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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
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X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
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For the fiscal year ended December 31, 2002
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the transition period from _______________________ to ______________________
Commission file number 000-30827
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CLICKSOFTWARE TECHNOLOGIES LTD.
(Exact name of registrant as specified in its charter)
Israel Not Applicable
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
34 Habarzel Street
Tel Aviv, Israel 69710
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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: None
Securities registered pursuant to Section 12(g) of the Act:
Ordinary Shares, NIS 0.02 par value
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(Title of class)
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10-K CLICKSOFTWARE TECHNOLOGIES LTD. PAGE 1
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
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. / /
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 June 28,
2002 (the last business day of the Registrant's most recently completed second
fiscal quarter) as reported by the Nasdaq National Market, was approximately
$5.2 million. 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.
As of March 13, 2003, there were approximately 26,373,249 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 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 Registrant's Proxy Statement and Notice of Annual General Meeting of
Shareholders is incorporated by reference.
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10-K CLICKSOFTWARE TECHNOLOGIES LTD. PAGE 2
TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business.................................................... 4
Item 2. Properties.................................................. 12
Item 3. Legal Proceedings........................................... 13
Item 4. Submission of Matters to a Vote of Security Holders......... 13
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 14
Item 6. Selected Consolidated Financial Data........................ 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 16
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 33
Item 8. Financial Statements........................................ 34
Item 8A. Unaudited Consolidated Quarterly Financial Data ............ 50
Item 9. Changes In and Disagreement With Accountants on Accounting
and Financial Disclosure.................................... 50
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 52
Item 11. Executive Compensation...................................... 52
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 52
Item 13. Certain Relationships and Related Transactions.............. 52
Item 14. Controls and procedures..................................... 52
Item 15. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 53
SIGNATURES................................................................ 55
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10-K CLICKSOFTWARE TECHNOLOGIES LTD. PAGE 3
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 our judgment as of
the date of this annual report on Form 10-K with respect to future events, the
outcome of which is subject to certain risks, including the risk factors set
forth herein, which may have a significant impact on our business, operating
results or financial condition. Investors are cautioned that these
forward-looking statements are inherently uncertain. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results or outcomes may vary materially from those described
herein. We undertake no obligation to update forward-looking statements, whether
as a result of new information, future events or otherwise.
ITEM 1. BUSINESS
We provide software products for optimizing service operations, which are
designed to improve customer responsiveness and the utilization of service
resources. Our products allow our clients to respond quickly to customers'
demands for service while improving utilization of service personnel and
reducing 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 the U.S., ClickSoftware, Inc.; a wholly-owned subsidiary
incorporated in the United Kingdom, ClickSoftware Europe, Limited; a
wholly-owned subsidiary in Belgium, ClickSoftware Belgium, N.V.; and a
wholly-owned subsidiary incorporated in Germany, ClickSoftware Central Europe
GmbH. On January 21, 2002 our U.S. subsidiary incorporated a wholly owned
subsidiary in Australia, ClickSoftware Australia Pty Limited. Our product
development efforts are conducted primarily in Israel. Our sales and marketing
and implementation efforts in North America, Europe, and Asia Pacific and Africa
are conducted by our subsidiaries.
PRODUCTS
We provide solutions for end-to-end service chain optimization that are designed
to increase revenue and customer responsiveness while reducing costs. Our
Service Optimization suite includes strategic and tactical workforce planning,
optimized service scheduling, intelligent problem resolution, wireless workforce
management, and business analytics, connecting various organizational levels and
all functions, from executive strategy to operational execution.
Our service optimization solutions are utilized by leading service organizations
in several service industry segments, including: telecommunications, computer
and office equipment, industrial equipment, medical equipment, building
automation, utilities, financial services, aerospace & defense, and home
services. ClickSoftware's solutions can deliver improvements in:
o field workforce productivity
o responsiveness to customers
o quality of service delivered
o profitability of the service operation
o reduction in missed customer commitments
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10-K CLICKSOFTWARE TECHNOLOGIES LTD. PAGE 4
We have achieved our position in service chain optimization through years of
experience in a variety of service operations. The result is a highly advanced
technology with the flexibility to model and accommodate varying business types
and processes. The ease with which it can be integrated with leading customer
relationship management (CRM) and enterprise resource planning (ERP) solutions,
often with standard interface adaptors, enables ClickSoftware customers to
accelerate the deployment of the solution.
SERVICE OPTIMIZATION SUITE OF PRODUCTS
Our suite of products provides an end-to-end solution for improving the
efficiency and effectiveness of service operations. Our key products utilize an
advanced optimization engine to drive decisions within service organizations
based on common business goals and policies from the CEO to the field
technician. Our Service Optimization suite includes:
CLICKPLAN provides interactive and automated workforce planning for staffing and
deployment of the field workforce based on forecasted workload. ClickPlan
enables service organizations to resolve workforce shortages and surpluses weeks
and months in advance. Comparing available resources to forecasted workloads,
ClickPlan helps determine the best strategy to ensure the right people are in
the right place, at the right time.
CLICKSCHEDULE optimizes service scheduling and routing for improving workforce
productivity by balancing customer, resource, and organizational preferences
including contractual commitments, priority, drive time, skills, and resource
availability. Configuration capabilities, very high scalability and use of
standard eXtensible Markup Language (XML) interfaces are designed to improve
integration with enterprise systems and deployment according to organizational
business policies and processes.
CLICKFIX provides intelligent diagnostics and problem resolution for reducing
service costs. ClickFix enables faster resolution of customer issues at multiple
levels of service contact, from the call center to the field. Based on an
intelligent engine that utilizes specific knowledge about customers' equipment,
ClickFix diagnoses and resolves problems independent of the user's skills,
experience, and knowledge. Accessibility via the Web empowers customers to
resolve problems themselves at any time of day, and often without a resource,
requiring fewer onsite visits.
CLICKMOBILE provides wireless workforce management for monitoring field
workforce activities and reducing the labor of dispatching. ClickMobile enables
job detail notification from the field and allows for field updates even when
resources are out of wireless coverage. Assignments created in ClickSchedule are
dispatched to field devices based on configurable workflows while enabling
real-time visibility into workforce activity including job status, start, and
end time.
CLICKANALYZE provides service business analytics for workforce performance
measurement and strategic decision support. ClickAnalyze enables drill-down
analysis of key performance indicators including resource productivity,
operational costs, and responsiveness to customers. Integrated within the
Service Optimization suite, ClickAnalyze provides executive level summaries as
well as detailed analysis by territory, job type, time frame and other criteria.
CLICKFORECAST provides field service workload forecasting to help companies
reduce excess workforce capacity. ClickForecast can combine historical service
workload with future business events to create a forecast for each territory,
job type, or business unit. ClickForecast enables service managers, marketing,
and sales to collaboratively determine required staffing levels, and create
multiple forecast scenarios, each with different business assumptions.
TECHNOLOGY
The Service Optimization suite utilizes a foundation of core technologies that
we developed over a period of more than 10 years in the service industry.
Originally brought to market as W-6 Service Scheduler and TechMate, these
technologies include sophisticated algorithms and business process
representation tools. Our research and development personnel have been working
on service optimization technology solutions since 1985, including algorithmic
software solutions, system integration and implementations. The Service
Optimization suite, with its depth and breadth, reflects our experience and
investment into the complex optimization and decision support troubleshooting
needs of service organizations.
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10-K CLICKSOFTWARE TECHNOLOGIES LTD. PAGE 5
Analogous to, but more complex than the supply chain, the service chain involves
different variables and challenges including the scheduling of personnel with
varying skills in different locations to simple and complex tasks. All of these
variables must be considered in constantly changing conditions to meet the fast
pace typical of service-level and profit driven organizations.
Our applications are standards-based, facilitating integration with related
Customer Relationship Management (CRM), Enterprise Resource Planning (ERP) or
supply chain functions. Service Optimization client applications run on standard
web browsers and Windows-based computers. The application server supports
leading database management systems, including Oracle (Windows and non-Windows)
and Microsoft SQL Server scalable enough to meet the demands of large service
organizations. Service Optimization delivers inherent scalability based on a
DYNAMIC LOAD BALANCING architecture that uses thin clients, a stateless server
model, multi-threaded application servers and relational databases.
Our proprietary optimization algorithms provide efficient solutions for complex
problems arising from, among others, the following:
o the vast number of possible solutions for evaluation when optimizing
the scheduling of personnel;
o the number of service organization-specific resources and variables
including skills, availability, location, customer preference,
workload balancing, contractual commitments, employee preferences,
customer priority, and others;
o the need to instantly respond to concurrent users' service requests in
a highly dynamic decision-making environment;
o the vast number of potential routes within a specific geographic area,
each having an impact on the cost of service; and
o various time zone considerations in large service organizations.
