SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission File Number:333-30274
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ClickSoftware Technologies Ltd.
(Exact name of Registrant as specified in its charter)
ISRAEL Not Applicable
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
34 Habarzel Street
Tel Aviv, Israel
(Address of principal executive offices)
(972-3)765-9400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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As of September 30, 2000, there were 26,000,725 shares of the
Registrant's common stock, par value 0.02 NIS, outstanding.
<PAGE>
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ClickSoftware Technologies Ltd.
FORM 10-Q
FOR THE QUARTER ENDED September 30, 2000
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
<S> <C>
(a) Condensed Consolidated Balance Sheets as of December 31, 1999 and September
30, 2000..................................................................................3
(b) Condensed Consolidated Statements of Operations for the Three Months Ended
and Nine Months Ended September 30, 1999 and September 30, 2000...........................4
(c) Condensed Consolidated Statements of Cash Flows for Nine Months Ended
September 30, 1999 and September 30, 2000.................................................5
(d) Notes to Condensed Consolidated Financial Statements......................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.............................................................................7
Factors That May Affect Future Results........................................................14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..........................................................................26
Item 2. Changes in Securities and Use of Proceeds..................................................27
Item 3. Quantitative and Qualitative Disclosures About Market Risk.................................27
Item 6. Exhibits and Reports on Form 8-K...........................................................28
Signatures.........................................................................................28
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<PAGE>
<TABLE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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ClickSoftware Technologies Ltd.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
December 31, September 30,
1999 2000
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ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 7,838 $ 9,332
Short-term investments - 15,518
Trade receivables 3,966 6,390
Other receivables and prepaid expenses 465 1,123
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Total current assets 12,269 32,363
Property and equipment, net 1,498 3,194
Severance pay deposits 428 524
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TOTAL ASSETS $ 14,195 $ 36,081
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short term debt $ 320 $ 151
Accounts payable and accrued expenses 2,799 2,941
Deferred revenue 1,143 282
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Total Current Liabilities 4,262 3,374
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Long Term Liabilities
Long-term debt 213 114
Accrued severance pay, net 899 1,344
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Total Long Term Liabilities 1,112 1,458
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Total Liabilities 5,374 4,832
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Shareholders' Equity
Ordinary shares
NIS 0.02 par value; Authorized - 25,645,039 shares as of
December 31, 1999 and 100,000,000 shares as of September 30,
2000. Issued and outstanding - 20,708,714 shares as of December
31, 1999 and 26,000,725 as of September 30, 2000 73 100
Convertible preferred shares
Authorized - none as of December 31, 1999 and 5,000,000 shares
as of September 30, 2000. Issued and outstanding - none as of
December 31, 1999 and none as of September 30, 2000. - -
Additional paid-in capital 40,052 69,239
Deferred compensation (2,663) (1,509)
Accumulated deficit (28,641) (36,581)
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Total Shareholders' Equity 8,821 31,249
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 14,195 $ 36,081
========= =========
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See notes to condensed consolidated financial statements.
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<TABLE>
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ClickSoftware Technologies Ltd.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
----------------------- ------------------------
1999 2000 1999 2000
-------- -------- -------- --------
Revenues:
<S> <C> <C> <C> <C>
Software License $ 1,352 $ 3,320 $ 3,143 $ 8,406
Service and maintenance 1,407 1,469 3,986 4,202
-------- -------- -------- --------
Total Revenues 2,759 4,789 7,129 12,608
Cost of revenues:
Software License 3 117 21 250
Service and maintenance 1,156 1,353 3,039 3,917
-------- -------- -------- --------
Total cost of revenue 1,159 1,470 3,060 4,167
-------- -------- -------- --------
Gross Profit 1,600 3,319 4,069 8,441
-------- -------- -------- --------
Operating expenses
Research and development, net 843 941 2,021 3,346
Sales and marketing expenses 1,993 3,443 5,698 9,782
General and administrative expenses 404 838 1,262 2,595
Share-based compensation 622 277 662 987
-------- -------- -------- --------
Total operating expenses 3,862 5,499 9,643 16,710
-------- -------- -------- --------
Operating loss (2,262) (2,180) (5,574) (8,269)
Interest and other(expenses) income, net 85 329 (2) 328
-------- -------- -------- --------
Net Loss $ (2,177) $(1,851) $ (5,576) $(7,941)
======== ======== ======== ========
Basic and Diluted Net Loss Per Share $ (0.12) $ (0.07) $ (0.32) $ (0.37)
======== ======== ======== ========
Shares Used In Calculating Basic and
Diluted Net Loss Per Share 17,617 24,699 17,617 21,555
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ClickSoftware Technologies Ltd.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1999 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Loss $ (5,576) $ (7,941)
Adjustments to reconcile net loss to net cash used in
operating activities:
Expenses not affecting operating cash flows:
Depreciation 334 457
Amortization of deferred compensation 662 987
Appreciation of investments (426)
Severance pay, net 72 349
Changes in operating assets and liabilities:
Trade receivables (1,215) (2,424)
Other receivables (5) (658)
Accounts payable and accrued expenses 745 142
Deferred revenues 1,321 (861)
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NET CASH USED IN OPERATING ACTIVITIES (3,662) (10,375)
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CASH FLOWS FROM INVESTING ACTIVITIES
Increase in Investments, Net (15,092)
Purchase of equipment (452) (2,153)
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NET CASH USED IN INVESTING ACTIVITIES (452) (17,245)
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CASH FLOWS FROM FINANCING ACTIVITIES
Short-term debt 1,172 (169)
Repayments of long-term debt (95) (99)
Net proceeds from issuance of shares 28,344
Net proceeds from warrants exercised 579
Employee options exercised 459
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NET CASH PROVIDED BY FINANCING ACTIVITIES 1,077 29,114
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NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS (3,037) 1,494
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,770 7,838
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CASH AND EQUIVALENTS, END OF PERIOD $ 733 $ 9,332
========= =========
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See notes to condensed consolidated financial statements.
<PAGE>
ClickSoftware Technologies Ltd.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF September 30, 2000 FOR THE THREE MONTHS AND
NINE MONTHS ENDED September 30, 1999 AND September 30, 2000)
1. Condensed Consolidated Financial Statements. The accompanying condensed
consolidated financial statements have been prepared by the Company without
audit and reflect all adjustments, consisting of normal recurring
adjustments and accruals, which are, in the opinion of management,
necessary for a fair statement of the financial position of the Company as
of September 30, 2000 and the results of operations and cash flows for the
interim periods indicated. The results of operations covered are not
necessarily indicative of the results to be expected for future quarters or
for the year ending December 31, 2000. The statements have been prepared in
accordance with the regulations of the Securities and Exchange Commission;
accordingly, certain information and footnote disclosures normally included
in annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. These
financial statements should be read in conjunction with the audited
financial statements and notes thereto of ClickSoftware for the year ended
December 31, 1999 which are included in ClickSoftware's Registration
Statement on Form S-1 (File No. 333-30274 filed with the Securities and
Exchange Commission).
2. Net Income (Loss) Per Share. ClickSoftware computes net loss per share of
ordinary shares in accordance with Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS No. 128"). Under the
provisions of SFAS No. 128 basic net loss per share ("Basic EPS") is
computed by dividing net loss by the weighted average number of shares of
common stock outstanding. The weighted average ordinary shares outstanding
are on a pro-forma basis for the three months ended September 30, 1999 and
for the nine months ended September 30, 1999. The following is a
reconciliation of the numerators and denominators used in computing basic
and diluted net loss per share (in thousands except per share amounts):
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Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------------------------------------------
1999 2000 1999 2000
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NET LOSS (NUMERATOR)
<S> <C> <C> <C> <C>
basic and diluted $(2,177) $(1,851) $ (5,576) (7,941)
------------------------------------------------------------------------
SHARES
(DENOMINATOR)
Weighted 17,616,627 24,699,121 17,616,627 21,554,795
Average
Ordinary Shares
Outstanding
========================================================================
Net Loss per share basic and
diluted $ (0.12) $ (0.07) $ (0.32) $ (0.37)
========================================================================
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3. Initial Public Offering. On June 22, 2000, ClickSoftware completed the
initial public offering of its ordinary shares (the "IPO"). A total of
4,000,000 shares of ClickSoftware ordinary shares were sold to the public
at a price of $7.00 per share. Cash proceeds to ClickSoftware net of $1.96
million in underwriting discounts before expenses, were approximately
$26.04 million. Concurrent with the IPO, all of the shares of the Company's
<PAGE>
Series A, Series B, Series C and Series D convertible preferred stock
("Preferred Stock") were converted into shares of the Company's common
stock on a share for share basis. The number of authorized and outstanding
ordinary shares as of December 31, 1999 include preferred convertible
shares as if converted on a pro forma basis.
4. Exercise of Underwriters' Overallotment Option. On July 20 the IPO
Underwriters exercised their overallotment Option and purchased 600,000
additional ordinary shares from ClickSoftware at a price of $7.00 per
share. Cash proceeds to ClickSoftware net of $0.3 million in underwriting
discounts before expenses, were approximately $3.9 million.
5. Recent Accounting Pronouncements. In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities". SFAS No. 133 establishes accounting and reporting
standards requiring that every derivative instrument be recorded in the
balance sheet at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the
hedged item in the income statement. SFAS No. 133 is effective for fiscal
years beginning after June 15, 2000. The Company believes that the adoption
of SFAS No. 133 will not have a material effect on its financial
statements.
In March 2000, the FASB issued interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation -- an Interpretation of
APB Opinion No. 25". The interpretation clarifies the application of APB
Opinion No. 25 in certain situations, as defined. The interpretation is
effective July 1, 2000, but covers certain events occurring during the
period after December 15, 1998, but before the effective date. To the
extent that events covered by this interpretation occur during the period
after December 15, 1998, but before the effective date, the effects of
applying this interpretation would be recognized on a prospective basis
from the effective date. Accordingly, upon initial application of the final
interpretation, (a) no adjustments would be made to the financial
statements for periods before the effective date and (b) no expense would
be recognized for any additional compensation cost measured that is
attributable to periods before the effective date. We expect that the
adoption of this interpretation would not have any effect on the
accompanying financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements". SAB 101 provides guidance on applying generally accepted
accounting principles to revenue recognition issues in financial
statements. We adopted SAB 101 as required in the second quarter of 2000.
