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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-30827
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CLICKSOFTWARE TECHNOLOGIES LTD.
(Exact name of registrant as specified in its charter)
Israel Not Applicable
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
34 Habarzel Street Tel Aviv, Israel
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (972-3) 765-9400
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ---------------------------------- -----------------------------------------
Securities registered pursuant to section 12(g) of the Act:
Ordinary Shares, NIS 0.02 par value
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(Title of class)
- --------------------------------------------------------------------------------
(Title of class)
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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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
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State the aggregate market value of the voting and non-voting common equity held
by non-affiliates of the registrant. The aggregate market value shall be
computed by reference to the price at which the common equity was sold, or the
average bid and asked prices of such common equity, as of a specified date
within 60 days prior to the date of filing. (See definition of affiliate in Rule
405, 17 CFR 230.405.)
The aggregate market value of the Ordinary Shares held by nonaffiliates of the
Registrant, based upon the closing sale price of the Ordinary shares on March
26, 2001, as reported by the Nasdaq National Market, was approximately
$3,377,675. Ordinary Shares held by each executive officer and director and by
each person who owns 5% or more of the outstanding voting stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.
NOTE.--If a determination as to whether a particular person or entity is an
affiliate cannot be made without involving unreasonable effort and expense, the
aggregate market value of the common stock held by non-affiliates may be
calculated on the basis of assumptions reasonable under the circumstances,
provided that the assumptions are set forth in this Form.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
As of March 26, 2001, there were approximately 26,064,539 Ordinary Shares of the
Registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders
for fiscal year ended December 24, 1980).
None.
TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business......................................................................... 5
Item 2. Properties....................................................................... 14
Item 3. Legal Proceedings................................................................ 15
Item 4. Submission of Matters to a Vote of Security Holders.............................. 15
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters...................................................... 15
Item 6. Selected Consolidated Financial Data............................................. 17
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................................ 18
Item 7A Quantitative and Qualitative Disclosures About Market
Risk............................................................................. 33
Item 8. Financial Statements............................................................. 37
Item 9. Changes In and Disagreement With Accountants on Accounting
and Financial Disclosure......................................................... 51
PART III
Item 10. Directors and Executive Officers of the Registrant............................... 51
Item 11. Executive Compensation........................................................... 52
Item 12. Security Ownership of Certain Beneficial Owners and
Management....................................................................... 55
Item 13. Certain Relationships and Related Transactions................................... 56
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K.............................................................................. 56
SIGNATURES ................................................................................. 57
PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements (as such term is defined
in Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934) and information relating to us that are based on the
beliefs of our management as well as assumptions made by and information
currently available to our management, including statements related to products,
markets, and future results of operations and profitability, and may include
implied statements concerning market acceptance of our products, and our growing
leadership role in the marketplace. In addition, when used in this report, the
words "likely," "will," "suggests," "may," "would," "could," "anticipate,"
"believe," "estimate," "expect," "intend," "plan," "predict" and similar
expressions and their variants, as they relate to us or our management, may
identify forward-looking statements. Such statements reflect the judgment of the
Company as of the date of this annual report on Form 10-K with respect to future
events, the outcome of which is subject to certain risks, including the risk
factors set forth herein, which may have a significant impact on our business,
operating results or financial condition. Investors are cautioned that these
forward-looking statements are inherently uncertain. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results or outcomes may vary materially from those described
herein. ClickSoftware undertakes no obligation to update forward-looking
statements, whether as a result of new information, future events or otherwise.
ITEM 1. BUSINESS
We provide software for optimizing service operations by improving customer
responsiveness and the utilization of service resources. Our products allow our
clients to respond quickly to customers' demands for service while maximizing
utilization of service personnel and minimizing operational costs.
We offer solutions to support the various levels of management hierarchy,
including execution, operational planning, tactical planning and strategic
planning levels. Our Service Optimization suite of products allows clients to
concentrate on both micro and macro level scheduling, service execution, real
time monitoring, short term resource planning, and long term capacity planning.
Our solution is designed to enable our clients to increase the productivity of
their service resources, resulting in reduced costs and increased revenue
opportunities that would otherwise be lost.
We were incorporated in Israel in 1979. We have a wholly-owned subsidiary
incorporated in California, ClickSoftware, Inc., and a wholly-owned subsidiary
incorporated in the United Kingdom, ClickService Software Limited. Our product
development efforts are conducted primarily in Israel. Our sales and marketing
and implementation efforts in North America are conducted by our California
subsidiary. Our sales and marketing and implementation efforts in Europe are
conducted by our United Kingdom subsidiary.
ClickSoftware began the year under its former name, IET-Intelligent Electronics.
On January 25, 2000 we announced the change of our name to ClickService
Software. Prior to our public offering, we changed our name to ClickSoftware
Technologies Ltd.
On April 26, 2000 we introduced CLICKANALYZE, a new software solution that
enables service organizations to obtain accurate measurements of compliance with
service commitments and levels of resource utilization. On October 5, we
announced the release of CLICKMOBILE, which enables service representatives in
the field to send and receive updated schedule information throughout the day.
At the same time, we announced the release of CLICKPLAN, a Web-based resource
planning tool to be used by service managers for high-level resource allocation
based on their forecasted workload. In January 2001, we introduced FAST TRACK
2.0, the second version of our implementation tool enabling CLICKSCHEDULE to be
integrated within sixty days.
PRODUCTS
We have developed a suite of products that automate and optimize the processes
by which service operations manage internal resources and customer calls. These
solutions work across all management levels and organizational boundaries and
cover the business functions of tactical planning, strategic planning and
analysis, and operational execution. Our products enable enterprises to:
* Efficiently schedule and fulfill service;
* Effectively plan for the optimal workforce according to forecasted workload;
* Intelligently diagnose and troubleshoot equipment;
* Monitor execution via Internet and wireless devices; and
* Accurately measure the business performance of the organization.
5
Our optimization solutions can be used alone or in tandem to enable service
organizations to improve response time, quality of customer service, and
customer satisfaction while maintaining a high level of resource utilization.
Our solutions integrate easily with existing CRM solutions.
SERVICE OPTIMIZATION SUITE OF PRODUCTS
Our Service Optimization suite of products provides an end-to-end solution for
improving the efficiency and cost-effectiveness of service operations by working
across all management levels and organizational boundaries. In addition to our
ClickSchedule and CLICKFIX offerings, our suite of products includes a mobile
client, and solutions for business planning and business performance analysis.
Our Service Optimization suite includes the following products:
* CLICKSCHEDULE is a web-centric software solution that allows organizations
to optimally schedule appointments for delivery, installation, or service by
assigning service personnel and sequencing individual schedules and travel
routes in an economical way. CLICKSCHEDULE automatically considers such
factors as technician skills set, task complexity, planned task duration,
resource and parts availability, overtime, travel time and travel distance,
and contractual obligations of the service provider.
CLICKSCHEDULE performs scheduling functions by integrating with existing
customer relations management (CRM) applications. Using a CRM application,
an online customer or a call center professional provides details regarding
the service request as an XML message to the CLICKSCHEDULE server.
ClickSchedule immediately recommends optimized scheduling options weighing
the parameters of the customer's request against configured parameters of
the service provider. The CRM application then presents the optimized
scheduling options to the customer for choice.
After the CRM application sends the customer appointment selection back to
CLICKSCHEDULE, the data is used to organize and then communicate individual
schedules to service representatives. In addition, the data provides the
basis for ClickSoftware's resource management and analysis applications
further described below.
* CLICKFIX is a troubleshooting solution for equipment-related problem
resolution support. CLICKFIX captures the description of the equipment
problem manually by user interface, automatically from automated event logs,
or remotely via a modem. The CLICKFIX application prompts the user to select
from a list of common or potential problems associated with the particular
symptom and 'walks' the user through the problem resolution process by
proposing additional tests and finally recommending corrective actions.
CLICKFIX works effectively for both trained service technicians and
untrained equipment end-users. CLICKFIX works in a stand-alone mode on a
mobile computer or may be accessed via the web. Information gained by each
diagnostic situation is reincorporated in to the resolution database,
effectively creating an artificial intelligence solution gaining
functionality through experience.
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* CLICKMOBILE integrates with CLICKSCHEDULE to enable the automatic, real-time
wireless communication of the scheduling and rescheduling of field
resources. Using a wireless PDA, field resources communicate the status of
assigned tasks (e.g., "en-route", "onsite", "delayed", "completed", etc.),
providing the necessary information to enable scheduling adjustments.
Dispatchers may then proactively monitor and manage scheduling changes
throughout the day to maintain resource optimization despite unexpected
events such as traffic delays, transportation breakdowns, and jobs in excess
of planned duration. The result is both improved schedule optimization
through earlier problem detection and the ability to better manage customer
expectations through communication. In addition, CLICKMOBILE enables
intra-day, real-time performance measurement of utilization, productivity,
and customer commitment compliance.
* CLICKANALYZE is an advanced management level software solution used to
quickly and accurately measure the business performance of a service
organization. Used in conjunction with CLICKSCHEDULE and CLICKFIX,
CLICKANALYZE users analyze basic and customized business performance
indicators such as service levels, resource utilization, employee load and
operations cost. CLICKANALYZE provides both executive level summary reports
and detailed analysis according to territory, job type, employee skill, time
frame and other configurable factors.
* CLICKPLAN enables service organizations to increase future resource
utilization by identifying and resolving potential workforce shortages,
surpluses, and imbalances. CLICKPLAN compares forecasted work with available
resource capacity grouped by job type, territory, skills, and other
criteria. As future resources are allocated, CLICKPLAN highlights potential
shortages and imbalances in the workforce months and years in advance.
