160,840 (including 39,840 shares pursuant to an
exchange offer), 513,500 and 1,375,652 options at an average exercise price of
$1.84, $2.47, $2.41, $1.28 and $1.50 for the years ended December 31,2005,
2004, 2003, 2002 and 2001, respectively.
During the year ended December 31, 2005 the board of directors and
Shareholders at the annual meeting approved the grants of options to directors
to purchase 153,000 ordinary shares.
During the year ended December 31, 2004 the board of directors and
Shareholders at the annual meeting approved the grants of options to directors
to purchase 295,000 ordinary shares.
During the year ended December 31, 2003 the board of directors and
Shareholders at the annual meeting approved the grants of options to purchase
385,000 ordinary shares to directors.
During the year ended December 31, 2001 the board of directors and
Shareholders at the annual meeting approved the grants of options to purchase
144,036 ordinary shares to directors.
In April 2003 the Company commenced a voluntary stock option exchange program
for its employees. Under the program participating employees were given the
opportunity to have unexercised stock options previously granted to them
cancelled, and to receive replacement options at a future date. Replacement
options were granted at a ratio of between 50% and 5% for each option
cancelled, at an exercise price equal to the fair market value of the
Company's Ordinary Shares on the date of the re-grant. Pursuant to the terms
of the offer, 279,118 options were cancelled at May 2003. The Company granted
39,840 replacement options at December 2003 at an exercise price of $4.39.
During 2003, the board of directors decided to increase the reserve for grants
under its umbrella option plan, the Amended and Restated 2000 Share Option
Plan (the "ESOP"), by 400,000 options effective January 1, 2004.
During 2005, the board of directors decided to increase the reserve for grants
under its umbrella option plan, the Amended and Restated 2000 Share Option
Plan (the "ESOP"), by 450,000 options effective January 1, 2006.
________________________________________________________________________________
20-F ClickSoftware Technologies Ltd. Page 69
In December 2005, the board of directors decided to accelerate the vesting of
unvested employee stock options granted to employees and officers with
exercise prices of $1.75 or above. Accordingly, options to purchase
approximately 0.8 million shares became exercisable immediately. The
accelerated options, which were considered vested as of December 5, 2005, had
exercise prices ranging from $ 1.75 to $ 4.25 per share. The number and
exercise prices of the shares involved were unchanged. The vesting
acceleration enables the Company to avoid recognizing in its income statement
compensation expense associated with these options in future periods, upon
adoption of FASB Statement NO. 123R (Share-Based Payment) in January 2006. As
a result of this change, the Company expects to reduce the after tax stock
option expense it otherwise would have been required to record by
approximately $2 million over a 4 year period. This estimate is subject to
change and is based on estimated value calculations using the Black-Scholes
methodology.
A summary of the status of the Company's stock option plans as of December 31,
2005 and 2004 and changes during the years then ended are as follows:
WEIGHTED-
OPTIONS AND AVERAGE WEIGHTED-
SHARES EXERCISE AVERAGE
AVAILABLE FOR OUTSTANDING PRICE PER FAIR VALUE
GRANT OPTIONS (*) SHARE OF OPTION
---------------------------------------------------------------
Outstanding December 31, 2003 1,122,020 3,191,351 2.1
Increase in ESPP and option pool 650,000 - -
Granted (886,100) 886,100 2.47 $ 2.24
Forfeited 77,334 (77,334) 3.28
Exercised - (221,176) 0.86
Exercised Employee Stock Purchase plan (58,181) - -
------------------------------------------------
Outstanding December 31, 2004 905,073 3,778,941 2.23
Granted (657,000) 657,000 1.84 $ 1.60
Forfeited 366,223 (366,223) 3.39
Exercised - (230,408) 1.08
------------------------------------------------
Outstanding December 31, 2005 614,296 3,839,310 2.12
------------------------------------------------
(*) As of December 31, 2003, 71,819 outstanding options were held by a trustee
and have been reserved for allocation against certain employee options granted
but not yet exercised. As of December 31, 2005 and 2004, no outstanding
options were held by a trustee for this purpose.