There was no material impact on our consolidated results of operations and
financial position as a result of the adoption of SAB 101.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
Except for historical information, the discussion in this report contains
forward-looking statements that involve risks and uncertainties. These forward
looking statements include, among others, those statements including the words,
"expects", "anticipates", "intends", "believes" and similar language. Our actual
results could differ materially from those discussed herein. Factors that could
cause or contribute to such differences include, but are not limited to the
risks discussed in the section titled "Risk Factors" in this prospectus.
OVERVIEW
We derive revenues from software licensing and service and maintenance fees.
Software license revenues are comprised of perpetual or annual software license
fees primarily derived from contracts with our direct sales clients and our
indirect distribution channels. License fees are based upon an initial fee
determined by the number of service resources to be scheduled, followed by
periodic maintenance fees. We recognize revenues in accordance with the American
Institute of Certified Public Accountants Statement of Position 97-2, "Software
Revenue Recognition," or SOP 97-2, as amended by Statement of Position 98-4.
<PAGE>
Under SOP 97-2, we recognize software license revenues when a software license
agreement has been executed or a definitive purchase order has been received and
the product has been delivered to our clients, no significant obligations with
regard to implementation remain, the fee is fixed and determinable, and
collectability is probable.
Service and maintenance revenues are comprised of professional service revenues
from implementation, and revenues from consulting, training, and customer
service support fees. Clients licensing our products generally purchase support
service agreements from us. Professional service and training revenues are
billed at an agreed-upon rate plus incurred expenses, and are recognized when
provided. Consulting revenues are recognized on a straight-line basis over the
life of the agreement. Customer support is charged as a percentage of license
fees depending upon the level of support coverage requested by the customer, and
are recognized over the duration of the support provided. Our products are
marketed worldwide through a combination of a direct sales force, consultants
and various business relationships we have with implementation and technology
companies and resellers.
In conjunction with the repositioning of our ClickSchedule product line, we
introduced additional software license pricing structures to our clients which
includes lower initial license fees followed by monthly payments, and are based
on the number of scheduling transactions conducted. To date, however, no
significant revenue has been recognized on this basis.
Cost of revenues consists of cost of software license revenues and cost of
service and maintenance revenues. Cost of software license revenues consists of
expenses related to media duplication and packaging of our products. Cost of
service and maintenance revenues consists of expenses related to salaries,
expenses of our professional services organizations, costs related to
third-party consultants, and equipment costs.
We believe that as our client base reaches maturity, and as existing clients
purchase additional licenses, the percentage of revenues derived from license
fees will increase as a percentage of revenues while the percentage of revenues
derived from service and maintenance fees will increase on an absolute basis but
decrease as a percentage of revenues as compared to historic periods.
Operating expenses are categorized into research and development expenses, net,
sales and marketing expenses, general and administrative expenses, and share
based compensation.
Research and development expenses consist primarily of personnel costs to
support product development, net of grants received from the Chief Scientist. In
return for some of these grants, we are obligated to pay the Israeli Government
royalties as described below which are included in sales and marketing expenses.
Software research and development costs incurred prior to the establishment of
technology feasibility are included in research and development expenses as
incurred.
In previous years we received grants from the Fund for the Encouragement of
Marketing Activities established by the Government of Israel. In return for
these grants, we are obligated to pay the Israeli Government royalties as
described below. We expect that sales and marketing expenses will increase on an
absolute basis over the next year as we hire additional sales and marketing
personnel, continue to promote our brand and our new corporate name, continue
our Internet initiative, and increase our international sales efforts.
Sales and marketing expenses consist primarily of personnel and related costs
for marketing and sales functions, including related travel, direct advertising
costs, expenditures on trade shows, market research and promotional printing.
General and administrative expenses consist primarily of personnel and related
costs for corporate functions, including information services, finance,
accounting, human resources, facilities, legal, and directors and officers
liability insurance.
Share based compensation represents the aggregate difference, at the date of
grant, between the respective exercise price of stock options and the deemed
fair market value of the underlying stock. Share based compensation is amortized
over the vesting period of the underlying options, generally four years.
<PAGE>
Interest and other (expenses) income, net, includes interest income earned on
our cash and cash equivalents, offset by interest expense, and also includes the
effects of foreign currency translations.
The functional currency of our operations is the U.S. dollar, which is the
primary currency in the economic environment in which we conduct our business. A
significant portion of our research and development expense is incurred in New
Israeli Shekels ("NIS") and a portion of our revenues and expenses are incurred
in British Pounds and the European Community Euro. The results of our operations
are subject to fluctuations in these exchange rates which are influenced by
various global economic factors, including inflation rates and economic growth
within each nation.
The effects of foreign currency exchange rates on our results of operations for
the nine months ended September 30, 1999 and 2000 were immaterial.
RESULTS OF OPERATIONS
Our operating results for each of the nine months ended September 30, 2000 and
1999 and for the three months ended September 30, 2000 and 1999 as a percentage
of total revenues are as follows:
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THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
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1999 2000 1999 2000
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Revenues:
<S> <C> <C> <C> <C>
Software License 49 % 69 % 44 % 67 %
Service and maintenance 51 % 31 % 56 % 33 %
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Total Revenues 100 % 100 % 100 % 100 %
Cost of revenues:
Software License - 2 % - 2 %
Service and maintenance 42 % 29 % 43 % 31 %
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Total cost of revenue 42 % 31 % 43 % 33 %
------- ------- -------- ------
Gross Profit 58 % 69 % 57 % 67 %
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Operating expenses
Research and development, net 31 % 20 % 28 % 27 %
Sales and marketing expenses 72 % 72 % 80 % 78 %
General and administrative expenses 15 % 17 % 18 % 21 %
Share-based Compensation 23 % 6 % 9 % 8 %
------- ------- -------- ------
Total operating expenses 140 % 115 % 135 % 133 %
------- ------- -------- ------
Loss from operations (82)% (46)% (78) % (66)%
Interest and other(expenses)income, net 3 % 7 % - 3 %
------- ------- -------- ------
Net Loss (79)% (39)% (78) % (63) %
======= ======= ======== =======
</TABLE>
RESULTS OF OPERATIONS - SUMMARY
Our revenues of $4.8 million for the third quarter ended September 30, 2000,
increased from $2.8 million or 74% over the third quarter of 1999. Revenues
increased 11% from second quarter 2000 revenues of $4.3 million, and the
Company's net loss was reduced to $1.9 million. This third quarter loss of $1.9
million is $0.07 per share, compared to the second quarter 2000 loss of $2.7
million, or $0.14 per share. The comparative net loss for the third quarter of
1999 was $2.18 million, or pro forma $0.12 per share, with 29% fewer shares
outstanding.
As of December 31, 1999, we had outstanding trade receivables of approximately
$4.0 million which represented approximately 38% of 1999 total revenues. As of
September 30, 2000, we had outstanding trade receivables of approximately $6.4
million. Our trade receivables have terms that are negotiated individually with
each client. As of September 30, 2000, our DSO (Days Sales Outstanding) was 120
days.
<PAGE>
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
REVENUES. Revenues increased $2.0 million or 74% to $4.8 million in the three
months ended September 30, 2000 from $2.8 million in the three months ended
September 30, 1999.
SOFTWARE LICENSE. Software license revenues were $3.3 million or 69% of total
revenues in the three months ended September 30, 2000 and $1.4 million or 49% of
total revenues in the three months ended September 30, 1999. The increase is due
to sales to new customers.
SERVICE AND MAINTENANCE. Service and maintenance revenues were $1.5 million or
31% of revenues in the three months ended September 30, 2000 and, $1.4 million
or 51% of revenues in the three months ended September 30, 1999. The decrease in
service and maintenance revenues as a percentage of revenues for the three
months ended September 30, 2000 from the three months ended September 30, 1999
was due primarily to increased sales of ClickSchedule software licenses,
decreased implementation times, and an increase in implementation by third party
integrators.
COST OF REVENUES. Cost of revenues were $1.5 million or 31% of revenues in the
three months ended September 30, 2000 and, $1.2 million or 42% of revenues in
the three months ended September 30, 1999. The increase in the cost of revenues
on an absolute basis was due to an increased number of licenses sold which
resulted in an increased demand for our professional services.
COST OF SOFTWARE LICENSES. Cost of software license revenues were $117,000 or 2%
of total revenues in the three months ended September 30, 2000 and, $3,000 or
less than 1% of revenues in the three months ended September 30, 1999.
COST OF SERVICE AND MAINTENANCE. Cost of service and maintenance revenues were
$1.4 million or 29% of revenues in the three months ended September 30, 2000 and
$1.2 million or 42% of revenues in the three months ended September 30, 1999.
This absolute increase in the cost of service and maintenance revenues was due
to increased professional services required as a result of the increase in sale
of licenses, which resulted in an increase in the use of third party consultants
and an increase of other costs. The total number of professional services
employees employed by us was 39 on September 30, 2000 and 38 on September 30,
1999.
GROSS PROFIT. Gross profit as a percentage of revenues was 69% in the three
months ended September 30, 2000 as compared to 58% in the three months ended
September 30, 1999. This improvement is mostly attributed to change in the
revenue mix in favor of higher margin license revenues.
OPERATING EXPENSES. Total operating expenses were $5.5 million or 115% of
revenues in the three months ended September 30 ,2000 and, $3.9 million or 140%
of revenues in the three months ended September 30, 1999.
RESEARCH AND DEVELOPMENT EXPENSES, NET. Research and development expenses, net
of related grants, were $0.9 million or 20% of revenues in the three months
ended September 30, 2000, and $0.8 million or 31% of revenues in the three
months ended September 30, 1999. In the third quarter, we received approval of
the year 2000 research and development grant from Israel's Chief Scientist in
the amount of $820,000. The grant will offset R&D expenses only for the final
two quarters of 2000, whereas in past years the grant was recognized ratably
over four quarters. Research and development expenses for the three months ended
September 30, 2000 reflect an increase in personnel related costs related to
development of our products.