TECHNOLOGY
Our products are based upon our internally developed core technologies, W-6
Service Scheduler and TechMate. These two core technologies were developed over
the last decade and include sophisticated algorithms and business scenario
representation tools. Our research and development personnel have been working
on service technology solutions since 1985, including algorithmic software
solutions, system integration and implementations. Based on these efforts, we
have gained significant experience with the complex optimization and decision
support troubleshooting needs of service organizations. As differentiated from
the needs of supply chain of manufacturing operations, the needs of the service
chain are far more complex. For instance, service scheduling involves scheduling
personnel of different skills in different locations to tasks of different
complexity in constantly changing locations, all coordinated to meet the
scheduling demands of the customer.
Our applications are fully standards-based, allowing complete integration with
related CRM, ERP or supply chain functions. Our applications run on
Windows-based computers or standard web browsers and servers, and support
leading relational database management systems, including Oracle and Microsoft
SQL Server. The multi-tier architecture connects browser-based applications to
Windows NT application servers through local area networks, wide area networks,
intranet or Internet connections. Our technology performs messaging between
clients and the application server in real time over standard communication
protocols, e.g. HTTP and TCP/IP. Our applications are inherently scalable due to
our multi-tier architecture that uses thin clients, multi-threaded application
servers and relational databases.
Specifically, our core technologies include internally developed optimization
algorithms. These algorithms provide efficient solutions for complex problems
arising from, among others, the following:
* the vast number of possible solutions associated with optimized scheduling
of personnel;
* the number of service organization-specific resources and variables;
* the need to instantly respond to concurrent users' service requests;
* the vast number of potential routes within a specific geographic area; and
* various time zone considerations.
Our core technologies also include sophisticated service business scenario
modeling. We have developed models based on a vast number of variables and
resource characteristics common to service organizations. By employing these
models, we can use our algorithms to address the market needs of different
segments of the service industry and broaden the customer base for our products.
7
Our technology contains an open, multi-tiered architecture. Our architecture
incorporates the following key components:
* Application software and web servers capable of performing high-speed
optimization, problem resolution, and Internet access to the application
host system; and
* Extensible Markup Language, or XML, Application Programming Interfaces
(APIs), which enable other applications to integrate and access the data and
services of CLICKSCHEDULE or CLICKFIX.
The CLICKSCHEDULE scheduling engine contains technologies which include not only
business rules and objectives defining the constraints and policies of the
service organization, but also optimization algorithms which schedule the
service resources based on these rules and objectives. These rules and
objectives and optimization algorithms are designed in a generic fashion so that
they can be adaptable to a wide range of service scheduling problems.
The CLICKFIX problem resolution engine contains technologies that include
algorithms for fast problem resolution based on equipment design and field
knowledge, a knowledge base with learning capabilities, and an intelligent
component that creates new trouble shooting solutions based on modeling both
equipment structure and historic data.
Our user customization includes an Industry Segment Layer, which includes data,
algorithms, and Application Program Interfaces (APIs) that are specifically
developed to address the needs of particular industry segments. In addition,
external customization points enable ClickSoftware professional services
personnel and third party system integrators to efficiently configure our
software to provide customization for particular customers.
Our development methodology is based on techniques which facilitate development
of components that can be incorporated in future products. This methodology
enables us to reduce the time required to introduce functionality enhancements
and new products. Our development methodology involves analysis of business
requirements, software module design to meet these requirements, software
development and coding, testing and quality assurance. Our product development
group in Israel is ISO 9000 certified.
PROFESSIONAL SERVICES AND CUSTOMER SUPPORT
Our professional services organization is staffed by professionals with
significant experience in the resource optimization field. We provide our
clients with consulting and deployment services, upgrades, and comprehensive
training and support to help achieve business goals with a quick return on
investment. Our consulting services include:
* Business Analysis. Our consultants assess current or planned scheduling
needs, develop and document the project plan, and deliver the design
specification. We provide a configuration and implementation roadmap to help
meet business goals, including an analysis of return on investment.
* Project Implementations. Our professional services consultants individually,
or as members of our clients' teams, implement and assist in the
configuration of our solutions to accelerate the project deployment schedule
and ensure a successful implementation process.
* CLICKSCHEDULE FAST TRACK. In order to increase the number of our
implementations and facilitate market acceptance of our CLICKSCHEDULE
solution, we introduced CLICKSCHEDULE FAST TRACK to provide accelerated
ClickSchedule implementation. We believe this methodology enables clients to
achieve benefits quickly from rapid implementation. Once the CLICKSCHEDULE
FAST TRACK implementation is completed, we offer enhancements and
customizations that provide additional functionality to our CLICKSCHEDULE
product.
8
Customer support is available by telephone and over the Internet. Customer
support is billed as a percentage of license fees depending upon the level of
support coverage requested by the customer. Support is provided by the technical
support team in our product development group, ensuring detailed product
knowledge and access to experts and testing facilities when required. The
customer support team works closely with the professional services organization
in providing technical support during client project implementations and
transferring completed projects from professional services organization to the
client support team.
CUSTOMERS
We sell our products to a broad base of clients representing a variety of
industries with unique needs, including telecommunications, utilities,
high-technology service providers and home equipment retailers. The following is
a representative list of our clients or end-users using our products. This list
of clients is representative of the geographically dispersed client base, the
various industries utilizing our products and the various stages of deployment
of our product lines. Each of these clients accounted for at least $100,000 of
product and/or service revenues for 2000 and, as a group, these clients
accounted for approximately 37% of our total revenues for 2000:
Crown Castle
Covad Communications
ICL
InstallInc.com
Level 3 Communications
Novellus
Schindler Elevator
Starband Communications
UPC
Swisscom
Vodafone
Watkins
Each of three clients represented between 3% and 7% of our total revenues for
2000.
One customer accounted for greater than 10% of revenues during the year ended
December 31, 2000 and none accounted for the same in 1999. For the year ended
December 31, 1998, sales to each of three customers constituted greater than 10%
of our revenues.
SALES AND MARKETING
We market and sell our products primarily through our direct sales force, which
is located in North America and Europe. Our multi-disciplined 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 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 efforts to the client's chief executive officer,
the chief information officer, the vice presidents of customer service and other
senior executives responsible for improving customer service at our clients'
organizations. We focus our marketing efforts on identifying potential new
clients, generating new sales opportunities, and creating awareness in our
target markets about the value of our products and their applications. Our
programs target prospective clients across a wide variety of industries,
business relationships and geographies. In order to effectively promote product
awareness, we engage in marketing activities in a wide variety of areas
including public relations and analyst relations, advertising creation and
placement, direct mailings and trade shows. As of December 31, 2000, we employed
over 71 individuals in our sales and marketing department.
9
Our marketing organization also supports joint marketing activities with our
business partners. Our business relationships enable us to use our partners'
market presence and sales channels to create additional revenue opportunities.
We have entered into co-marketing arrangements with leading enterprise resource
planning (ERP) companies, and customer relationship management (CRM) vendors.
With these relationships, we both participate in joint sales efforts as well as
sell our software for resale. These vendors include Nortel, Clarify, i2
Technologies, JD Edwards, Metrix, PeopleSoft/Vantive, Orbital, SAP, Siebel, and
Viryanet. These partners have committed resources depending on the strength of
the relationship, including building an interface for our product, training
their employees, developing co-marketing programs, and incorporating our
products into their marketing strategies. We provide sales materials and
training to resellers on the implementation of our software solutions. With
several of these partners, we also have reseller agreements by which they are
authorized to resell our products to their customers. These agreements generally
provide the parties with the right to use each other's names in marketing and
advertising materials, and to occasionally conduct joint marketing programs.
These agreements are generally for a one-year period and are automatically
renewable. We believe these relationships will extend our presence and brand
name in new and existing markets.
RESEARCH AND DEVELOPMENT
We believe that strong product development capabilities are essential to our
strategy of enhancing our core technology, developing additional products and
maintaining the competitiveness of our product and service offerings. 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 9000 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, resource planning,
capacity planning and monitoring, in enhancing the scalability of our products,
and in continuing the development of packaged offerings for specific vertical
industries.
Our research and development expenses, prior to participation grants from the
Office of the Chief Scientist of the Government of Israel, totaled $5.4 million
for the year ended December 31, 2000, $3.9 million for the year ended December
31, 1999, and $3.1 million for the year ended December 31, 1998. As of December
31, 2000, we employed 47 individuals in our research and development group.
COMPETITION
The market for our products is competitive and rapidly changing. We expect
competition to increase in the future as current competitors expand their
product offerings and new companies enter the market.
Our current and potential competitors include:
* independent systems integrators and in-house information technology
departments;
* traditional ERP and CRM software application vendors;
* software vendors in the utility, telecommunications, Internet access, field
services, home delivery and other markets;
* providers of service scheduling software and components and logistics
solutions providers; and
* providers of supply-chain optimization solutions for manufacturing
organizations.
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.
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Competition could result in price reductions, fewer customer orders, reduced
gross margin and loss of market share, any of which could cause our business to
suffer. We may not be able to compete successfully, and competitive pressures
may harm our business. In addition, our market is characterized by rapid
technological change, dynamic client needs and frequent introductions of new
products and product enhancements, which can make existing products, including
ours, obsolete or unmarketable.
INTELLECTUAL PROPERTY
Our future success depends in part on legal protection of our intellectual
property. To protect our intellectual property, we rely on a combination of the
following among others:
* preventing access to source code and technical documentation;
* copyright laws;
* patent laws;
* trademark laws; and
* trade secret laws.
We have two patent applications pending with the Israeli Patent Office. We
intend to file similar applications with United States and other international
patent authorities. As we continue to develop new applications of our products,
we will consider additional patent applications. We can offer no assurance that
patents will issue from any of these pending applications or, if patents do
issue, that the claims allowed will be sufficiently borad to protect our
technology. In addition, we can offer no assurance that any patents issued to us
will not be challenged, invalidated or circumvented, or that the rights granted
thereunder will adequately protect us.
We have filed trademark applications in the United States for the use of
CLICKSOFTWARE, CLICKBROKER, CLICKANALYZE, CLICKPLAN, CLICKFORECAST,
CLICKPERFORMANCE MONITOR, CLICKSCHEDULE, CLICKFIX, CLICKANSWER, CLICKCATALOG and
W-6. However, we may not receive registrations for these trademarks. In 2000, we
settled two legal disputes regarding our current and former names. See "Legal
Proceedings."
