UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
¨
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
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OR
x
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009
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OR
¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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OR
¨
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SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Date of event requiring this shell company report
For the transition period from
to
Commission file number 000-30342
JACADA LTD.
(Exact name of Registrant as specified in its charter)
Israel
(Jurisdiction of incorporation or organization)
11 Shenkar Street.
P.O. Box 12175
Herzliya 46725, Israel
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
NONE
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Ordinary shares, par value
NIS 0.01 per share
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
NONE
Indicate the number of outstanding shares of each of the registrants classes of capital or common stock as of the close of the period covered by the Annual Report:
16,579,009 Ordinary Shares, par value NIS 0.01 per share
Indicate by check mark if the registrant is a well
known seasoned issuer, as defined in Rule 405 of the Securities Act.
¨
Yes
x
No
If this report is
an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
¨
Yes
x
No
Indicate by check
mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days.
x
Yes
¨
No
Indicate by check
mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Not
Applicable
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
Large accelerated filer:
¨
Accelerated filer:
¨
Non-accelerated filer:
x
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filling.
US GAAP:
x
International Financial Reporting Standards:
¨
Other:
¨
If
Other has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
¨
Item 17
x
Item 18
If
this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
¨
Yes
x
No
Indicate by check
mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
x
Yes
¨
No
TABLE OF CONTENTS
FORWARD LOOKING STATEMENTS
This Annual Report contains forward-looking statements. These statements include all statements that are not statements of historical facts
regarding the intent, belief, or current expectations of the Company, its directors or its officers with respect to, among other things: (i) the Companys financing plans; (ii) trends affecting the Companys financial condition
or results of operations; and (iii) the Companys growth strategy and operating strategy (including the development of its products and services). The words may, could, would, will,
believe, anticipate, estimate, expect, intend, plan and similar expressions or variations thereof are intended to identify forward-looking statements. Prospective investors are
cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, many of which are beyond the Companys ability to control and that actual results may differ materially from those
in the forward-looking statements as a result of various factors and other information contained in this Annual Report, including the performance and continued acceptance of our products, general economic conditions and other risk factors identified
under the heading Risk Factors including
Global recession and continued credit constraints could adversely affect us, If our new management team is unable to fully transition into their respective new positions, our
operations will be adversely affected, Our business model is focused on continued growth in a market in which we have only several years of experience and failure to continue our early penetration into this market would negatively impact
our results of operations, We do not have a proven business model for the customer services and support market; if our business model is inappropriate for this market and our estimations regarding the sales cycle for this market are
incorrect, our efforts to successfully commercialize Jacada Fusion and Jacada WorkSpace, our customer service and support solutions, may be harmed or we will experience a further delay in generating revenues from these products, Our
revenues may decline if we do not increase the number of transactions we enter into in 2010,
Our direct sales and marketing resources are limited, Revenues from our customer services and support solutions might be
concentrated in a few large orders and a small number of customers, meaning that the loss of a significant customer or a failure to make even a small number of such sales could harm our results of operations, A majority of our revenues
derives from the provision of professional services, Failure to deliver professional services efficiently could negatively impact our gross margins, Exchange rate fluctuations between the dollar and other currencies may
negatively affect our results of operation, Negative conditions in the global credit and stock markets may impair the liquidity and value of our investment portfolio.
The results of operations in this annual report relate to our customers services and support business. As a result of the sale of our
traditional market business effective as of January 1, 2008, the results of the traditional market business were reclassified to one line item in the statement of operations as Income from discontinued operations, net of taxes.
We have prepared our consolidated financial statements in U.S. dollars and in accordance with U.S. generally accepted
accounting principles (GAAP). All references in this Annual Report to dollars or $ are to U.S. dollars and all references to NIS are to New Israeli Shekels.
Amounts and percentages appearing in this Annual Report may not total due to rounding.
Item 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT, ADVISERS AND AUDITORS
Not applicable.
Item 2: OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
Item 3: KEY INFORMATION
A.
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Selected Financial Data
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The following table sets forth selected financial data from our consolidated statements of operations and balance sheets for the periods indicated. The selected consolidated statement of operations data for the years ended December 31,
2009, 2008 and 2007 and the selected consolidated balance sheet data as of December 31, 2009 and 2008 have been derived from our audited consolidated financial statements and the notes thereto included elsewhere in this Annual Report. As a
result of the agreement to sell our traditional market business on December 19, 2007, which closed on January 1, 2008, the results of the traditional market business for all prior periods were reclassified to one line item in the
statements of operations as income from discontinued operations, net of taxes. The financial statements included in this Annual Report have been prepared in accordance with US GAAP. The consolidated statements of operations data for the
year ended December 31, 2006 and 2005, except for the reclassification to discontinued operations, and the selected consolidated balance sheet data as of December 31, 2007, 2006 and 2005 are derived from audited consolidated financial
statements that are not included herein. During 2008 we purchased a total of 4,447,184 of our ordinary shares pursuant to a share repurchase program as well as a self tender offer conducted by us. The shares we repurchased are held by us as treasury
shares. Under Israels Companies Law for so long as such treasury shares are owned by us they have no rights and, accordingly, are neither eligible to participate in or receive any future dividends which may be paid to our shareholders nor are
they entitled to participate in, be voted at or be counted as part of the quorum for, any meetings of our shareholders. The financial and shareholders information provided under this annual report do not consider these treasury shares as part of our
outstanding share capital. The following selected financial data are qualified by reference to and should be read in conjunction with the sections entitled Item 5:
Operating and Financial Review and Prospects
and Item 11:
Quantitative and Qualitative Disclosures about Market Risk
and our consolidated financial statements and the notes thereto included elsewhere in the Annual Report.
2
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Year ended December 31,
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2009
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2008
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2007
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2006
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2005
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(in thousands)
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Consolidated Statement of Operations Data:
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|
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Revenues:
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|
|
|
|
|
|
|
|
|
|
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Software licenses
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$
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1,370
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$
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7,647
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$
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3,706
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|
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$
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3,668
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|
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$
|
3,632
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Services
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|
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12,967
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|
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14,540
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|
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8,479
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|
|
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3,781
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|
723
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Maintenance
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2,324
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2,178
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1,812
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|
|
|
1,356
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|
984
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Total revenues
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16,661
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24,365
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13,997
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8,805
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5,339
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Cost of revenues:
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Software licenses
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238
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544
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|
|
449
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|
|
244
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|
|
|
312
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|
Services
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10,047
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|
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11,038
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|
|
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7,009
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|
|
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3,517
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|
|
|
2,517
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Maintenance
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|
648
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|
|
|
856
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|
|
|
745
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|
|
662
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|
|
|
643
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|
|
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|
|
|
|
|
|
|
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Total cost of revenues
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10,933
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12,438
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8,203
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4,423
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3,472
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Gross profit
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5,728
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11,927
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5,794
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|
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|
4,382
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1,867
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Operating expenses:
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Research and development
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3,490
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4,819
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4,402
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3,838
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3,743
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Sales and marketing
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6,205
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|
|
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8,829
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9,787
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|
|
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9,759
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10,046
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General and administrative
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4,433
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5,583
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5,249
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5,108
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5,388
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Restructuring
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-
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451
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-
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-
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-
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Total operating expenses
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14,128
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19,682
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19,438
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18,705
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19,177
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Operating loss
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(8,400
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)
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(7,755
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)
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(13,644
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)
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(14,323
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)
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(17,310
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)
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Financial income, net
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708
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|
|
715
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|
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1,548
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1,372
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|
|
830
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Loss from continuing operations before taxes
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(7,692
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)
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(7,040
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)
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(12,096
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)
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(12,951
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)
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(16,480
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)
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Income tax benefit
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|
93
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2,043
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8,672
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3,117
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4,055
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Net loss from continuing operations
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(7,599
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)
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(4,997
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)
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(3,424
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)
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(9,834
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)
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(12,425
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)
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Income from discontinued operations, net of taxes
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583
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18,234
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7,540
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7,262
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7,467
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Net income (loss)
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$
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(7,016
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)
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$
|
13,237
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$
|
4,116
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$
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(2,572
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)
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$
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(4,958
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)
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Basic and diluted net earnings (loss) per share
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Continuing operations
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$
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(0.46
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)
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$
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(0.26
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)
|
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$
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(0.17
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)
|
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$
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(0.50
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)
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$
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(0.63
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)
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Discontinued operations
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|
$
|
0.04
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|
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$
|
0.94
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|
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$
|
0.37
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|
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$
|
0.37
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|
|
$
|
0.38
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Basic and diluted net earnings (loss) per share
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$
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(0.42
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)
|
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$
|
0.68
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|
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$
|
0.20
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$
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(0.13
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)
|
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$
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(0.25
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)
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Weighted average number of shares used in computing basic and diluted net earning (loss) per share
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16,565,323
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19,354,810
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20,364,752
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|
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19,827,852
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19,497,726
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2009
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2008
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2007
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2006
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|
2005
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Consolidated Balance Sheet Data:
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(in thousands)
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Cash and cash equivalents
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$
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12,624
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$
|
11,059
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$
|
5,960
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$
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4,735
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$
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3,461
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Cash and investments
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*23,847
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*33,069
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|
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33,824
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|
|
35,922
|
|
|
35,651
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Working capital
|
|
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21,948
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|
|
23,262
|
|
|
19,316
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|
|
10,722
|
|
|
12,638
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Total assets
|
|
|
35,057
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|
|
44,816
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|
|
52,101
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|
|
45,710
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|
|
45,612
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Treasury stock
|
|
|
17,863
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|
|
17,863
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-
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-
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-
|
Shareholders equity
|
|
|
30,152
|
|
|
36,801
|
|
|
39,904
|
|
|
33,395
|
|
|
34,475
|
*
|
Cash and investments include restricted cash of $557 and $3,199 in 2009 and 2008, respectively.
|
Exchange Rates
Not applicable.
B.
|
Capitalization and Indebtedness
|
Not applicable.
3
C.
|
Reasons for the Offer and Use of Proceeds
|
Not applicable.
Readers
are cautioned that an investment in Jacada is subject to a number of risks. Readers should consider carefully all information set forth herein and in particular the following risks in connection with an investment in Jacada:
Risks Related to Our Business
Global recession and continued credit constraints could adversely affect us
. Disruption during 2008 and 2009 and the continued conditions in the global credit markets, failures or material business deterioration of investment
banks, commercial banks, and other financial institutions and intermediaries in the United States and elsewhere around the world, and significant reductions in asset values across businesses, households and individuals, combined with other financial
and economic indicators, have combined to indicate a global recession. If these conditions continue or worsen, they may result in reduced demand or funding for projects involving our customer service and support solutions, longer sales cycle for our
projects or termination of projects by our customers, which may adversely affect our results of operations. Among other things, we might face:
|
|
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potential declines in orders for our customer service and support solutions and in our revenues from such solutions due to reduced or postponed orders
or other factors caused by economic challenges faced by our customers and prospective customers;
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longer sales processes and a need for increased efforts to secure projects in order to be able to demonstrate to customers and prospective customers
return on investment that meets such customers and prospective customers business needs and requirements in current economic conditions;
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potential adverse impact on our customers ability to pay, when due, amounts payable to us, or on our ability to collect amounts payable to us in
full (or at all) if any of our customers fail or seek protection under applicable bankruptcy or insolvency laws;
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potential re-evaluation by our customers and prospective customers of approved or contracted projects in order to address budget reductions or other
impacts and factors of the current economic conditions by such customers and prospective customers;
|
Any of
these things could adversely affect our business, financial condition, operating results and cash flow. These economic conditions also impact our ability to forecast orders and revenues and our ability to provide guidance for our performance.
If our new management team is unable to fully transition into their respective new positions, our operations will be
adversely affected
. Our chief executive officer, chief financial officer and several other members of our management team joined us in 2009. If this new senior management team is unable to transition into their respective positions, our
operations will be adversely affected.
Our business model is focused on continued growth in a market in which we have
only several years of experience and failure to continue our early penetration into this market would
4
negatively impact our results of operations
. We have elected to focus our business on the sale of our software products and solutions in the customer services and support market. In the
second quarter of 2004, we introduced Jacada Fusion, our solution that is designed to integrate different applications residing on host, Windows and Web-based platforms, and allow non-invasive access to those applications through a single user
interface. In the third quarter of 2005, we introduced Jacada WorkSpace, a built for purpose solution designed to be a single agent console that unifies customer interaction tools with a single access point to all the mission-critical applications
required by the customer service representative to effectively complete a customer interaction. Our license to sell our traditional market products, on a stand alone basis, is limited to sales for the use by our customers in their customer services
and support business. However, we have limited experience in this market. Our limited experience and knowledge regarding the customer services and support market may impede our ability to sell our products and result in decreased revenues and
increased losses.