SALES AND MARKETING EXPENSES. Sales and marketing expenses were $3.4 million or
72% of revenues in the three months ended September 30, 2000 and $2.0 million or
72% of revenues in the three months ended September 30, 1999. The absolute
increase in sales and marketing expenses was due to additional sales and
marketing efforts related to the expansion of our salesforce, which resulted in
an increase in personnel related costs as well as additional marketing costs. We
expect that sales and marketing expenses will increase on an absolute basis in
future periods as we hire additional sales and marketing personnel, continue to
promote our brand, and establish sales in additional geographic areas. The total
number of sales and marketing employees employed by us was 74 on September 30,
2000 and 39 on September 30, 1999.
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses were
$0.8 million or 17% of revenues in the three months ended September 30, 2000 and
$0.4 million or 15% of revenues in the three months ended September 30, 1999.
This increase is largely due to the increased overhead associated with our
expanding operations and the increased costs associated with being a public
company. We expect that the absolute dollar amount of general and administrative
expenses will increase as we expand our operations and incur incremental costs
of being a public company. However, we expect them to decrease as a percentage
of revenues.
SHARE BASED COMPENSATION. Share based compensation for the three months ended
September 30, 2000 amounted to $0.3 million of previously recorded deferred
compensation. Share based compensation for the three months ended September 30,
1999 amounted to $0.6 million.
RESULTS OF OPERATIONS FOR NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
REVENUES. Revenues increased $5.5 million or 77% to $12.6 million in the nine
months ended September 30, 2000 from $7.1 million in the nine months ended
September 30, 1999.
SOFTWARE LICENSE. Software license revenues were $8.4 million or 67% of revenues
in nine months ended September 30, 2000, and $3.1 million or 44% of revenues in
the nine months ended September 30, 1999. The increase in software license
revenues was due to increased average sales per client, growth of our client
base, and recurring sales to our installed base of clients.
SERVICE AND MAINTENANCE. Service and maintenance revenues were $4.2 million or
33% of revenues in the nine months ended September 30, 2000 and, $4.0 million or
56% of revenues in the nine months ended September 30, 1999. The relatively
small increase in service and maintenance revenues was primarily due to
ClickSchedule Fast Track initiative which offers a rapid implementation of
ClickSchedule, and an increase in implementation by third party integrators.
COST OF REVENUES. Cost of revenues were $4.2 million or 33% of revenues in the
nine months ended September 30, 2000 and, $3.1 million or 43% of revenues in the
nine months ended September 30, 1999. This increase in the cost of revenues on
an absolute basis was due to an increased number of clients.
COST OF SOFTWARE LICENSES. Cost of software license revenues were $250,000 in
the nine months ended September 30, 2000 and, $21,000 in the nine months ended
September 30, 1999. Cost of software license revenues represented 2% of revenues
in nine months ended September 30, 2000 and less than 1% of revenues in nine
months ended September 30, 1999.
COST OF SERVICE AND MAINTENANCE. Cost of service and maintenance revenues were
$3.9 million or 31% of revenues in the nine months ended September 30, 2000 and,
$3.0 million or 43% of revenues in the nine months ended September 30, 1999.
This absolute increase in the cost of service and maintenance revenues was due
primarily to an increase in the sale of licenses, which resulted in an increase
in personnel related costs and an increase in third party related costs. The
total number of professional services employees employed by us was 39 on
September 30, 2000 and 38 on September 30, 1999.
GROSS PROFIT. Gross profit as a percentage of revenues was 67% in the nine
months ended September 30, 2000 as compared to 57% in the nine months ended
September 30, 1999. This improvement is mostly attributed to the significant
increase in higher margin license revenues. Our service and maintenance revenues
have a significantly lower gross margin than our software license revenues.
OPERATING EXPENSES. Total operating expenses were $16.7 million or 133% of
revenues in the nine months ended September 30, 2000 and $9.6 million or 135% of
revenues in the nine months ended September 30, 1999.
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSES, NET. Research and development expenses, net
of related grants, were $3.3 million or 27% of revenues in the nine months ended
September 30, 2000 and, $2.0 million or 28% of revenues in the nine months ended
September 30, 1999. In the third quarter, we received approval of the year 2000
research and development grant from Israel's Chief Scientist in the amount of
$820,000. The grant will offset R&D expenses only for the final two quarters of
2000, whereas in past years the grant was recognized ratably over four quarters.
Research and development expenses for the nine months ended September 30, 2000
reflect an increase in personnel related costs related to development of our
product. We are continuing to invest substantially in research and development,
and we expect that research and development expenses will increase on an
absolute basis in the future.
SALES AND MARKETING EXPENSES. Sales and marketing expenses were $9.8 million or
78% of revenues in the nine months ended September 30, 2000 and, $5.7 million or
80% of revenues in the nine months ended September 30, 1999. The increase was
primarily due to the expansion of our sales force, and an increase in print
advertising and appearances in trade shows. Personnel and related costs,
primarily from our direct sales force and marketing staff, comprised 56% of our
sales and marketing expenses for the nine months ended September 30, 1999 and
59% for the nine months ended September 30, 2000. Marketing programs, including
advertising, public relations, trade shows and promotional events comprised 44%
of our sales and marketing expenses for the nine months ended September 30, 1999
and 41% for the nine months ended September 30, 2000. We expect that sales and
marketing expenses will increase on an absolute basis in future periods as we
hire additional sales and marketing personnel, continue to promote our brand,
and establish sales in additional geographic areas.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses were
$2.6 million or 21% of revenues in the nine months ended September 30, 2000 and,
$1.3 million or 18% of revenues in the nine months ended September 30, 1999.
SHARE BASED COMPENSATION. Share based compensation for the nine months ended
September 30, 2000 amounted to $1.0 million, net of a $0.1 million reduction
from expired options, and share based compensation for nine months ended
September 30, 1999 amounted to $0.7 million. We recorded deferred share based
compensation totaling $3.4 million for the year ended December 31, 1999.
INTEREST AND OTHER (EXPENSES) INCOME, NET. Interest income, net, was $0.3
million of net expense in the nine months ended September 30, 2000, and $-2,000
of net expense in the nine months ended September 30, 1999.
INCOME TAXES. As of September 30, 2000, we had approximately $13.5 million of
Israeli net operating loss carryforwards, approximately $15.1 million of U.S.
federal net operating loss carryforwards and approximately $1.8 million of
British net operating loss carryforwards available to offset future taxable
income. The Israeli and British net operating loss carryforwards have no
expiration date. The U.S. net operating loss carryforwards will expire in
various amounts in the years 2008 to 2013.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception and prior to our initial public offering, we funded
operations primarily through the private placement of equity securities and, to
a lesser extent, borrowings from financial institutions. We raised an aggregate
of approximately $32.0 million, net of issuance costs, from the sale of
preferred shares and ordinary shares.
On June 22, 2000, the Company completed an initial public offering of 4,000,000
ordinary shares at a price of $7.00 per share. The proceeds to the Company from
the offering were approximately $26.0 million before expenses (net of
underwriters discount).
In July 2000, the Underwriters exercised their overallotment option and
purchased 600,000 additional ordinary shares at a price of $7.00 per share. The
proceeds to the Company from the offering were approximately $3.9 million before
expenses (net of underwriters discount).
<PAGE>
Cash used in operations includes expenditures associated with research and
development activities and marketing efforts related to promotion of our
products. For the nine months ended September 30, 2000, cash used in operations
was $10.4 million, consisting of our net loss of $7.9 million, an increase in
trade receivables of $2.4 million, an increase in other receivables of $0.7
million, partially offset by non-cash charges of $1.4 million, and an increase
in accrued expenses of $0.1 million and a decrease in deferred revenues of $0.9
million. For the nine months ended September 30, 1999, cash used in operations
was $3.7 million, consisting of our net loss of $5.6 million, an increase in
trade receivables of $1.2 million, partially offset by non-cash charges of $1.1
million, and an increase in accrued expenses of $0.7 million and an increase in
deferred revenues of $1.3 million.
As of September 30, 2000, we had outstanding trade receivables of approximately
$6.4 million. Our trade receivables typically have terms that are negotiated
individually with each client. As of September 30, 2000, our DSO (Days Sales
Outstanding) was 120 days.
As of September 30, 2000 we have also received aggregate payments from the
Government of the State of Israel in the amount of $3.7 million related to
research and development and $0.7 million related to marketing activities. As of
September 30, 2000, we have paid or accrued royalties related to these funds in
the amount of $1.5 million.
The Company also has an aggregate of $265,000 in term loans relating to
borrowings for working capital. One loan is in dollars and bears interest at a
rate of LIBOR plus 1% and the other is linked to the Israeli CPI and bears
interest at a rate of 5.4%.
Our bank in Israel has issued two standby letters of credit on our behalf. One
is for $125,000 for tenant improvements related to our facilities in Israel. The
other is for $405,000 and secures our performance pursuant to projects with the
Government of Israel. Our bank in California has issued a standby letter of
credit in the amount of $205,560 to secure performance under the terms of our
office lease in Campbell.
Our capital requirements depend on numerous factors, including market acceptance
of our products, the resources we devote to developing, marketing, selling and
supporting our products, the timing and extent of establishing additional
international operations and other factors. We intend to continue investing
significant resources in our sales and marketing and research and development
operations in the future. We believe that our current cash balances will be
sufficient to fund our operations for at least the next twelve months. After
that time, we cannot assure you that cash generated from operations will be
sufficient to satisfy our liquidity requirements, and we may need to raise
additional capital by selling additional equity or debt securities or by
increasing the size of our credit facility. If additional funds are raised
through the issuance of equity or debt securities, these securities could have
rights, preferences and privileges senior to those of holders of ordinary
shares, and the terms of these securities could impose restrictions on our
operations. The sale of additional equity or convertible debt securities could
result in additional dilution to our shareholders, and we cannot be certain that
additional financing will be available in amounts or on terms acceptable to us,
if at all. If we are unable to obtain this additional financing, we may be
required to reduce the scope of our planned product development and marketing
efforts, which could harm our business, financial condition or operating
results.