Our registered trademarks also include Diagnostic Executive and Aitest. 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. We can give no assurance that others will not
develop technologies that are similar or superior to our technology. See "Risks
Related to Our Business" and "Competition".
We generally enter into nondisclosure agreements with our customers, 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. We
cannot assure you that our means of protecting our intellectual property rights
in the United States, Israel or elsewhere will be adequate or that competing
companies will not independently develop similar technology. In addition, some
of our licensed users may allow additional unauthorized users to use our
software, and if we do not detect such use, we could lose potential license
fees.
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 on the intellectual property rights of
others. We believe that our products do not infringe upon the intellectual
property rights of third parties. However, we cannot assure you that we will
prevail in all future intellectual property disputes. We have not conducted an
exhaustive search for existing patents and other intellectual property
registrations, and we cannot assure you that our products do not infringe any
issued patents. In addition, because patent applications in the United States
and Israel are not publicly disclosed until the patent is issued, applications
may have been filed which would relate to our products.
11
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, which are covering 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, 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.
EMPLOYEES
As of December 31, 2000, we had 198 full-time employees, 47 engaged in research
and development, 71 in sales, marketing and business development, 44 in
professional services and technical support and 36 in finance, administration
and operations. None of our employees is represented by a labor union. We
consider our relations with our employees to be good.
84 of our employees are located in Israel. 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 pay expenses amounted to $272,000 in 1998, $202,000 in 1999 and
$562,000 in the year 2000.
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. The maximum number of hours of overtime is limited by law. 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; however, we do not believe that these claims would
have a material adverse effect on us.
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and certain information about them as of
March 15, 2001 are as follows:
12
Name Age Position
- ---- --- --------
Dr. Moshe BenBassat 53 Chief Executive Officer and Chairman of the Board
Shimon M. Rojany 53 Senior Vice President and Chief Financial Office
Corey Leibow 46 Chief Operating Officer
David Schapiro 42 Senior Vice President, Product Development
Ami Shpiro 47 President and General Manager, European Operations
Hannan Carmeli 42 Senior Vice President, Product Services and Operations
Amit Bendov 36 Vice President, Product Marketing
Roni Einav 45 Director
Dr. Israel Borovich 58 Director
Nathan Gantcher 60 Director
Eddy Shalev 53 Director
James W. Thanos 52 Director
DR. MOSHE BENBASSAT co-founded ClickSoftware and has served as Chairman and
Chief Executive Officer since our inception. From 1987 to 1999, Dr. BenBassat
served as a professor of Information Systems at the Faculty of Management of
Tel-Aviv University. Dr. BenBassat has also held academic positions at the
University of Southern California and the University of California at 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.
SHIMON M. ROJANY co-founded ClickSoftware and has served as Senior Vice
President and Chief Financial Officer since November 1999. From 1990 to 1999,
Mr. Rojany served as a Senior Associate with Adizes Institute, Inc., a
consulting company. Mr. Rojany holds a Bachelor of Science degree in Accounting
from California State University at Northridge and a Master of Business
Administration in Management Decision Systems from the University of Southern
California and is a certified public accountant.
COREY LEIBOW has served as our Chief Operating Officer since November 2000.
Beginning in 1999, Mr. Leibow was the Vice President of World Wide Sales for
Ajuba Solutions. Beginning in 1995, Mr. Leibow was the Vice President of Sales
for Cadence Design Systems. From 1992 to 1994, Mr. Leibow was a Senior Manager
for KPMG Peat Marwick in the Sales and Marketing Reengineering and Automation
Practice. Mr. Leibow has a Bachelor of Arts degree from State University of New
York at Courtland in Political Science with a minor in Communications.
DAVID SCHAPIRO has served as Senior VP of Product Development since August 2000.
Prior to this role he served as our Vice President & General Manager of the
Product Development Group since 1999. From October 1996 through 1998 Mr.
Schapiro served as the ClickSchedule Division General Manager and prior to that
in various management and marketing positions at ClickSoftware including Vice
President of Business Development. Since 1984 Mr. Schapiro has served in
positions at Applied Materials, a semiconductor equipment manufacturer, and
Scitex Corporation, a digital printing system company. Mr. Schapiro received a
B.S. in mathematics and computer science from Tel Aviv University, and a M.S.
degree in computer science from Bar Ilan University.
AMI SHPIRO has served as President of European Operations since December 2000.
He had served as Vice President and General Manager of European Operations and
Managing Director of ClickSoftware Europe Limited since October 1996. From 1994
to October 1996, Mr. Shpiro served as Vice President, W-6 division. Prior to
1994, Mr. Shpiro had various roles in developing the W-6 scheduling system. Mr.
Shpiro holds a Bachelor of Science degree in Computer Science and a Master of
Science degree from the Hebrew University of Jerusalem.
HANNAN CARMELI has served as Senior Vice President and General Manager, Products
Services and Operations of the since October 1997. From September 1997 to
October 1997, Mr. Carmeli served as Manager of the TechMate Division. From
December 1994 to September 1996, Mr. Carmeli served as Sales Director for
Surecomp, a software vending company. Mr. Carmeli holds a Bachelor of Science
degree from the Technion Institute and a Master of Science degree in Computer
Science from Boston University.
13
AMIT BENDOV has served as our Vice President of Product Marketing since July
1998. From September 1996 to June 1998, Mr. Bendov served as our Director of
Customer Support and Integration. From August 1994 to August 1996, Mr. Bendov
served as our Research and Development Manager. Mr. Bendov holds a Bachelor of
Science degree in Computer Science and Statistics from Tel Aviv University.
RONI EINAV has served as a director of ClickSoftware since April 2000. From 1983
to April 1999, Mr. Einav served as Chairman of the Board of Directors of New
Dimension Software, Ltd., a software company which he founded. Mr. Einav has
also played a role in founding over ten additional Israeli high-tech companies
including: Liraz Computers, which owns Level 8, Jacada, UDS-Ultimate
Distribution Systems, CreditView, CePost, CeDimension, ComDa and Einav Systems.
Mr. Einav is a Major in the Israeli Defense Forces, serving in the Systems
Analysis Division. Mr. Einav holds a Bachelor of Science degree in Management
and Industrial Engineering and a Master of Science degree in Operations Research
from the Technion Institute.
DR. ISRAEL BOROVICH has served as a director of ClickSoftware since July 1997.
Since 1988, Dr. Borovich has served as President of Arkia Israeli Airlines and
Knafaim-Arkia Holdings Ltd. Dr. Borovich also serves as a director of
Knafaim-Arkia Holdings, Ltd., Maman-Cargo Terminals & Handling Ltd., Issta Lines
Israel Students Travel Company Ltd., Ogen Investments, Ltd., Granit Hacarmel
Investments, Ltd. and Vulcan Batteries Ltd. Dr. Borovich holds Bachelor of
Science, Master of Science and a Doctor of Philosophy degrees in Industrial
Engineering from the Polytechnic Institute in Brooklyn.
NATHAN GANTCHER has served as a director of ClickSoftware since April 2000. From
October 1997 to October 1999, Mr. Gantcher served as Vice Chairman of CIBC World
Markets Corp. From 1983 to November 1997, Mr. Gantcher served as President,
Chief Operating Officer and Co-Chief Executive Officer of Oppenheimer & Co.
Since 1983, Mr. Gantcher has served as Chairman of the Board of Trustees of
Tufts University. Mr. Gantcher is a member of the Board of Overseers at the
Columbia University Graduate School of Business, a director of Mack-Cali Realty
Corp and the Jewish Communal Fund, and a trustee of the Anti-Defamation League
Foundation. Mr. Gantcher holds a Bachelor of Arts degree in Business from Tufts
University and a Master of Business Administration degree from the Columbia
University Graduate School of Business.
EDDY SHALEV has served as a director of ClickSoftware since April 1997. Since
April 1997, Mr. Shalev has also served as a director of Fundtech Corp. Mr.
Shalev has served as Chief Executive Officer of E. Shalev Ltd. since January
1997 and as the Managing General Partner of E. Shalev Management since 1983. Mr.
Shalev holds a Master of Science degree in Management Information Systems from
Tel Aviv University.
JAMES W. THANOS has served as a director of ClickSoftware since May 2000. Since
October 1999, Mr. Thanos has served as Executive Vice President, Worldwide Field
Operations of BroadVision, Inc. 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. Mr. Thanos holds a Bachelor of Arts degree in
International Relations and a Bachelor of Arts degree in Behavioral Sciences
from Johns Hopkins University.
Executive officers serve at the discretion of the Board and are appointed
annually. The employment of each of our officers is at will and may be
terminated at any time, with or without cause. There are no family relationships
between any of the directors or executive officers of ClickSoftware.
ITEM 2. PROPERTIES
ClickSoftware has a seven year lease for approximately 17,130 square feet of
office space in Campbell, California. The office space is leased pursuant to a
lease that expires in June 2003 with an option to extend the lease until April
2008. We also lease approximately 19,720 square feet of office space in Tel
Aviv, Israel. Our U.K. subsidiary currently operates from a leased facility of
approximately 3,000 square feet in Slough, near London. We also lease additional
smaller offices in various sites throughout North America and the European
continent. We consider that our current office space is sufficient to meet our
anticipated needs for the foreseeable future.
14
Anticipated minimum net rents for these facilities are approximately $1,064,000
for the twelve months ending December 31, 2001, $91,128,000 for 2002, $981,000
for 2003 and $1,000,000 for 2004.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently involved in any material legal proceedings. During
2000, we were involved in two legal matters which have been settled.
CLICKSERVICES.COM V. CLICKSERVICE SOFTWARE. On February 28, 2000, a trademark
infringement complaint was filed against us in the United States District Court,
Northern District of California, by Clickservices.com, an unrelated third party.