We must continue our investment in our sales and marketing efforts, including our indirect
distribution channels, in order to increase market awareness of our products and to generate increased revenues
. Our sales and marketing teams have limited resources. We believe that in certain markets our future success is dependent upon
the expansion of our indirect distribution channels, consisting of relationships with partners, system integrators, call center outsourcers, resellers and distributors. Continued investment in indirect distribution channels and in our direct sales
and marketing efforts is essential to increase market awareness of our products and to generate increased revenues, in relation to such products. We currently have relationships with a limited number of partners.
Our future growth will be limited if:
|
|
|
our sales and marketing teams fail to increase market awareness of our products and generate increased revenues; or
|
|
|
|
we fail to work effectively with our indirect distribution partners; or
|
|
|
|
there is a decrease in the willingness or ability of our indirect distribution partners to devote sufficient resources and efforts to market, sale and
support our products or;
|
|
|
|
we fail to increase the number of indirect distribution partners with which we have relationships.
|
If any of these circumstances occurs, we will have to devote substantially more resources to the sales, marketing, distribution, implementation,
customization and support of our products than we otherwise would.
We do not have a proven business model for the
customer services and support market; if our business model is inappropriate for this market and our estimations regarding the sales cycle for this market are incorrect, our efforts to successfully commercialize Jacada Fusion and Jacada WorkSpace,
our customer service and support solutions, may be harmed or we will experience a further delay in generating revenues from these products.
Our business model for selling Jacada Fusion and Jacada WorkSpace, our customer service and support
solutions is different than the business model we used for our traditional market products. To date we have had limited number of deals in which we sold our customer service and support solutions and therefore we do not have enough experience to
determine if our business model is correct and is appropriate for the generation
5
either of new sales or follow-on sales. In the event that our chosen business model is inappropriate, we may need to modify our business model and adjust the manner in which we sell these
products in order to close subsequent transactions. If our business model is incorrect and must be adjusted, our revenues and expense levels may be adversely affected.
Our revenues may decline if we do not increase the number of transactions we enter into in 2010.
If we fail to sign a sufficient number of new transactions in 2010 for which we recognize
revenue in 2010, our revenues and results of operations will be adversely affected.
Our direct sales and marketing
resources are limited.
We have a limited number of direct sales and marketing personnel who are in charge of our sales and marketing activities globally. These limited resources may not be able to identify and qualify a sufficient number of
sales opportunities which will constitute our sales pipeline. A limited qualified sales pipeline may not generate a sufficient number of orders of our customer service and support solutions required to support our business growth.
Revenues from our customer services and support solutions might be concentrated in a few large orders and a small number of customers,
meaning that the loss of a significant customer or a failure to make even a small number of such sales could harm our results of operations
. Historically, revenues from our traditional market products were generated from a relatively
large number of sales to a wide number of customers. During 2009, 2008 and 2007, revenues from our customer service and support solutions were derived from large orders from a small number of customers. In the year 2009 two customers represented 46%
of our total revenues. In the year 2008 two customers represented 48% of our total revenues and in the year 2007 two customers represented 40% of our total revenues. Currently we cannot assure you that we will make repeat sales to these customers.
To the extent that this trend continues, our revenues will be dependent on a relatively limited number of significant customers. We also cannot assure you that new customers will purchase our products and services in the future. The failure to
secure new key customers, the loss of key customers or the occurrence of significant reductions in sales from a key customer would cause our revenues to significantly decrease and make it significantly more difficult for us to become profitable.
Competition in the market in which we operate is intense. If we are unable to compete effectively, the demand for, or
the prices of, our products may be reduced.
The markets in which we operate are competitive and subject to change. Our products compete with other customer experience optimization and customer service solutions offered by other
vendors including Microsoft, e-glue, Corizon and OpenSpan. We expect additional competition from other established and emerging companies. Furthermore, our competitors may combine with each other and other companies may enter our markets by
acquiring or entering into strategic relationships with our competitors.
In addition, our potential customers may choose to
deploy traditional CRM application software, or utilize their own information technology personnel or system integrators to write new code or rewrite existing applications in an effort to develop their own customer service and support solutions. As
a result, prospective clients may decide against purchasing and implementing externally-developed solutions such as ours.
Many of our current and potential competitors have significantly greater financial, technical and marketing resources, greater name recognition and larger customer bases than we do. Our competitors may be able to develop products comparable
or superior to ours; adapt more quickly than us to new technologies, evolving industry trends or customer requirements; or devote greater resources than we
6
do to the development, promotion and sale of products. Accordingly, we may not be able to compete effectively in our markets, competition may intensify and future competition may harm our
business.
We rely on our key personnel and key management members, whose knowledge of our business and technical
expertise would be extremely difficult to replace
.
Our future success depends, to a certain degree, on the continued services of key management, as well as on our sales and technical personnel. The loss of services of any of our key
management for any reason could have a material adverse effect on our business, financial condition and results of operations. We are also dependent on our ability to attract, retain and motivate highly skilled personnel. Competition for qualified
personnel is intense in the markets in which we recruit. As a result, our ability to recruit and retain qualified candidates may be limited.
Our revenues could be adversely affected if we fail to recruit and retain consultants and other technical service personnel
.
Sales of our customer service and support solutions
require in many cases advance sales activity involving consultants and post-sale implementation and customization. We rely on our staff of professional consultants, other technical service personnel and subcontractors to implement our solutions
after being purchased by our customers. Unless we are able to recruit and retain professional consultants, other technical service personnel and subcontractors or hire and train such personnel and subcontractors to replace those who leave us, it
will be difficult for us to implement our solutions and obtain customer acceptance and to increase or possibly even maintain our present level of sales due to constraints on our capacity to implement sales.
Our future growth will be adversely affected and our future operating results may be adversely affected if we fail to develop and
introduce new functionality for our products and new products for the customer service and support market or if our new products fail to achieve market acceptance.
In order to achieve sales growth we will need to develop and introduce new
functionality for our customer service and support solutions and new products for such market. Our ability to develop, integrate and introduce new functionality for our customer service and support solutions and new products for this market requires
us to invest significant resources in research and development and in the sales and marketing of a new product. If we fail to develop, integrate and market new products successfully, we may not be able to recover our research and development
expenditures or our sales and marketing expenditures, which would adversely impact our operating results.
Because our
solutions are complex and generally involve significant capital expenditures by customers, we may invest significant time and expense in trying to make a sale to a potential customer that ultimately chooses not to purchase our
solutions
.
Our sales typically involve significant capital investment decisions by prospective customers, and often require us to expend a significant amount of time to educate prospective customers as to the benefits of our
solutions, especially in the current economic conditions. As a result, before purchasing our solutions, companies spend a substantial amount of time performing internal reviews and obtaining approvals. Even if our solutions are effective, our target
customers may not choose them for technical, cost, support or other reasons.
A majority of our revenues derives from
the provision of professional services.
We derive our revenues from license fees for our software products, from fees for professional services (which include installation, implementation, integration and customization of our solutions),
training and from maintenance and support services. In 2009, 2008 and 2007 services revenues constituted a majority of our total revenues. Services revenues have lower gross margins relative to software revenue. If we do not increase the proportion
of our total revenue attributable to software license fees or if we do not
7
increase our professional services gross margins we may not be able to achieve or maintain profitability.
Failure to deliver professional services efficiently could negatively impact our gross margins.
Our limited experience and knowledge regarding the customer services and support market
generally and the delivery of our products and solutions for this new market specifically may impact the efficiency of our professional services deliveries, as we may need to expend more resources in the delivery of professional services to a
customer than we had originally estimated. Any such expending of more resources may negatively impact our professional services gross margins and our ability to achieve or maintain profitability. Additionally, failure to deliver professional
services efficiently and to our customers satisfaction may increase the potential of termination of projects by our customers, especially in the current economic conditions since customers may be less flexible on budget and delivery dates.
In previous years, we experienced fluctuations in our annual and quarterly results of operations, which resulted, and
may continue to result, in volatility in our share price.
In previous years we have experienced, and may continue to experience, fluctuations in our quarterly results of operations, and we may likewise experience significant
fluctuations in our annual results of operations. Factors which have contributed and may in the future contribute to fluctuations in our results of operations include: our ability to deliver our implementation and customization projects,
customer acceptance of our products and solutions, the size and timing of orders, general economic conditions, market awareness, the capital spending patterns of our customers, customer concentration and the timing of our product introductions or
enhancements or that of our competitors or providers of complementary products. Because of these and other factors, our quarterly revenues may fluctuate materially, especially in the current economic conditions. Therefore, the results of past
periods should not be relied upon as an indication of our future performance. It is likely that in some future periods, our operating results may again be below expectations of public market analysts or investors, which may cause our share
price to decline.
The market price of our shares is volatile and the volume of the daily trading of our shares is very
low; therefore you may not be able to resell your shares at or above the price you paid, or at all.
The risks described in this Item 3.D may adversely affect our share price. Our share price, like that of many technology companies, may
be subject to volatility. In addition, our share price may be adversely affected by changes in estimates of our financial results or recommendations by securities analysts, changes in the quarterly financial results of companies perceived to be
similar to us, and changes in market valuations of similar companies. In addition, if the market for stocks in our industry, or the stock market in general, experiences a loss of investor confidence, the trading price of our ordinary shares could
decline for reasons unrelated to our business, financial condition or results of operations. If our share price decreases to below $1.00 per share and remains there for 30 consecutive trading days, Nasdaq could initiate procedures to de-list our
shares from the Nasdaq Global Market and onto either the Nasdaq Small Cap Market or the OTC Bulletin Board. If our shares are de-listed from the Nasdaq Global Market, the benefit of dual-listing reporting requirements would no longer be relevant to
us and we would be required to follow the Israeli and Tel-Aviv stock exchange rules and regulations. Furthermore, because of the low volume of daily trading in our shares, you may be unable to sell your shares in the market due to low or no demand
for such shares.
Our ordinary shares could be treated as passive foreign investment company, which could
have adverse United States federal income tax consequences to United States Holders and any such holder should consider making certain elections to avoid any adverse consequences of our ordinary
8
shares being so treated.
As a non-U.S. company, we could potentially be treated as a passive foreign investment company (a PFIC) if either (1) at least 75% of our gross
income for any taxable year consists of certain types of passive income or (2) at least 50% of the average value of our assets produce or are held for the production of those types of passive income. See discussion under
Item 10E
Taxation
for further details regarding these tests. We believe that we are not a PFIC for United States federal income tax purposes and we will attempt to manage our business so as to avoid PFIC status, to the extent
consistent with our other business goals, but we cannot predict whether our business plans will allow us to avoid PFIC status in the future or whether our business plans will change in a manner that affects our PFIC determination. Ultimately, our
status is a factual determination made annually and may be subject to change. For 2009, we are relying on a specific exemption from PFIC status, which requires, among other conditions, that we were never treated as a PFIC and that we will not be
treated as a PFIC in the next two following years. If we are determined to be PFIC in any preceding year, or in either 2010 or 2011, we will not satisfy this exemption and will be deemed to have been a PFIC also in 2009. If we are determined to be a
PFIC, a U.S. Holder, as this term is described in Item 10E Taxation, may be subject to less advantageous tax consequences upon the sale, exchange or receipt of dividends with respect to our ordinary shares and may be required to pay
United States federal income tax at ordinary income rates for gains, dividends, as well as an interest charge on certain excess distributions as this term is explained later on. Certain elections may mitigate these consequences and the making
of these elections, or protective elections for the year 2009 may be particularly relevant this year given that our PFIC status for 2009 depends both on our non-PFIC status for all preceding years and on us not being a PFIC in both 2010
and 2011. See Item 10E
Taxation
for a more comprehensive discussion of the United States federal income tax consequences if we were to be treated as a PFIC.
We expect to be subject to increasing risks of international operations
.
Currently we market and sell our products and
services primarily in North America and Europe, from which areas we received approximately 99% of our total revenues for the year ended December 31, 2009. Managing our operations in North America and Europe requires significant management
attention and financial resources. Further, we currently have limited experience in marketing and distributing our products in regions other than North America and Europe. Our inability to increase our worldwide operations successfully could
adversely impact our business.
Our products may contain unknown defects that could harm our reputation, result in
product liability or decrease market acceptance of our products
.