FACTORS THAT MAY AFFECT FUTURE RESULTS
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 the Company that is based on
the beliefs of the management of the Company as well as assumptions made by and
information currently available to the management of the Company including
statements related to the timing and amount of our capital expenditures and
financing needs, the protection of our trademarks and other intellectual
property, the length of our sales cycle, the potential of our projected market,
<PAGE>
the effects of the marketplace and our competition, and the ability to hire or
retain personnel. 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 the Company or the management of the Company, may
identify forward-looking statements. Such statements reflect the judgement of
the Company as of the date of this quarterly report on Form 10-Q with respect to
future events, the outcome of which is subject to certain risks, including the
risk factors set forth below, which may have a significant impact on the
Company's business, operating results or financial condition. Investors are
cautioned that these forward-looking statements are inherently uncertain. Should
assumptions prove incorrect, actual results or outcomes may vary materially from
those described herein. ClickSoftware undertakes no obligation to update
forward-looking statements.
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 occurs, 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 FINANCIAL PERFORMANCE MAY SUFFER BECAUSE WE HAVE RECENTLY CHANGED OUR
STRATEGIC FOCUS. Historically, all of our operating revenue has come from sales
of our ClickSchedule product, formerly known as W-6 Service Scheduler, and our
ClickFix product, formerly known as TechMate, to clients seeking application
software that enables efficient provisioning of services in enterprise, rather
than Internet, environments. As a result, while we sold the W-6 technology that
is included in ClickSchedule and the TechMate technology that is included in
ClickFix prior to 1999, we have only recently sold the new versions for Internet
scheduling and troubleshooting. Our current strategy is to expand upon our
installed base of clients using our software to become the leading provider of
web-scheduling and delivery software solutions for service operations, including
Internet companies and companies transitioning to Internet applications. To the
extent that our strategy is not successful, our business, operating results and
financial condition will suffer.
OUR FINANCIAL PERFORMANCE MAY SUFFER BECAUSE WE HAVE RECENTLY INTRODUCED A NEW
PRICING PROGRAM. In December 1999, we introduced a new pricing program for our
products. Traditionally, we have generated revenue through one-time sales of
licenses to our clients at a price based upon the number of resources optimized.
Our new pricing model enables our clients to pay monthly user fees for licenses
of our software or to pay on a per-transaction basis. This new pricing structure
may reduce the initial amount of software license revenues we realize at the
time of sale and could cause our revenue growth to decrease in the short term.
If we have not determined appropriate monthly or per transaction fees for our
software licenses, our revenues from software licenses may decrease or may not
increase. Our new pricing model may also result in delayed recognition of
revenues, which may cause our quarterly operating results to be lower than
expected in any particular quarter. Although this pricing structure has been
selected by only a few customers and has not had a significant impact on our
revenue, it remains as an option for our customers.
WE HAVE A HISTORY OF LOSSES AND EXPECT TO INCUR FUTURE LOSSES. We have not
achieved profitability and expect to continue to incur net losses for the
foreseeable future.
We expect to continue to incur significant sales and marketing and research and
development expenses and expect such expenses to increase significantly. Some of
our expenses, such as expenses for administrative and management payroll and
rent and utilities, are fixed in the short term and cannot be quickly reduced to
respond to decreases in revenues. As a result, we will need to generate
significant revenues to achieve and maintain profitability, which we may not be
able to do.
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO FLUCTUATIONS AND IF WE FAIL TO
MEET THE EXPECTATIONS OF SECURITIES ANALYSTS OR INVESTORS, OUR SHARE PRICE MAY
DECREASE. Our quarterly operating results are difficult to predict and are not a
good measure for comparison. Our operating history shows that a significant
percentage of our quarterly revenues come from orders placed toward the end of a
<PAGE>
quarter. For example, in the nine months ended September 30, 2000, 68% of
realized revenue was recognized in the last two weeks of the quarter.
A delay in the completion of a sale past the end of a particular quarter could
negatively impact results for that quarter. Our future quarterly operating
results may fluctuate significantly and may not meet the expectations of
securities analysts or investors. If this occurs, the price of our ordinary
shares may decrease. The factors that may cause fluctuations in our quarterly
operating results include the following:
- the volume and timing of customer orders;
- the length and unpredictability of our sales cycle;
- the mix of revenue generated by product licenses and professional services;
- the mix of revenue between domestic and foreign sources;
- internal budget constraints of our current and prospective clients,
particularly newly formed Internet companies;
- announcements or introductions of new products or product enhancements by
us or our competitors;
- changes in prices of and the adoption of different pricing strategies for
our products and those of our competitors;
- changes in our business strategy;
- timing and amount of sales and marketing expenses;
- changes in our business and partner relationships;
- technical difficulties or "bugs" affecting the operation of our software;
- foreign currency exchange rate fluctuations; and
- general economic conditions.
FAILURE OF THE MARKET TO ACCEPT OUR TECHNOLOGY WOULD ADVERSELY AFFECT DEMAND FOR
OUR PRODUCTS AND THE PRICE OF OUR ORDINARY SHARES COULD DECLINE. Our products
are based on complex technologies, including sophisticated algorithms and models
which we have developed to address complex scheduling and troubleshooting issues
in the service industry. Although our products are currently being used in the
service industry, and we believe our technologies address these issues, the
methods we have chosen have not yet been widely accepted by the service
industry, and other providers of similar software use different technology and
models. We cannot predict whether our products will be widely accepted by the
service industry. Failure of the market to accept our technology would adversely
affect demand for our products. In addition, we participate in an industry with
an inherently high failure rate and we cannot assure you that our clients will
achieve success when using our products and services. Any publicized performance
problems relating to our products or those of our competitors could also slow
client adoption of our products. Moreover, to the extent that we are associated
with unsuccessful client projects, even if due to factors beyond our control,
our reputation and competitive position in our industry could be materially and
adversely affected.
IF THE MARKET FOR SCHEDULING FULFILLMENT OF SERVICES AND PRODUCTS OVER THE
INTERNET DOES NOT DEVELOP AS EXPECTED OR AT ALL, OR IF OUR PRODUCTS ARE NOT
ACCEPTED BY BUSINESSES SCHEDULING SERVICES, A SUBSTANTIAL PORTION OF THE
ANTICIPATED DEMAND FOR OUR SOLUTIONS MAY NOT DEVELOP AND THE PRICE OF OUR
ORDINARY SHARES COULD DECLINE ACCORDINGLY. Our business strategy is premised, in
part, on our belief that traditional bricks-and-mortar companies, such as
utilities, as well as e-commerce companies, will offer their customers the
opportunity to schedule and obtain services online rather than on the telephone.
While some of our clients use the web-based features of our products in an
intranet environment, as of the date of this statement, none of our clients is
currently offering Internet self-scheduling options to its customers. Our
business strategy depends in part on consumers and businesses moving away from
telephone-based customer service to Internet-based customer service. While
<PAGE>
adoption of the Internet as a new medium for commerce is occurring for purchases
of products, the adoption of the Internet to schedule and obtain services is at
a much earlier stage. If online service scheduling solutions are not widely
adopted by consumers and businesses engaging in e-commerce transactions, our
business will not realize its full potential. We began emphasizing our products'
Internet capabilities in September 1999 and we have devoted and expect to
continue to devote substantial resources to market this use of our products. Our
business strategy requires us to market our products to companies that utilize
the Internet to deliver service. Many of these companies may have limited
capital resources and may not be willing to invest in our solutions.
IF USE OF THE INTERNET FOR COMMERCIAL TRANSACTIONS DOES NOT GROW AS ANTICIPATED,
OUR BUSINESS STRATEGY MAY NOT BE SUCCESSFUL. Our success will depend in part on
the acceptance of the Internet in the commercial marketplace and on the ability
of third parties to provide a reliable Internet infrastructure network with the
speed, data capacity, security and hardware necessary for reliable Internet
access and services. To the extent that the Internet continues to experience
increased numbers of users, increased frequency of use or increased bandwidth
requirements of users, the Internet infrastructure may not be able to support
the demands placed on it and the performance and reliability of the Internet
could suffer, which could cause the market for our products to fail to grow or
to grow more slowly than anticipated, causing our business to suffer.
IF WE FAIL TO MANAGE OUR GROWTH EFFECTIVELY, OUR BUSINESS MAY NOT SUCCEED. Our
ability to successfully offer products and services and to implement our
business plan in the evolving market for service scheduling and resource
optimization software requires an effective planning and management process. We
continue to increase the scope of our operations in the United States and
internationally and expect to continue to increase our headcount substantially
in the future. For example, the number of individuals we employed grew from 142
as of September 30, 1999 to 192 as of September 30, 2000. As part of this
growth, we have had to implement new operational and financial systems,
procedures and controls; expand, train and manage our employee base; and
maintain close coordination among our technical, accounting, finance, marketing
and sales staffs. These factors have placed, and our anticipated expansion will
continue to place, a significant strain on our existing management systems and
resources.
We expect that we will need to continue to expand our existing management and to
improve our financial and managerial controls and reporting systems and
procedures, and expand, train and manage our work force worldwide. Furthermore,
we expect that we will be required to manage multiple relationships as we expand
our customer base and our business relationships.
TWO PRODUCTS ACCOUNT FOR THE MAJORITY OF OUR REVENUE. IF THE DEMAND FOR THESE
PRODUCTS FALLS, OUR SALES COULD BE SIGNIFICANTLY REDUCED AND OUR FINANCIAL
PERFORMANCE COULD BE SERIOUSLY DAMAGED. Historically, all of our operating
revenue has come from sales of, and services related to, our ClickSchedule
product, formerly known as W-6 Service Scheduler, and our ClickFix product,
formerly known as TechMate, to clients seeking application software that enables
efficient provisioning of services in enterprise environments. As we pursue our
new business strategy and develop our products, we anticipate that revenues from
sales of our ClickSchedule and ClickFix product lines, together with related
professional services fees, will continue to account for all of our operating
revenue for the foreseeable future. Accordingly, the widespread market
acceptance of these products is critical to our future success. Competition,
technological change or other factors could decrease demand for, or market
acceptance of, these products or make these products obsolete. Any decrease in
demand or market acceptance would have a material adverse effect on our business
and operating results.