At the time, we were known as "ClickService Software". The complaint alleged
that our use of the CLICKSERVICE trademark and "clickservice.com" and
"clickservice.net" Internet domain names resulted in trademark infringement and
unfair competition in violation of federal law. The complaint also alleged
unfair competition, false advertising, and false designation of origin in
violation of California's Business and Professions Code, and trademark
infringement in violation of California common law. Additionally,
Clickservices.com demanded damages of an unspecified amount.
On May 2, 2000, the District Court granted Clickservices.com's motion for a
preliminary injunction and enjoined us from using the CLICKSERVICE trademark and
the domain names "clickservice.com" and "clickservice.net". We have complied
with the District Court's order and changed our corporate name to ClickSoftware
Technologies Ltd. and our domain name to clicksoftware.com. On October 19, 2000,
final Stipulated Consent Judgment and Permanent Injunction Order was signed by
the court which permanently restrained us from using the trademarks. Concurrent
with the final order, both parties agreed to withdraw all other claims.
CLICKSOFTWARE TECHNOLOGIES LTD. V. CLICK COMMERCE, INC. After we were contacted
by Click Commerce, Inc., an unrelated third party, alleging that our new company
name, ClickSoftware Technologies Ltd., may infringe upon their company name and
trademark, we responded on June 22, 2000 by filing a complaint for declaratory
relief in the United States District Court, Northern District of California,
seeking a determination that the use of our name and trademarks do not infringe
on Click Commerce, Inc.'s claimed trademarks. Click Commerce, Inc. responded to
our complaint by denying our allegations. In addition, Click Commerce, Inc.'s
response included a cross-complaint alleging that our use of the CLICKSOFTWARE
trademark and our use of other product names resulted in trademark infringement,
unfair competition, and false designation of origin in violation of federal law.
The cross-complaint also alleged unfair competition and false advertising in
violation of California's Business and Professions Code, and trademark
infringement in violation of California common law. Click Commerce, Inc.
demanded damages from us in an unspecified amount.
On December 20, 2000, the parties agreed to a settlement whereby both parties
withdrew their complaints and agreed to allow the continued the use of their
respective trademarks. In addition, the parties agreed to stipulate certain
facts and retain specific rights for future actions should there be future
factual instances of trade name confusion.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our ordinary shares have been quoted on the Nasdaq National Market under the
symbol "CKSW" since June 22, 2000. Prior to that time, there was no public
market for our ordinary shares. The following table sets forth for the periods
indicated, the high and low closing prices of our ordinary shares as quoted by
the Nasdaq National Market:
15
Fiscal year ended December 31, 2000 HIGH LOW
- ----------------------------------- ---- ---
Second Quarter (from June 22, 2000) $ 7.375 $ 5.81
Third Quarter $ 8.750 $ 3.00
Fourth Quarter $ 3.656 $ 1.75
As of March 26, 2001, there were 111 stockholders of record of our Ordinary
Shares.
Our present policy is to retain earnings, if any, to finance future growth. We
have never paid cash dividends and have no present intention to pay cash
dividends.
On June 22, 2000, the Company commenced an initial public offering of its
ordinary shares, NIS 0.02 par value. Ordinary shares sold in the offering were
registered under the Securities Act of 1933, as amended, on a Registration
Statement on Form S-1 (File No. 333-30274) that was declared effective by the
SEC on June 22, 2000.
The offering commenced on June 22, 2000 whereby 4,000,000 shares of ordinary
shares registered under the Registration Statement were sold at a price of $7.00
per share. Underwriters exercised their overallotment option and purchased
600,000 additional ordinary shares at a price of $7.00 per share. The aggregate
price of the offering amount registered was $32,200,000. In connection with the
offering, we paid an aggregate of $2,254,000 in underwriting discounts and
commissions to the underwriters. In addition, the following table sets forth the
expenses incurred in connection with the offering, other than underwriting
discounts and commissions:
SEC Registration fee $ 24,772
NASD filing fee 6,825
Nasdaq National Market listing fee 98,149
Printing and engraving expenses 315,660
Legal fees and expense 727,134
Accounting fees and expenses 207,373
Transfer agent and registrar fees 326,454
Miscellaneous expenses 69,660
----------------
Total $ 1,776,027
================
After deducting the underwriting discounts and commissions and the expenses
related to the offering as described above, we received net proceeds from the
offering of approximately $28,169,973.
As of December 31, 2000, we have used the aggregate net proceeds of $28 million
from our initial public offering of ordinary shares for the following purposes:
* approximately $7 million to expand our international operations including
infrastructure and sales and marketing expenses;
* approximately $7.5 million to expand our domestic operations by hiring
additional employees, leasing additional office space and expanding our
infrastructure; and
* approximately $3 million for domestic sales and marketing.
The remaining proceeds will be used for general corporate purposes, including
working capital, expansion of our sales and marketing capabilities, and
acquisitions of, or investments in, businesses, products and technologies that
are complementary to our business. We have no current plans, agreements or
commitments with respect to any such acquisition, and we are not currently
engaged in any negotiations with respect to any such transaction.
None of our net proceeds of the offering were paid directly or indirectly to any
director, officer, general partner of the Company or their associates, persons
owning 10% or more of any class of our equity securities, or any of our
affiliates.
We have invested the net proceeds of this offering in interest-bearing
short-term investments or bank deposits.
16
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The selected consolidated statement of operations data for the years ended
December 31, 1996, 1997, 1998, 1999 and 2000, and the selected consolidated
balance sheet data as of December 31, 1996, 1997, 1998, 1999 and 2000 have been
derived from our audited financial statements. The consolidated statements of
operations data for the years ended December 31, 1996 and 1997 and the selected
consolidated balance sheet data as of December 31, 1996, 1997 and 1998 are
derived from audited consolidated financial statements that are not included
herein. For the year ended December 31, 1996, the audited financial statements
were adjusted to eliminate the results of operations of two divisions, our
Nester and Systems divisions spun off from our operations in 1997. Therefore the
numbers presented here for 1996 represent unaudited adjusted numbers for these
periods. These financial statements have been prepared in accordance with
accounting principles generally accepted in the United States. The following
selected financial data are qualified by reference to and should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this statement.
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1996 1997 1998 1999 2000
------------ ------------ ------------ ------------- -------------
(in thousands except share and per share data)
Revenues:
Software license $ 1,491 $1,235 $3,932 $5,414 $ 10,500
Service and maintenance 1,893 1,080 2,139 4,912 5,242
------------ ------------ ------------ ------------- -------------
Total Revenues 3,384 2,315 6,071 10,326 15,742
Cost of Revenues:
Software License 14 13 25 71 272
Service and Maintenance 1,458 1,035 2,301 4,299 5,156
------------ ------------ ------------ ------------- -------------
Total cost of revenues 1,472 1,048 2,326 4,370 5,428
------------ ------------ ------------ ------------- -------------
Gross Profit 1,912 1,267 3,745 5,956 10,314
Operating Expenses:
Research and Development
expenses, net 862 1,339 2,284 2,910 4,300
Sales and Marketing expenses 2,184 3,172 6,019 8,274 14,106
General and Administrative 1,025 1,120 1,133 1,759 4,397
expenses
Share based Compensation - - - 738 1,237
============ ============ ============ ============= =============
Total Operating Expenses 4,071 5,631 9,636 13,681 24,040
Loss from Operations (2,159) (4,364) (5,891) (7,725) (13,726)
Interest and other (expenses)
income, net (278) (148) 33 (254) 680
------------ ------------ ------------ ------------- -------------
Net Loss $(2,437) $(4,512) $(5,858) $(7,979) $(13,046)
============ ============ ============ ============= =============
Dividend related to convertible
preferred shares (4,989)
------------ ------------ ------------ ------------- -------------
Net loss attributable to ordinary
shareholders $(2,437) $(4,512) $(5,858) $(12,968) $(13,046)
============ ============ ============ ============= =============
Net loss per ordinary share $(0.47) $(0.80) $(0.99) $(2.18) $(0.58)
Shares used in computing basic and diluted
net loss per share 5,216,705 5,657,728 5,914,735 5,948,816 22,312,554
17
CONSOLIDATED BALANCE SHEET DATA:
DECEMBER 31,
------------------------------------------------------------------
1996 1997 1998 1999 2000
------------ ------------ ------------ ------------- -------------
(in thousands)
Cash and cash equivalents $ 104 $ 301 $ 3,770 $ 7,838 $ 4,438
Short term Investments - - - - 16,878
Working capital (2,770) (604) 4,178 8,007 23,610
Total assets 1,866 2,604 7,983 14,195 31,455
Long-term liabilities, net of current
portion 1,954 1,530 1,254 1,112 1,446
Shareholders' equity (net capital
deficiency) (3,954) (3,177) 4,657 8,821 26,462
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for historical information, the discussion in this report contains
forward-looking statements that involve risks and uncertainties. These
forward-looking statements include, among others, those statements including the
words, "expects," "anticipates," "intends," "believes" and similar language. Our
actual results could differ materially from those discussed herein. Factors that
could cause or contribute to such differences include, but are not limited to
the risks discussed in the section titled "Risk Factors" in this document.
OVERVIEW
Prior to 1996, our operations were primarily related to consulting and custom
software solutions. In late 1996, we engaged in a comprehensive reexamination of
our strategy and changed our strategic focus to concentrate on providing service
optimization software products based on our W-6 Service Scheduler and TechMate
technologies. This change in focus was intended to allow us to license software
products useable by multiple clients, rather than developing customized software
for each client. In connection with this change of strategy, we de-emphasized
our consulting business. At that time we also spun off our textile software
operations to our then existing shareholders and discontinued our defense
application business. Since early 1997, we have invested significant resources
in developing products based on our W-6 Service Scheduler and TechMate
technologies, including increasing the number of our employees involved in
research and development, sales and marketing, and professional services.