Our products may contain errors or defects, particularly when first introduced or when new versions or enhancements are released. Although we have not experienced any
material software defects to date, defects could cause our customers to experience system failures. Our customers depend on our software for their critical systems and business functions. Any errors or defects could:
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increase our product development costs;
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divert our product development resources;
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expose us to monetary damages;
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cause us to lose future sales;
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damage our ability to deliver our solutions to the customer; or
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delay or diminish market acceptance of our products.
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Although we conduct extensive testing, we may not discover software defects that affect our products or enhancements until after they are sold. Furthermore, we are unable to test our products in each of
the applications in which they are designed to work.
Certain of our products, contain technology that we acquired or licensed
from third parties. Because we did not develop the technology ourselves, there may be errors in the technology of which we are not aware. In addition, our products are integrated with our customers networks and software applications. The sale
and support of our products may expose us to the risk of product liability or warranty claims based on damage to these networks or applications caused by the technology we developed or the technology developed by a third party and acquired by us. In
addition, the failure of our products to perform to customer expectations could give rise to warranty or other claims. Any of these claims, even if not meritorious, could result in costly litigation or divert managements attention and
resources. We may not have sufficient funds or insurance coverage to satisfy any or all liability that may be imposed upon us with respect to these claims.
Our technology may be subject to infringement claims or may be infringed upon
.
Our success and ability to compete are substantially dependent upon our technology. Most of our
intellectual property, other than our trademarks, consists of proprietary or confidential information that is not subject to patent or similar protection. Despite our efforts to protect our intellectual property rights, unauthorized third parties
may attempt to copy or otherwise obtain and use the technology protected by those rights. Any infringement of our intellectual property could have a material adverse effect on our business, financial condition and results of operations. Furthermore,
policing unauthorized use of our products is difficult and costly, particularly in countries where the laws may not protect our proprietary rights as fully as in the United States.
Although we do not believe that our products infringe upon any patent, trademark or other intellectual property rights of others, we cannot
be certain that one or more persons will not make a claim of infringement against us. Any claims, with or without merit, could:
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be expensive and time-consuming to defend;
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cause product shipment and installation delays;
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divert managements attention and resources; or
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require us to enter into royalty or licensing agreements, which may not be available on acceptable terms, or may not be available at all.
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We incorporate open source technology in our products which may expose us to liability and have a
material impact on our product development and sales
.
Some of our products utilize open source technologies. These technologies are licensed to us on varying license structures but include the general public license. This
license and others like it pose a potential risk to products that are integrated with these technologies. For example, in the event we integrate into one of our products a technology covered under the general public license, we may be required to
disclose our source code for the integrated product. Disclosing our source code could enable our competitors to eliminate any technological advantage our products may have over theirs, and therefore materially adversely affect
10
our competitive advantage and impact our business results of operations and financial condition. In addition, from time to time there have been claims challenging the ownership of open source
software against companies that incorporate open source software into their products. We use a limited amount of open source software in our products and may use more open source software in the future. As a result, we could be subject to suits by
parties claiming ownership of what we believe to be open source software.
A successful claim of product infringement against
us or our failure or inability to license the infringed or similar technology could have a material adverse effect on our business, financial condition and results of operations.
We may fail to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of
2002.
The Sarbanes-Oxley Act of 2002 imposes certain duties on us and our executives and directors. Our efforts to comply with the requirements of Section 404 may result in increased general and administrative expense and a
diversion of management time and attention. If we fail to maintain the adequacy of our internal controls, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting. In the
future, we may identify material weaknesses in our controls over financial reporting. Failure to maintain effective internal controls over financial reporting could result in investigation or sanctions by regulatory authorities, and could have a
material adverse effect on our operating results, investor confidence in our reported financial information, and the market price of our ordinary shares.
Negative conditions in the global credit and stock markets may impair the liquidity and value of our investment portfolio.
We invest our cash, cash equivalents, short-term
investments and equity securities investments in a variety of investment vehicles in a number of countries with and in the custody of financial institutions with high credit ratings. While our investment policy and strategy attempt to manage
interest rate risk, limit credit risk, limit stock markets risk, and only invest in what we view as high-quality securities, the outlook for our investment holdings is dependent on general economic conditions, interest rate trends and volatility in
the financial and stock marketplace, which can all affect the income that we receive, the value of our investments, and our ability to sell them. We believe that our investment securities are carried at fair value. However, over time the
economic and market environment may provide additional insight regarding the fair value of certain securities which could change our judgment regarding impairment. This could result in unrealized or realized losses relating to other than temporary
declines being charged against future income. Given the current market conditions, there is continuing risk that further declines in fair value may occur and additional impairments may be charged to income in future periods, resulting in realized
losses.
Exchange rate fluctuations between the dollar and other currencies may negatively affect our results of
operation.
Our results of operations are reported in U.S. dollars, however, a significant portion of our revenues and expenses in 2009 were generated and incurred outside of the United States and in currencies other than the U.S Dollar,
particularly in NIS (New Israeli Shekels), English Pounds and Euros. As a result, we are subject to a foreign currency risk. Specifically our sales in Europe and our expenses in Israel and Europe are recorded in local currencies. This exposes us to
the direct risk of local currency devaluations or fluctuations against the U.S dollar rate of exchange. As a result, fluctuations in exchange rates between the currencies in which our costs are incurred or revenues are recorded and the U.S. dollar
may have a material adverse effect on our results of operations. We use derivative financial instruments to further reduce our net exposure to currency exchange rate fluctuations in the major foreign currencies in which we operate. However, we
cannot assure you that
11
we will be able to effectively limit all of our exposure to currency exchange rate fluctuations, which could affect our financial results.
Risks Related to Our Location in Israel
Israeli courts might not enforce judgments rendered outside of Israel
.
We are incorporated under the laws of the State of Israel and we maintain significant operations in Israel.
Certain of our officers and directors reside outside of the United States. Therefore, you might not be able to enforce any judgment obtained in the United States against us or any of such persons. Additionally, you might not be able to bring civil
actions under United States securities laws if you file a lawsuit in Israel. We have been advised by our Israeli counsel that, subject to certain limitations, Israeli courts may enforce a final executory judgment of a United States court for
liquidated amounts in civil matters after a hearing in Israel, provided that certain conditions are met. If a foreign judgment is enforced by an Israeli court, it will be payable in Israeli currency.
Conditions in and around Israel could adversely affect our operations
.
Because our research and development facilities
are located in Israel, we are directly influenced by the political, economic and military conditions affecting Israel. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab
neighbors. Any major hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners could materially adversely affect our operations. Despite the negotiations towards peace between Israel and
certain of its Arab neighbors, the future of these peace efforts is uncertain. From October 2000 until recently, there was a significant increase in violence primarily in the West Bank and the Gaza Strip and negotiations between Israel and
Palestinian representatives have ceased for periods of time. In January 2006, Hamas, the Islamic Resistance Movement, won the majority of the seats in the Parliament of the Palestinian Authority. The election of a majority of Hamas-supported
candidates in the Palestinian Parliament and the tension among the different Palestinian factions may create additional unrest and uncertainty. Hamas does not recognize Israels right to exist as a state and Israel considers Hamas to be a
terrorist organization. During December 2008 and January 2009, Israel was engaged in an armed conflict with Hamas and during the summer of 2006, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite militia group and
political party. These recent conflicts involved missile strikes against civilian targets in northern and southern Israel, and negatively affected business conditions in Israel. Any renewed hostilities or other factors related to Israel could have a
material adverse effect on us or on our business or adversely affect our share price.
Generally, all non-exempt male adult
citizens and permanent residents of Israel under the age of 45 (or older, for citizens with certain occupations), including some of our officers, directors and employees, are obligated to perform military reserve duty annually, and are subject to
being called to active duty at any time under emergency circumstances. The absence of these employees for significant periods may cause us to experience operating difficulties. Additionally, a number of countries continue to restrict or ban business
with Israel or Israeli companies, which may limit our ability to make sales in those countries.
Any failure to obtain
the tax benefits from the State of Israel that we anticipate receiving could adversely affect our plans and prospects.
Pursuant to the Law for the Encouragement of Capital Investments, 1959, the Israeli government has granted Approved
Enterprise status to our existing capital investment programs under the Alternative Benefits Program. Consequently, we are eligible for certain tax benefits for the first several years in which we generate taxable income. However, we have
12
not yet begun to generate taxable income for purposes of this law. Once we begin to generate taxable income, our financial results could suffer if our tax benefits are significantly reduced.
In order to receive tax benefits, we must comply with a number of conditions and criteria. If we fail to comply in whole or
in part with these conditions and criteria, we will not be entitled to the tax benefits. Although we believe that we have operated and will continue to operate in compliance with the required conditions, we cannot assure you that this will continue.
We cannot assure you that these tax benefits will be continued in the future at their current levels or at all. The
termination or reduction of tax benefits could have a material adverse effect on our business, financial condition and results of operations. In addition, in April 2005, the law governing these tax benefits was amended to revise the criteria
for investments that qualify for tax benefits as an approved enterprise. We cannot assure you that we will, in the future, be eligible to receive additional tax benefits under this law. In addition, in the event that we increase our
activities outside the State of Israel, these activities generally will not be eligible for inclusion in Israeli tax benefit programs. Accordingly, our effective corporate tax rate could increase significantly in the future.
Certain provisions of our articles of association and of Israeli law could delay, hinder or prevent a change in our control
.
Our articles of association contain provisions which could make it more difficult for a third party to acquire control of us, even if that change would be beneficial to our shareholders. For example, our articles of association provide that our
board of directors is divided into four classes, three of which serving three-year terms. In addition, certain provisions of the Israeli Companies Law, which we refer to as the Companies Law, could also delay or otherwise make more difficult a
change in control. The provisions of the Companies Law relating to mergers and acquisitions are discussed in greater detail in Item 10.B:
Memorandum and Articles of Association
.
Our stock is traded on more than one stock exchange and this may result in price variations.
Our stock is traded on the Nasdaq
Global Market and on the Tel Aviv Stock Exchange. Our stock is traded on these markets in different currencies (US dollars on Nasdaq and New Israeli Shekels on the Tel Aviv Stock Exchange) and at different opening times (notably, different time
zones and public holidays; in addition, the Tel Aviv Stock Exchange is closed on Fridays and open on Sundays, while Nasdaq is open on Fridays and closed on Sundays). This means that our stock is often traded at a price differential on these two
markets resulting, among other factors, from the different trading times and the differences in exchange rates.
Item 4: INFORMATION ON THE COMPANY
A.
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History and Development of the Company
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Our legal and commercial name is Jacada Ltd. We were incorporated under the laws of the State of Israel in December 1990 as a limited liability company. On August 9, 1999 we changed our name from
Client/Server Technology Ltd. to Jacada Ltd. Our commercial name is Jacada. Our registered office in Israel is 11 Shenkar Street, Herzliya 46725Israel and our telephone number is 972-9-952-5900. Our agent in the United States is Oren Shefler, whose
address is 400 Perimeter Center Terrace, Suite 100, Atlanta, Georgia 30346. Our address on the Internet is http://www.jacada.com. The information on our website is not incorporated into this Annual Report. We operate under the Companies Law.
13
Since October 1999, our Ordinary Shares have been quoted on the Nasdaq Global Market under
the symbol
JCDA.
In addition, our Ordinary Shares have been quoted on the Tel Aviv Stock Exchange under the same symbol or its Hebrew equivalent since June 18, 2001.
In 2004, we introduced Jacada Fusion and elected to target corporate customer contact centers. In the third quarter of 2005, we introduced
Jacada WorkSpace, a solution specifically designed for the customer contact center market. We refer to this market as the customer service and support market. Prior to the introduction of our customer service and support market products
we have been operating in the application integration and web-enablement market. We refer to this market as our traditional market business.
In January 2008 we sold the intellectual property and related customer contracts associated with the following Jacada products that were associated with our traditional market business: Jacada Interface
Server and Jacada Integrator, also known as Jacada HostFuse, Jacada Studio, Jacada Innovator and Jacada Terminal Emulator in consideration for $26 million in cash. Under the terms of the transaction we retained the right to develop, market, sell and
support Jacada Interface Server and Jacada HostFuse in support of our customer service and support business.
Currently we
focus our business on the development, marketing and support of customer experience management and process optimization solutions that simplify and automate customer service processes. Our solutions bridge disconnected systems into a single,
intelligent workspace, without requiring modification or replacement of existing systems, and help companies deliver an improved experience to their customers. Contact centers worldwide are using our solutions to automate complex
processes, improve customer satisfaction and loyalty, reduce operational costs, and enforce and monitor compliance with regulatory policies and procedures. We have a total solution, comprised of a customer engagement methodology, products and
expertise, to help companies improve their call center operations and provide their customer with a consistent experience across all channels. Our solutions are uniquely able to solve several business problems that lead to poor customer
interactions, as we offer an end-to-end unified desktop and customer experience optimization solutions.