OUR LONG AND UNPREDICTABLE SALES AND IMPLEMENTATION CYCLES DEPEND ON FACTORS
OUTSIDE OUR CONTROL, WHICH MAY CAUSE QUARTERLY LICENSE AND SERVICE FEES REVENUES
TO VARY SIGNIFICANTLY FROM PERIOD TO PERIOD. To date, our customers have taken a
long time, typically ranging from three months to one year, to evaluate our
products before making their purchase decisions. In addition, depending on the
nature and specific needs of a client, the implementation of our products can
<PAGE>
take up to three to twelve months. Sales of licenses and implementation
schedules are subject to a number of risks over which we have little or no
control, including clients' budgetary constraints, clients' internal acceptance
reviews, the success and continued internal support of clients' own development
efforts, the efforts of businesses with which we have relationships, the nature,
size and specific needs of a client and the possibility of cancellation of
projects by clients. The uncertain outcome of our sales efforts and the length
of our sales cycles could result in substantial fluctuations in license
revenues. If sales forecasted from a specific client for a particular quarter
are not realized in that quarter, we are unlikely to be able to generate
revenues from alternate sources in time to compensate for the shortfall. As a
result, and due to the relatively large size of some orders, a lost or delayed
sale could have a material adverse effect on our quarterly revenue and operating
results. Moreover, to the extent that significant sales occur earlier than
expected, revenue and operating results for subsequent quarters could be
adversely affected.
FAILURE TO EXPAND OUR SALES AND MARKETING ORGANIZATIONS COULD LIMIT OUR ABILITY
TO SELL ADDITIONAL PRODUCTS AND SERVICES, WHICH WOULD IMPAIR OUR ABILITY TO GROW
OUR BUSINESS AND INCREASE REVENUES. We must expand our direct and indirect sales
operations to increase market awareness of our products and generate increased
revenues. We cannot be certain that we will be successful in these efforts. We
have recently expanded our direct sales force in North America and plan to hire
additional sales personnel. As of September 30, 2000, we employed 74 individuals
in our sales and marketing organizations. Because 35 of these sales and
marketing personnel joined us within the last twelve months, we will be required
to devote significant resources to the training of these new sales personnel. We
believe we will need to expand our sales and marketing organization
significantly. We might not be able to hire or retain the kind and number of
sales and marketing personnel we are targeting because competition for qualified
sales and marketing personnel in our market is intense.
WE DEPEND ON KEY PERSONNEL, AND THE LOSS OF ANY KEY PERSONNEL COULD AFFECT OUR
ABILITY TO COMPETE AND OUR ABILITY TO ATTRACT ADDITIONAL KEY PERSONNEL MAY BE
MORE DIFFICULT. 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 of Dr. BenBassat and other members of our senior management team and
key personnel would be very difficult to replace and the loss of any of these
employees could harm our business significantly. We have employment agreements
with Dr. BenBassat and our Chief Financial Officer, Shimon M. Rojany. None of
our other officers or key employees is bound by an employment agreement. Our
relationships with these officers and key employees are at will and the loss of
any of our key personnel could harm our ability to execute our business strategy
and compete. In addition, we believe that the prospective employees that we
target may perceive that the share option component of our compensation packages
is not a valuable component. Consequently, we may have difficulty hiring our
desired numbers of key personnel. Moreover, even if we are able to attract key
personnel, the resources required to attract and retain such personnel may
adversely affect our operating results.
IF WE FAIL TO EXPAND OUR PROFESSIONAL SERVICES ORGANIZATION, WE MAY NOT BE ABLE
TO SERVICE ADDITIONAL CLIENTS AND SELL ADDITIONAL LICENSES. We cannot be certain
that we can attract or retain a sufficient number of highly qualified services
personnel to meet our business needs. Clients that license our software
typically engage our professional services organization to assist with the
installation and operation of our software applications. Our professional
services organization also provides other assistance to our clients and works
with our clients' in-house staff to train them regarding the maintenance,
management and expansion of their software systems. Growth in licenses of our
software will depend in part on our ability to provide our clients with these
services. In addition, we will be required to expand our professional services
organization to enable us to continue to support our existing installed base of
customers as we focus on our new business strategy. As a result, we plan to
increase the number of our service personnel in order to meet these needs.
Competition for qualified services personnel with the relevant knowledge and
experience is intense, and we may not be able to attract and retain necessary
personnel. If we are not able to grow our professional services organization,
<PAGE>
our ability to expand our business would be limited. To meet our clients' needs
for professional services, we may need to increase our use of third-party
consultants to supplement our own professional services group which may be more
costly and less successful than professional services provided by our own
organization. In addition, we could experience delays in recognizing revenue if
our professional services group fails to complete implementations in a timely
manner.
OUR ABILITY TO ATTRACT AND RETAIN QUALIFIED DEVELOPERS IS CRUCIAL TO OUR FUTURE
GROWTH AND RESULTS OF OPERATIONS. As a company focused on the development of
software products, our research and development personnel are one of our most
valued assets. Our future success depends in large part on our ability to hire,
train and retain software developers, systems architects, project managers,
telecommunications business process experts, systems analysts, trainers,
writers, consultants and sales and marketing professionals of various experience
levels. Personnel possessing the skills needed to contribute to our research and
development efforts are in short supply, and this shortage is likely to
continue. As a result, competition for these people is intense, and the industry
turnover rate for them is high. Any inability to hire, train and retain a
sufficient number of qualified development employees could hinder the research
and development activities and growth of our business.
IF WE FAIL TO EXPAND OUR RELATIONSHIPS WITH THIRD PARTIES THAT CAN PROVIDE
IMPLEMENTATION AND PROFESSIONAL SERVICES TO OUR CLIENTS, WE MAY BE UNABLE TO
INCREASE OUR REVENUES AND OUR BUSINESS COULD BE HARMED. In order for us to focus
more effectively on our core business of developing and licensing software
solutions, we need to continue to establish relationships with third parties
that can provide implementation and professional services to our clients.
Third-party implementation and consulting firms can also be influential in the
choice of resource optimization applications by new clients. If we are unable to
establish and maintain effective, long-term relationships with implementation
and professional services providers, or if these providers do not meet the needs
or expectations of our clients, we may be unable to grow our revenues and our
business could be seriously harmed. As a result of the limited resources and
capacities of many third-party implementation providers, we may be unable to
attain sufficient focus and resources from the third-party providers to meet all
of our clients' needs, even if we establish relationships with these third
parties. If sufficient resources are unavailable, we will be required to provide
these services internally, which could limit our ability to expand our base of
clients. Even if we are successful in developing relationships with third-party
implementation and professional services providers, we will be subject to
significant risk, as we cannot control the level and quality of service provided
by third-party implementation and professional services partners.
OUR MARKET IS HIGHLY COMPETITIVE AND ANY REDUCTION IN DEMAND FOR, OR PRICES OF,
OUR PRODUCTS COULD NEGATIVELY IMPACT OUR REVENUES, REDUCE OUR GROSS MARGINS AND
CAUSE OUR SHARE PRICE TO DECLINE. The market for our products is competitive and
rapidly changing. We expect competition to increase in the future as current
competitors expand their product offerings and new companies enter the market.
Our current and potential competitors include:
- independent systems integrators, such as Electronic Data Systems
Corporation, consulting firms and in-house information technology
departments of enterprise and Internet businesses which may develop their
own solutions that compete with our products;
- traditional enterprise resource planning and customer relationship
management software application vendors, including Oracle Corporation;
- software vendors in the utility, telecom, field services, home delivery and
other vertical markets, including Mobile Data Solutions Inc.;
- other providers of scheduling software and components as well as various
logistics solutions providers such as ServicePower, Inc.; and
- providers of software that allow manufacturing organizations to optimize
their resources.
<PAGE>
Because the market for service and delivery optimization software is evolving,
it is difficult to determine what portion of the market each competitor
currently controls. However, competition could result in price reductions, fewer
customer orders, reduced gross margin and loss of market share, any of which
could cause our business to suffer. We may not be able to compete successfully,
and competitive pressures may harm our business.
Some of our current and potential competitors have greater name recognition,
longer operating histories, larger customer bases and significantly greater
financial, technical, marketing, public relations, sales, distribution and other
resources than us. In addition, some of our potential competitors are among the
largest and most well capitalized software companies in the world.
FAILURE TO DEVELOP OR MAINTAIN KEY BUSINESS RELATIONSHIPS COULD LIMIT OUR
ABILITY TO SELL ADDITIONAL LICENSES WHICH COULD DECREASE OUR REVENUES AND
INCREASE OUR SALES AND MARKETING COSTS. We believe that our success in
penetrating our target markets depends in part on our ability to develop and
maintain business relationships with software vendors, resellers, systems
integrators, distribution partners and customers. If we fail to develop these
relationships, our growth could be limited. We have entered into agreements with
third parties relating to the integration of our products with their product
offerings, distribution, reselling and consulting. We have not derived
significant revenues from these agreements and we may not be able to derive
significant revenues in the future from these agreements. In addition, our
growth may be limited if prospective clients do not accept the solutions offered
by our strategic partners.
OUR MARKET MAY EXPERIENCE RAPID TECHNOLOGICAL CHANGES THAT COULD CAUSE OUR
PRODUCTS TO FAIL OR REQUIRE US TO REDESIGN OUR PRODUCTS, WHICH WOULD RESULT IN
INCREASED RESEARCH AND DEVELOPMENT EXPENSES. Our market is characterized by
rapid technological change, dynamic client needs and frequent introductions of
new products and product enhancements. If we fail to anticipate or respond
adequately to technology developments and client requirements, or if our product
development or introduction is delayed, we may have lower revenues. Client
product requirements can change rapidly as a result of computer hardware and
software innovations or changes in and the emergence, evolution and adoption of
new industry standards. For example, we offer Windows NT versions of our
products due to the market acceptance of Windows NT over the last several years.
We currently do not provide Unix versions of our software and we may not be able
to modify our products and services to address new requirements and standards.