We believe that in today's economy successful businesses must constantly
increase the performance of existing service resources. Our products emphasize
the use of optimization tools for performance enhancement in the service
environment and also offer the ability to capture the benefits and efficiencies
of the internet. Accordingly, in September 1999, we began marketing our product
lines under new names, CLICKSCHEDULE and CLICKFIX and in May 2000, we changed
our company name to ClickSoftware Technologies Ltd.
We derive revenues from software licensing and service and maintenance fees. Our
operating history shows that a significant percentage of our quarterly revenues
come from orders placed toward the end of a quarter. Software license revenues
are comprised of perpetual or annual software license fees primarily derived
from contracts with our direct sales clients and our indirect distribution
channels. We recognize revenues in accordance with the American Institute of
Certified Public Accountants Statement of Position 97-2, "Software Revenue
Recognition," or SOP 97-2, as amended by Statement of Position 98-4. Under SOP
97-2, we recognize software license revenues when a software license agreement
has been executed or a definitive purchase order has been received and the
product has been delivered to our clients, no significant obligations with
regard to implementation remain, the fee is fixed and determinable, and
collectability is probable.
Service and maintenance revenues are comprised of revenues from implementation,
consulting, training, release updates and customer service support fees.
Consulting services are billed at an agreed-upon rate plus incurred expenses.
Clients licensing our products generally purchase consulting agreements from us.
Consulting revenues are recognized on a straight-line basis over the life of the
agreement. Customer support is charged as a percentage of license fees depending
upon the level of support coverage requested by the customer. A fee of 18% of
license fees is typically charged for five day a week, eight hour coverage and
24% of license fees is typically charged for seven day a week, twenty-four hour
coverage. Our products are marketed worldwide through a combination of a direct
sales force, consultants and various business relationships we have with
implementation and technology companies and resellers.
18
Cost of revenues consists of cost of software license revenues and cost of
service and maintenance revenues. Cost of software license revenues consists of
expenses related to media duplication and packaging of our products and costs of
software purchased or licensed for resale. Cost of service and maintenance
revenues consists of expenses related to salaries and expenses of our
professional services organizations, costs related to third-party consultants,
and equipment costs.
Operating expenses are categorized into research and development expenses, sales
and marketing expenses, general and administrative expenses, and share based
compensation.
Research and development expenses consist primarily of personnel costs to
support product development, net of grants received from the Chief Scientist. In
return for some of these grants, we are obligated to pay the Israeli Government
royalties as described below which are included in sales and marketing expenses.
Software research and development costs incurred prior to the establishment of
technology feasibility are included in research and development expenses as
incurred.
General and administrative expenses consist primarily of personnel and related
costs for corporate functions, including information services, finance,
accounting, human resources, facilities, legal and costs related to activity as
public company.
Share based compensation represents the aggregate difference, at the date of
grant, between the respective exercise price of stock options and the deemed
fair market value of the underlying stock. Share based compensation is amortized
over the vesting period of the underlying options, generally four years.
Interest and other (expenses) income includes interest income earned on our
cash, cash equivalents and short term investments, offset by interest expense,
and also includes the effects of foreign currency translations.
The functional currency of our operations is the U.S. dollar, which is the
primary currency in the economic environment in which we conduct our business. A
significant portion of our research and development expenses is incurred in New
Israeli Shekels ("NIS") and a portion of our revenues and expenses are incurred
in British Pounds and the European Community Euro. The results of our operations
are subject to fluctuations in these exchange rates which are influenced by
various global economic factors.
The effects of foreign currency exchange rates on our results of operations for
the years ended December 31, 1998, 1999 and 2000 were immaterial.
Our tax rate will reflect a mix of the U.S. statutory tax rate on our U.S.
income and the Israeli tax rate discussed below. Israeli companies are generally
subject to income tax at the rate of 36% of taxable income. The majority of our
income, however, is derived from our company's capital investment program with
"Approved Enterprise" status under the Law for the Encouragement of Capital
Investments, and is eligible therefore for tax benefits. As a result of these
benefits, we will have a tax exemption on income derived during the first two
years in which this investment program produces taxable income, and a reduced
tax rate of 15-25% for the next 5 to 8 years. In the event of a distribution of
a cash dividend out of retained earnings which were exempt from tax due to its
Approved Enterprise status, we would be required to pay 25% corporate income tax
on income from which the dividend was distributed. All of these tax benefits are
subject to various conditions and restrictions. There can be no assurance that
we will obtain approval for additional Approved Enterprise Programs, or that the
provisions of the law will not change.
RESULTS OF OPERATIONS
FISCAL YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
REVENUES. Revenues increased $5.4 million or 52% to $15.7 million in 2000, from
$10.3 million in 1999. In 1999, revenues increased $4.2 million or 70% to $10.3
million from $6.1 million in 1998. In 2000, 62% our revenues were generated in
North America, 32% in Europe, 3% in Israel and 3% in all other geographic
locations ("Rest of the World"). In 1999, 67% of our revenues were generated in
North America, 21% in Europe, 9% in Israel and 3% in Rest of the World. In 1998,
71% of our revenues were generated in North America, 20% in Europe, 8% in Israel
and 1% in Rest of the World. The increase in percentage of revenues from Europe
are largely attributable to an increase in sales by our European subsidiary to
customers in Europe.
19
SOFTWARE LICENSE. Software license revenues were $10.5 million or 67% of
revenues in 2000, $5.4 million or 52% of revenues in 1999, and $3.9 million or
65% of revenues in 1998. The increase in software license revenues was due to
increased average sales per client, growth of our client base, and recurring
sales to our installed base of clients. The variability in software license
revenues as a percentage of total revenues was due to the fact that while many
of our implementations require higher initial service and maintenance, our
average deal size also increased, and these factors changed independently of
each other.
SERVICE AND MAINTENANCE. Service and maintenance revenues were $5.2 million or
33% of revenues in 2000, $4.9 million or 48% of revenues in 1999, and $2.1
million or 35% of revenues in 1998. The relatively small increase in service and
maintenance revenues from 1999 to 2000 was primarily due to an increase in
license distribution through third parties also providing implementation, and
the release of CLICKSCHEDULE FAST TRACK which offers a more rapid implementation
of CLICKSCHEDULE reducing the cost of implementation. The increase in service
and maintenance revenues from 1998 to 1999 was primarily due to an increase in
the number of clients during these periods, and increased sales of services
related to CLICKSCHEDULE implementations that these new clients required.
COST OF REVENUES. Cost of revenues were $5.4 million or 35% of revenues in 2000,
$4.4 million or 42% of revenues in 1999, and $2.3 million or 38% of revenues in
1998. This increase in the cost of revenues on an absolute basis was due to an
increased number of clients which resulted in an increased demand for our
professional services. Gross profit was 66% in 2000 as compared to 58% in 1999
and 62% in 1998. Because our service and maintenance revenues have significantly
lower gross margins than our software license revenues, the change in gross
profit percentages are primarily due to the changing mix of lower margin service
and maintenance revenues compared to higher margin software license revenues.
COST OF SOFTWARE LICENSES. Cost of software license revenues were $272,000 in
2000 $71,000 in 1999, and $25,000 in 1998. Cost of software license revenues
were less than 2% of revenues in 2000 and less than 1% of revenues in 1999 and
1998.
COST OF SERVICE AND MAINTENANCE. Cost of service and maintenance revenues were
$5.2 million or 33% of revenues in 2000, $4.3 million or 42% of revenues in
1999, and $2.3 million or 38% of revenues in 1998. The increase in the cost of
service and maintenance revenues from 1999 to 2000 was due primarily to an
increase in the sale of licenses, which resulted in an increase of $0.1 million
in personnel related costs, an increase of $0.6 million in third party related
costs and an increase of $0.2 million in other expenses. The increase in the
cost of service and maintenance revenues from 1998 to 1999 was due primarily to
an increase in the sale of licenses, which resulted in an increase of $1.4
million in personnel related costs, an increase of $0.3 million in third party
related costs and an increase of $0.3 million in other expenses. The total
number of professional services employees employed by us was 44 on December 31,
2000, 35 on December 31, 1999, and 23 on December 31, 1998.
OPERATING EXPENSES. Total operating expenses were $24.0 million or 153% of
revenues in 2000, $13.7 million or 132% of revenues in 1999,and $9.6 million or
159% of revenues in 1998.
RESEARCH AND DEVELOPMENT EXPENSES, NET. Research and development expenses, net
of related grants, were $4.3 million or 27% of revenues in 2000, $2.9 million or
28% of revenues in 1999, and $2.3 million or 38% of revenues in 1998. We
received or accrued grants from the Chief Scientist in the amount of $1.1
million in 2000, $1.0 million in 1999, and $0.9 million in 1998. The increase in
research and development expenses on an absolute basis from 1998 to 1999 and
1999 to 2000 was primarily due to an increase of $1.3 million in personnel
related costs related to improvements of our CLICKSCHEDULE and CLICKFIX product
lines and development of CLICKPLAN and CLICKANALYZE as part of our introduction
of a complete suite of service optimization management products. We are
continuing to invest substantially in research and development, and we expect
that research and development expenses will increase on an absolute basis in the
future.
20
SALES AND MARKETING EXPENSES. Sales and marketing expenses were $14.1 million or
90% of revenues in 2000, $8.3 million or 80% of revenues in 1999, and $6.0
million or 99% of revenues in 1998. The increase in 2000 was primarily due to
additional sales and marketing efforts related to the new marketing focus for
our ClickSoftware product line and the expansion of our sales and marketing
efforts worldwide during 2000. Personnel related costs increased $3.3 million
from 1999 to 2000 and other expenses increased $2.6 million. Personnel related
costs increased $1.4 million from 1998 to 1999 and other expenses increased $0.9
million. We expect that sales and marketing expenses will increase on an
absolute basis in future periods, as we hire additional sales and marketing
personnel, continue to promote our brand and establish sales in additional
geographic areas. The total number of sales and marketing employees employed by
us was 71 on December 31, 2000, 44 on December 31, 1999, and 25 on December 31,
1998.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses were
$4.4 million or 28% of revenues in 2000, $1.8 million or 17% of revenues in
1999, and $1.3 million or 22% of revenues in 1998. General and administrative
expenses included $1.1 million in bad debt charges in 2000, $0.1 million in 1999
and none in 1998. We expect that the absolute dollar amount of general and
administrative expenses exclusive of bad debt charges will continue to increase
as we expand our operations and incur incremental costs of being a public
company.