Typical users of our
customer service and support solutions are medium to large businesses with inbound contact centers that typically have in excess of 100 agent positions. Some of the companies that have purchased our customer service and support solutions include
Vodafone, West Telemarketing, Cox Communications, Capita Business Services, Lillian Vernon, Quelle Contact Vertrieb, Omnium Worldwide, Central Hudson Gas & Electric, Station Casinos, Telefonica O2 UK, Nationwide Insurance, E.ON, Permanent
General Insurance Companies and Kabel Deutschland.
See Items 5 and 18 for a description of our capital expenditures for the
past three fiscal years. Other than the sale of our traditional market business as described in this Item above, we have made no divestitures during the same time period. In addition, we are not currently engaged in a capital divestiture and our
current capital expenditures are for computers, software and peripheral equipment. These capital expenditures are financed with our internal cash resources.
In February 2008 our board of directors authorized the use of up to $10 million of our available cash to repurchase our ordinary shares through transactions under Rule 10b-18 of the Securities Exchange
Act. Through August 2008 we purchased 596,080 shares for a total purchase price of $2.18 million under this program. Purchases were made from time to time at the discretion of our management in the open market or in privately negotiated
transactions, subject to, among other factors, market conditions, trading volume and our share price. No time limit was set for this program;
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however, we suspended the program upon commencement of our self tender offer. In September 2008 we purchased 3,851,104 of our ordinary shares under a self tender offer for total consideration of
approximately $15.68 million. See Item 16E:
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
for disclosure regarding our repurchase program and self tender offer.
We are not aware of any public takeover offers by third parties in respect of our shares, and we have made no public takeover offers in
respect of other companies shares during fiscal years 2008 and 2009.
Industry Overview
In 2004, we introduced Jacada Fusion and elected to target corporate customer contact centers. In the third quarter of
2005, we introduced Jacada WorkSpace, a solution specifically designed for the customer contact center market. We refer to this market as the customer service and support market. Prior to the introduction of our customer service and
support market products we have been operating in the application integration and web-enablement market for 16 years. We refer to this market as our traditional market business.
Customer Service and Support Market
In todays highly competitive markets, companies increasingly focus on the provision of customer service as a means of increasing customer satisfaction and customer retention rates. For most
companies, the key organization involved in this effort is the companys contact center, or call center, whose personnel are directly customer-facing.
To provide quality customer service, customer service representatives must be able to answer customers questions quickly, handle any request the customer may have, and do so in an efficient and
pleasant manner. One of the significant challenges in the provision of quality customer service is the complexity of the customer service representative desktop. This is due both to the number of software applications on the customer service
representatives computer desktop and to the complexity of the applications used on the desktop. Most customer service representatives must manage three or more applications on their desktop, including billing, inventory, delivery tracking,
call tracking and customer relationship management, or CRM, applications, and many customer service representatives have six, eight, ten or more applications they must learn and manage.
The number of applications on the typical customer service representative desktop is increasing due to the broader range of services that
organizations are demanding of contact centers and the desire for agents to resolve calls during the first contact with the customer. These applications are often a combination of Windows, web and host centric applications that are not integrated,
and many of these applications have a unique user interface that customer service representatives must master to perform their jobs.
The complex customer service representative desktop results in:
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Long average call handle times, or AHT;
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Long and expensive training programs for the customer service representative;
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High customer service representative turnover; and
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Poor customer satisfaction and low customer retention.
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Our Solutions
We develop, market and support unified service desktop and
process optimization solutions that simplify and automate customer service processes and help organizations improve their customer experience. By bridging disconnected systems into a single, intelligent workspace, our customer service
and support market solutions create greater operational efficiency and increase agent and customer satisfaction. Our customer service and support market products, Jacada Fusion and Jacada WorkSpace products suite simplify the desktop of customer
service representatives to reduce operational costs and improve the customer experience. Our customer service and support market solutions provide our clients organizations with a simplified customer service interaction designed to improve the
efficiency and effectiveness of their customer service organization.
Benefits
Our solutions for the customer service and support market provide the following business benefits:
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Reducing operating expense
. Because Jacada Fusion and Jacada Workspace products present users with a single interface through which applications
are accessed, they eliminate the need to navigate through and between applications. Therefore they eliminate redundant data entry, cut keystrokes and streamline or even eliminate process steps, including time consuming call wrap-up processes,
thereby generating greater agent efficiency. This enables increased first call resolution and significant reduction in average handle times and operating costs.
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Significantly reducing customer service representative training costs
. By simplifying the customer service representative desktop and reducing
the number of applications with which a customer service representative must interact, our contact center solutions allow our customers to significantly reduce their customer service representative training costs.
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Increasing revenue opportunities.
By reducing average handle times and making it easier for customer service representatives to access all the
data needed to answer a customers question or complete a customers request, Jacada Fusion and Jacada Workspace enable customer service representatives to perform increased sales activities, leading to potentially greater revenue
opportunities.
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Improving user and customer experience.
Reduced average handle times and increased first call resolution enable our customers to improve their
customers experience, helping generate increased customer satisfaction and loyalty. The access to multiple platforms through one user-friendly interface also improves the experience of the customer service representative, leading to improved
customer service representative morale and productivity.
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Our technology and approach to delivering solutions provide the following implementation
benefits:
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Leverage Existing Information Technology Resources.
Our solutions permit companies to integrate their existing applications without modifying or
replacing any existing systems. This eliminates the need for time-consuming and expensive custom programming or application upgrades or replacement projects.
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Allow Rapid Implementation.
We design our solutions to be implemented rapidly, which results in faster time-to-market than internally developed
solutions or packaged application software implementations.
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Flexibility to Adapt to Evolving Business Needs
. We design our solutions to work effectively even as companies modify existing and add new
applications in response to their evolving business needs. The access to multiple platforms through one interface also allows companies to respond more quickly to customer demands and changes in the marketplace as new business rules and processes
can be adopted through the single user interface without rewriting any application code or data.
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Reliability and Scalability
. Our solutions are designed to provide the reliability required for applications that are critical to the operation
of businesses, and are easily scalable to accommodate additional users in response to evolving business needs.
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Products
and Technology
Our products include:
Jacada
®
WorkSpace
. Jacada WorkSpace is a built for purpose solution that unifies customer interaction tools and provides a single access point to all the mission-critical
applications required by the customer service representatives to effectively complete a customer interaction. Jacada WorkSpace delivers a wide range of capabilities that enable companies to freely implement optimal contact center processes and
maximize customer service representative productivity. Jacada WorkSpace eliminates the inefficiency of a desktop maze by providing an agent with a single interface to access the multitude of disparate systems and resources needed to effectively
perform his or her job. In addition, by using dynamic, role-based desktop controls, Jacada WorkSpace enables companies to transform product-specific or function-specific agents to universal agents, maximizing agent productivity and
reducing operational costs.
Jacada
®
Fusion.
Jacada Fusion, a bundling of two Jacada products: Jacada HostFuse and Jacada WinFuse mentioned below, is a non-invasive integration platform which can
automate processes that involve different kinds of business application whether traditional legacy green screen mainframe applications, Windows client/server applications or newer web-based (browser-based) applications.
Jacada
®
WinFuse.
Jacada WinFuse is a non-invasive integration solution that allows companies to web-enable and integrate their Microsoft Windows client/server and
web-based applications without modifying or changing anything in the existing application. Jacada WinFuse enables organizations to leverage their existing Windows client/server and web-based applications to
17
automate business processes and seamlessly integrate and transfer data from one application to another. Jacada WinFuse can work with almost any 32-bit Windows and web or browser-based
application.
Jacada WinFuse web service-enables Windows client/server or web-based applications. Without changing anything in
the original application, and without needing to access the source code, Jacada WinFuse enables organizations to automate interactions with their applications and drive the system as a user would, navigating a series of Windows forms or
web pages, and inserting or retrieving data as required. Jacada WinFuse exposes these interactions as Web services that can be integrated into any J2EE or .NET composite application in a scalable and secure fashion.
By service-enabling any Windows-based or web-based application, Jacada WinFuse provides for the rapid adoption of service-oriented
architectures (SOA), enabling IT to rapidly deliver new functionality.
Jacada
®
Interaction Manager.
Jacada Interaction Manager guides the customer service agent through an optimized
interaction with the customer. A typical contact center interaction contains elements of guidance language presented to the agent as a best practice suggestion regarding how to answer the customers inquiry, mandatory language that
must be read for compliance reasons, business rules to determine what the agent may offer or do next, and workflow between these steps to ensure that all necessary information is gathered and presented to the customer. Jacada Interaction Manager
deploys in conjunction with Jacada WorkSpace ensuring seamless cooperation between the customer interaction workflow and the multiple business systems controlled by Jacada WorkSpace.
Jacada
®
Advisor
, is a technology-enablement solution, designed to simplify the complexity of existing customer service desktop applications and reduce the amount of
training required to work with those applications by leveraging the solutions desktop automation, in-context help and embedded interaction management capabilities. Jacada Advisor combines our Jacada Fusion integration and interaction
management technology with HTML-compatible application bubbles, a heads-up, contextual interface which enables in-line and in-context data feeds while reducing training issues and expenses.
Jacada
®
Insight
is a strategic contact space analytics solution that compiles vital metrics across contact channels and enables contact centers to better understand and
visualize their customer service efforts. Jacada Insight operates in conjunction with our unified desktop technology. Our solution ensures that accurate, reliable, real-time call type and call disposition data is streamed into an existing data
structure in ways most appropriate to uncover productivity gaps and drive customer satisfaction and sustained profitability.
Jacada
®
HostFuse (formerly known as Jacada Integrator)
.
Jacada HostFuse is a software solution for integrating core host-centric business systems, including the data and processes in those systems, with multiple packaged applications, frameworks and client environments. Users of Jacada
®
HostFuse enjoy the benefits of on-line, real-time integration with back-office applications without rewriting any of
their existing systems.
Jacada
®
Interface Server.
Jacada Interface Server generates graphical user interfaces for mainframe and midrange software applications without requiring any change to the
host applications. By generating Java or HTML graphical interfaces, Jacada Interface Server enables our customers to extend their host-centric applications and data to the Internet and their intranets without rewriting these applications. In
addition, Jacada Interface Server provides the modern graphical features users expect from todays applications. Jacada Interface Server also allows customers to enhance their applications to add functionality, integrate with other data sources
and link to other Internet applications.
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Our intellectual property rights in the Jacada Interface Server and the Jacada HostFuse
products were sold in January 2008 as part of the sale of our traditional market business. We are licensed to develop and sell these products under an irrevocable license agreement. Our license to sell these products, on a stand alone basis, is
limited to sales for the use by our customers in their customer services and support business. See Item 4A
History and Development of the Company
.
Professional Services
Our professional services include training,
consulting services (which include installation, implementation, integration and customization of our solutions), solution support and maintenance services and product support and maintenance services.
We provide our direct customers and our partners with professional services to assist them with installing, integrating, implementing and
customizing our products into the customers systems, and with managing and enhancing their utilization of our products on an ongoing basis. We also provide customer and partner training services to assist our customers and partners in learning
how to use our products at our Atlanta, Georgia facility and other locations, with coursework related to various aspects of our products.
We bill for our professional consulting services (which includes installation, implementation, integration and customization of our solutions), either on a fixed fee basis or by the hour plus
out-of-pocket expenses, and for training services by the day plus out-of-pocket expenses.
Product support and maintenance
services are provided to our customers through agreements under which we provide technical support to our software products by telephone, fax, email and the Internet and provide updates, upgrades and fixes to our software products. In addition we
offer our customers solution support and maintenance services which include support and maintenance services for our products and the work product deliverables that were provided as part of our professional services. Our customers may purchase
support and maintenance services for 12 months after the initial purchase of our solutions, renewable annually thereafter. In addition, customers can elect optional services such as emergency coverage on a 24 hours per day, seven days per week
basis.