Service Optimization also includes sophisticated service business scenario
modeling power. We have developed models based on a vast number of variables and
resource characteristics common to service organizations. By employing these
models, Service Optimization addresses the market needs of different segments of
the service industry and broadens the customer base for our products.
Service Optimization incorporates several critical technologies to provide
intelligent decision support in a scalable and open architecture:
o Application software and web servers capable of performing
optimization, problem resolution, and Internet access to the
application host system; and
o Application Programming Interfaces (APIs) based on eXtensible Markup
Language (XML), enable other applications to integrate and access
Service Optimization data and services without additional training or
applications for users to adopt.
Our optimization merges mathematical disciplines and experience with real-life
service operations. The result is an algorithm that combines the traits of
several optimization disciplines including adaptive learning, genetic
algorithms, taboo search, and geographic clustering. Our optimization overcomes
the challenge of a vast number of possible schedules by first rapidly
identifying all feasible schedules, and then selecting the best schedules. The
schedule is selected by evaluating each feasible schedule by weighted cost of
service, job revenue, and customer satisfaction to create a BUSINESS VALUE for
the schedule. The business value is then used to compare the quality of all
schedules, constantly maintaining an optimized schedule. ClickFix's diagnostic
and problem resolution engine includes algorithms for problem resolution based
on equipment design and field knowledge, a knowledge base with self-learning
capabilities, and an intelligent component that creates new trouble shooting
solutions based on modeling both equipment structure and historic data.
Our development methodology is based on techniques that facilitate development
of components that can be incorporated in future products. This methodology
enables us to reduce the time required to introduce functional enhancements and
new products. The development methodology involves direct analysis of customers'
business requirements, software module design to meet these requirements,
software development and coding, testing, and quality assurance. Our research
and development group and their processes are ISO 9001 certified.
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10-K CLICKSOFTWARE TECHNOLOGIES LTD. PAGE 6
PROFESSIONAL SERVICES AND CUSTOMER SUPPORT
Our professional services organization is staffed by employees 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:
o 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 and business change management.
o 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.
o Project Advisory Services - We offer a packaged set of reviews and
consulting services targeted at ensuring the ability of our
implementation partners to deliver a working solution. We have
provided this service to date to support relatively simple
implementations of specific niche customers such as utilities.
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
customer support team.
SALES AND MARKETING
We market and sell our products primarily through our direct sales force, which
is located in North America, Europe, and the Asia Pacific and Africa region. Our
multidisciplinary sales teams consist of field sales executives, sales support
engineers and internal sales staff. The internal sales staff is responsible for
generating leads and qualifying prospective clients. Sales support engineers
assist the sales executives in the technical aspects of the sales process,
including preparing demonstrations and technical proposals. Our sales executives
are responsible for completing the sales process and managing the post-sale
client relationship, which consists of ongoing relationship management and the
sale of additional licenses, 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, email campaigns, web seminars
with our customers and industry analysts, a newsletter and advertising creation
and placement, direct mailings and trade shows. As of December 31, 2002, we
employed over 30 individuals in our sales and marketing department.
Our business development organization 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 ERP companies and
CRM vendors. We participate in joint sales efforts. A partial list of these
vendors includes Amdocs Clarify CRM, SAP AG, and Siebel Systems.
We have also established relationships with large System Integrator (SI)
organizations such as Accenture, IBM business consulting services, Deloitte
Consulting, and Bering
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10-K CLICKSOFTWARE TECHNOLOGIES LTD. PAGE 7
point. These partners have committed various levels of resources to integrate,
customize and implement our solutions. Depending on the strength of the
relationship, we have co-invested in training and certifying their professional
services teams, developed co-marketing programs, and incorporated our products
into their marketing/referral strategies.
We also have a focused reseller program. Our formal reseller agreements
generally provide the parties with the right to use each other's name in
marketing and advertising materials, and to conduct joint marketing programs.
These agreements are generally for a one-year period and are automatically
renewable. We provide sales materials and training to resellers on the
marketing, selling and implementation of our software solutions. We believe
these relationships will extend our presence and brand name in new and existing
markets.
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 $500,000 of
product and/or service revenues for 2002 and, as a group, these clients
accounted for approximately 46% of our total revenues for 2002:
Accenture Australia Limited
Gaz Metropolitain Inc.
London Electricity plc.
Philips Medical Systems Nederland B.V.
Siemens ICN
Siemens Westinghouse Power Company
Telstra Corporation
No customer accounted for greater than 10% of revenues during the year ended
December 31, 2002.
RESEARCH AND DEVELOPMENT
We have invested significant time and resources in creating a structured process
for undertaking all product development projects. These include documenting
product requirements, specifying product features and workflow, developing the
software, performing quality assurance, and creating documentation and
packaging. Our research and development center in Israel is ISO 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, capacity planning and
monitoring, schedule optimization and installations scheduling, and continuing
to enhance the scalability of our products, and in continuing the development of
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 $3.8 million
for the year ended December 31, 2002, $4.4 million for the year ended December
31, 2001 and $5.4 million for the year ended December 31, 2000. As of December
31, 2002, we employed 28 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:
o independent systems integrators and in-house information technology
departments;
o traditional ERP and CRM software application vendors;
o software vendors in the utility, telecommunications, Internet access,
field services, home delivery and other markets;
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10-K CLICKSOFTWARE TECHNOLOGIES LTD. PAGE 8
o providers of service scheduling software and components and logistics
solutions providers; and
o 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.
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:
o preventing access to source code and technical documentation;
o copyright laws;
o patent laws;
o trademark laws; and
o trade secret laws.
We have two patent applications pending with both the Israeli Patent Office and
the United States Patent Office. 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 broad 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 own U.S. trademark registrations for the marks AITEST and CLICKANALYZE, and
have filed applications for registration of the marks CLICKPLAN, CLICKFORECAST,
CLICKSCHEDULE, and CLICKFIX. In the European Union, we own trademark
registrations for CLICKFIX and CLICKSCHEDULE, CLICKANALYZE, CLICKFORECAST, and
CLICKPLAN.
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
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10-K CLICKSOFTWARE TECHNOLOGIES LTD. PAGE 9
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.
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, and divert management's attention and resources or cause
product shipment delays. In the event of an adverse ruling in any such
litigation, we might be required to pay substantial damages, discontinue the use
and sale of infringing products, expand significant resources to develop
non-infringing technology or obtain licenses to or pay royalties to use a third
party's technology. Such royalty or licensing agreements may not be available on
terms acceptable to us, if at all. A successful claim of patent or copyright
infringement against us could significantly harm our business.
EMPLOYEES
As of December 31, 2002, we had 115 full-time employees: 28 engaged in research
and development, 30 in sales, marketing and business development, 38 in
professional services and technical support and 19 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.
During the fourth quarter of 2002 we announced a reorganization plan under which
we implemented an across the board salary reduction and reduced our workforce by
approximately 40 employees, mainly from those engaged in research and
development activities. (See also note 4 of the notes to our consolidated
financial statements attached hereto).
61 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 $283,000 in 2002, $266,000 in 2001 and
$562,000 in 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. Israeli law also limits the maximum number of hours of overtime. Certain
of our employment compensation arrangements are fixed and do not differentiate
between compensation for regular hours
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10-K CLICKSOFTWARE TECHNOLOGIES LTD. PAGE 10
and overtime work. Therefore, we may face potential claims from these employees
asserting that the fixed salaries do not compensate for overtime work. While
there is no certainty that such claims will prevail, even if they do, we do not
believe that these claims would have a material adverse effect on us.
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and certain information about them as of
February 28, 2003 are as follows:
NAME AGE POSITION
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Dr. Moshe BenBassat 55 Chief Executive Officer and Chairman of the Board
Shmuel Arvatz 40 Executive Vice President and Chief Financial Officer
David Schapiro 45 Executive Vice President, Markets & Products
Hannan Carmeli 44 Executive Vice President, Worldwide Professional
Services
Amit Bendov 38 Senior Vice President, Product Marketing
Dr. Israel Borovich 61 Director
Roni A. Einav 58 Director
Nathan Gantcher 62 Director
Eddy Shalev 55 Director
James W. Thanos 54 Director
DR. MOSHE BENBASSAT co-founded ClickSoftware and has served as Chairman and
Chief Executive Officer since its inception. From 1987 to 1999, Dr. BenBassat
served as a Professor of Information Systems at the Faculty of Management at
Tel-Aviv University. Dr. BenBassat has also held academic positions at the
University of Southern California and the University of California in Los
Angeles. From 1996 to January 1999, Dr. BenBassat also served as a board member
of Tadiran Telecommunications Inc., a telecommunications company. From 1990 to
1996, Dr. BenBassat served as a board member of Tadiran Electronic Systems Ltd.,
a defense electronics company. Dr. BenBassat holds Bachelor of Science, Master
of Science and PhD. degrees in Mathematics and Statistics from Tel-Aviv
University.