SHARE BASED COMPENSATION. Share based compensation for the year ended December
31, 2000 amounted to $1.2 million. Deferred compensation at December 31, 2000
amounted to $1.1 million which will be amortized over the period during which
the options vest, generally four years. Share based compensation for the year
ended December 31, 1999 amounted to $0.7 million. Deferred compensation at
December 31, 1999 amounted to $2.7 million.
INTEREST AND OTHER (EXPENSES) INCOME, NET. Interest income net of interest
expenses, were $0.7 million or 4% of revenues in 2000, ($0.3) million or 2% of
revenues in 1999, and $33,000 or less than 1% of revenues in 1998.
INCOME TAXES. As of December 31, 2000, we had approximately $11.6 million of
Israeli net operating loss carryforwards, approximately $17.5 million of U.S.
federal net operating loss carryforwards and approximately $3.4 million of
British net operating loss carryforwards available to offset future taxable
income. The Israeli and British net operating loss carryforwards have no
expiration date. The U.S. net operating loss carryforwards will expire in
various amounts in the years 2008 to 2014.
PREFERRED SHARE DIVIDEND. During the quarter ended December 31, 1999, we
recorded a preferred share dividend of approximately $5.0 million representing
the value of the beneficial conversion feature on the issuance of convertible
preferred shares in December 1999. The beneficial conversion feature was
calculated at the commitment date based on the difference between the conversion
price of $6.277 per share and the estimated fair value of the ordinary shares at
that date.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2000 we had cash and cash equivalents of $4.4 million and
short term investments of $16.9 million.
From inception through our IPO on June 22, 2000, we financed our operations
primarily through the private placement of equity securities which through
December 31, 1999 totaled approximately $32.0 million, net of issuance costs.
Our initial public stock offering of ordinary shares realized $28.3 million, net
of underwriter discount and other issuance costs.
Net cash used in operating activities for each of these years primarily
consisted of net losses in addition to increases in trade receivables and
prepaid expenses, partially offset by increases in accounts payable, accrued
liabilities, amortization of deferred compensation, non-cash compensation
expenses, depreciation and amortization, as applicable. For the year ended
December 31, 2000, cash used in operations was $13.5 million, comprised of our
net loss of $13.0 million, an increase in trade receivables of $0.4 million,
increase in other receivables of $1.0 million, increase in accounts payable of
$0.5 million, decrease in deferred revenue of $1 million, partially offset by
non-cash charges of $1.9 million. For the year ended December 31, 1999, cash
used in operations was $6.5 million, comprised of our net loss of $8.0 million,
an increase in trade receivables of $1.9 million, increase in accounts payable
of $1.1 million, increase in deferred revenue of $1 million, partially offset by
non-cash charges of $1.3 million. For the year ended December 31, 1998, cash
used in operations was $6.7 million, comprised of the net loss of $5.9 million,
an increase in trade receivable of $1.1 million, partially offset by non-cash
charges of $0.4 million.
21
Net cash used in investing activities was $19.5 million in 2000, of which $16.6
million was used to invest in short term investments and $2.9 million invested
primarily in leasehold improvements and purchases of equipment and systems,
including computer equipment and fixtures and furniture. Net cash used in
investing activities for 1999 and 1998 was $0.7 million and $1.0 million
respectively, which was primarily invested in leasehold improvements and
purchases of equipment and systems, including computer equipment and fixtures
and furniture.
Net cash provided by financing activities was $29.1 million in 2000, $11.3
million in 1999 and $11.1 million in 1998. In June 2000, the Company completed
an initial public offering of 4,000,000 ordinary shares at a price of $7.00 per
share. In July 2000, the Underwriters exercised their overallotment option and
purchased 600,000 additional ordinary shares at a price of $7.00 per share. The
proceeds to the Company from the offering were approximately $28.3 million (net
of underwriters discount and issuance expenses). Net cash from financing
activities during 1999 and 1998 included proceeds from the issuance of preferred
shares of $11.4 million and $11.7 million respectively.
As of December 31, 2000 we had outstanding trade receivables of approximately
$4.4 million which represented approximately 28% of 2000 total revenues. As of
December 31, 1999, we had outstanding trade receivables of approximately $4.0
million which represented approximately 38% of 1999 total revenues. Our trade
receivables typically have 30 to 60 day terms, although we also negotiate longer
payment plans with some of our clients.
Since inception, we have received aggregate payments from the Government of the
State of Israel in the amount of $4.2 million related to research and
development and $0.7 million related to marketing activities. As of December 31,
2000, we have paid or accrued royalties related to these funds in the amount of
$1.3 million. See Note 11 to our Consolidated Financial Statements.
We have a $1.0 million unsecured line of credit with an Israeli bank. No amounts
were outstanding under this line of credit as of December 31, 2000.
The Company also has an aggregate of $249,000 in term loans relating to
borrowings for working capital. We have a loan in US Dollars bearing an interest
rate of LIBOR plus 1% and a loan in New Israeli Shekels linked to the Israeli
CPI, currently bearing an interest rate of 5.4%. Additional loans are in British
Pounds bearing an average interest rate of 5.5%
Our bank in Israel has issued two standby letters of credit on our behalf. One
is for $125,000 for tenant improvements related to our facilities in Israel. The
other is for $575,000 and secures our performance pursuant to projects with the
Government of Israel. Additionally, Silicon Valley Bank has issued a letter of
credit on our behalf in the amount of $205,560 to assure performance under the
terms of our Campbell, CA lease.
Our capital requirements depend on numerous factors, including market acceptance
of our products, the resources we devote to developing, marketing, selling and
supporting our products, the timing and extent of establishing additional
international operations and other factors. We intend to continue investing
significant resources in our sales and marketing and research and development
operations in the future. We believe that our current cash balances will be
sufficient to fund our expenses until we reach profitability. However, we cannot
assure you that we will attain sufficient revenues to achieve or maintain
profitability, particularly given current economic conditions and potential
reductions in information technology spending by our current and prospective
customers. We may need to raise additional capital to finance our operations or
for strategic purposes, and we may do so by selling additional equity or debt
securities or by increasing the size of our credit facility. If additional funds
are raised through the issuance of equity or debt securities, these securities
could have rights, preferences and privileges senior to those of holders of
ordinary shares, and the terms of these securities could impose restrictions on
our operations. The sale of additional equity or convertible debt securities
could result in additional dilution to our shareholders. In addition, we cannot
be certain that additional financing will be available in amounts or on terms
acceptable to us, if at all. If we are unable to obtain this additional
financing, we may be required to reduce the scope of our planned product
development and marketing efforts, which could harm our business, financial
condition or operating results.
22
RISKS RELATED TO OUR BUSINESS
THE ECONOMIC OUTLOOK FOR THE BEGINNING OF THE YEAR 2001 MAY ADVERSELY AFFECT THE
DEMAND FOR OUR PRODUCTS AND THE COMPANY'S RESULTS OF OPERATIONS. Predictions for
the general economy for the first part of 2001 indicate uncertain economic
conditions. Weak economic conditions may cause a reduction in information
technology spending generally. Consequently, there may be an adverse impact on
the demand for our products, which would adversely affect our results of
operations. In addition, predictions regarding economic conditions have a low
degree of certainty, and further predicting the effects of the changing economy
is even more difficult. We may not accurately gauge the effect of the general
economy on our business. As a result, we may not react to such changing
conditions in a timely manner which may result in an adverse impact on our
results of operations. Any such adverse impacts to our results of operations
from a changing economy may cause the price of our ordinary shares to decline.
WE HAVE NOT ACHIEVED PROFITABILITY AND WE EXPECT TO CONTINUE TO INCUR NET LOSSES
FOR THE IMMEDIATE FUTURE. We expect to continue to incur significant sales and
marketing and research and development expenses, and such expenses may increase
in the future. Some of our expenses, such as administrative and management
payroll and rent and utilities, are fixed in the short term and cannot be
quickly reduced to respond to decreases in revenues. As a result, we will need
to generate significant revenues to achieve and maintain profitability, which we
may not be able to do.
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO FLUCTUATIONS AND IF WE FAIL TO
MEET THE EXPECTATIONS OF SECURITIES ANALYSTS OR INVESTORS, OUR SHARE PRICE MAY
DECREASE. Our quarterly operating results are difficult to predict and are not a
good measure for comparison. Our operating history shows that a significant
percentage of our quarterly revenues come from orders placed toward the end of a
quarter. For example, in the year ended December 31, 2000, an average of 62% of
realized revenue was recognized in the last two weeks of each quarter.
From time to time, we anticipate a sale of significant size to a single
customer. A delay in the completion of any sale past the end of a particular
quarter could negatively impact results for that quarter, and such negative
impact could be significant for the delay of a sale of significant size. Even
without the delay of a significant sale, our future quarterly operating results
may fluctuate significantly and may not meet the expectations of securities
analysts or investors. If this occurs, the price of our ordinary shares may
decrease. The factors that may cause fluctuations in our quarterly operating
results include the following:
* the volume and timing of customer orders;
* internal budget constraints of our current and prospective clients;
* the length and unpredictability of our sales cycle;
* the mix of revenue generated by product licenses and professional services;
* the mix of revenue between domestic and foreign sources;
* announcements or introductions of new products or product enhancements by us
or our competitors;
* changes in prices of and the adoption of different pricing strategies for
our products and those of our competitors;
* timing and amount of sales and marketing expenses;
* changes in our business and partner relationships;
* technical difficulties or "bugs" affecting the operation of our software;
* foreign currency exchange rate fluctuations; and
* general economic conditions.