The actual or anticipated introduction of new products has resulted and will
continue to result in some reformulation of our product offerings. Technology
and industry standards can make existing products obsolete or unmarketable or
result in delays in the purchase of such products. As a result, the life cycles
of our products are difficult to estimate. We must respond to developments
rapidly and make substantial product development investments. As is customary in
the software industry, we have previously experienced delays in introducing new
products and features, and we may experience such delays in the future which
could impair our revenue and operating results.
OUR PRODUCTS COULD BE SUSCEPTIBLE TO ERRORS OR DEFECTS THAT COULD RESULT IN LOST
REVENUES, LIABILITY OR DELAYED OR LIMITED MARKET ACCEPTANCE. Complex software
products such as ours often contain errors or defects, particularly when first
introduced or when new versions or enhancements are released. In the past, some
of our products have contained errors and defects which have delayed
implementation or required us to expend additional resources to correct the
problems. Despite internal testing and testing by current and potential clients,
our current and future products may contain serious defects or errors. Any such
defects or errors would likely result in lost revenues, liability or a delay in
market acceptance of these products, any of which would have a material adverse
effect on our business, operating results and financial condition.
The performance of our products also depends upon the accuracy and continued
availability of third-party data. We rely on third parties that provide
information such as street and address locations and mapping functions that we
incorporate into our products. If these parties do not provide accurate
information, or if we are unable to maintain our relationships with them, our
reputation and competitive position in our industry could suffer and we could be
unable to develop or enhance our products as required.
OUR INTELLECTUAL PROPERTY COULD BE USED BY THIRD PARTIES WITHOUT OUR CONSENT
BECAUSE PROTECTION OF OUR INTELLECTUAL PROPERTY IS LIMITED. Our success and
ability to compete are substantially dependent upon our internally developed
technology, which we protect through a combination of copyright, trade secret
and trademark law. However, we may not be able to adequately protect our
intellectual property rights, which may significantly harm our business.
Specifically, we may not be able to protect our trademarks for our company name
and our product names, and unauthorized parties may attempt to copy or otherwise
obtain and use our products or technology. Policing unauthorized use of our
products and technology is difficult, particularly in countries outside the
U.S., and we cannot be certain that the steps we have taken will prevent
infringement or misappropriation of our intellectual property rights.
<PAGE>
OUR TECHNOLOGY AND OTHER INTELLECTUAL PROPERTY MAY BE SUBJECT TO INFRINGEMENT
CLAIMS. Substantial litigation regarding technology rights and other
intellectual property rights exists in the software industry both in terms of
infringement and ownership issues. A successful claim of patent, copyright or
trademark infringement or conflicting ownership rights against us could cause us
to make changes in our business or significantly harm our business. For example,
on February 28, 2000, a trademark infringement complaint was filed against us
with respect to the use of our former corporate name and former Internet domain
names. On May 2, 2000, a preliminary injunction was entered, enjoining us from
using these names. As a result, we changed our corporate name to ClickSoftware
Technologies Ltd. and ceased our use of our former domain names. Also, as
described below, we are currently involved in a dispute with Click Commerce,
Inc.
We expect that software products may be increasingly subject to third-party
infringement or ownership claims as the number of competitors in our industry
segment grows and the functionality of products in different industry segments
overlaps. Third parties may make a claim of infringement or conflicting
ownership rights against us with respect to our products and technology. Any
claims, with or without merit, could:
- be time-consuming to defend;
- result in costly litigation;
- divert management's attention and resources;
- cause product shipment delays; or
- require us to enter into costly royalty or licensing agreements, if they
are even available, on commercially reasonable terms, or at all.
Further, if an infringement or ownership claim is successfully brought against
us, we may have to pay damages or royalties, enter into a licensing agreement,
and/or stop selling the product or using the technology at issue. Any such
royalty or licensing agreements may not be available on commercially reasonable
terms, if at all.
ANY FUTURE ACQUISITIONS OF COMPANIES OR TECHNOLOGIES MAY RESULT IN DISTRACTION
OF OUR MANAGEMENT AND DISRUPTIONS TO OUR BUSINESS. We may acquire or make
investments in complementary businesses, technologies, services or products if
appropriate opportunities arise. From time to time we may engage in discussions
and negotiations with companies regarding our acquiring or investing in such
companies' businesses, products, services or technologies. We cannot make
assurances that we will be able to identify future suitable acquisition or
investment candidates, or if we do identify suitable candidates, that we will be
able to make such acquisitions or investments on commercially acceptable terms
or at all. Our management has limited experience in acquiring companies or
technologies. If we acquire or invest in another company, we could have
difficulty assimilating that company's personnel, operations, technology or
products and service offerings. In addition, the key personnel of the acquired
company may decide not to work for us. These difficulties could disrupt our
ongoing business, distract our management and employees, increase our expenses
and adversely affect our results of operations. Furthermore, we may incur
<PAGE>
indebtedness to pay for any future acquisitions. As of the date of this
statement, we have no agreement to enter into any material investment or
acquisition transaction.
FUTURE ACQUISITIONS MAY RESULT IN DILUTION TO OUR CURRENT SHAREHOLDERS. In the
future we may acquire complementary business through the issuance of additional
ordinary shares. Additional issuances of ordinary shares could decrease the
value of our ordinary shares and reduce the net tangible book value per share.
Consequently, an acquisition in which we issue additional shares could actually
decrease the value of your investment in ClickSoftware. As of the date of this
statement, we have no agreement to enter into any material acquisition which
would result in the issuance of additional shares.
OUR BUSINESS MAY BECOME INCREASINGLY SUSCEPTIBLE TO NUMEROUS RISKS ASSOCIATED
WITH INTERNATIONAL OPERATIONS. A significant portion of our operations occur
outside the United States. Our facilities are located in North America, Israel
and the United Kingdom and our executive officers and other key employees are
dispersed throughout the world. This geographic dispersion requires significant
management resources that may place us at a disadvantage compared to our
locally-based competitors. In addition, our international operations are
generally subject to a number of risks, including:
- foreign currency exchange rate fluctuations;
- longer sales cycles;
- multiple, conflicting and changing governmental laws and regulations;
- expenses associated with customizing products for foreign countries;
- protectionist laws and business practices that favor local competition;
- difficulties in collecting accounts receivable; and
- political and economic instability.
We expect international revenues to continue to account for a significant
percentage of total revenues in the future and we believe that we must continue
to expand our international sales and professional services activities in order
to be successful. Our international sales growth will be limited if we are
unable to expand our international sales management and professional services
organizations, hire additional personnel, customize our products for local
markets and establish relationships with additional international distributors,
consultants and other third parties. If we fail to manage our geographically
dispersed organization, we may fail to meet or exceed our business plan and our
revenues may decline.
WE ARE INCORPORATED IN ISRAEL AND HAVE IMPORTANT FACILITIES AND RESOURCES
LOCATED IN ISRAEL WHICH COULD BE NEGATIVELY AFFECTED DUE TO MILITARY OR
POLITICAL TENSIONS. We are incorporated under the laws of the State of Israel
and our research and development facilities as well as significant executive
offices are located in Israel. Although a substantial portion of our sales
currently are being made to customers outside of Israel, political, economic and
military conditions in Israel could nevertheless directly affect our operations.
Since the establishment of the State of Israel in 1948, a number of armed
conflicts have taken place between Israel and its Arab neighbors and a state of
hostility, varying in degree and intensity, has led to security and economic
problems for Israel. We could be adversely affected by any major hostilities
involving Israel, the interruption or curtailment of trade between Israel and
its trading partners, a significant increase in inflation, or a significant
downturn in the economic or financial condition of Israel. Despite the progress
towards peace between Israel and its Arab neighbors, the future of these peace
efforts is uncertain. Several Arab countries still restrict business with
Israeli companies which may limit our ability to make sales in those countries.
We could be adversely affected by restrictive laws or policies directed towards
Israel or Israeli businesses.
<PAGE>
CERTAIN OF OUR OFFICERS AND EMPLOYEES ARE REQUIRED TO SERVE IN THE ISRAEL
DEFENSE FORCES AND THIS COULD FORCE THEM TO BE ABSENT FROM OUR BUSINESS FOR
EXTENDED PERIODS. David Schapiro, our Senior Vice President of Product
Development, and Hannan Carmeli, our Senior Vice President of Product Services
and Operations, as well as other male employees located in Israel are currently
obligated to perform up to 39 days of annual reserve duty in the Israel Defense
Forces and are subject to being called for active military duty at any time. The
loss or extended absence of any of our officers and key personnel due to these
requirements could harm our business.
WE ARE SUBJECT TO A RECENTLY ADOPTED NEW COMPANIES LAW WHICH HAS NOT YET BEEN
INTERPRETED. Because we are incorporated under the laws of the State of Israel,
your rights as a shareholder will be governed by the Companies Law of Israel
which became effective on February 1, 2000. Certain obligations and fiduciary
duties of directors, officers and shareholders under the new Companies Law are
new and have not been interpreted or reviewed by the Israeli courts. In
addition, not all of the regulations have been promulgated to date. As a result,
our shareholders may have more difficulty and uncertainty in protecting their
interests in the case of actions by our directors, officers or controlling
shareholders or third parties than would shareholders of a corporation
incorporated in a state or other jurisdiction in the United States.
THE RATE OF INFLATION IN ISRAEL MAY NEGATIVELY IMPACT OUR COSTS IF IT EXCEEDS
THE RATE OF DEVALUATION OF THE NIS AGAINST THE DOLLAR. Substantially all of our
revenues are denominated in dollars or are dollar-linked, but we incur a portion
of our expenses, principally salaries and related personnel expenses in Israel,
in NIS. In 1999 34%, and in the nine months ended September 30, 2000 30% of our
costs were incurred in NIS. As a result, we are exposed to the risk that the
rate of inflation in Israel will exceed the rate of devaluation of the NIS in
relation to the dollar or that the timing of this devaluation will lag behind
inflation in Israel. In that event, the dollar cost of our operations in Israel
will increase and our dollar-measured results of operations will be adversely
affected. In 1998, the rate of devaluation of the NIS against the dollar
exceeded the rate of inflation in Israel which benefited us. However, we cannot
assure you that this reversal will continue or that we will not be materially
adversely affected in the future if the rate of inflation in Israel exceeds the
devaluation of the NIS against the dollar or if the timing of this devaluation
lags behind increases in inflation in Israel.