SHMUEL ARVATZ has served as Executive Vice President and Chief Financial Officer
of ClickSoftware Technologies since October 20, 2002. Prior to his position at
ClickSoftware, Mr. Arvatz served as the Chief Financial Officer at Shrem, Fudim,
Kelner Technologies Ltd., a leading investment house in Israel. He also served
as Executive Vice President and Chief Financial Officer of Tecnomatix
Technologies Ltd. (NASDAQ: TCNO), a provider of software e-manufacturing
solutions. From 1990 to 1999, Mr. Arvatz served as Vice President and Chief
Financial Officer at ADC Israel Ltd. (previously Teledata Communications Ltd., a
telecommunications equipment provider which was acquired by ADC Telecom Inc. in
1998). Mr. Arvatz holds a B.A. in Accounting and Economics from Bar-Ilan
University.
DAVID SCHAPIRO has served as our Executive Vice President of Markets and
Products since April 2001. Prior to this role and since 1999, he held various
executive roles in our product development group, including Senior Vice
President of Product Development. 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. From 1984 to 1996, Mr. Schapiro served in
positions at Applied Materials, a semiconductor equipment manufacturer, and
Scitex Corporation, a digital printing system company. Mr. Schapiro received a
Bachelor of Science degree in Mathematics and Computer Science from Tel-Aviv
University, and a Master of Science degree in Computer Science from Bar-Ilan
University.
HANNAN CARMELI has served as our Executive Vice President of Worldwide
Professional Services since August 2002. Prior to this role, he has served as
our Senior Vice President, Products, Services and Operations since January 2001.
From August 1996 to December 2000, Mr. Carmeli held various executive roles
including General Manager of the TechMate Division as well as Manager of Product
Services and Operations. Prior to joining us, Mr. Carmeli held R&D and field
positions with software vendors ranging from software development through
product management and sales management. Mr. Carmeli holds a Bachelor of Science
degree from the Technion Institute and a Master of Science degree in Computer
Science from Boston University.
AMIT BENDOV has served as our Senior 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
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10-K CLICKSOFTWARE TECHNOLOGIES LTD. PAGE 11
Research and Development Manager. Mr. Bendov holds a Bachelor of Science degree
in Computer Science and Statistics from Tel Aviv University.
- --------------------------------------------------------------------------------
10-K CLICKSOFTWARE TECHNOLOGIES LTD. PAGE 12
RONI A. EINAV has served as a director of ClickSoftware since April 2000. From
1983 to April 1999, Mr. Einav founded and served as Chairman of the Board of
Directors and president of New Dimension Software, Ltd., a systems software
company, subsequently acquired by BMC Software. Mr. Einav has also played a role
in founding other Israeli high-tech companies, including Liraz Computers,
Jacada, UDS-Ultimate Distribution Systems, XciTel, CePost, CeDimension, ComDa
and Einav Systems. Mr. Einav was 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 and CEO 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., Dr. Borovich serves as a chairman of
Granit Hacarmel Investments, Ltd., Sonol Israel, Ltd., and Ayalon Highways
(Israel) Ltd. Dr. Borovich is a full professor at the Faculty of Management, Tel
Aviv University. Dr. Borovich holds Bachelor of Science, Master of Science and a
PhD. in Industrial Engineering from the Polytechnic Institute in Brooklyn.
NATHAN GANTCHER has served as a director of ClickSoftware since April 2000.
Since January 2002, Mr. Gantcher has served as Co-Chairman, President and CEO of
Alpha Investment Management LLC. 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. Mr. Gantcher has
notified us that he will not stand for reelection as a director at our next
annual shareholders meeting.
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. and other
publicly traded high tech companies. Mr. Shalev is the Managing General Partner
of Genesis Partners. 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. From
October 1999 to June 2002, Mr. Thanos 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
We have a seven-year lease for approximately 17,130 square feet of office space
in Campbell, California that expires in 2007. During the fourth quarter of 2002,
as part of our reorganization plan we closed our office in Campbell, California
and moved our North America headquarters to Burlington, Massachusetts. We have a
three-year lease for approximately 6,900 square feet of office space in
Burlington, Massachusetts that expires in 2004. We are currently negotiating the
final termination of the Campbell lease agreement. (See also note 4 of the notes
to our consolidated financial statements attached hereto).
We also lease approximately 19,720 square feet of office space in Tel Aviv,
Israel. The office space is leased pursuant to a lease that expires in June
2003. In March 2003 we signed an agreement under which we extended the current
lease agreement for an additional two years, reduced the office space to
approximately 14,100 square feet and reduced the rent per square foot. Our U.K.
subsidiary currently operates from a leased facility of approximately 2,700
square feet in Slough, near London. We also lease
- --------------------------------------------------------------------------------
10-K CLICKSOFTWARE TECHNOLOGIES LTD. PAGE 13
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.
Anticipated minimum net rents for these facilities are approximately $600,000
for the twelve months ending December 31, 2003 and will decrease to $420,000 for
2004 and $75,000 for 2005, with the expiration of some of the leases.
ITEM 3. LEGAL PROCEEDINGS
In December 2002, a lawsuit was filed against us and our current and former
officers in the United States District Court for the District of Massachusetts
asserting securities law claims on behalf of persons who purchased our ordinary
shares between June 22, 2000 and October 21, 2002. To date, the complaint has
not been served on any of the defendants, nor has the plaintiff taken any other
action in connection with the matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
- --------------------------------------------------------------------------------
10-K CLICKSOFTWARE TECHNOLOGIES LTD. PAGE 14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our ordinary shares were quoted on the NASDAQ National Market under the symbol
"CKSW" between June 22, 2000 and August 28,2002 and on the NASDAQ SmallCap
Market under the symbol "CKSW" (or "CKSWE") from August 29, 2002. 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 or the Nasdaq SmallCap
Market, as applicable to the relevant period:
FISCAL YEAR ENDED DECEMBER 31, 2002 HIGH LOW
- ----------------------------------- ---- ---
First Quarter $ 2.25 $ 1.10
Second Quarter $ 1.20 $ 0.32
Third Quarter $ 0.58 $ 0.36
Fourth Quarter $ 0.44 $ 0.08
FISCAL YEAR ENDED DECEMBER 31, 2001 HIGH LOW
- ----------------------------------- ---- ---
First Quarter $ 2.72 $ 0.75
Second Quarter $ 1.43 $ 0.56
Third Quarter $ 1.82 $ 0.70
Fourth Quarter $ 1.47 $ 0.82
As of March 13, 2002, there were 82 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, we commenced an initial public offering of our 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 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 and incurred other expenses of approximately $1.8 million.
As of December 31, 2002, we have used a portion of the aggregate net proceeds of
$28.2 million from our initial public offering of ordinary shares for the
following purposes:
o approximately $9.5 million to expand our international operations
including infrastructure and sales and marketing expenses;
o approximately $7.5 million to expand our domestic operations by hiring
additional employees, leasing additional office space and expanding
our infrastructure; and
o approximately $7.0 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
directors, officers, or general partners or their associates, or to persons
owning 10% or more of any class of our equity securities, or any of our
affiliates.
We have invested the net proceeds of the offering in interest-bearing short-term
investments or bank deposits.
- --------------------------------------------------------------------------------
10-K CLICKSOFTWARE TECHNOLOGIES LTD. PAGE 15
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated statement of operations data for the years ended
December 31, 2002, 2001, 2000, 1999 and 1998, and the selected consolidated
balance sheet data as of December 31, 2002, 2001, 2000, 1999 and 1998, have been
derived from our audited financial statements (as restated with respect to the
years ended December 31, 1999, 2000 and 2001). The consolidated statements of
operations data for the years ended December 31, 1999, 1998 and selected
consolidated balance sheet data as of December 31, 2000, 1999 and 1998 are
derived from audited consolidated financial statements that are not included
herein (as restated with respect to the years ended December 31, 1999, 2000 and
2001). 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.
See note 3 of the notes to our consolidated financial statements that are
included on the Form 10-K/A for the year December 31, 2001 that we filed with
the SEC on January 24, 2003 for a description of the restatement of our
financial statements as applicable to the years ended December 31, 1999, 2000
and 2001.