The following table summarizes information about options outstanding and
exercisable as of December 31,
2005:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------------------------------
NUMBER WEIGHTED NUMBER
OUTSTANDING AVERAGE WEIGHTED OUTSTANDING WEIGHTED
RANGE OF AT REMAINING AVERAGE AT AVERAGE
EXERCISE PRICE DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
$ 2005 LIFE PRICE 2005 PRICE
- ------------------------------------------------------------------------------------------------------------
0.21 - 0.95 352,131 5.1 $ 0.41 293,980 $ 0.44
1.01 - 1.95 2,586,849 6.5 $ 1.65 2,125,933 $ 1.63
2.04 - 3.67 331,600 6.1 $ 2.79 331,600 $ 2.79
4.15 - 4.39 475,130 7.1 $ 4.26 475,130 $ 4.26
8.00 - 10.00 93,600 2.5 $ 8.66 93,600 $ 8.66
----------------- --------------
3,839,310 3,320,243
================= ===============
E. IBM Share and Warrants Grants
At the end of the second quarter of 2004, the Company formalized a strategic
alliance with IBM pursuant to which the Company teamed with IBM to resell the
Company's workforce optimization solutions. In connection with this strategic
alliance, IBM and the Company established a Project Office. The Company
issued 100,000 of its ordinary shares to IBM for a purchase price of 0.02 NIS
per share and agreed to issue an additional 100,000 of its ordinary shares to
IBM for a purchase price of 0.02 NIS per share upon the first
________________________________________________________________________________
20-F ClickSoftware Technologies Ltd. Page 70
anniversary of the initial issuance (the "Second Tranch"). The Company also
issued IBM 250,000 warrants that are exercisable into ordinary shares with an
exercise price of $2.38 per share. Immediately upon entering into the
strategic alliance 62,500 of these warrants immediately vested and became
exercisable. At the end of each of the three years following the warrant
issuance, up to 62,500 warrants may become exercisable based upon on the
attainment of certain revenue targets relating to revenue generated from the
strategic alliance. Since the revenue targets for the first year were not
achieved, 62,500 of the 250,000 warrants were not exercisable and have
expired. The Company recently renegotiated the fees, terms and conditions of
the company alliance agreements with IBM relating to the Project Office, and
as part of the new agreement, the Second Tranch of shares is cancelled.
The Company accounted for these warrants and options under the fair value
method of FAS No. 123 and EITF 96-18. The fair value was determined using the
Black-Scholes pricing model with the following assumptions: risk-free interest
rate of 3.1%; volatility rate of 146%; dividend yields of 0% and an expected
life of years.
The Company recorded in 2004 deferred stock-based compensation of $ 374,000 for
the warrants, options and shares granted in 2004. Compensation expenses of
$135,000 (of which $116,000 were deducted from Revenues) were recognized for
the year ended December 31, 2005. Compensation expenses of $65,000 (of which
$56,000 were deducted from revenues) were recognized for the year ended
December 31, 2004.
NOTE 13 -- SEGMENT REPORTING
The Company operates in one segment, the design, development, and marketing of
software solutions. The Company's revenues by geographic area are as follows:
YEAR ENDED DECEMBER 31,
2005 2004 2003
---- ---- ----
(in thousands)
REVENUE
United States $ 5,452 $ 5,184 $ 8,177
Canada 1,025 1,806 2,004
United Kingdom 7,176 5,135 4,342
Germany 3,478 4,503 2,283
Other European countries 2,158 2,420 2,530
Israel 107 12 71
Australia 4,455 3,636 2,935
Rest of the world 216 9 68
----------------------------------------------
$24,067 $22,705 $22,410
==============================================
Sales to a single customer exceeding 10% of total sales:
2005 2004 2003
---- ---- ----
% % %
Customer A 13 11 -
Customer B 11 15 -
Customer C 10 - -
Customer D - - 13
Customer E - - 10
________________________________________________________________________________
20-F ClickSoftware Technologies Ltd. Page 71
Long-lived assets by geographical areas are as follows:
YEAR ENDED DECEMBER 31,
2005 2004
---- ----
(in thousands)
Net Property and Equipment
North America $ 205 $ 232
Europe 169 157
Australia 26 13
Israel 601 665
-----------------------------
$1,001 $1,067
=============================
NOTE 14-- TAXES ON INCOME
The Company is subject to the Israeli Income Tax Law (Inflationary
Adjustments), 1985, measuring income on the basis of changes in the Israeli
Consumer Price Index.
Part of the Company's investment in equipment has received approvals in
accordance with the Law for the Encouragement of Capital Investments, 1959
("Approved Enterprise" status). The Company has chosen to receive its benefits
through the "Alternative Benefits" track, and, as such, is eligible for various
benefits. These benefits include accelerated depreciation of fixed assets used
in the investment program, as well as a full tax exemption on undistributed
income in relation to income derived from the first plan for a period of 2
years and for the second and third plans for a period of 4 years. Thereafter a
reduced tax rate of 25% will be applicable for an additional period of up to 5
years for the first plan and 3 years for the second and third plans, commencing
with the date on which taxable income is first earned but not later than
certain dates. In the case of foreign investment of more than 25%, the tax
benefits are extended to 10 years, and in the case of foreign investment
ranging from 49% to 100% the tax rate is reduced on a sliding scale to 10%. The
benefits are subject to the fulfillment of the conditions of the letter of
approval. The first plan benefit period has already expired. The benefit
periods of the second and third plans have not yet commenced.