WE ARE AN INTERNATIONAL COMPANY AND OUR INTERNATIONAL OPERATIONS ARE GROWING
RAPIDLY. OUR RISK EXPOSURE TO FOREIGN CURRENCY FLUCTUATIONS IS INCREASING, AND
WE MAY NOT BE ABLE TO FULLY MITIGATE THE RISK. For the nine months ended
September 30, 2000, our expenses incurred in the UK were 20% of our total
expenses. For the year of 1999, these expenses represented 15% of our total
expenses. Our revenue from the UK has similarly grown. We are expanding
operations in other areas of Europe, and income and expenses recognized in the
European Community Euro will increase. We are also experiencing a growth in
revenue and expenses in Israel, and we anticipate recognizing revenue from other
international sources. For the quarter ended September 30, 2000, our DSO (days
sales outstanding) was 120 days reflecting the necessity to extend longer terms
for larger deals. Presently our risk to foreign currency fluctuations is
minimal, but if our foreign accounts receivable balances increase, the risk will
increase. We cannot assure that we will adequately protect ourselves against
such risk.
THE GOVERNMENT PROGRAMS IN WHICH WE CURRENTLY PARTICIPATE AND TAX BENEFITS WHICH
WE CURRENTLY RECEIVE REQUIRE US TO SATISFY PRESCRIBED CONDITIONS AND MAY BE
DELAYED, TERMINATED OR REDUCED IN THE FUTURE. THIS WOULD INCREASE OUR COSTS AND
TAXES. We receive grants from the Government of the State of Israel through the
Office of the Chief Scientist of the Ministry of Industry and Trade, or the
Chief Scientist, for the financing of a significant portion of our research and
development expenditures in Israel, and we may apply for additional grants in
the future. In 1998, 1999, and 2000, we received or accrued grants from the
Chief Scientist totaling approximately $0.9 million, $1.0 million and
approximately $1.0 million respectively. In the nine months ended September 30,
2000, we accrued and will receive grants from the Chief Scientist totaling
approximately $0.6 million. We cannot assure that we will continue to receive
grants at the same rate or at all. The Chief Scientist budget has been subject
to reductions which may affect the availability of funds for Chief Scientist
grants in the future. The percentage of our research and development
expenditures financed using grants from the Chief Scientist may decline in the
future, and the terms of such grants may become less favorable. In connection
with research and development grants received from the Chief Scientist, we must
make royalty payments to the Chief Scientist on the revenues derived from the
sale of products, technologies and services developed with the grants from the
Chief Scientist. The amount of the grants received since inception is
approximately $3.7 million in respect of which we have already paid $1.1 million
out of a total of $3.8 million due to the Chief Scientist in the form of
<PAGE>
royalties. We expect to pay or accrue additional royalties for the year 2000 at
a rate equal to 3% of our total revenues. In addition, our ability to
manufacture products or transfer technology outside Israel without the approval
of the Chief Scientist is restricted under law. Any manufacture of products or
transfer of technology outside Israel will also require the company to pay
increased royalties to the Chief Scientist up to 300%. We currently conduct all
of our manufacturing activities in Israel and intend to continue doing so in the
foreseeable future and therefore do not believe there will be any increase in
the amount of royalties we pay to the Chief Scientist. Additionally, the
licensing of our software in the ordinary course of business is not considered a
transfer of technology by the Office of the Chief Scientist and we do not intend
to transfer any technology outside of Israel. Consequently, we do not anticipate
having to pay increased royalties to the Chief Scientist for the foreseeable
future. In connection with our grant applications, we have made representations
and covenants to the Chief Scientist regarding our research and development
activities in Israel. The funding from the Chief Scientist is subject to the
accuracy of these representations and covenants. If we fail to comply with any
of these conditions, we could be required to refund any payments previously
received together with interest and penalties and would likely be denied receipt
of these grants thereafter.
WE ANTICIPATE RECEIVING TAX BENEFITS FROM THE GOVERNMENT OF THE STATE OF ISRAEL,
HOWEVER THESE BENEFITS MAY BE DELAYED, REDUCED OR TERMINATED IN THE FUTURE.
Pursuant to the Law for the Encouragement of Capital Investments, the Government
of the State of Israel through the Investment Center has granted "Approved
Enterprise" status to three of our existing capital investment programs.
Consequently, we are eligible for certain tax benefits for the first several
years in which we generate taxable income. We have not, however, begun to
generate taxable income for purposes of this law and we do not expect to utilize
these tax benefits for the near future. Once we begin to generate taxable
income, our financial condition could suffer if our tax benefits were
significantly reduced. The benefits available to an approved enterprise are
dependent upon the fulfillment of certain conditions and criteria. If we fail to
comply with these conditions and criteria, the tax benefits that we receive
could be partially or fully canceled and we could be forced to refund the amount
of the benefits we received, adjusted for inflation and interest. From time to
time, the Government of Israel has discussed reducing or limiting the benefits.
We cannot assess whether these benefits will be continued in the future at their
current levels or at all.
PROPOSED TAX REFORM IN ISRAEL MAY REDUCE OUR TAX BENEFITS. On May 4, 2000, a
committee chaired by the Director General of the Israeli Ministry of Finance
issued a report recommending a sweeping reform in the Israeli system of
taxation. The proposed reform would significantly alter the taxation of
individuals and would also affect corporate taxation. In particular, the
proposed reform would reduce but not eliminate, the tax benefits available to
approved enterprises such as ours. The Israeli cabinet has approved the
recommendation in principle, but implementation of the reform requires
legislation by Israel's Knesset. We cannot be certain whether the proposed
reform will be adopted, when it will be adopted or what form any reform will
ultimately take or what effect it will have on our company.
IT MAY BE DIFFICULT TO ENFORCE A U.S. JUDGMENT AGAINST US, OUR OFFICERS AND
DIRECTORS AND THE ISRAELI ACCOUNTANTS NAMED AS EXPERTS IN THIS STATEMENT OR TO
ASSERT U.S. SECURITIES LAWS CLAIMS IN ISRAEL OR SERVE PROCESS ON SUBSTANTIALLY
ALL OF OUR OFFICERS AND DIRECTORS AND THESE ACCOUNTANTS. We are incorporated in
Israel and maintain significant operations in Israel. Some of our executive
officers and directors and the Israeli accountants named as experts in this
statement reside outside of the United States and a significant portion of our
assets and the assets of these persons are located outside the United States.
Therefore, it may be difficult for an investor, or any other person or entity,
to enforce a U.S. court judgment based upon the civil liability provisions of
the U.S. federal securities laws in an Israeli court against us or any of those
persons or to effect service of process upon these persons in the United States.
<PAGE>
Additionally, it may be difficult for an investor, or any other person or
entity, to enforce civil liabilities under U.S. federal securities laws in
original actions instituted in Israel. We have appointed ClickSoftware Inc., our
U.S. subsidiary, as our agent to receive service of process in any action
against us arising out of our original June 22, 2000 initial public offering. We
have not given our consent for our agent to accept service of process in
connection with any other claim. Furthermore, if a foreign judgment is enforced
by an Israeli court, it will be payable in NIS.
OUR OFFICERS, DIRECTORS AND AFFILIATED ENTITIES OWN A LARGE PERCENTAGE OF OUR
COMPANY AND COULD SIGNIFICANTLY INFLUENCE THE OUTCOME OF ACTIONS. As of
September 30, 2000, our executive officers, directors and entities affiliated
with them beneficially owned approximately 50.4% of our outstanding ordinary
shares. These shareholders, if acting together, would be able to significantly
influence all matters requiring approval by our shareholders, including the
election of directors. This concentration of ownership may also have the effect
of delaying or preventing a change of control of our company, which could have a
material adverse effect on our stock price. These actions may be taken even if
they are opposed by our other investors.
WE EXPECT TO EXPERIENCE VOLATILITY IN OUR SHARE PRICE WHICH COULD NEGATIVELY
AFFECT YOUR INVESTMENT. You may not be able to sell your shares at or above the
purchase price due to a number of factors, including:
- announcements of technological innovations;
- announcements relating to strategic relationships;
- conditions affecting the software and Internet industries; and
- trends related to the fluctuations of stock prices of Israeli companies.
The trading price of our ordinary shares may be volatile. The market for
technology and Internet-related companies has experienced extreme volatility
that often has been unrelated to the operating performance of particular
companies. These fluctuations may adversely affect the trading price of our
ordinary shares, regardless of our actual operating performance.
WE ARE SUBJECT TO ANTI-TAKEOVER PROVISIONS THAT COULD DELAY OR PREVENT AN
ACQUISITION OF US, EVEN IF AN ACQUISITION WOULD BE BENEFICIAL TO OUR
SHAREHOLDERS. Provisions of Israeli corporate and tax law and of our articles of
association may have the effect of delaying, preventing or making more difficult
merger or other acquisition of us, even if doing so would be beneficial to our
shareholders. In addition, any merger or acquisition of us will require the
prior consent of the Chief Scientist.
Israeli law regulates mergers, votes required to approve a merger, acquisition
of shares through tender offers and transactions involving significant
shareholders. In addition, our articles of association provide for a staggered
board of directors and for restrictions on business combinations with interested
shareholders. Any of these provisions may make it more difficult to acquire our
company. Accordingly, an acquisition of us could be delayed or prevented even if
it would be beneficial to our shareholders.