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
Revenues:
Software license $ 7,113 $ 11,734 $ 7,412 $ 5,062 $ 3,932
Services 8,640 6,441 5,178 4,912 2,139
--------------------------------------------------------------------------
Total Revenues 15,753 18,175 12,590 9,974 6,071
--------------------------------------------------------------------------
Cost of Revenues:
Software License 949 798 454 219 165
Services 5,804 5,498 5,301 4,469 2,377
--------------------------------------------------------------------------
Total cost of revenues 6,753 6,296 5,755 4,688 2,542
--------------------------------------------------------------------------
Gross Profit 9,000 11,879 6,835 5,286 3,529
--------------------------------------------------------------------------
Operating Expenses:
Research and Development expenses, net 2,806 3,246 4,300 2,910 2,284
Selling and Marketing expenses 10,473 12,499 13,654 7,945 5,803
General and Administrative Expenses 3,106 4,048 3,717 1,759 1,333
Restructuring and assets impairment 2,665 294 - - -
Amortization of deferred Stock-based
Compensation 300 437 1,237 738 -
--------------------------------------------------------------------------
Total Operating Expenses 19,350 20,524 22,908 13,352 9,420
--------------------------------------------------------------------------
Loss from Operations (10,350) (8,645) (16,073) (8,066) (5,891)
Interest and other income, net 252 649 679 (254) 33
--------------------------------------------------------------------------
Net Loss $(10,098) $ (7,996) $(15,394) $ (8,320) $(5,858)
Dividend related to convertible preferred shares - - - (4,989) -
--------------------------------------------------------------------------
Net loss attributable to ordinary shareholders $(10,098) $ (7,996) $(15,394) $(13,309) $(5,858)
==========================================================================
Basic and diluted net loss per ordinary share $ (0.40) $ (0.32) $ (0.68) $ (2.24) $ (0.99)
Shares used in computing basic and diluted net
loss per share 25,553,891 25,322,771 22,501,563 5,948,816 5,914,735
==========================================================================
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10-K CLICKSOFTWARE TECHNOLOGIES LTD. PAGE 16
CONSOLIDATED BALANCE SHEET DATA:
DECEMBER 31,
-------------------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
(IN THOUSANDS)
Cash and cash equivalents $ 3,400 $ 8,125 $ 4,438 $ 7,838 $ 3,770
Short-term Investments 2,949 1,846 16,878 - -
Working capital 5,849 14,191 21,398 7,666 4,178
Total assets 13,957 20,700 28,645 13,843 7,983
Long-term liabilities, net of current
portion 1,476 1,400 1,446 1,112 1,254
Shareholders' equity
6,684 16,428 23,773 8,480 4,657
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
Since late 1996, we have focused on providing service optimization software
products based on our W-6 Service Scheduler and TechMate technologies. We have
also invested significant resources in developing products based on these
technologies. As a result, until 2001, we increased the number of our employees
involved in research and development, sales and marketing, and professional
services. During 2001 and 2002, we reduced the number of our employees as part
of cost cutting measures.
In the fourth quarter of 2002, in light of the continued worldwide economic
recession and the ongoing reductions in investments in corporate capital
expenditures, we initiated a reorganization plan aimed at reducing our operating
expenses. As part of the plan we reduced our workforce by approximately 40
employees, implemented an across the board salary reduction, closed our office
in Campbell, California and moved our North America headquarters to Burlington,
Massachusetts. As a result of this plan, we recorded in the fourth quarter of
2002 restructuring costs and asset impairment in the amount of approximately
$2.7 million. (See also note 4 of the notes to our consolidated financial
statements in "Item 8. Financial Statements".)
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. Currently our product
offering for service optimization applications include: ClickSchedule, ClickFix,
ClickAnalyze, ClickPlan, ClickMobile and ClickForecast.
We derive revenues from software licensing and services. 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 software license fees primarily derived from contracts with our direct
sales clients and our indirect distribution channels. We recognize revenues in
accordance with the AICPA Statement of Position 97-2, "SOFTWARE REVENUE
RECOGNITION," or SOP 97-2, as amended. (See note 2 of the notes to our
consolidated financial statements attached hereto.)
Service revenues are comprised of revenues from consulting, training, and
post-contract customer support. Consulting services are billed at an agreed-upon
rate plus incurred expenses. Clients licensing our products generally purchase
consulting agreements from us. Post-contract customer support arrangements
provide technical support and the right to unspecified updates on an if-and
when-available basis. Post-contract customer
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10-K CLICKSOFTWARE TECHNOLOGIES LTD. PAGE 17
support revenues are charged as a percentage of license fees depending upon the
level of support coverage requested by the customer. Our products are marketed
worldwide through a combination of a direct sales force, consultants and various
business relationships we have with implementation and technology companies and
resellers.
Cost of revenues consists of cost of software license revenues and cost of
services. Cost of software license revenues consists of expenses related to
media duplication and packaging of our products, costs of software purchased or
licensed for resale and royalties payments to the Chief Scientist. Cost of
services consists of expenses related to salaries and expenses of our
professional services organizations, costs related to third-party consultants,
equipment costs and royalties payments to the Chief Scientist.
Operating expenses are categorized into research and development expenses, sales
and marketing expenses, general and administrative expenses, and 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 cost of revenues. Software
research and development costs incurred prior to the establishment of technology
feasibility are included in research and development expenses as incurred.
Selling and marketing expenses consist primarily of personnel and related costs
for marketing and sales functions, including related travel, direct advertising
costs, expenditures on trade shows, market research and promotional printing.
General and administrative expenses consist primarily of personnel and related
costs for corporate functions, including information services, finance,
accounting, human resources, facilities, provision for doubtful accounts, legal
and costs related to activity as public company.
Restructuring and assets impairment costs consist of write-down of equipment and
leasehold improvements related to office space reduction, termination of lease
contract and employees severance and benefits costs in connection with the
termination of employment of employees. (See also note 4 of the notes to our
consolidated financial statements attached hereto.)
Amortization of stock-based compensation represents the aggregate difference, at
the date of grant, between the respective exercise price of stock options and
the deemed fair market value of the underlying stock. Deferred Stock-based
compensation is amortized over the vesting period of the underlying options,
generally four years.
Interest and other income include interest income earned on our cash, 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 and other expenses
are incurred in New Israeli Shekels, or 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 changes in foreign currency exchange rates on our results of
operations for the years ended December 31, 2002 and 2001 were immaterial.
Our tax rate will mainly reflect a mix of the U.S. statutory tax rate on our
U.S. income, the U.K statutory tax rate on our U.K income, the Belgium statutory
tax rate on our Belgium income, the German statutory tax rate on our German
income, the Australian tax rate on our Australian 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
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10-K CLICKSOFTWARE TECHNOLOGIES LTD. PAGE 18
dividend out of retained earnings that were exempt from tax due to its Approved
Enterprise status, we would be required to pay 25% corporate income tax on
income from which the dividend was distributed. All of these tax benefits are
subject to various conditions and restrictions. There can be no assurance that
we will obtain approval for additional Approved Enterprise Programs, or that the
provisions of the law will not change.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United
States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. These estimates are evaluated by us on an on-going basis. We base
our estimates on our historical experience and on various other assumptions that
we believe to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying amount values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
Our recognition of revenue requires judgments and estimates that may
significantly impact our consolidated financial statements.
Revenue results are difficult to predict, and any shortfall in revenues or delay
in recognizing revenues could cause our operating results to vary significantly
from quarter to quarter and could result in future operating losses. In
addition, the timing of our revenue recognition influences the timing of certain
expenses, such as commissions and royalties. We follow very specific and
detailed guidelines in measuring revenues, however, certain judgments affect the
application of our revenue policy.
Our revenues are principally derived from the licensing of our software and the
provision of related services. We recognize revenues in accordance with SOP
97-2. Revenues from software license fees are recognized when persuasive
evidence of an arrangement exists, either by written agreement or a purchase
order signed by the customer, the software product has been delivered, the
license fees are fixed and determinable, and collection of the license fees is
considered probable. License fees from software arrangements which involve
multiple elements, such as post-contract customer support, consulting and
training, are allocated to each element of the arrangement based on the relative
fair values of the elements. We determine the fair value of each element in
multiple-element arrangements based on vendor specific objective evidence, or
VSOE. We determine the VSOE for each element according to the price charged when
the element is sold separately. In judging the probability of collection of
software license fees we continuously monitor collection and payments from our
customers and maintain a provision for estimated credit losses based upon our
historical experience and any specific customer collection issues that we have
identified. In connection with customers with whom we have no previous
experience, we may utilize independent resources to evaluate the
creditworthiness of those customers. For some customers, typically those with
whom we have long-term relationships, we may grant extended payment terms. We
perform on-going credit evaluations of our customers. If the financial situation
of any of our customers were to deteriorate, resulting in an impairment of their
ability to pay the indebtedness they incur with us, additional allowances may be
required.