Principal Markets
Our principal markets are North America and Europe. We generate revenues from licensing our software products to customers and providing customers with training, professional services, product or solution
support and maintenance services. Software licenses revenues constituted approximately 8%, 31% and 26% of our total revenues for the years ended December 31, 2009, 2008 and 2007, respectively, while professional services, support and
maintenance revenues constituted approximately 92%, 69% and 74% of our total revenues, respectively, for the same periods. Software licenses revenues generated from North American customers constituted approximately 6%, 13% and 11% of our total
revenues for the years ended December 31, 2009, 2008 and 2007, respectively, while professional services, support and maintenance revenues generated from North American customers constituted approximately 41%, 30% and 31% of our total revenues,
respectively, for the same periods. Software license revenues generated from European customers constituted approximately 2%, 18% and 14% of our total revenues for the years ended December 31, 2009, 2008 and 2007, respectively, while
professional services, support and maintenance revenues generated from European customers constituted approximately 50%, 35% and 42% of our total revenues, respectively, for the same periods.
Seasonality
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Not applicable.
Sources and Availability of Raw Materials
Not applicable.
Sales and Marketing
We
sell our products through our direct sales force in North America and Europe, as well as through our indirect distribution channels, consisting of system integrators, partners and call center outsourcers. We also use indirect distribution channels
in countries where we have no direct sales operations. As of December 31, 2009, we had 26 people in our sales and marketing organization, compared to 34 as of December 31, 2008.
During 2009 we continued to invest in our business arrangements with our strategic indirect sales channels for our customer service and
support solutions as well as in the establishment of arrangements with new indirect channels. Our indirect distribution channels for our customer service and support products include Accenture, a global management consulting, technology services and
outsourcing provider, IBM Global Services, Tieto Enator, a large global IT services provider and Wipro, a large global IT services provider. It is our expectation that our indirect distribution channels will extend our market reach by increasing
market awareness of our solutions and presenting us to potential customers. We intend to continue to invest in 2010 in the development of our indirect sales channels.
Our marketing efforts are focused on generating demand for our solutions and developing greater awareness among target customers of our solutions and the benefits they can provide. We market our products
and services through a range of vehicles, including electronic media, such as e-mail and other online vehicles, social media, traditional media (public relations), and through traditional demand generation channels including trade shows and direct
mailings. We have developed a wide range of collateral materials and sales tools that are used by both our direct sales force and indirect distribution channels. These materials include videos, testimonials, brochures, white papers, case studies,
press releases and our Web site.
Customers
Our customers include end users to whom we sell our products and services directly, system integrators, partners, distributors and other intermediaries who either resell our products to end users or
incorporate our products into their own product offerings and end users who purchase our products from such distributors and other intermediaries. A typical customer for our solutions is a business with the following characteristics:
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inbound contact center with 100 or more agents who manage repetitive call types such as billing, claims, service activation, etc;
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recently completed a merger or acquisition resulting in an organization with disparate systems and processes;
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complex business processes that require repetitive data entry by the contact center agent or inputting various pieces of data across multiple screens;
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host-based legacy systems as systems of record;
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CRM system not the primary system of record; and
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having a strategic initiative to outsource its IT development, especially around the contact center.
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Some examples of the industries in which our customers operate and their uses of our products include:
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Telecommunications providers, which use our solution to assist in streamlining and automating their customer service process, billing inquiries,
account changes, and to generally improve the productivity and efficiency of their contact center.
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Insurance companies, which use our solutions to modernize their contact center applications, Web-enable access to these applications for customers to
update account information via the Internet, and integrate their customer information systems with CRM applications.
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Public utility providers use our solutions to automate critical call processes and integrate their existing business systems into a simplified customer
service desktop, reduce customer service agent desktop complexity and optimize key customer service processes in their contact centers in order to reduce agent training time, increase agent productivity and improve overall customer service.
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Research and Development
We believe that strong product development is essential to our strategy of continuing to enhance and expand the capabilities of our products. We have invested significant time and resources in creating a
structured process for undertaking all product development. This process involves several functional groups at all levels within our organization and is designed to provide a framework for defining and addressing the activities required to bring
product concepts and development projects to market successfully. In addition, we have recruited and intend in the future to recruit key software engineers and developers with experience in Java, .Net, communications, expert systems, Windows
internals and Internet technologies. Our research and development efforts, which include internal development as well as acquisition of technology components, are primarily focused on enhancing and adding functionality to our customer service and
support products as well as adding new products based on our expectations of future technologies and industry trends.
Our
research and development expenses were $3.5 million for the year ended December 31, 2009, $4.8 million for the year ended December 31, 2008 and $4.4 million for the year ended December 31, 2007. As of December 31, 2009, 30
professionals were engaged in research and development activities, a slight decrease compared to 31 professionals at December 31, 2008, although, in 2008 we also used third party service providers for some of our research and development
activities. See also Item 5:
Operating and Financial Review and Prospects
, A.
Operating Results, Total Operating Expenses
.
Dependence on Patents and Licenses
We are generally not dependent on any third party license or patent with
respect to our technology for the customer service and support products. However, sales of our customer services and support products often include licenses to our traditional market products as part of the solution we provide to our customers. Our
rights to develop and sell our traditional market products are granted to
21
us under an irrevocable license agreement which we have entered into as part of the sale of our traditional market business. Our license to sell those products, on a stand alone basis, is limited
to sales for the use by our customers in their customer services and support business. See Item 4A:
History and Development of the Company
. As part of that asset sale we also sold the two patents we had on portions of our
traditional market products technology. While we have a patent pending with respect to our customer service and support products technology, we believe that the failure to obtain such patent would not diminish our ownership rights in our technology
or our software products.
The Jacada Interaction Manager product, which is an ancillary product to our customer service and
support products, is based on technology licensed to us under a license agreement we entered into in April 2007.
The Jacada
Insight product, which is an ancillary product to our customer service and support products, is based on technology licensed to us under a license agreement we entered into in December 2009.
Competition
The markets in
which we operate are extremely competitive and subject to rapid change. We believe that the competitive factors affecting the markets for our products and services include:
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product functionality and features;
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our ability to successfully deliver our projects/solutions
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ease of product implementation;
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availability of global support;
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relationships with key distribution partners;
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existing vendor relationships;
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quality of customer support services;
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product reputation; and
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financial stability of vendors.
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The relative importance of each of these factors depends upon the specific customer environment. Although we believe that our products and services currently compete favorably, we may not be able to
maintain our competitive position against current and potential competitors. In addition, many companies choose to deploy their own information technology personnel or utilize system integrators to write new code or rewrite existing applications in
an effort to develop new solutions. As a result, prospective customers may decide against purchasing and implementing externally developed and produced solutions such as ours.
Our customer service and support products compete with other contact center solutions offered by vendors including Microsoft, OpenSpan,
e-glue and Corizon. We expect additional competition from other established and emerging companies. Furthermore, our competitors may combine with each
22
other, or other companies may enter our markets by acquiring or entering into strategic relationships with our competitors. In addition, our potential customers may choose to deploy traditional
CRM application software, or utilize their own information technology personnel or system integrators to write new code or rewrite existing applications in an effort to develop their own customer service and support solutions.
Material Effects of Government Regulation in Israel
Pursuant to the Law for the Encouragement of Capital Investments, 1959, the Israeli government has granted Approved Enterprise status to our existing capital investment programs under the
Alternative Benefits Program. Consequently, we are eligible for certain tax benefits for the first several years in which we generate taxable income. However, we have not yet begun to generate taxable income for purposes of this law. Once we begin
to generate taxable income, our financial results could suffer if our tax benefits are significantly reduced.
In order to
receive tax benefits, we must comply with a number of conditions and criteria. Although we believe that we have operated and will continue to operate in compliance with the required conditions, we cannot guarantee that this will continue. Once we
generate taxable income, if we fail to comply in whole or in part 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.
In April 2005, the law governing these tax benefits was amended to revise the
criteria for investments that qualify for tax benefits as an approved enterprise.
The revised criteria include
provisions generally requiring that at least 25% of the Approved Enterprises income will be derived from export and that minimum qualifying investments in productive assets be made. Additionally, this amendment enacted major changes in the
manner in which tax benefits are awarded under the Law for the Encouragement of Capital Investments, 1959, so that companies no longer require Investment Center approval in order to qualify for tax benefits. Rather, the year in which a company
elects to commence its tax benefits is designated as the year of election (Year of Election). A company may choose its Year of Election by notifying the Israel Tax Authorities in connection with filings of its annual tax return or within
12 months after the end of the Year of Election, whichever is earlier, or by requesting an advance ruling from the Israel Tax Authorities no later than within six months after the end of the Year of Election.
We cannot assure you that we will, in the future, be eligible to receive additional tax benefits under this law. In addition, we cannot
assure you that these tax benefits will be continued in the future at their current levels or at all. The termination or reduction of tax benefits could have a material adverse effect on our business, financial condition and results of operations.
In addition, in the event that we increase our activities outside the State of Israel, these activities generally will not be eligible for inclusion in Israeli tax benefit programs. Accordingly, our effective corporate tax rate could increase
significantly in the future.
From time to time we have received royalty-bearing grants from the Office of the Chief Scientist
of the Ministry of Industry and Trade of the Government of Israel, or OCS. We have used these grants to develop portion of our traditional market products, which we sold in January 2008. The State of Israel does not own proprietary rights in
technology developed with OCS funding and there is no restriction on the export of products manufactured using technology developed with OCS funding. The technology developed with OCS funding is, however, subject to transfer restrictions, which we
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complied with in connection with the sale of the intellectual property rights in the traditional market products.
C.
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Organizational structure
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We own 100% of the stock in Jacada, Inc., a corporation organized under the laws of the state of Delaware, 100% of the stock in Jacada (Europe) Limited, a company organized under the laws of England and 100% of the stock in Jacada Nordic
AB, a company organized under the laws of Sweden. Jacada (Europe) Limited owns 100% of the stock of Jacada Deutschland GmbH, a limited liability company organized under the laws of Germany.
D.
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Property, Plants and Equipment
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As of December 31, 2009, our headquarters and principal administrative, research and development operations were located in approximately 13,000 square feet of leased office space in Herzliya, Israel. The lease expired in March 2010.
As of March 21, 2010, our headquarters and principal administrative, research and development operations were located in approximately 6,500 square feet of leased office space in Herzliya, Israel. This lease expires in March 2013.
In the United States, we lease approximately 18,500 square feet in Atlanta, Georgia, which we utilize for marketing, sales,
administration, service and technical support. The lease expires in June 2012, and we have the right to extend the lease for an additional three-year term.
In the UK, we lease office space, which we utilize for sales, marketing and services. The lease expires in October 2010 and is not material. In addition, we lease office space in Germany, which is
utilized for sales and marketing activities. The lease expires in April 2011 and is not material.
Item 5:
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
We
develop, market and support customer experience management and process optimization solutions that simplify and automate customer service processes. By bridging disconnected systems into a single, intelligent workspace, our solutions
create greater operational efficiency and increase agent and customer satisfaction. We also provide related professional services, including training, consulting, support and maintenance.
We were incorporated in December 1990. In 2004, we introduced Jacada Fusion and elected initially to target corporate customer contact
centers, however Jacada Fusion may be also used by our customers for back office applications. In the third quarter of 2005, we introduced a solution specifically for customer service representatives called Jacada WorkSpace. We refer to this market
as the customer service and support market. Prior to the introduction of our customer service and support market products we have been operating in the legacy application integration and web-enablement market for 16 years. We refer to
this market as our traditional market business. Customers of our customer service and support market products may also use our traditional market products.
In January 2008 we sold the intellectual property and related customer contracts associated with the following Jacada products which were associated with our traditional market business: Jacada Interface
Server and Jacada Integrator, also known as Jacada HostFuse, Jacada Studio, Jacada
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Innovator and Jacada Terminal Emulator in consideration for $26 million in cash. Under the terms of the transaction we retained the right to develop, market, sell and support Jacada Interface
Server and Jacada HostFuse in support of our customer service and support business. The results of the traditional market business were reclassified to one line item in the statement of operations as Net income from discontinued operations,
net of taxes.
In February 2008 our board of directors authorized the use of up to $10 million of our available cash to
repurchase our ordinary shares through transactions under Rule 10b-18 of the Securities Exchange Act. Through August 2008 we purchased 596,080 shares for a total purchase price of $2.18 million under this program. Purchases were made from time to
time at the discretion of our management in the open market or in privately negotiated transactions, subject to, among other factors, market conditions, trading volume and our share price. No time limit was set for this repurchase program; however,
we suspended the program upon commencement of our self tender offer. In September 2008 we purchased 3,851,104 of our ordinary shares under a self tender offer for total consideration of approximately $15.68 million. See Item 16E:
Purchases
of Equity Securities by the Issuer and Affiliated Purchasers
for disclosure regarding our repurchase program and self tender offer.
During the fourth quarter of 2008, we announced a reduction in our work force and other related cost containment strategies in order to align our operations and expenses with our revenue targets for 2009.