23
FAILURE OF THE MARKET TO ACCEPT OUR TECHNOLOGY WOULD ADVERSELY AFFECT DEMAND FOR
OUR PRODUCTS AND THE PRICE OF OUR ORDINARY SHARES COULD DECLINE. Our products
are based on complex technologies, including sophisticated algorithms and models
which we have developed to address complex scheduling and troubleshooting issues
in the service industry. Although our products are currently being used in the
service industry, and we believe our technologies address these issues, the
methods we have chosen have not yet been widely accepted by the service
industry. We cannot predict whether our products will be widely accepted by the
service industry. Failure of the market to accept our technology would adversely
affect demand for our products. In addition, we participate in an industry with
an inherently high failure rate and we cannot assure you that our clients will
achieve success when using our products and services. Any publicized performance
problems relating to our products or those of our competitors could also slow
client adoption of our products. Moreover, to the extent that we are associated
with unsuccessful client projects, even if due to factors beyond our control,
our reputation and competitive position in our industry could be materially and
adversely affected.
OUR PRODUCT SUITE ACCOUNTS FOR ALL OF OUR LICENSE REVENUE. IF THE DEMAND FOR
THIS PRODUCT FALLS, OUR SALES COULD BE SIGNIFICANTLY REDUCED AND OUR FINANCIAL
PERFORMANCE COULD BE SERIOUSLY DAMAGED. Historically, all of our operating
revenue has come from sales of, and services related to, our CLICKSCHEDULE
product and our CLICKFIX product, to clients seeking application software that
enables efficient provisioning of services in enterprise environments. As we
pursue our business strategy and continue to integrate new products with the
product suite, we anticipate that revenues from sales of our CLICKSCHEDULE and
CLICKFIX product lines, together with related professional services fees, will
account for a substantial portion of our operating revenue for the foreseeable
future. Accordingly, the widespread market acceptance of these products is
critical to our future success. Competition, technological change or other
factors could decrease demand for, or market acceptance of, these products or
make these products obsolete. Any decrease in demand or market acceptance would
have a material adverse effect on our business and operating results.
During the year ended December 31, 2000, we introduced three new products that,
together with our existing products, constitute a suite of products that offers
a more comprehensive solution to our customers. The growth of our company
depends on the development of market acceptance of these new products. We have
no guarantee that the sales of these new products will develop as quickly as we
anticipate, or at all. Lack of long-term demand for our new products would have
a material adverse effect on our business and operating results.
OUR LONG AND UNPREDICTABLE SALES AND IMPLEMENTATION CYCLES DEPEND ON FACTORS
OUTSIDE OUR CONTROL, WHICH MAY CAUSE QUARTERLY LICENSE AND SERVICE FEES REVENUES
TO VARY SIGNIFICANTLY FROM PERIOD TO PERIOD. To date, our customers have taken a
long time, typically ranging from three months to one year, to evaluate our
products before making their purchase decisions. In addition, depending on the
nature and specific needs of a client, the implementation of our products can
take up to three to twelve months. Sales of licenses and implementation
schedules are subject to a number of risks over which we have little or no
control, including clients' budgetary constraints, clients' internal acceptance
reviews, the success and continued internal support of clients' own development
efforts, the efforts of businesses with which we have relationships, the nature,
size and specific needs of a client and the possibility of cancellation of
projects by clients. The uncertain outcome of our sales efforts and the length
of our sales cycles could result in substantial fluctuations in license
revenues. If sales forecasted from a specific client for a particular quarter
are not realized in that quarter, we are unlikely to be able to generate
revenues from alternate sources in time to compensate for the shortfall. As a
result, and due to the relatively large size of some orders, a lost or delayed
sale could have a material adverse effect on our quarterly revenue and operating
results. Moreover, to the extent that significant sales occur earlier than
expected, revenue and operating results for subsequent quarters could be
adversely affected.
24
FAILURE TO EXPAND OUR SALES AND MARKETING ORGANIZATIONS COULD LIMIT OUR ABILITY
TO SELL ADDITIONAL PRODUCTS AND SERVICES, WHICH WOULD IMPAIR OUR ABILITY TO GROW
OUR BUSINESS AND INCREASE REVENUES. We are expanding our direct and indirect
sales operations to increase market awareness of our products and generate
increased revenues. We cannot be certain that we will be successful in these
efforts. In addition to normal turnover of personnel, we are attempting to
expand our direct sales force in North America. As of December 31, 2000, we
employed 71 individuals in our sales and marketing organizations. Because 27 of
these sales and marketing personnel joined us within the last twelve months, we
will be required to devote significant resources to the training of these new
sales personnel. In addition, we might not be able to hire or retain the kind
and number of sales and marketing personnel we are targeting because competition
for qualified sales and marketing personnel in our market is intense.
WE DEPEND ON KEY PERSONNEL, AND THE LOSS OF ANY KEY PERSONNEL COULD AFFECT OUR
ABILITY TO COMPETE AND OUR ABILITY TO ATTRACT ADDITIONAL KEY PERSONNEL MAY BE
IMPAIRED. We believe our future success will depend on the continued service of
our executive officers and other key sales and marketing, product development
and professional services personnel. Dr. Moshe BenBassat, our Chief Executive
Officer, has individually participated in and has been responsible for
overseeing much of the research and development of our core technologies. Mr.
Shimon Rojany, our CFO, recently announced his upcoming retirement. Mr. Rojany
is committed to continuing his services for as long as required to ensure a
smooth transition. The services of Dr. BenBassat and other members of our senior
management team and key personnel would be very difficult to replace and the
loss of any of these employees could harm our business significantly. We have
employment agreements with, among others, Dr. BenBassat, Mr. Rojany, and Mr.
Corey Leibow, our Chief Operating Officer. Although these agreements request
sixty days notification prior to departure, relationships with these officers
and key employees are at will. The loss of any of our key personnel could harm
our ability to execute our business strategy and compete. In addition, given the
decline in our share price and the volatility of the stock market, we believe
that the prospective employees that we target may perceive that the share option
component of our compensation packages is not valuable. Consequently, we may
have difficulty hiring our desired numbers of key personnel. Moreover, even if
we are able to attract key personnel, the resources required to attract and
retain such personnel may adversely affect our operating results.
IF WE FAIL TO EXPAND OUR PROFESSIONAL SERVICES ORGANIZATION, WE MAY NOT BE ABLE
TO SERVICE ADDITIONAL CLIENTS AND INSTALL ADDITIONAL LICENSES. We cannot be
certain that we can attract or retain a sufficient number of highly qualified
professional services personnel to meet our business needs. Clients that license
our software typically engage our professional services organization to assist
with the installation and operation of our software applications. Our
professional services organization also provides assistance to our clients
related to the maintenance, management and expansion of their software systems.
Growth in licenses of our software will depend in part on our ability to provide
our clients with these services. In addition, we will be required to expand our
professional services organization to enable us to continue to support our
existing installed base of customers. As a result, we plan to increase the
number of our service personnel in order to meet these needs. Competition for
qualified services personnel with the relevant knowledge and experience is
intense, and we may not be able to attract and retain necessary personnel. If we
are not able to grow our professional services organization, our ability to
expand our service business would be limited. In addition, we could experience
delays in recognizing revenue if our professional services group fails to
complete implementations in a timely manner.
IF WE FAIL TO EXPAND OUR RELATIONSHIPS WITH THIRD PARTIES THAT CAN PROVIDE
IMPLEMENTATION AND PROFESSIONAL SERVICES TO OUR CLIENTS, WE MAY BE UNABLE TO
INCREASE OUR REVENUES AND OUR BUSINESS COULD BE HARMED. In order for us to focus
more effectively on our core business of developing and licensing software
solutions, we need to continue to establish relationships with third parties
that can provide implementation and professional services to our clients.
Third-party implementation and consulting firms can also be influential in the
choice of resource optimization applications by new clients. If we are unable to
establish and maintain effective, long-term relationships with implementation
and professional services providers, or if these providers do not meet the needs
or expectations of our clients, we may be unable to grow our revenues and our
business could suffer. As a result of the limited resources and capacities of
many third-party implementation providers, we may be unable to attain sufficient
focus and resources from the third-party providers to meet all of our clients'
needs, even if we establish relationships with these third parties. If
sufficient resources are unavailable, we will be required to provide these
services internally, which could limit our ability to meet other demands. Even
if we are successful in developing relationships with third-party implementation
and professional services providers, we will be subject to significant risk, as
we cannot control the level and quality of service provided by third-party
implementation and professional services partners.
25
OUR ABILITY TO ATTRACT AND RETAIN QUALIFIED DEVELOPERS IS CRUCIAL TO OUR FUTURE
GROWTH AND RESULTS OF OPERATIONS. As a company focused on the development of
software products, our research and development personnel is one of our most
valued assets. Our future success depends in large part on our ability to hire,
train and retain software developers, systems architects, project managers,
business process experts, systems analysts, trainers, consultants and sales and
marketing professionals of various experience levels. Personnel possessing the
skills needed to contribute to our research and development efforts are in short
supply, and this shortage is likely to continue. As a result, competition for
these people is intense, and the industry turnover rate for them is high.
Although the location of our development team in Israel protects us from this
risk to some extent, any inability to hire, train and retain a sufficient number
of qualified development employees could hinder the research and development
activities and growth of our business.
OUR MARKET IS HIGHLY COMPETITIVE AND ANY REDUCTION IN DEMAND FOR, OR PRICES OF,
OUR PRODUCTS COULD NEGATIVELY IMPACT OUR REVENUES, REDUCE OUR GROSS MARGINS AND
CAUSE OUR SHARE PRICE TO DECLINE. The market for our products is competitive and
rapidly changing. We expect competition to increase in the future as current
competitors expand their product offerings and new companies enter the market.
Because the market for service and delivery optimization software is evolving,
it is difficult to determine what portion of the market each competitor
currently controls. However, competition could result in price reductions, fewer
customer orders, reduced gross margin and loss of market share, any of which
could cause our business to suffer. We may not be able to compete successfully,
and competitive pressures may harm our business.