Our software products generally do not require significant customization or
modification. However, when such customization or modification is necessary, the
revenue generated by those activities is deferred and recognized using the
percentage of completion method.
Service revenues include post-contract customer support, consulting and
training. Post-contract customer support arrangements provide for technical
support and the right to unspecified updates on an if-and-when-available basis.
Revenues from those arrangements are recognized ratably over the term of the
arrangement, usually one year. Consulting services are recognized on a time and
material basis, or in a fixed price contract, on a percentage of completion
basis. Revenues from training are recognized as the services are provided.
In recognizing revenues based on the rate of completion method, we estimate time
to completion with revisions to estimates reflected in the period in which
changes become known. If we do not accurately estimate the resources required or
the scope of work to
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10-K CLICKSOFTWARE TECHNOLOGIES LTD. PAGE 19
be performed, or do not manage our projects properly within the planned periods
of time or satisfy our obligations under the contracts, then future services
margins may be significantly and negatively affected or losses on existing
contracts may need to be recognized.
FISCAL YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
You should read the following discussion in conjunction with the audited
consolidated financial statements for the years ended December 31, 2002, 2001,
and 2000.
RESULTS OF OPERATIONS
Our operating results for each of the five years ended December 31, 2002, 2001,
2000, 1999 and 1998 expressed as a percentage of revenues are as follows:
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
2002 2001 2000 1999 1998
Software license 45% 65% 59% 51% 65%
Services 55 35 41 49 35
-----------------------------------------------------
Total Revenues 100 100 100 100 100
-----------------------------------------------------
Cost of Revenues:
Software License 6 4 4 2 3
Services 37 31 42 45 39
-----------------------------------------------------
Total cost of revenues 43 35 46 47 42
-----------------------------------------------------
Gross Profit 57 65 54 53 58
-----------------------------------------------------
Operating Expenses:
Research and Development
expenses, net 18 18 34 29 38
Selling and Marketing expenses 66 69 108 80 95
General and Administrative 20 22 30 18 22
Expenses
Restructuring and assets impairment 17 2 - - -
Amortization of deferred Stock-based
Compensation 2 2 10 7 -
-----------------------------------------------------
Total Operating Expenses 123 113 182 134 155
-----------------------------------------------------
Loss from Operations (66) (48) (128) (81) (97)
Interest and other income, net 2 4 5 (2) 1
-----------------------------------------------------
Net Loss (64) (44) (123) (83) (96)
Dividend related to convertible
Preferred shares - - - (50) -
-----------------------------------------------------
Net loss attributable to ordinary shareholders (64)% (44)% (123)% (133)% (96)%
=====================================================
FISCAL YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
During the third quarter of 2002, the audit committee of our board of directors,
with the assistance of outside advisors, conducted a review of our financial
statements for 2000 and 2001 and for the first six months of 2002. On October
21, 2002, we announced that we would restate our financial statements for 2000
and 2001 and for the first six months of 2002. Following the reaudit of our
financial statements, we restated our financial statements for the announced
periods and for the year ended December 31, 1999 and filed an amendment to the
10-K for the three years ended 2001 on January 24, 2003. The financial results
provided in this annual report reflect this restatement.
The restatement resulted primarily from the recognition of revenue from sales to
reseller customers and other customers, where revenue had been recognized
prematurely or should not have been recognized at all. We also reclassified
royalty expenses related to grants received from the Chief Scientist from
selling and marketing expenses to cost of revenues expenses.
This restatement is further discussed in note 3 of the notes to our consolidated
financial statements that are included on the Form 10-K/A for the year December
31, 2001 that we filed the U.S. Securities and Exchange Commission on January
24, 2003.
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10-K CLICKSOFTWARE TECHNOLOGIES LTD. PAGE 20
REVENUES. Revenues decreased $2.4 million or 13% to $15.8 million in 2002, from
$18.2 million in 2001. In 2001, revenues increased $5.6 million or 44% to $18.2
million from $12.6 million in 2000. The decrease in revenues from 2001 to 2002
was the result of the general economic downturn. Specifically, increased
scrutiny of capital budgets has resulted in unexpected delays in larger sales
and smaller initial orders in sales that did successfully close. The increase in
revenues from 2000 to 2001 was the result of increased demand for our products
and the expanding of our sales and marketing efforts into new markets. In 2002,
48% of our revenues were generated in North America, 30% in Europe, 2% in Israel
and 20% in Asia Pacific and Africa. In 2001, 47% of our revenues were generated
in North America, 35% in Europe, 2% in Israel and 16% in Asia Pacific and
Africa. In 2000, 61% of our revenues were generated in North America, 34% in
Europe, 3% in Israel and 2% in Asia Pacific and Africa. The increase in
percentage of revenues from the Asia Pacific and Africa region is largely
attributable to an expansion of our sales effort in the Asian Pacific region.
SOFTWARE LICENSES. Software license revenues were $7.1 million or 45% of
revenues in 2002, $11.7 million or 65% of revenues in 2001, and $7.4 million or
59% of revenues in 2000. The decrease in software license revenues from 2001 to
2002 by $4.6 million or 39% was primarily the result of the general economic
downturn. The increase in software license revenues from 2000 to 2001 by $4.3
million or 58% was due to the penetration into new markets as well as increased
average sales per client, growth of our client base, and recurring sales to our
installed base of clients.
SERVICES. Service revenues were $8.6 million or 55% of revenues in 2002, $6.4
million or 35% of revenues in 2001, and $5.2 million or 41% of revenues in 2000.
The increase in services revenues from 2001 to 2002 by $2.2 million or 34% was
primarily due to the increase in post-contract support agreements and smaller
increase in revenues from consulting services. The relatively small increase in
service revenues from 2000 to 2001 by $1.3 million or 24% (as compared to the
increase in Software License revenues during that period) was primarily due to
an increase in license distribution through third parties also providing
implementation services, and increased efficiency in our implementation process.
COST OF REVENUES. Cost of revenues was $6.8 million or 43% of revenues in 2002,
$6.3 million or 35% of revenues in 2001, and $5.8 million or 46% of revenues in
2000. The increase in the cost of revenues from 2001 to 2002 by $0.5 million or
7% was primarily due to the increase in new third party licenses and adaptors to
other Enterprise Resource Planning (ERP) and Customer Relationship Management
(CRM) systems sold during 2002. The increase in the cost of revenues from 2000
to 2001 by $0.5 million or 9% was due to an increase in the number of customers,
which resulted in an increased demand for our professional services and
increased royalties payments to the Chief Scientist.
COST OF SOFTWARE LICENSES. Cost of software license revenues were $949,000 or 6%
of revenues in 2002, $798,000 or 4% of revenues in 2001 and $454,000 or 4% of
revenues in 2000. The increase in the cost of software revenues from 2001 to
2002 by $151,000 or 19% was primarily due to the increase in new third party
licenses and adaptors to other Enterprise Resource Planning (ERP) and Customer
Relationship Management (CRM) systems sold during 2002 partially offset by
decrease in royalties payments to Chief Scientist. The increase in the cost of
software revenues from 2000 to 2001 by $344,000 or 76% was primarily due to
increased royalties payments to Chief Scientist.
COST OF SERVICES. Cost of service revenues were $5.8 million or 37% of revenues
in 2002, $5.5 million or 31% of revenues in 2001, and $5.3 million or 42% of
revenues in 2000. The increase in the cost of services from 2001 to 2002 by
$306,000 or 6% was primarily due to increased royalties payments to the Chief
Scientist, as well as increased demand for our professional services. The
increase in the cost of services from 2000 to 2001, by $197,000 or 4%, was
primarily due to increased demand for our professional services. The relatively
small increases in cost of services from 2000 to 2001 and from 2001 to 2002
compared to the increase in service revenues in the same years is primarily
attributable to the increased service and maintenance productivity.
GROSS PROFIT. Gross profit as a percentage of revenues was 57% in 2002 as
compared to 65% in 2001 and 54% in 2000. The decrease in the gross profit from
2001 to 2002 by $2.9 million or 24% was primarily due to lower license revenues
in 2002. The increase in the gross profit from 2000 to 2001 by $5.0 million or
74% was primarily due to the increase in license revenues in 2001. The decrease
in gross margins from 2001 to 2002 was primarily due to a change in the revenue
mix in favor of higher services revenues resulting in lower margins. The
increase in gross margins from 2000 to 2001 was primarily due to a change in the
revenue mix in favor of software license revenues resulting in higher margins.