These changes included a 14% reduction in workforce worldwide, which included approximately 18 employees and 6 third party research and development service providers and the related costs associated with this reduction. The cost of implementing this
restructuring plan was $0.5 million, which is included in the results for 2008.
On April 6, 2009 we announced additional
measures to reduce expenses in order to align our operations with revenue expectations for 2009. These measures included a 7% reduction in workforce worldwide which impacted 10 positions, as well as salary reductions and other additional cost saving
initiatives.
Revenues
We generally sell our software as part of an overall solution offered to customers that combines the sale of software licenses with services, which normally include significant customization,
implementation and integration. As a result, combined license and service revenues are generally recognized over the course of these projects, using the percentage of completion method of accounting and in accordance with software revenue
recognition authoritative guidance. Maintenance, also called post-contract support or PCS, includes telephone support, bug repairs, and rights to receive upgrades and enhancements to licensed software on a when-and-if-available basis. We sell our
products primarily through its direct sales force to customers and indirectly through resellers. Both the customers and the resellers are considered end users.
Cost of Revenues
Our costs of revenues are comprised of
(a) costs of software licenses, (b) costs of services and (c) costs of maintenance.
Cost of software licenses
revenues consists of royalties, amortization of acquired technology and costs of duplicating media and documentation.
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Cost of services and maintenance revenues consists of compensation expense, related overhead
and subcontractor costs for personnel engaged in training, consulting, support and maintenance services for our customers.
Research and
Development Costs
Costs for the development of new software products and substantial enhancements to existing software
products are expensed as incurred. Based on our product development process, technological feasibility is established upon completion of a working model. No costs are incurred between the completion of the working model and the point at which the
products are ready for general release. Therefore, all research and development costs are expensed.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. These estimates are evaluated by us on an ongoing basis. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying amount values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or
conditions.
We believe that application of the following critical accounting policies entails the more significant judgments
and estimates used in the preparation of our consolidated financial statements.
Revenues
. Our revenue recognition
policy is significant because our revenues are a key component of our results of operations. Revenue results are difficult to predict, and any shortfall in revenues or delay in recognizing revenues could cause our operating results to vary
significantly from quarter to quarter and could result in future operating losses. We follow very specific and detailed guidelines in measuring revenues; however, certain judgments affect the application of our revenue policy. Our revenues are
principally derived from the licensing of our software and the provision of related services.
We derive our revenue
principally from:
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the initial sales of licenses to use our products, including customization, implementation and integration services,
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incremental license fees resulting from a customers increase in product licenses required,
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post-implementation consulting and integration services for our solutions, and
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the recurring revenue from ongoing support and maintenance provided to our customers.
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Sales of software licenses are recognized when persuasive evidence of an agreement exists, delivery of the product has occurred, the fee is
fixed or determinable, and collectibility is probable. We consider all arrangements with payment terms extending beyond six months from the delivery of the
26
elements, not to be fixed or determinable. If the fee is not fixed or determinable, revenue is recognized as payments become due from the customer, provided that all other revenue recognition
criteria have been met. We do not grant a right of return to our customers. In transactions where a customers contractual terms include a provision for customer acceptance, revenues are recognized either when such acceptance has been obtained
or as the acceptance provision lapses.
We usually sell our software licenses as part of an overall solution offered to a
customer that combines the sale of software licenses with customization, implementation and integration services. These services are considered essential to the software. As a result, we generally recognize initial license fee and related service
revenue over the course of these projects, using the percentage of completion method of accounting. Revenue from software that does not require services, including licenses sold subsequent to the initial installation, is recognized upon delivery,
assuming all other revenue recognition criteria has been met. Revenue from post-implementation consulting and integration services is recognized as work is performed. Maintenance revenue is recognized ratably over the term of the maintenance
agreement.
A significant portion of our revenue is recognized over the course of projects under the percentage of completion
method of accounting. The percentage of completion method requires the exercise of judgment, such as with respect to estimations of progress towards completion, contract revenue, loss contracts and contract costs. Progress in completion such
projects may significantly affect our annual and quarterly operating results.
With regard to software arrangements involving
multiple elements, such as software, post-contract customer support, consulting and training, revenues are allocated to the different elements in the arrangement under the residual method when Vendor Specific Objective Evidence
(VSOE) of fair value exists for all undelivered elements and no VSOE exists for the delivered elements. The residual method of allocation requires an entity to first allocate revenue to the fair value of the undelivered elements
(maintenance and other services) and the residual revenue to the delivered element (software licenses). Any discount in the arrangement is allocated to the delivered element. VSOE of fair value for maintenance and other services is determined based
on the price charged for the undelivered element when sold separately.
VSOE of fair value for maintenance and other services
is determined based on the price charged for the undelivered element when sold separately. Our process for establishing VSOE of fair value of maintenance services (PCS) is through performance of VSOE compliance test which is an analysis of the
entire population of PCS renewal activity for our installed base of customers. Our process for the establishment of VSOE of fair value for consulting and training services is through a performance of an analysis of the entire population of separate
sales of services.
Reimbursements received for out-of-pocket expenses incurred are characterized as revenue in the income
statement.
Impairment of property and equipment
. We review our property and equipment for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. During 2009, 2008 and 2007, no impairment losses were identified.
Goodwill
. Goodwill is not amortized, but instead is tested for impairment at least annually or between annual tests in certain circumstances, and written down when impaired. Goodwill is tested for
impairment by comparing the fair value of the reporting unit with its carrying value. We operate under
27
a single reporting unit. Fair value is determined using the discounted cash flows method and market capitalization. We perform impairment tests during the third fiscal quarter. Following the test
no impairment losses were identified.
Valuation of investment in marketable securities.
On April 1, 2009, we
adopted a new guidance, ASC 320-10-65-1, Recognition and Presentation of Other-Than-Temporary Impairments (formerly FSP FAS No. 115-2 and FSP FAS No. 124-2), that changed the impairment and presentation model for our available
for sale debt securities. Under the amended impairment model, an other-than-temporary impairment loss is recognized in earnings if the entity has the intent to sell the debt security, or if it is more likely than not that it will be required to sell
the debt security before recovery of its amortized cost basis. However, if an entity does not expect to sell a debt security, it still need to evaluate expected cash flows to be received and determines if a credit loss exists. In the event of a
credit loss, only the amount of impairment associated with the credit loss is recognized currently in earnings. Amounts relating to factors other than credit losses are recorded in other comprehensive income (loss).
Upon adoption of the new guidance, an entity is required to record a cumulative-effect adjustment as of the beginning of the period of
adoption to reclassify the noncredit component of a previously recognized other-than-temporary impairment from retained earnings to accumulated other comprehensive income. The adoption of the new guidance had no impact on our consolidated financial
position, results of operations or cash flows.
Contingencies
. From time to time, we are defendant or plaintiff in
various legal actions, which arise in the normal course of business. We are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of
reserves required for these contingencies, if any, which would be charged to earnings, is made after careful and considered analysis of each individual action together with our legal advisors. The required reserves may change in the future due to
new developments in each matter or changes in circumstances, such as a change in settlement strategy. A change in the required reserves would affect our earnings in the period the change is made.
Stock-based compensation expense.
Stock-based compensation cost is measured at the grant date based on the fair value of the award
and is recognized as an expense over the requisite service periods. Determining the fair value of share-based awards at the grant date requires the exercise of judgment, including the amount of share-based awards that are expected to be forfeited.
If actual results differ from these estimates, equity- based compensation expense and our results of operations could be impacted.
Results of operations
Our historical operating results for the years ended December 31, 2009, 2008 and
2007 as a percentage of total revenues are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
Software Licenses
|
|
8
|
%
|
|
31
|
%
|
|
26
|
%
|
Services
|
|
78
|
|
|
60
|
|
|
61
|
|
Maintenance
|
|
14
|
|
|
9
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
Software Licenses(*)
|
|
17
|
|
|
7
|
|
|
12
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Services(*)
|
|
77
|
|
|
76
|
|
|
83
|
|
Maintenance(*)
|
|
28
|
|
|
39
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
66
|
|
|
51
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
34
|
|
|
49
|
|
|
41
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
21
|
|
|
20
|
|
|
31
|
|
Sales and marketing
|
|
37
|
|
|
36
|
|
|
70
|
|
General and administrative
|
|
27
|
|
|
23
|
|
|
38
|
|
Restructuring
|
|
-
|
|
|
2
|
|
|
-
|
|
Total operating expenses
|
|
85
|
|
|
81
|
|
|
139
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
(50
|
)
|
|
(32
|
)
|
|
(98
|
)
|
Financial income, net
|
|
4
|
|
|
3
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before taxes
|
|
(46
|
)
|
|
(29
|
)
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Tax benefit
|
|
1
|
|
|
8
|
|
|
62
|
|
|
|
|
|
Net loss from continuing operations
|
|
(45
|
)
|
|
(21
|
)
|
|
(24
|
)
|
|
|
|
|
Net income from discontinued operations, net of taxes
|
|
3
|
|
|
75
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
42
|
|
|
54
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
Adoption of new
accounting standards
On July 1, 2009, the Financial Accounting Standards Board (FASB) issued the FASB
Accounting Standards Codification (the ASC). The ASC became the single source of authoritative nongovernmental U.S. generally accepted accounting principles (GAAP), superseding existing pronouncements issued by the FASB, the
American Institute of Certified Public Accountants, the Emerging Issues Task Force and related literature. The ASC eliminates the previous U.S. GAAP hierarchy and establishes one level of authoritative GAAP. Rules and interpretive releases issued by
the Securities and Exchange Commission (SEC) under authority of federal securities law are also sources of the authoritative GAAP for SEC registrants. All other literature is considered non-authoritative. The ASC is effective for interim
and annual periods ending after September 15, 2009.
In April 2009, the FASB issued authoritative guidance on recognition
and presentation of other-than-temporary impairments. This guidance clarifies the interaction of the factors that should be considered when determining whether a debt security is other than temporarily impaired; provides guidance on the amount of an
other-than-temporary impairment recognized in earnings and other comprehensive income; and expands the disclosures required for other-than-temporary impairments for debt and equity securities. The guidance requires an entity to assess whether it
intends to sell, or it is more likely than not that it will be required to sell a security before recovery of its amortized cost basis. If either of those criteria is met, the entire difference between amortized cost and fair value is recognized in
earnings. For securities that do not meet these criteria, the amount of impairment recognized in earnings is limited to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive income. The
Company adopted this guidance on April 1, 2009.
In May 2009, the FASB issued authoritative guidance on subsequent
events, which sets forth the period after the balance sheet date during which management of a reporting entity should evaluate
29
events or transactions that may have occurred for potential recognition or disclosure in the financial statements. The guidance also sets forth the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The Company adopted this
guidance in these financial statements.
In March 2008, the FASB issued amended guidance on disclosures about derivative
instruments and hedging activities. This guidance applies to all derivative instruments and non-derivative instruments that are designated and qualify as hedging instruments and related hedged items. This guidance requires entities to provide
greater transparency through additional disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for, and how derivative instruments and related hedged items affect an
entitys financial position, results of operations and cash flows. The adoption of this guidance did not impact the Companys consolidated financial results as it requires additional disclosure, rather than a change in accounting.
Recently Issued Accounting Pronouncements
In January 2010, the FASB, issued authoritative guidance amending the disclosure requirements for fair value measurements. Under the new guidance, disclosures are modified to include disclosures about
transfers between Level 1, Level 2 and Level 3 fair value measurements, as well as activity (including purchases, sales, issuances and settlements) within Level 3 fair value measurements. The new disclosures and clarifications of existing
disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except certain disclosures which are effective for fiscal years beginning after December 15, 2010, and for interim periods within those
fiscal years. The adoption of this guidance will not have a material impact on our financial statements.
Years Ended December 31,
2009, 2008 and 2007
Revenues and Cost of Revenues
Revenues.
Revenues were $16.7 million, $24.4 million and $14.0 million for the years ended December 31, 2009, 2008 and 2007, respectively. The decline in total revenues from 2008 to 2009 was
directly related to the global economic slowdown in the third and fourth quarters of 2008 causing a decline in backlog at the end of 2008, and to general economic conditions in 2009, which impacted the number and the value of the transactions we
entered into during 2009. During such period some of our customers preferred to enter into smaller, multi-phased engagements rather than a large transformational transaction for the purchase of our solutions. Total revenues in 2008 increased in
comparison to 2007 due to the fact that we started 2008 with higher backlog than 2007 for which revenues were recognized over 2008. In addition, we were successful in deploying projects signed in 2008 more rapidly by achieving interim milestones and
acceptance criteria during the year.