On April 1, 2005, an amendment to the Investment Law came into effect ("the
Amendment") and has significantly changed the provisions of the Investment Law.
The Amendment limits the scope of enterprises which may be approved by the
Investment Center by setting criteria for the approval of a facility as a
Privileged Enterprise, such as provisions generally requiring that at least 25%
of the Privileged Enterprise's Income will be derived from export.
Additionally, the Amendment enacted major changes in the manner in which tax
benefits are awarded under the Investment Law so that companies no longer
require Investment Center approval in order to qualify for tax benefits.
However, the Investment Law provides that terms and benefits included in any
certificate of approval already granted will remain subject to the provisions
of the law as they were on the date of such approval. Therefore, the Israeli
companies with Approved Enterprise status will generally not be subject to the
provisions of the Amendment. As a result of the amendment, tax-exempt income
generated under the provisions of the new law, will subject the Company to
taxes upon distribution or liquidation and the Company may be required to
record deferred tax liability with respect to such tax-exempt income. As of
December 31, 2005, the Company did not generate income subject to the provision
of the new law.
The first investment plan (First plan) benefit period has already expired. In
1992, the Company received approval for its first expansion program. (Second
plan). The commencing year for the Second plan is 1995 and the expected
expiration year is 2006.
In 1996, the Company received approval for its second expansion program (Third
plan). The commencing year for the third plan is 2000 and the expected
expiration year is 2010.
In 2002, the Company received approval for its third expansion program (Fourth
plan). In December 2004 the company finished its investments related to the
Fourth plan and issued a request for extending the plan until the end of 2005.
The request is in the process of approval. The commencing year for the fourth
plan hasn't been established yet. The expected expiration year is 2014.
Income derived from the expansion programs will be tax-exempt for a period of
two years and will be subject to a reduced tax rate as mentioned above for an
additional period of eight years.
________________________________________________________________________________
20-F ClickSoftware Technologies Ltd. Page 72
The benefit periods of the second and third plans have not yet commenced.
The entitlement to the above benefits is conditional upon the Company
fulfilling the conditions stipulated by the above law, regulations published
thereunder and the instruments of approval for the specific investments in
"Approved Enterprises". In the event of failure to comply with these
conditions, the benefits may be canceled and the Company may be required to
refund the amount of the benefits, in whole or in part, including interest.
Income not eligible for "Approved enterprise" benefits mentioned above is taxed
at a regular rate of 34%. On July 25, 2005 an amendment to the Israeli tax law
was approved by the Israeli parliament, which reduces the tax rates imposed on
Israeli companies to 31% for 2006, This amendment states that the corporate tax
rate will be further reduced in subsequent tax years as follows: in 2007 29%,
in 2008 27%, in 2009 26% and thereafter 25%. This change does not have a
material effect on the Company's financial statements.
In the event of distribution by the Company of a cash dividend out of retained
earnings that were tax exempt due to its approved enterprise status, the
Company would have to pay a 25% corporate tax on the income from which the
dividend was distributed. A 15% withholding tax may be deducted from dividends
distributed to the recipients.
The Company has not provided deferred taxes on future distributions of
tax-exempt earnings, as management and the Board of Directors have determined
not to make any distribution that may result in a tax liability for the
Company. Accordingly, such earnings have been considered to be permanently
reinvested. The tax-exempt earnings may be distributed to shareholders without
subjecting the Company to taxes only upon a complete liquidation of the
Company.
Tax assessments
- ---------------
Final tax assessments in Israel have been received up to and including the 2000
tax year.
Deferred taxes
- --------------
As of December 31, 2005, net operating loss carryforwards in Israel amounted to
approximately $22.4 million, approximately $26 million attributable to the U.S.
subsidiary, and approximately $7.4 million attributable to the European
subsidiaries. The tax loss carryforwards for Israel and the European companies
have no expiration date. The tax loss carryforwards in the U.S. expire between
2008 and 2025. The company expects that during the period in which these tax
losses are utilized, its income would be substantially tax-exempt. Accordingly
there will be no tax benefit available from such losses and no deferred tax
assets have been included in these financial statements.