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10-K CLICKSOFTWARE TECHNOLOGIES LTD. PAGE 21
OPERATING EXPENSES. Total operating expenses were $19.4 million or 123% of
revenues in 2002, $20.5 million or 113% of revenues in 2001, and $22.9 million
or 182% of revenues in 2000. The decrease in operating expenses from 2001 to
2002 by $1.2 million or 6% (excluding restructuring and impairment costs of $2.7
million, the decrease was $3.5 millions or 17%) was primarily due to cost
cutting measures implemented during the past twelve months partially offset by
restructuring and impairment expenses. The decrease in the operating expenses
from 2000 to 2001 by $2.4 million or 10% was primarily due to cost cutting
measures implemented during 2001. For example, our total number of employees
decreased from 198 at the end of 2000 to 157 at the end of 2001 and to 115 at
the end of 2002.
RESEARCH AND DEVELOPMENT EXPENSES, NET. Research and development expenses, net
of related grants, were $2.8 million or 18% of revenues in 2002, $3.2 million or
18% of revenues in 2001, and $4.3 million or 34% of revenues in 2000. Research
and development expenses, prior to participation grants from the Office of the
Chief Scientist of the Government of Israel, totaled $3.8 million for the year
ended December 31, 2002, $4.4 million for the year ended December 31, 2001 and
$5.4 million for the year ended December 31, 2000. We received or accrued grants
from the Chief Scientist in the amount of $1.0 million in 2002, $1.2 million in
2001 and $1.1 million in 2000. The decrease in research and development expenses
from 2001 to 2002 by $440,000 or 14% is primarily due to impact of cost cutting
measures implemented during 2002. The decrease in research and development
expenses from 2000 to 2001 by $1.1 million or 25% is primarily due to impact of
cost cutting measures implemented during 2001. In 2000, we introduced new
management products, which required an increase in personnel related costs.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses were $10.5
million or 66% of revenues in 2002, $12.5 million or 69% of revenues in 2001,
and $13.7 million or 108% of revenues in 2000. The decrease in the selling and
marketing expenses from 2001 to 2002 by $2.0 million or 16% was primarily due to
cost cutting measures implemented during 2002. The decrease in the selling and
marketing expenses from 2000 to 2001 by $1.2 million or 8% was primarily due to
cost cutting measures implemented during 2001.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses were
$3.1 million or 20% of revenues in 2002, $4.0 million or 22% of revenues in
2001, and $3.7 million or 30% of revenues in 2000. General and administrative
expenses included $130,000 in bad debt charges in 2002, $1.2 million in bad debt
charges in 2001 and $0.4 million in 2000. General and administrative expenses
without bad debts were $3.0 million in 2002, $2.8 million 2001 and $3.3 million
in 2000. The increase in general and administrative expenses without bad debt
charges from 2001 to 2002 by $0.2 million was primarily due to special costs,
primarily legal and accounting fees, incurred in connection with the review of
our financial statements conducted by our audit committee of the board of
directors which led to the restatement of our financial statements for 2000,
2001 and the first six months of 2002. (See note 3 of the notes to our
consolidated financial statements attached hereto.) The decrease in general and
administrative expenses without bad debt charges from 2000 to 2001 by $0.5
million was due to cost cutting measures implemented during 2001.
AMORTIZATION OF STOCK-BASED COMPENSATION. Stock-based compensation expenses for
the year ended December 31, 2002 amounted to $300,000 of previously recorded
deferred stock-compensation. Stock-based compensation expenses for the year
ended December 31, 2001 amounted to $400,000 of previously recorded deferred
stock-compensation. Stock-based compensation expenses for the year ended
December 31, 2000 amounted to $1.2 million of previously recorded deferred
stock-compensation. The decrease in share-based compensation expenses over the
years is attributed to the fact that the amortization of the share-based
compensation progressively decreases over the four-year amortization period.
Deferred compensation as of December 31, 2002 amounted to $100,000, which will
be amortized over 2003.
RESTRUCTURING AND ASSETS IMPAIRMENT. Restructuring costs were $2.7 million or
17% of revenues in 2002 and $300,000 or 2% of revenues in 2001. There were no
restructuring costs in 2000. The restructuring expenses in 2002 consisted mainly
of write-down of equipment and leasehold improvements related to office space
reduction and termination of lease contracts in connection mainly to the closing
of our California office and employees severance and benefits costs incurred by
us in connection with the termination of employment of employees. The
restructuring expenses in 2001 were costs associated with employees severance
and benefits.
INTEREST AND OTHER INCOME , NET. Interest income net of interest expenses, were
$300,000 or 2% of revenues in 2002, $600,000 or 4% of revenues in 2001, $700,000
or 5%
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10-K CLICKSOFTWARE TECHNOLOGIES LTD. PAGE 22
of revenues in 2000. The decrease of interest income, net over the years is
attributed to the fact that the company cash and short-term investments
decreased over the years as well as lower return on investments achieved.
INCOME TAXES. As of December 31, 2002, the company has approximately $13.0
million of Israeli net operating loss carryforwards, approximately $31.4 million
of U.S. federal net operating loss carryforwards and approximately $8.4 million
of the European subsidiaries net operating loss carryforwards available to
offset future taxable income. The Israeli and the European net operating loss
carryforwards have no expiration date. The U.S. net operating loss carryforwards
will expire in various amounts in the years 2008 through 2014.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2002 we had cash and cash equivalents of approximately $3.4
million, short-term investments of approximately $2.9 million and long-term
investments of approximately $0.3 million. As of December 31, 2002,
approximately $2.9 million of the $3.2 million in short-term and long-term
investments had been deposited with banks to secure letters of credit totaling
approximately $2.6 million issued on our behalf which are described below.
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 $28.2 million, net
of underwriter discount and other issuance costs.
For the year ended December 31, 2002, net cash used in operations was $1.1
million, comprised of our net loss of $10.1 million, a decrease in short term
investment of $1.8 million, a decrease in trade receivables of $1.6 million, a
decrease in other receivables of $200,000, an increase in accounts payable of
$2.7 million, and an increase in deferred revenue of $300,000, which was
partially offset by non-cash charges of $2.3 million (including a one-time
impairment charge of $1.2 million).
For the year ended December 31, 2001, net cash provided by operations was $4.0
million, comprised of our net loss of $8.0 million, a decrease in short term
investment of $14.6 million, an increase in trade receivables of $3.6 million, a
decrease in accounts payable of $0.5 million, and a decrease in deferred revenue
of $100,000, which was partially offset by non-cash charges of $1.4 million.
For the year ended December 31, 2000, net cash used in operations was $30.1
million, comprised of our net loss of $15.4 million, an increase in short term
investment of $16.6 million, a decrease in trade receivables of $1.6 million, an
increase in other receivables of $1.0 million, an increase in accounts payable
of $0.4 million, and a decrease in deferred revenue of $1.0 million, partially
offset by non-cash charges of $2.0 million.
Net cash used in investing activities was $3.5 million in 2002, of which $3.2
million was primarily invested in bank deposits and $300,000 invested in
leasehold improvements and purchases of equipment and systems, including
computer equipment and fixtures and furniture. Net cash used in investing
activities was $400,000 in 2001, which was primarily invested in leasehold
improvements and purchases of equipment and systems, including computer
equipment and fixtures and furniture. Net cash used in investing activities was
$2.4 million in 2000, which was primarily invested in leasehold improvements and
purchases of equipment and systems, including computer equipment and fixtures
and furniture.
There were no material financing activities in 2002 and 2001. Net cash provided
by financing activities was $29.2 million in 2000, as a result of the initial
public offering of our shares which yielded proceeds of approximately $28.2
million (net of underwriters discount and issuance expenses).
As of December 31, 2002 we had outstanding trade receivables of approximately
$4.0 million, which represented approximately 26% of 2002 total revenues. As of
December 31, 2001 we had outstanding trade receivables of approximately $5.6
million, which represented approximately 31% of 2001 total revenues. As of
December 31, 2000 we had outstanding trade receivables of approximately $2.0
million, which represented approximately 16% of 2000 total revenues. Our trade
receivables typically have 30 to 60 day terms; although we also negotiate longer
payment plans with some of our clients.