In each of 2009, 2008 and 2007, a significant portion of our revenues was derived from a
few large orders. In 2009 two customers represented 46% of our total revenues. In 2008 two customers represented 48% of our total revenues and in 2007 two customers represented 40% of our total revenues.
30
Software licenses revenues.
Software license revenues were $1.4 million, or 8% of
revenues for the year ended December 31, 2009, $7.6 million, or 31 % of revenues for the year ended December 31, 2008 and $3.7 million, or 26 % of revenues for the year ended December 31, 2007. During 2009, approximately 77%
of our revenue was generated from existing customers, which typically represents additional services engagements with a limited, if any, software component. The challenging economic conditions of 2009 inhibited prospects from entering into on large
capital intensive projects and thus limited our transactions with new customers. With a limited number of new customers, the software revenue, both in total and as a percentage of total revenue, declined from 2008 to 2009. The increase in software
license revenues in 2008 was due to the factors discussed in the paragraph above in
Revenues
relating to the increase in total revenues in 2008 in addition to two significant contracts that were recognized in 2008.
Service revenues.
Service revenues were $13.0 million, or 78% of revenues for the year ended December 31, 2009, compared to
$14.5 million, or 60% of revenues for the year ended December 31, 2008, and $8.5 million, or 61% of revenues for the year ended December 31, 2007. Service revenues are generated primarily from installation, implementation and customization
of our software products. The decline in services revenues from 2008 to 2009 was directly related to the decline in backlog at the end of 2008, and to the general economic conditions in 2009. However, while the economic conditions of 2009 limited
our transactions with new accounts, we were able to expand service engagements with our existing customers. The increase in service revenues in 2008 compared to 2007 was due to the factors discussed in the paragraph above in
-
Revenues
relating to the increase in total revenues in 2008.
Maintenance revenues.
Maintenance
revenues were $2.3 million, or 14% of revenues for the year ended December 31, 2009, compared to $2.2 million, or 9% of revenues for the year ended December 31, 2008, and $1.8 million, or 13% of revenues for the year ended
December 31, 2007. The increase in maintenance revenues in 2009 in relation to 2008 and 2007 was related to the increased number of customers using our customer service and support market products, combined with cost of living type annual
increases in maintenance rates from year to year. The increase in the proportion of maintenance revenues to total revenue from 2008 to 2009 is primarily the result of the decline in software revenues, shifting the mix of revenues towards services
and maintenance revenues. The decrease in proportion of the maintenance revenues out of total revenues from 2007 to 2008 resulted, in part, from an increase in software revenues and from the timing of receiving and recognizing revenues under certain
arrangements which were signed toward the second half of the year.
Total Cost of Revenues.
Total cost of revenues was
$10.9 million, or 66% of revenues for the year ended December 31, 2009, compared to $12.4 million, or 51% of revenues for the year ended December 31, 2008, and $8.2 million, or 59% of revenues for the year ended December 31, 2007. The
decrease in total cost of revenues from 2008 to 2009 is directly related to the decline in revenues from 2008 to 2009. However, cost of revenues, as a percentage of revenues, increased from 51% in 2008 to 66% in 2009, primarily the result of three
projects which required additional resources to complete than originally planned at no additional services fee. The increases in cost of revenues from 2007 to 2008 were primarily due to an increase in the cost of services revenues as discussed
below.
Cost of software licenses revenues was $0.2 million, or 17% of software revenues for the year ended December 31,
2009, compared to $0.5 million, or 7% of software revenues for the year ended December 31, 2008, and $0.4 million, or 12% of software revenues for the year ended December 31, 2007. The decrease in the cost of software licenses in 2009 from
2008 is directly related to the decline in software license revenue in 2009. Cost of software licenses as a percentage of software revenue
31
increased from 7% in 2008 to 17% in 2009 as a result of pricing pressures on software fees during 2009. The increase in cost of software licenses in 2008 compared to 2007 was due to an increase
in royalty payments to partners which were partially offset by a decrease in amortization of acquired intangible assets, while the decrease in the percentage of cost of software licenses revenues out of software revenue results from the significant
increase in 2008 software revenue compared to the 2007 software revenue.
Cost of service revenues was $10.0 million, or 78%
of services revenues for the year ended December 31, 2009, compared to $11.0 million, or 76% of services revenues for the year ended December 31, 2008, and $7.0 million, or 83% of services revenues for the year ended December 31,
2007. The decrease in the cost of services in 2009 from 2008 is directly related to the decline in services revenue in 2009. Cost of services as a percentage of services revenue increased from 76% in 2008 to 77% in 2009, primarily the result of
three projects, the completion of which required the dedication of more resources than originally planned at no additional services fee. Services headcount during 2009 declined to a low of 40 individuals, and only increased to 47, the number at the
end of the year, near the end of 2009. This reduction in headcount, coupled with salary reductions made at the beginning of 2009, decreased direct employee costs by $0.9 million. In addition, reimbursable expenses, which typically include travel,
lodging and meals while implementing solutions at customer sites and which are included in services costs, declined by approximately $0.6 million from 2008 to 2009. These savings, however, were offset by increased subcontractor costs and
non-billable travel expenses of $0.4 million required to complete the three projects mentioned previously. The increase in cost of services revenues from 2007 to 2008 was due to an increase in services personnel, as we grew from 43 at year end 2007
to 49 at year end 2008, resulting in increase in compensation costs and the increase in use of subcontractors in order to support the increase in services revenue. In 2008 we experienced fluctuations in the amount of headcount which at certain
period reached 58 services professionals. See Risk Factor entitled:
Failure to deliver professional services efficiently could negatively impact our gross margins
.
Cost of maintenance revenues was $0.6 million, or 28% of maintenance revenues for the year ended December 31, 2009, compared to $0.9
million, or 39% of maintenance revenues for the year ended December 31, 2008 and $0.7 million, or 41% of maintenance revenues for the year ended December 31, 2007. Maintenance gross margins have improved year over year due to increase in
our customer base and our product maturity, coupled with changes in the number of employees providing support in the periods.
Total Operating Expenses.
Total operating expenses in 2009 were $14.1 million, representing a decrease of $5.6 million, or 28%, from $19.7 million in 2008. The decrease in operating expenses was primarily the result of restructuring
measures taken at the end of 2008 and the cost reduction measures taken in the second quarter of 2009, reducing headcount and other costs, as more fully described below under
Restructuring
. Total operating expenses in 2008 were
$19.7 million, representing an increase of $0.3 million from $19.4 million in 2007. The increase in total operating expenses in 2008 was mainly due to an increase in an amount of $0.4 million in our research and development expenses in support of
the continuing development of our customer service and support market products, an increase in our general and administrative expenses in an amount of $0.3 million and increase in an amount of $0.5 million in restructuring costs associated with the
cost reduction process which was announced in December, 2008, which included a 14% reduction in workforce and additional cost reduction. These increases were offset by a reduction in sales and marketing costs resulting mainly from the decrease in
sales and marketing head count and costs related thereto associated with our plans to increase efficiency of these departments.
32
Research and Development.
Research and development expenses were $3.5 million, $4.8
million and $4.4 million for the years ended December 31, 2009, 2008 and 2007, respectively. The reduction in research and development expenses of $1.3 million from 2008 to 2009 was the result of the following: (i) headcount reduction from
an average of 40 individuals in 2008 to 32 individuals in 2009, saving approximately $0.6 million, (ii) salary reductions introduced at the beginning of 2009, saving approximately $0.1 million, (iii) the reduction in consultants used in
research and development activities of approximately $0.3 million, and (iv) a reduction in office and other administrative expenses allocated to research and development of approximately $0.4 million. The increase in research and development
expenses from 2007 to 2008 resulted mainly from the impact of the appreciation of the New Israeli Shekel against the U.S dollar and the continuation of our offshore development team through a third party service provider. As a percentage of total
revenues, research and development expenses were 21%, 20% and 31% for the years ended December 31, 2009, 2008 and 2007, respectively.
Sales and Marketing.
Sales and marketing expenses were $6.2 million, $8.8 million and $9.8 million for the years ended December 31, 2009, 2008 and 2007, respectively. The decrease in sales and
marketing expenses of $2.6 from 2008 to 2009 million was the result of the following: (i) a reduction in headcount from an average of 40 employees during 2008 to an average of 27 employees during 2009, resulting in savings of $1.3 million,
(ii) a reduction in commissions and incentives associated with reduced revenue, saving approximately $0.6 million, (iii) a reduction in marketing activities, saving approximately $0.3 million, and (iv) a $0.4 million decrease in other
expenses including travel, office and other administrative expenses. The decrease in 2008 compared to 2007 was primarily due to decrease in head count and the costs related thereto and a decrease in marketing costs associated with increased
efficiency in the sales and marketing organization. As a percentage of total revenues, sales and marketing expenses were 37%, 36% and 70% for the years ended December 31, 2009, 2008 and 2007, respectively.
General and Administrative.
General and administrative expenses were $4.4 million, $5.6 million and $5.2 million for the years ended
December 31, 2009, 2008 and 2007, respectively. As a percentage of total revenues, general and administrative expenses were 27%, 23% and 38% of total revenues for the years ended December 31, 2009, 2008 and 2007, respectively. The decrease
in general and administrative expenses of $1.2 million from 2008 to 2009 was primarily the result of the following: (i) a reduction in headcount of three individuals, combined with reductions in salary and other incentives and reduced stock
compensation expenses associated with the executive management team, saving approximately $0.8 million, (ii) a reduction in bad debt expense of $0.4 million and (iii) other miscellaneous savings of approximately $0.1 million. The increase
in 2008 compared to 2007 was primarily related to an increase in ordinary course of business expenses and expenses associated with stock based compensation.
Restructuring.
During 2008, we announced a reduction in our work force and other related cost containment strategies in order to align our operations and expenses with anticipated revenues for
2009. These changes included in a 14% reduction in workforce worldwide, which included approximately 18 employees and 6 third party research and development service providers. The cost of implementing this restructuring plan was $0.5 million, which
is included in the results for 2008.
Financial Income, Net.
Financial income, net, was $0.7 million for the year ended
December 31, 2009, $0.7 million for the year ended December 31, 2008 and $1.5 million for the year ended December 31, 2007. Financial income in 2009 consisted of $0.3 million in interest income and $0.4 million in gains on marketable
securities. In 2008, financial income consisted of $1.5 million in interest
33
income, offset by a loss of marketable securities of $0.4 million, foreign currency translation losses and bank charges of $0.4 million. In 2007, financial income consisted of interest income of
$1.6 million, offset by bank charges of $0.1 million. The reduction in interest income from 2007 to 2009 resulted from a decline in our cash and investments portfolio during the periods and from a significant decline in interest rates, especially
during 2009. The 2008 loss on marketable securities included $0.3 million of impairment in our auction rate security, which was reversed in 2009 when we sold the security at par value. (See also
Item 3: Key Information. D. Risk Factors.
Negative conditions in the global credit markets may impair the liquidity and value of our investment portfolio
and Item 11: Quantitative and Qualitative Disclosures About Market Risk). In addition in 2008, our financial
income was adversely affected by the weakening of the English Pound on our monetary English Pound balances.
Pre-tax Loss
from Continuing Operations
. As a result of the above factors, our continuing customer service and support operations generated pre-tax losses of $7.7 million in 2009, $7.0 million in 2008 and $12.1 million in 2007.
Tax benefit.
In 2009, our tax benefit in the amount of $0.1 million was composed of $0.2 million in tax benefit from continuing
operations offset by $0.1 million in tax expenses in the U.S. In 2008, our tax benefit in the amount of $2.0 million was composed of $2.1 million in tax benefit from continuing operations, used to offset the capital gain from the sale of our
discontinued operations, and $0.1 million tax expenses. In 2007, our tax benefit in the amount of $8.7 million was composed of $5.4 million in deferred tax income and $3.3 million in tax benefit from continuing operations. The deferred tax income of
$5.4 million was recorded due to the expected utilization of the net operating loss carryforward in respect of the sale of our traditional market business for which we received consideration of $26 million in cash. The tax benefit of $3.3 million
relates to current losses of the continuing operation.
Income from Discontinued Operations net of taxes.
The income
from discontinued operations for the year ended December 31, 2009 was $0.6 million and represents the discharge of a liability associated with the discontinued operations. See
Item 8: Financial Information, A. Consolidated Statements
and Other Financial Information, Legal Proceedings.