OTHER ORDINARY SHARES MAY BE SOLD IN THE FUTURE. THIS COULD DEPRESS THE MARKET
PRICE FOR OUR ORDINARY SHARES. As of September 30, 2000, we had 26,000,625
ordinary shares outstanding, including shares held by a trustee for issuance
under outstanding options. In addition, as of September 30, 2000, we had
1,853,567 ordinary shares issuable upon exercise of outstanding options and
warrants, and 3,061,787 additional ordinary shares reserved for issuance
pursuant to our stock option plans and employee share purchase plan. If we or
our existing shareholders sell a large number of our ordinary shares, the price
of our ordinary shares could fall dramatically. Restrictions under the
securities laws and certain lock-up agreements limit the number of ordinary
shares available for sale by our shareholders in the public market. We and the
beneficial holders, or trustees issuing shares to option holders, of 21,394,485
<PAGE>
ordinary shares and options exercisable into an aggregate of 1,519,954 ordinary
shares have agreed not to sell ordinary shares or any securities convertible
into or exercisable for ordinary shares for 180 days after June 22, 2000 without
the prior consent of Lehman Brothers. After the expiration of this 180 day
period, these shares will be available for sale in the public market of varying
times subject to compliance with applicable laws. Lehman Brothers may, in its
sole discretion, release all or any portion of the securities subject to such
lock-up agreements prior to the end of the 180 day period. The holders of
options exercisable into an aggregate of 645,313 additional ordinary shares hold
options which will not be exercisable within 180 days of June 22, 2000. We have
filed a Registration Statement on Form S-8 to register for resale the ordinary
shares reserved for issuance under our stock option plans.
OUR NEED FOR ADDITIONAL FINANCING IS UNCERTAIN, AS IS OUR ABILITY TO RAISE
FURTHER FINANCING IF REQUIRED. We currently anticipate that our available cash
resources will be sufficient to meet our anticipated working capital and capital
expenditure requirements for at least twelve months. We may need to raise
additional funds, however, to respond to business contingencies which may
include the need to:
- fund more rapid expansion;
- fund additional marketing expenditures;
- develop new or enhance existing products and services;
- enhance our operating infrastructure;
- hire additional personnel;
- respond to competitive pressures; or
- acquire complementary businesses or necessary technologies.
If additional funds are raised through the issuance of equity or convertible
debt securities, the percentage ownership of our shareholders will be reduced,
and these newly issued securities may have rights, preferences or privileges
senior to those of existing shareholders. We cannot assure you that additional
financing will be available on terms favorable to us, or at all. If adequate
funds are not available or are not available on acceptable terms, our ability to
fund our operations, take advantage of unanticipated opportunities, develop or
enhance our products and services or otherwise respond to competitive pressures
would be significantly limited. Additionally, prior to the issuance of
additional equity or convertible debt securities to entities outside of Israel,
we will need to obtain approval from the Chief Scientist of the State of Israel
and there can be no assurance that we will be able to obtain this consent in the
future.
IF WE ARE CHARACTERIZED AS A PASSIVE FOREIGN INVESTMENT COMPANY, OUR UNITED
STATES SHAREHOLDERS WILL BE SUBJECT TO ADVERSE TAX CONSEQUENCES. If, for any
taxable year, our passive income, or our assets which produce passive income,
exceeds specified levels, we may be characterized as a passive foreign
investment company for United States federal income tax purposes. We do not
currently anticipate that this will happen, but, if it does, our shareholders
will be subject to adverse United States tax consequences. Prospective investors
should consult with their own tax advisors with respect to the tax consequences
applicable to them of investing in our ordinary shares.
Our stock price could be volatile and could decline substantially. The stock
market has experienced significant price and volume fluctuations, and the market
prices of technology companies, particularly Internet-related companies, have
been highly volatile. The price at which our common stock trades is likely to be
volatile and may fluctuate substantially due to factors such as: our historical
and anticipated quarterly and annual operating results; variations between our
actual results and the expectations of investors or published reports or
analyses of ClickSoftware; announcements by us or others and developments
affecting our business, systems or expansion plans; and conditions and trends in
e-commerce industries.
In the past, securities class action litigation has often been instituted
against companies following periods of volatility in the market price of their
<PAGE>
securities. This type of litigation could result in substantial costs and a
diversion of management's attention and resources.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Exchange Rate Risk
We develop products in Israel and sell them primarily in North America and
Europe. As a result, our financial results could be affected by factors such as
changes in foreign currency exchange rates or weak economic conditions in
foreign markets. As most of our sales are currently made in U.S. dollars, a
strengthening of the dollar could make our products less competitive in foreign
markets. Our interest income is sensitive to changes in the general level of
U.S. interest rates, particularly since the majority of our investments are in
short-term instruments. We regularly assess these risks and have established
policies and business practices to protect against the adverse effects of these
and other potential exposures. As a result, we do not anticipate material losses
in these areas. Due to the nature of our short-term investments, we have
concluded that there is no material market risk exposure. Therefore, no
quantitative tabular disclosures are required. Additionally, although we do not
presently participate in hedging contracts related to foreign currency exchange
rates, we may do so in the future to protect against rate fluctuations affecting
our foreign currency accounts receivable balances. We do not participate in any
speculative investments.
Interest Rate Risk
As of September 30, 2000, we had cash and cash equivalents of $24.8 million
which consist of cash and highly liquid short-term investments. Our short-term
investments will decline in value by an immaterial amount if market interest
rates increase, and, therefore, our exposure to interest rate changes has been
immaterial. Declines of interest rates over time will, however, reduce our
interest income from our short-term investments.
As of September 30, 2000, we had total short term debt of $0.2 million and
long-term debt net of current maturities of $0.1 million which bear interest at
rates that are linked to LIBOR or the Israeli consumer price index. We also have
a revolving, accounts receivable-based, secured credit facility of up to $2.5
million for working capital purposes. Amounts outstanding bear interest at the
U.S. prime rate plus 1%. As of September 30, 2000, there were no amounts
outstanding under this facility.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Click Commerce, Inc., an unrelated third party, contacted us alleging that our
trademarks and our new company name infringe on their trademarks. After
discussions with them, we responded on June 22, 2000 by filing a complaint for
declaratory relief in the United States District Court, Northern District of
California, seeking a determination that the use of our name and trademarks do
not infringe on Click Commerce, Inc.'s claimed trademarks. Click Commerce, Inc.
responded to our complaint by denying our allegations. In addition, Click
Commerce, Inc.'s response includes a cross-complaint alleging that our use of
the CLICKSOFTWARE trademark and our use of other product names have resulted in
trademark infringement, unfair competition, and false designation of origin in
violation of federal law. The cross-complaint also alleges unfair competition
and false advertising in violation of California's Business and Professions Code
and trademark infringement in violation of California common law. Click
Commerce, Inc. is seeking damages from us in an unspecified amount.
Based on our preliminary investigation, we believe that we have meritorious
defenses to Click Commerce, Inc.'s claims for relief and damages, and we intend
to vigorously pursue our interests in these matters. If this litigation is
decided adversely to us, we might be required to change our name and the names
of our products, pay damages, and we could be subject to significant costs of
litigation.
<PAGE>
We have participated in settlement negotiations with Click Commerce, Inc. We
presently believe that this matter will be amicably settled with no material
adverse financial effects beyond our legal fees.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Item 2(d)
On July 20, 2000 the Company completed the sale of an aggregate of 600,000
additional ordinary shares of its common stock at a price of $7.00 per share by
way of exercise of the underwriters' overallotment option. The offering was
effected pursuant to a Registration Statement on Form S-1 (Registration No.
333-30274), which the United States Securities and Exchange Commission declared
effective on June 22, 2000. Lehman Brothers Inc., CIBC World Markets Corp., SG
Cowen Securities Corporation and Fidelity Capital Markets were the lead
underwriters exercising.
Of the $4.2 million in aggregate proceeds raised by the Company in the exercise,
$0.3 million was paid to underwriters in connection with the underwriting
discount. There were no direct or indirect payments to directors or officers of
the Company.
The Company expects to use the proceeds for general corporate purposes,
including working capital. A portion of the proceeds may also be used to pursue
possible acquisitions of complementary businesses, technologies or products. The
Company, however, has no current plans, agreements or commitments with respect
to any such acquisition. Pending such uses, the Company is investing the
proceeds in short-term, interest-bearing, money market investment accounts and
investment-grade securities.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ClickSoftware maintains a short-term investment portfolio primarily consisting
of corporate debt securities with maturities of twelve months or less. These
available-for-sale securities are subject to interest rate risk and will rise
and fall in value if market interest rates change. The extent of this risk is
not quantifiable or predictable due to the variability of future interest rates.
ClickSoftware does not expect any material loss with respect to its investment
portfolio.
The following table provides information about ClickSoftware investment
portfolio, cash, long term debts as of September 30, 2000 and presents principal
cash flows and related weighted averages interest rates by expected maturity
dates.
<TABLE>
<CAPTION>
YEAR OF MATURITY
2000 2001 2002 2003 AFTER 2003 TOTAL CARRYING VALUE
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Cash and Equivalents $9,332 - - - - $9,332
Average interest rate 6.5% - - - - 6.5%
Commercial Papers - $3,957 - - - $3,957
Average interest rate - 6.8% - - - 6.8%
Corp Bonds - $1,730 - - - $1,730
Average interest rate - 6.8% - - - 6.8%
Euro dollar Bonds - $4,340 - - - $4,340
Average interest rate - 6.8% - - - 6.8%
Asset-backed Securities - $5,290 - - - $5,290
Average interest rate - 6.7% - - - 6.7%
Other - $201 - - - $201
Average interest rate - 6.8% - - - 6.8%
Bank Loans $15 $60 $30 $105
Average interest rate L+1% L+1% L+1% US LIBOR+1%
Other Loans $28 $38 $5 $1 $72
Average interest rate 5.4-9.7% 5.4-9.7% 9.7% 9.7% IS CPI+5.4%
US Capital lease obligations $2 $7 $8 $8 $25
Average interest rate 7.1$ 7.1% 7.1% 7.1% 7.1%
GBP Capital lease obligations $5 $26 $18 $8 $57
Average interest rate 5.5% 5.5% 5.5% 5.5% 5.5%
Other Long-term Debt NONE
</TABLE>
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed with the Securities and Exchange
Commission during the three months ended September 30, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CLICKSOFTWARE TECHNOLOGIES LTD.
(Registrant)
By: /s/ SHIMON M. ROJANY
------------------------------------
Shimon M. Rojany
Senior Vice President and
Chief Financial Officer
Date: November 14, 2000