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10-K CLICKSOFTWARE TECHNOLOGIES LTD. PAGE 23
We have various commitments primarily related to guarantees, letters of credit,
capital lease obligations and short-term debt. The following table provides
details regarding our contractual cash obligations and other commercial
commitments subsequent to December 31, 2002:
- --------------------------- ------------------ ----------------------------
AMOUNT OF COMMITMENT
COMMERCIAL TOTAL AMOUNTS EXPIRATION
COMMITMENTS COMMITTED (IN PER PERIOD (IN
THOUSANDS) THOUSANDS)
- --------------------------- ------------------ ----------------------------
2003 2004,2005
- --------------------------- ------------------ ------------ ---------------
Short Term Bank Debt $17 $17 -
- --------------------------- ------------------ ------------ ---------------
Guarantees/Letters of $2,627 $2,347 $280
Credit
- --------------------------- ------------------ ------------ ---------------
- --------------------------- -----------------------------------------------
PAYMENTS DUE BY PERIOD (IN THOUSANDS)
CONTRACTUAL
OBLIGATIONS -----------------------------------------------
TOTAL 2003 2004, 2005
- --------------------------- ------------------ ------------- --------------
Lease Obligations $1,097 $614 $483
- --------------------------- ------------------ ------------- --------------
We have entered into standby letters of credit agreements with banks primarily
relating to the guarantee of future performance on certain contracts and office
lease payments. As of December 31, 2002, contingent liabilities on outstanding
letters of credit agreements aggregated approximately $2.6 million of which all
but $280,000 are scheduled to expire during 2003. The letters of credit are
secured by $2.9 million in deposits with the banks, to cover any potential
payments under the guarantees.
Since inception, we have received aggregate payments from the Government of the
State of Israel through the Office of the Chief Scientist of the Ministry of
Industry and Trade in the amount of $6.3 million related to research and
development. In return for the Government of Israel participation, we are
committed to pay royalties at a rate of 3% to 5% of sales of the developed
product, up to 100%-150% of the amount of grants received with annual interest
of LIBOR as of the date of approval for programs approved from 1999 and
thereafter. As of December 31, 2002, we had paid or accrued royalties related to
the results of research and development in the amount of $2.3 million. The
estimated current net commitment is approximately $4.0 million. The refund of
the grant is contingent on future sales, and we have no obligation to refund
these grants, if sufficient sales are not generated.
Our capital requirements depend on numerous factors, including market demand and
acceptance of our products, the resources we devote to developing, marketing,
selling and supporting our products, the timing and extent of establishing
additional international operations and other factors. We intend to continue
investing significant resources in our selling and marketing and research and
development operations in the future. Our ability to reach profitability using
our currently available balance of cash and cash equivalents will depend on our
ability to increase our revenues while continuing to control our expenses.
However, we cannot assure you that we will be able to achieve or maintain
profitability, particularly given the current economic conditions and potential
reduction in information technology spending by our current and prospective
customers. If we are not successful in doing so, we will be required to seek
new, external sources of financing. If additional funds are raised through the
issuance of equity or debt securities, these securities could have rights,
preferences and privileges senior to those of holders of ordinary shares, and
the terms of these securities could impose restrictions on our operations. The
sale of additional equity or convertible debt securities could result in
additional dilution to out shareholders.
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10-K CLICKSOFTWARE TECHNOLOGIES LTD. PAGE 24
In the fourth quarter of 2002, in light of the worldwide economic recession and
the slowdown in investments in corporate capital expenditure, we initiated a
reorganization plan aimed at reducing our operating expenses and preserving our
cash and cash equivalent balances. As part of the plan we reduced our workforce
by approximately 40 employees, implemented across the board salaries reduction,
closed our office in Campbell, California and moved our North America
headquarter to Burlington, Massachusetts. As a result of this plan, we recorded
in the fourth quarter of 2002 restructuring costs and asset impairment in the
amount of approximately $2.7 million. (See also note 4 of the notes to our
consolidated financial statements attached hereto.)
We estimate that our expenses in the first quarter of 2003 will be between $4.7
and $4.9 million excluding restructuring expenses, although actual expenses may
differ. Also we will need to use cash during 2003 for certain expenses recorded
in 2002 in connection with our restructuring in the amount of approximately $1.3
million. If we are able to maintain our quarterly revenues at a level similar to
that of the third and fourth quarters of 2002, we believe that we will have
sufficient cash to fund our operations for at least the near term although there
is no assurance we will be able to do so.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements SFAS
Nos. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical
Corrections." SFAS No. 145 will impact how companies account for sale-leaseback
transactions and how gains or losses on debt extinguishments are presented in
financial statements. SFAS No. 145 is effective for fiscal years beginning after
May 15, 2002, but early application is encouraged.
In June 2002, the FASB issued Statement of Financial Accounting Standards No.
146 "Accounting for Costs Associated with Exit or Disposal Activities". SFAS No.
146 requires that a liability for costs associated with an exit or disposal
activity be recognized only when the liability is incurred, rather than at the
date of an entity's commitment to an exit plan. SFAS 146 requires that the
liability be initially measured at fair value. SFAS No. 146 is effective for
exit or disposal activities that are initiated after December 31, 2002. We do
not expect that adoption of SFAS No. 146 will have material impact on our
financial statements.
In November 2002, FASB Interpretation No. 45, or FIN 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" was issued. This interpretation requires elaborating on
the disclosures that must be made by a guarantor in its interim and annual
financial statements about its obligations under certain guarantees that it has
issued. It also clarifies that a guarantor is required to recognize, at the
inception of a guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The disclosure requirements of this
Interpretation are effective for statements issued after December 15, 2002 and
its recognition requirements are applicable for guarantees issued or modified
after December 31, 2002. We do not expect that adoption of FIN 45 will have
material impact on our financial statements.
In December 2002, the FASB issued Statement of Financial Accounting Standards
Board No. 148, "Accounting for Stock-Based Compensation -- Transition and
Disclosure -- an amendment of FASB Statement No. 123" ("SFAS 148"). SFAS 148
amends SFAS No. 123 to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS
123 to require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results. We have followed the
prescribed format and have provided the additional disclosures required by SFAS
148 in these financial statements for the periods presented (see Note 2), and
will also provide the disclosures in our quarterly financial statements.
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10-K CLICKSOFTWARE TECHNOLOGIES LTD. PAGE 25
FACTORS THAT MAY AFFECT FUTURE RESULTS
You should carefully consider the following factors and other information in
this statement before you decide to invest in our ordinary shares. If any of the
negative events referred to below occur, our business, financial condition and
results of operations could suffer. In any such case, the trading price of our
ordinary shares could decline, and you may lose all or part of your investment.
RISKS RELATED TO OUR BUSINESS
OUR NEED FOR ADDITIONAL FINANCING IS UNCERTAIN, AS IS OUR ABILITY TO RAISE
FURTHER FINANCING IF REQUIRED. Our ability to reach profitability using our
currently available balance of cash and cash equivalents will depend on our
ability to increase our revenues while continuing to reduce our expenses. We
cannot assure you that we will be successful in doing so. If we are not
successful in doing so, particularly given current economic conditions and
potential reductions in information technology spending by our current and
prospective customers, we will need to raise additional capital to finance our
operations. Under current market conditions, we may not be able to do so
byselling additional equity or debt securities. If we are able to issue equity
or debt securities, these securities could have rights, preferences and
privileges senior to those of holders of 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. Additionally, prior to the issuance of additional equity or
convertible debt securities to entities outside of Israel, we will need to
obtain approval from the Chief Scientist of the State of Israel and there can be
no assurance that we will be able to obtain this consent in the future.
Alternatively, we may seek other forms of financing, such as credit from banks
or institutional lenders. We cannot be certain that additional financing will be
available to us in amounts or on terms acceptable to us, if at all. If we are
unable to obtain this additional financing, we may be required to reduce the
scope of our planned product development and marketing efforts, which could harm
our business, financial condition or operating results. If the economy continues
to weaken or, for any other reason, we are unable to meet our business goals, we
may have to raise additional funds to respond to business contingencies, which
may include the need to:
o fund additional marketing expenditures;
o develop new or enhance existing products and services;
o enhance our operating infrastructure;
o respond to competitive pressures; or
o acquire complementary businesses or necessary technologies.
THE ECONOMIC OUTLOOK MAY ADVERSELY AFFECT THE DEMAND FOR OUR CURRENT PRODUCTS
AND OUR RESULTS OF OPERATIONS. Current predictions for the general economy
indicate uncertain economic conditions. Weak economic conditions may cause a
reduction in information technology spending generally. Consequently, there may
be an adverse impact on the demand for our products, which would adversely
affect our results of operations. In addition, predictions regarding economic
conditions have a low degree of certainty, and further predicting the effects of
the changing economy is even more difficult. We may not accurately gauge the
effect of the general economy on our business. As a result, we may not react to
such changing conditions in a timely manner that may result in an adverse impact
on our results of operations. Any such adverse impacts to our results of
operations from a changing economy may cause the price of our ordinary shares to
decline.