Israel and International components of income profit (loss) before taxes are:
YEAR ENDED DECEMBER 31,
2005 2004 2003
---- ---- ----
(in thousands)
Israel
$(1,559) $90 $1,381
International (434) 823 360
--------------------------------------------
$(1,993) $913 $1,741
============================================
NOTE 15 -- TRANSACTIONS WITH RELATED PARTIES
YEAR ENDED DECEMBER 31,
2005 2004 2003
---- ---- ----
(in thousands)
Transactions:
Participation in General and
administrative expenses $74 $86 $83
Purchase of Assets $10 - -
________________________________________________________________________________
20-F ClickSoftware Technologies Ltd. Page 73
ITEM 19. EXHIBITS
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
1 (1) Articles of Association of ClickSoftware Technologies Ltd., amended and restated as of May
28, 2003
4.1 (2) Fourth Amended and Restated Registration Rights Agreement, dated December 15, 1999
4.2 (3) Form of 2000 Share Option Plan, as amended
4.3 (2) Form of 2000 Employee Share Purchase Plan
4.4 (2) Form of 1996 Option Plan
4.5 (2) Form of 1997 Option Plan
4.6 (2) Form of 1998 Option Plan
4.7 (2) Form of 1999 Option Plan
4.8 (2) Form of 2000 Israeli Plan
4.9 (2) Form of 2000 Unapproved U.K. Share Scheme
4.10 (2) Form of 2000 Approved U.K. Share Scheme
4.11 (4) Employment Agreement between ClickSoftware Technologies Ltd. and Shmuel Arvatz
4.12 (5) Amended Form of Indemnification Agreement
4.13 (5) Amended Employment Agreement between ClickSoftware Technologies Ltd. and Moshe BenBassat
4.14 (5) 2003 Israeli Share Option Plan
4.15 (6) Form of 2000 Unapproved U.K. Share Scheme, as amended
4.16 (6) Form of 2000 U.K. Share Scheme, as amended
4.17 (8) Employment Agreement between Clicksoftware Technologies Ltd. and Hannan Carmeli
4.18 (8) Employment Agreement between Clicksoftware Technologies Ltd. and David Schapiro
4.19 (7) Teaming Agreement between Clicksoftware Technologies Ltd. and IBM United Kingdom Limited,
dated July 1, 2004
4.20 First Amendment to the Teaming Agreement between ClickSoftware Technologies Ltd. and IBM
United Kingdom Limited, dated December 21, 2005.
4.21 (7) Share Purchase Agreement between ClickSoftware Technologies Ltd. and IBM United Kingdom
Limited, dated June 30, 2004
4.22 First Amendment to the Share Purchase Agreement between ClickSoftware Technologies Ltd. and
IBM United Kingdom Limited, dated December 21, 2005.
4.23 (7) Warrant Agreement between ClickSoftware Technologies Ltd. and IBM United Kingdom Limited,
dated June 30, 2004
4.24 First Amendment to the Warrant Agreement between ClickSoftware Technologies Ltd. and IBM
United Kingdom Limited, dated December 21, 2005
4.25 (8) Under a lease Agreement between ClickSoftware Europe Limited and Polycom (United Kingdom)
Limited related to premises in Slough, the United Kingdom
4.26 (8) Gross Lease Agreement between ClickSoftware Inc. and Corporate Drive Corporation related to
premises in Burlington, Massachusetts
4.27 (8) Summary of Material Terms of the Lease Agreement (in Hebrew) by and among ClickSoftware
Technologies Ltd., Aradin Ltd., Larga Ltd., T.N.R properties Ltd. and Eligar Ltd. related to
premises in Tel Aviv, Israel
8.1 (8) Subsidiaries of the Registrant
12.1 Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934..
12.2 Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities
Exchange act of 1934.
13.1 Certification of the Chief Executive Officer pursuant to Rule 13 a-14(b) of the Securities
Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
13.2 Certification of the Chief Financial Officer pursuant to Rule 13 a-14(b) of the Securities
Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
15.1 Consent of Brightman Almagor & Co., a member of Deloitte Touche Tohmatsu.
(1) Incorporated by reference to the Registrant's report on Form 10-Q filed
with the SEC on August 13, 2003.
(2) Incorporated by reference to the Registrant's Registration Statement on
Form S-1/A (file no. 333-30274), as amended.
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20-F ClickSoftware Technologies Ltd. Page 74
(3) Incorporated by reference to the Registrant's definitive proxy statement
filed with the SEC on August 6, 2001.
(4) Incorporated by reference to the Registrant's annual report on Form 10-K
filed with the SEC on March 24, 2003.
(5) Incorporated by reference to the Registrants definitive proxy statement
filed with the SEC on April 30, 2003.
(6) Incorporated by reference to the Registrant's annual report on Form 10-K
filed with the SEC on March 22, 2004.
(7) Incorporated by reference to the Registrant's report on Form 10-Q filed
with the SEC on August 11, 2004.
(8) Incorporated by reference to the Registrant's annual report on Form 10-K
filed with the SEC on March 17, 2005.
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20-F ClickSoftware Technologies Ltd. Page 75
SIGNATURES
Clicksoftware Technologies hereby certifies that it meets all of the
requirements for filing on Form 20-F and that it has duly caused and authorized
the undersigned to sign this annual report on its behalf,
CLICKSOFTWARE TECHNOLOGIES LTD.
By: /s/ Shmuel Arvatz
------------------------------
Shmuel Arvatz
Chief Financial Officer
Date: April 24, 2006
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20-F ClickSoftware Technologies Ltd. Page 76