Some of our current and potential competitors have greater name recognition,
longer operating histories, larger customer bases and significantly greater
financial, technical, marketing, public relations, sales, distribution and other
resources than us. In addition, some of our potential competitors are among the
largest and most well capitalized software companies in the world. See Part 1,
Competition.
FAILURE TO FULLY DEVELOP OR MAINTAIN KEY BUSINESS RELATIONSHIPS COULD LIMIT OUR
ABILITY TO SELL ADDITIONAL LICENSES WHICH COULD DECREASE OUR REVENUES AND
INCREASE OUR SALES AND MARKETING COSTS. We believe that our success in
penetrating our target markets depends in part on our ability to develop and
maintain business relationships with software vendors, resellers, systems
integrators, distribution partners and customers. If we fail to continue
developing these relationships, our growth could be limited. We have entered
into agreements with third parties relating to the integration of our products
with their product offerings, distribution, reselling and consulting. We are
only beginning to derive revenues from these agreements but we may not be able
to derive significant revenues in the future from these agreements. In addition,
our growth may be limited if prospective clients do not accept the solutions
offered by our strategic partners.
OUR MARKET MAY EXPERIENCE RAPID TECHNOLOGICAL CHANGES THAT COULD CAUSE OUR
PRODUCTS TO FAIL OR REQUIRE US TO REDESIGN OUR PRODUCTS, WHICH WOULD RESULT IN
INCREASED RESEARCH AND DEVELOPMENT EXPENSES. Our market is characterized by
rapid technological change, dynamic client needs and frequent introductions of
new products and product enhancements. If we fail to anticipate or respond
adequately to technology developments and client requirements, or if our product
development or introduction is delayed, we may have lower revenues. Client
product requirements can change rapidly as a result of computer hardware and
software innovations or changes in and the emergence, evolution and adoption of
new industry standards. For example, we offer Windows NT versions of our
products due to the market acceptance of Windows NT over the last several years.
While we interface smoothly with UNIX systems, we currently do not provide Unix
versions of our software. The actual or anticipated introduction of new products
has resulted and will continue to result in some reformulation of our product
offerings. Technology and industry standards can make existing products obsolete
or unmarketable or result in delays in the purchase of such products. As a
result, the life cycles of our products are difficult to estimate. We must
respond to developments rapidly and continue to make substantial product
development investments. As is customary in the software industry, we have
previously experienced delays in introducing new products and features, and we
may experience such delays in the future which could impair our revenue and
operating results.
26
OUR PRODUCTS COULD BE SUSCEPTIBLE TO ERRORS OR DEFECTS THAT COULD RESULT IN LOST
REVENUES, LIABILITY OR DELAYED OR LIMITED MARKET ACCEPTANCE. Complex software
products such as ours often contain errors or defects, particularly when first
introduced or when new versions or enhancements are released. In the past, some
of our products have contained errors and defects which have delayed
implementation or required us to expend additional resources to correct the
problems. Despite internal testing and testing by current and potential clients,
and despite the history of use by our installed base of customers, our current
and future products may contain as yet undetected serious defects or errors. Any
such defects or errors could result in lost revenues, liability or a delay in
market acceptance of these products, any of which would have a material adverse
effect on our business, operating results and financial condition.
The performance of our products also depends in part upon the accuracy and
continued availability of third-party data. We rely on third parties that
provide information such as street and address locations and mapping functions
that we incorporate into our products. If these parties do not provide accurate
information, or if we are unable to maintain our relationships with them, our
reputation and competitive position in our industry could suffer and we could be
unable to develop or enhance our products as required.
OUR INTELLECTUAL PROPERTY COULD BE USED BY THIRD PARTIES WITHOUT OUR CONSENT
BECAUSE PROTECTION OF OUR INTELLECTUAL PROPERTY IS LIMITED. Our success and
ability to compete are substantially dependent upon our internally developed
technology, which we protect through a combination of copyright, trade secret
and trademark law. However, we may not be able to adequately protect our
intellectual property rights, which may significantly harm our business.
Specifically, we may not be able to protect our trademarks for our company name
and our product names, and unauthorized parties may attempt to copy or otherwise
obtain and use our products or technology. Policing unauthorized use of our
products and technology is difficult, particularly in countries outside the
U.S., and we cannot be certain that the steps we have taken will prevent
infringement or misappropriation of our intellectual property rights.
Our end-user licenses are designed to prohibit unauthorized use, copying or
disclosure of our software and technology in the United States, Israel and other
foreign countries. However, these provisions may be unenforceable under the laws
of some jurisdictions and foreign countries. Unauthorized third parties may be
able to copy some portions of our products or reverse engineer or obtain and use
information and technology that we regard as proprietary. Third parties could
also independently develop competing technology or design around our technology.
If we are unable to successfully detect infringement and/or to enforce our
rights to our technology, we may lose competitive position in the market. We
cannot assure you that our means of protecting our intellectual property rights
in the United States, Israel or elsewhere will be adequate or that competing
companies will not independently develop similar technology. In addition, some
of our licensed users may allow additional unauthorized users to use our
software, and if we do not detect such use, we could lose potential license
fees.
OUR TECHNOLOGY AND OTHER INTELLECTUAL PROPERTY MAY BE SUBJECT TO INFRINGEMENT
CLAIMS. Substantial litigation regarding technology rights and other
intellectual property rights exists in the software industry both in terms of
infringement and ownership issues. A successful claim of patent, copyright or
trademark infringement or conflicting ownership rights against us could cause us
to make changes in our business or significantly harm our business. We are one
of the pioneers in our field and we believe that our products do not infringe
the intellectual property rights of third parties. However, we cannot assure you
that we will prevail in all future intellectual property disputes.
We expect that software products may be increasingly subject to third-party
infringement or ownership claims as the number of competitors in our industry
segment grows and the functionality of products in different industry segments
overlaps. Third parties may make a claim of infringement or conflicting
ownership rights against us with respect to our products and technology. Any
claims, with or without merit, could:
27
* be time-consuming to defend;
* result in costly litigation;
* divert management's attention and resources; or
* cause product shipment delays.
Further, if an infringement or ownership claim is successfully brought against
us, we may have to pay damages or royalties, enter into a licensing agreement,
and/or stop selling the product or using the technology at issue. Any such
royalty or licensing agreements may not be available on commercially reasonable
terms, if at all. From time to time, we may encounter disputes over rights and
obligations concerning intellectual property. We also indemnify some of our
customers against claims that our products infringe the intellectual property
rights of others. We have only conducted a partial search for existing patents
and other intellectual property registrations, and we cannot assure you that our
products do not infringe any issued patents. In addition, because patent
applications in the United States and Israel are not publicly disclosed until
the patent is issued, applications may have been filed which would relate to our
products.
ANY FUTURE ACQUISITIONS OF COMPANIES OR TECHNOLOGIES MAY RESULT IN DISTRACTION
OF OUR MANAGEMENT AND DISRUPTIONS TO OUR BUSINESS. Although not currently under
consideration, we may acquire or make investments in complementary businesses,
technologies, services or products if appropriate opportunities arise. From time
to time we may engage in discussions and negotiations with companies regarding
our acquiring or investing in such companies' businesses, products, services or
technologies. We cannot make assurances that we will be able to identify future
suitable acquisition or investment candidates, or if we do identify suitable
candidates, that we will be able to make such acquisitions or investments on
commercially acceptable terms or at all. Our management has limited experience
in acquiring companies or technologies. If we acquire or invest in another
company, we could have difficulty assimilating that company's personnel,
operations, technology or products and service offerings. In addition, the key
personnel of the acquired company may decide not to work for us. These
difficulties could disrupt our ongoing business, distract our management and
employees, increase our expenses and adversely affect our results of operations.
Furthermore, we may incur indebtedness to pay for any future acquisitions. As of
the date of this statement, we have neither begun discussions nor entered an
agreement to make any such material investment or acquisition transaction.
FUTURE ACQUISITIONS MAY RESULT IN DILUTION TO OUR CURRENT SHAREHOLDERS. In the
future we may acquire complementary business through the issuance of additional
ordinary shares. Additional issuances of ordinary shares could decrease the
value of our ordinary shares and reduce the net tangible book value per share.
Consequently, an acquisition in which we issue additional shares could actually
decrease the value of your investment in ClickSoftware. As of the date of this
statement, we have neither begun discussions nor entered an agreement to make
any material acquisition which would result in the issuance of additional
shares.
OUR BUSINESS MAY BECOME INCREASINGLY SUSCEPTIBLE TO NUMEROUS RISKS ASSOCIATED
WITH INTERNATIONAL OPERATIONS. A significant portion of our operations occur
outside the United States. Our facilities are located in North America, Israel,
the European continent, and the United Kingdom, and our executive officers and
other key employees are dispersed throughout the world. This geographic
dispersion requires significant management resources that may place us at a
disadvantage compared to our locally-based competitors. In addition, our
international operations are generally subject to a number of risks, including:
* foreign currency exchange rate fluctuations;
* longer sales cycles;
* multiple, conflicting and changing governmental laws and regulations;
* expenses associated with customizing products for foreign countries;
* protectionist laws and business practices that favor local competition;
* difficulties in collecting accounts receivable; and
* political and economic instability.
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We expect international revenues to continue to account for a significant
percentage of total revenues and we believe that we must continue to expand our
international sales and professional services activities in order to be
successful. Our international sales growth will be limited if we are unable to
expand our international sales management and professional services
organizations, hire additional personnel, customize our products for local
markets and establish relationships with additional international distributors,
consultants and other third parties. If we fail to manage our geographically
dispersed organization, we may fail to meet or exceed our business plan and our
revenues may decline.
THE RATE OF INFLATION IN ISRAEL MAY NEGATIVELY IMPACT OUR COSTS IF IT EXCEEDS
THE RATE OF DEVALUATION OF THE NIS