WE HAVE NOT ACHIEVED PROFITABILITY. We expect to continue to incur significant
sales and marketing and research and development expenses. Some of our expenses,
such as administrative and management payroll and rent and utilities, are fixed
in the short term and cannot be quickly reduced to respond to decreases in
revenues. As a result, we will need to generate significant revenues to achieve
and maintain profitability, which we may not be able to do.
WE FACE RISKS RELATING TO OUR FINANCIAL STATEMENT RESTATEMENT. During the third
quarter of 2002, our audit committee, with the assistance of outside advisors,
conducted a review of our financial statements for 2000 and 2001 and the first
six months of 2002. On October 21, 2002, we announced that we would restate our
financial statements for 1999, 2000 and 2001 and the first six months of 2002.
In addition, we announced that our audit committee had decided to recommend to
our shareholders that we
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10-K CLICKSOFTWARE TECHNOLOGIES LTD. PAGE 26
terminate our relationship with Luboshitz Kasierer, formerly a member firm of
Arthur Andersen, as our auditors and appoint new auditors. At a shareholders'
meeting held on December 31, 2002, our shareholders authorized the engagement of
Brightman Almagor Brightman Almagor & Co., a member firm of Deloitte Touche
Tohmatsu. Following the reaudit of our financial statements, we restated our
financial statements for the announced periods and for the year ended December
31, 1999 and filed an amendment to the 10-K for the three years ended 2001 on
January 24, 2003.
The restatement of our prior financial statements may lead to litigation claims
against us. The defense of claims may cause the diversion of management's
attention and resources, and we may be required to pay damages if any such
claims are not resolved in our favor. Any litigation, even if resolved in our
favor, could cause us to incur significant legal and other expenses. In this
regard, in December 2002, a lawsuit was filed against us and our current and
former officers in the United States District Court for the District of
Massachusetts asserting securities law claims on behalf of persons who purchased
our ordinary shares between June 22, 2000 and October 21, 2002. To date, the
complaint has not been served on any of the defendants, nor has the plaintiff
taken any other action in connection with the matter. In addition, we have
provided information regarding our financial statement restatement to the staff
of the Securities and Exchange Commission on a voluntary basis, and the SEC has
requested additional information. Any additional inquiry by the SEC may result
in a diversion of our management's attention and resources and require
additional expenses for professional services. In addition, any claims against
us or any inquiry by the SEC may cause the price of our Ordinary Shares to
decline.
IF WE ARE CHARACTERIZED AS A PASSIVE FOREIGN INVESTMENT COMPANY, OUR UNITED
STATES SHAREHOLDERS WILL BE SUBJECT TO ADVERSE TAX CONSEQUENCES. If, for any
taxable year, either, (1) 75% or more of our gross income is passive income or
(2) 50% or more of the fair market value of our assets, including cash (even if
held as working capital), produce or are held to produce passive income, we may
be characterized as a "passive foreign investment company" ("PFIC") for United
States federal income tax purposes. Passive income includes dividends, interest,
royalties, rents annuities and the excess of gains over losses from the
disposition of assets, which produce passive income. For purposes of the asset
test, cash is considered to be an asset which produces passive income. As a
result of our cash position and the decline in the value of our assets, there is
a sustantial risk that we are a PFIC for U.S. federal income tax purposes.
If we are characterized as a PFIC, our shareholders who are residents of the
United States will be subject to adverse United States tax consequences. Our
treatment as a PFIC could result in a reduction in the after-tax return to
shareholders resident in the United States and may cause a reduction in the
value of such shares.
If we were to be treated as a PFIC, our shareholders will be required, in
certain circumstances, to pay an interest charge together with tax calculated at
maximum rates on certain "excess distributions" including any gain on the sale
of ordinary shares. In order to avoid this tax consequence, they (1) may be
permitted to make a "qualified electing fund" election (however the company does
not currently intend to take the action necessary for our shareholders to make a
"qualified electing fund" election, in which case, in lieu of such treatment
they would be required to include in their taxable income certain undistributed
amounts of our income) or (2) may elect to mark-to-market the ordinary shares
and recognize ordinary income (or possible ordinary loss) each year with respect
to such investment and on the sale or other disposition of the ordinary shares.
Prospective investors should consult with their own tax advisors with respect to
the tax consequences applicable to them of investing in our ordinary shares.
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO FLUCTUATIONS AND IF WE FAIL TO
MEET THE EXPECTATIONS OF SECURITIES ANALYSTS OR INVESTORS, OUR SHARE PRICE MAY
DECREASE. Our quarterly operating results are difficult to predict and are not a
good measure for comparison. Our operating history shows that a significant
percentage of our quarterly revenues come from orders placed toward the end of a
quarter. From time to time, we anticipate a sale of significant size to a single
customer. A delay in the completion of any sale past the end of a particular
quarter could negatively impact results for that quarter, and such negative
impact could be significant for the delay of a sale of significant size. Even
without the delay of a significant sale, our future quarterly operating results
may fluctuate significantly and may not meet the expectations of securities
analysts or investors. If this occurs, the price of our ordinary shares may
decrease. The factors that may cause fluctuations in our quarterly operating
results include the following:
o the volume and timing of customer orders;
o internal budget constraints and approval processes of our current and
prospective clients;
o The length and unpredictability of our sales cycle;
o the mix of revenue generated by product licenses and professional
services;
o the mix of revenue between domestic and foreign sources;
o announcements or introductions of new products or product enhancements
by us or our competitors;
o changes in prices of and the adoption of different pricing strategies
for our products and those of our competitors;
o timing and amount of sales and marketing expenses;
o changes in our business and partner relationships;
o technical difficulties or "bugs" affecting the operation of our
software;
o foreign currency exchange rate fluctuations; and
o general economic conditions.
FAILURE OF THE MARKET TO ACCEPT OUR PRODUCTS WOULD ADVERSELY AFFECT OUR
PROFITABILITY. Historically, all of our operating revenue has come from sales
of, and services related to, our ClickSchedule product and our ClickFix product,
to clients seeking application software that enables efficient provisioning of
services in enterprise environments. During the year ended December 31, 2000, we
introduced three products that, together with our existing products, constitute
a suite of products that offers a more comprehensive solution to our customers.
On November 28, 2001 we released version 7.0
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10-K CLICKSOFTWARE TECHNOLOGIES LTD. PAGE 27
of our Service Optimization Suite that utilizes dynamic load balancing
architecture, which dynamically redirects requests among a group of
ClickSoftware servers running our product applications. On October 2002 we added
ClickForecast to our Service Optimization suite. This increases the scalability
of our products by enabling our customers to optimize additional resources by
adding hardware to this group of ClickSoftware servers. Our growth depends in
part on the development of market acceptance of these products. We have no
guarantee that the sales of these products will develop as quickly as we
anticipate, or at all. Lack of long-term demand for our new products would have
a material adverse effect on our business and operating results.
OUR SALES AND IMPLEMENTATION CYCLES DEPEND ON FACTORS OUTSIDE OUR CONTROL, WHICH
MAY CAUSE QUARTERLY LICENSE AND SERVICE FEES REVENUES TO VARY SIGNIFICANTLY FROM
PERIOD TO PERIOD. To date, our customers have taken typically from three months
to nine months to evaluate our offering before making their purchase decisions.
In addition, depending on the nature and specific needs of a client, the
implementation of our products typically takes three to nine months. Sales of
licenses and implementation schedules are subject to a number of risks over
which we have little or no control, including clients' budgetary constraints,
clients' internal acceptance reviews, the success and continued internal support
of clients' own development efforts, the efforts of businesses with which we
have relationships, the nature, size and specific needs of a client and the
possibility of cancellation of projects by clients. The uncertain outcome of our
sales efforts and the length of our sales cycles could result in substantial
fluctuations in license revenues. Historically, a significant portion of our
sales in any given quarter occur in the last two weeks of the quarter; if sales
forecasted from a specific client for a particular quarter are not realized in
that quarter, we are unlikely to be able to generate revenues from alternate
sources in time to compensate for the shortfall. As a result, and due to the
relatively large size of some orders, a lost or delayed sale could have a
material adverse effect on our quarterly revenue and operating results.
Moreover, to the extent that significant sales occur earlier than expected,
revenue and operating results for subsequent quarters could be adversely
affected.
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. The
services