The income from discontinued operations for the year ended December 31, 2008 was $18.2 million and includes mainly the capital gain, net of taxes. The income from discontinued operations
for the year ended December 31, 2007 in the amount of $7.5 million includes the activities of the traditional market business.
Net Income (Loss)
. As a result of the above factors, our operations generated a net loss of $7.0 million in 2009, net income of $13.2 million in 2008 and net income of $4.1 in 2007.
B.
|
Liquidity and Capital Resources
|
Since our inception, we have funded operations through the private placement and public offering of equity securities, internal operations, the sale of our traditional market business and, to a lesser extent, borrowings from financial
institutions.
As of December 31, 2009, we had $23.8 million in cash and investments, including $0.6 million in
restricted cash. During 2009, operating activities (including discontinued operations) used approximately $9.3 million in cash, composed of $8.8 million net cash used in continuing operations and $0.5 million net cash used by discontinued operation.
The major components using cash in the continuing operations were the net loss of $7.6 million from continuing operations, a reduction in payments owed to vendors and employees of $1.5 million, primarily from the payment of accrued severance of $0.6
million, a reduction in deferred revenues of $0.3 million, offset
34
by decreased spending for prepaid expenses such as insurance expense of $0.2 million, non-cash depreciation of $0.5 million, non-cash expenses for stock compensation related to options in the
amount of $0.4 million, and a $0.1 million add-back of non-cash accrued interest and amortization of premium on marketable securities. The major component using cash in discontinued operations was a decrease in accrued liabilities. Cash provided by
investing activities was $10.6 million, including a $2.6 million cash inflow from the release of funds held in escrow associated with the disposal of our traditional market business, proceeds from the sale of marketable securities of $21.0 million,
offset by the purchase of marketable securities of $12.8 million and the purchase of property and equipment in the ordinary course of business of $0.3 million. Cash provided by financing activities of $0.1 million represented the receipt of cash
upon the exercise of stock options. We believe that our cash and investments are sufficient to cover our liabilities for the next twelve months.
As of December 31, 2008, we had $33.1 million in cash and investments including $3.2 million restricted cash of which $2.6 million was held in escrow by a third party through June 2009 as a security
for payment of potential indemnification claims under the January 2008 agreement for the sale of our traditional market business, for which we received consideration of $26 million in cash. Expenses associated with that transaction were
approximately $1.4 million. During 2008 we purchased a total of 4,447,184 of our ordinary shares pursuant to a share repurchase program as well as a self tender offer conducted by us for a total of $17.9 million including related expenses. During
2008, operating activities (including discontinued operations) used approximately $6.7 million in cash, composed of $5.0 million net cash used in continuing operations and $1.7 million net cash used by discontinued operation. The major components
using cash in the continuing operations were the net loss of $5.0 million from continuing operations, the increase of $1.1 million in trade receivables and the decrease of $0.9 million in deferred revenue and the increase in other current assets of
$0.5 million that was partly offset by non-cash depreciation and amortization of $0.8 million, non-cash expenses for stock compensation related to options granted to employees and officers in the amount of $0.9 million and the impairment of
marketable securities of $0.4 million. The major component using cash in discontinued operations was a decrease in accrued liabilities. Net cash provided by investing activities was $28.8 million in 2008, composed of $6.7 million net cash provided
by continuing operations and $22.1 million net cash provided by discontinued operations. The major components providing cash in the continuing operations were the net proceeds from marketable securities in the amount of $8.2 million and was partly
offset by the purchase of property and equipment in the amount of $1.0 million and the increase in restricted cash of $0.6 million. The major component providing cash from discontinued operations was the net gain from selling our traditional market
business. Net cash used by financing activities from continuing operations was $16.9 million attributed to the $17.9 million used to purchase our shares, which was offset by $0.9 million of proceeds received from the exercise of stock options.
As of December 31, 2007, we had $33.8 million in cash and investments, all of which were interest bearing. During 2007,
operating activities (including discontinued operations) used approximately $3.2 million in cash, composed of $10.9 million net cash used in continuing operations which was offset by $7.7 million net cash provided by discontinued operations. The
major components using cash in the continuing operations were the net loss of $3.4 million from continuing operations, the $5.4 million deferred tax assets that was created in 2007, the increase of $2.6 million in trade receivables and the decrease
of $1.0 million in deferred revenue that was partly offset by the non-cash depreciation and amortization of $0.7 million and the non-cash expenses for stock compensation expense related to options granted to employees and officers of $0.8 million.
The major component generating cash in discontinued operations was net income of $7.5 million. Net cash provided by investing activities was $3.4 million in 2007. It consisted primarily of net proceeds from marketable
35
securities in the amount of $3.9 million and was partly offset by the purchase of property and equipment in the amount of $0.5 million. Net cash provided by financing activities was attributed to
the $1.0 million proceeds received from the exercise of stock options.
Expenditures for property and equipment were
approximately $0.3 million, $1.0 million and $0.5 million for the years ended December 31, 2009, 2008 and 2007, respectively. These expenditures include computer hardware and software used in product development and testing, leasehold
improvements relating to new and existing facilities and office equipment in support of our operations.
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,
acquisitions and other factors. We believe our working capital is sufficient for our projected requirements.
Impact of
Taxation.
Please refer to Item 3.D and Item 10.E for certain information regarding tax benefits in Israel.
Foreign Currency.
Our results of operations are reported in U.S. dollars, however, a significant portion of our revenues and expenses are generated and incurred outside of the United States and in currencies other than the U.S
Dollar, particularly in NIS, English Pounds and Euros. We use currency exchange forward contracts to hedge the impact of the variability in the exchange rates on future cash flows from certain NIS-denominated expenses. Please refer to Item 11
for information regarding the impact of foreign currency exchange rates and hedging activities.
C.
|
Research and Development, Patents and Licenses, Etc.
|
We believe that strong product development is essential to our strategy of continuing to enhance and expand the capabilities of our products. We have invested significant time and resources in creating a
structured process for undertaking all product development. This process involves several functional groups at all levels within our organization and is designed to provide a framework for defining and addressing the activities required to bring
product concepts and development projects to market successfully. In addition, we have recruited key software engineers and developers with experience in Java, .Net, communications, expert systems, Windows internals and Internet technologies. Our
research and development efforts in recent years have been primarily focused on enhancing and adding functionality to our contact center market products and adding new products based on our expectations of future technologies and industry trends.
Our research and development expenses were $3.5 million for the year ended December 31, 2009, $4.8 million for the year
ended December 31, 2008 and $4.4 million for the year ended December 31, 2007. As of December 31, 2009, 2008 and 2007, respectively, we had 30, 31 and 38 employees engaged in our product development activities. See Item 5:
Operating and Financial Review and Prospects, A. Operating Results. Restructuring Charges
for disclosure regarding the reduction of our workforce in 2008 which included termination of our engagement with research and development third
party service providers.
We
believe that our sales cycle for our customer service and support market products might be lengthened due to the reasons discussed in the risk factors referenced below. As a result, we are unable to determine what impact, if any, this may have on
our business model. See Risk Factors
Our
36
business model is focused on continued growth in a market in which we have only several years of experience and failure to continue our early penetration into this market would negatively impact
our results of operations,
We do not have a proven business model for the customer services and support market; if our business model is inappropriate for this market and our estimations regarding the sales cycle for this market
are incorrect, our efforts to successfully commercialize Jacada Fusion and Jacada WorkSpace, our customer service and support solutions, may be harmed or we will experience a further delay in generating revenues from these products
and
Global recession and continued credit constraints could adversely affect us
for a discussion of the potential effects of this trend.
Currently, we anticipate that our customer service and support solutions might continue to generate revenues from a small number of deals with large average dollar amounts compared to our traditional
market business. See Risk Factor:
Revenues from our customer service and support solutions might be concentrated in a few large orders and a small number of customers, meaning that the loss of a significant customer or a failure to
make even a small number of such sales could harm our results of operations
for a discussion of the risks our business and prospects for growth face in connection with continued customer concentration.
We anticipate that a large number of our future customer service and support solutions deals will continue to involve substantial
customization and implementation services of our solutions and that a majority of our revenues will continue to derive from the provision of professional services. If we do not increase the proportion of our total revenue attributable to software
license fees or if we do not increase our professional services gross margins we may not be able to achieve or maintain profitability. Our limited experience and knowledge regarding the customer services and support market may impact the efficiency
of our professional services deliveries, as we may need to expend more resources in the delivery of professional services to a customer than we had originally estimated. Any such expending of more resources may negatively impact our professional
services gross margins and our ability to achieve or maintain profitability. See Risk Factors:
Our revenues could be adversely affected if we fail to recruit and retain consultants and other technical service personnel, A
majority of our revenues derives from the provision of professional services
and
Failure to deliver professional services efficiently could negatively impact our gross margins
for a discussion of the potential effects of
this trend
.
We may continue to be subject to a foreign currency risk. Our results of operations are reported in U.S.
dollars, however, we expect that a significant portion of our revenues and expenses will be generated and incurred outside of the United States and in currencies other than the U.S Dollar. Depreciation of the Euro or the English Pound against the
U.S. dollar will have the effect of reducing our U.S. dollar revenues from transactions recorded in these currencies. Additionally, fluctuations in the U.S. dollar against the New Israeli Shekel (NIS), English Pound or Euro exchange rate will have
the effect of impacting the U.S. dollar cost of our operations in Israel, in the UK or in European countries as applicable. As a result, we may be subject to a foreign currency risk. See
Risk Factor: Exchange rate Fluctuations between the
dollar and other currencies may negatively affect our results of operation
for a discussion of the potential effects of this trend.
Our backlog may decrease if we do not maintain or increase the number of transactions. See:
Item 5 Operating and Financial Review and Prospects. A. Operating Results, Revenues and
Cost of Revenues
for further disclosure regarding our revenue recognition policy in 2009. Reduced backlog means that we will be more dependent on signing new transactions in 2010 in order to generate
37
revenues. See Risk Factor:
Our revenues may decline if we do not increase the number of transactions we enter into in 2010
for a discussion of the potential effects of
this trend
.
E
.
Off-balance sheet arrangements
. We are not party to any off-balance sheet arrangements.
See Item 4b:
Material Effects of Government Regulation in Israel
.
F. Tabular Disclosure of Contractual
Obligations.
The following table summarizes our contractual obligations and commercial commitments as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period (in thousands)
|
Contractual Obligations
|
|
Total
|
|
Less than 1 year
|
|
1-3 years
|
|
3-5 years
|
|
More than 5 years
|
Facilities
|
|
$
|
1,829
|
|
$
|
687
|
|
$
|
1,142
|
|
-
|
|
-
|
Severance pay*
|
|
$
|
505
|
|
|
-
|
|
|
-
|
|
-
|
|
-
|
*
|
Severance pay relates to accrued severance obligations to our Israeli employees as required under Israeli labor laws. For employees whose employment commencement date
is prior to January 1, 2005 these obligations are payable only upon the termination of the respective employee. However, while this amount may be reduced upon voluntary termination by an employee, it is not our general practice to reduce the
amounts of severance payments in cases of voluntary termination. As of December 31, 2009, the severance pay funds were $0.3 million and will be used to satisfy a portion of our obligations.
|
Not
applicable.
|
H.
|
Non-GAAP Financial Measures
|
Not applicable.
Item 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.
|
Directors and Senior Management
|
The following table sets forth certain information regarding our executive officers and directors as of March 15, 2010:
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
Thomas H. Clear
|
|
54
|
|
Chief Executive Officer
|
Robert C. Aldworth
|
|
57
|
|
Chief Financial Officer
|
Guy Tweedale
|
|
48
|
|
Senior Vice President European Operations
|
Eyal Shpin*
|
|
38
|
|
Senior Vice President of Research and Development
|
Gideon Hollander(1)
|
|
45
|
|
Chairman of the Board and Director
|
Yossie Hollander
|
|
52
|
|
Director
|
Ohad Zuckerman(2)(1)
|
|
45
|
|
Director
|
Naomi Atsmon(2)
|
|
57
|
|
Director
|
Dan Falk (2)
|
|
65
|
|
Director
|
Avner Atsmon(2)
|
|
47
|
|
Director
|
(1)
|
Member of the Options Committee
|
(2)
|
Member of the Audit Committee
|
*
|
Mr. Shpin informed us that we will be living the company as of April 16, 2010.
|
Thomas H. Clear
joined us in April 2009 as our chief executive officer. Mr. Clear has over 25 years of global executive
experience in the software and telecommunications markets. From July 2006
38
to April 2009 Mr. Clear served as president and chief commercial officer at Spinvox Inc., a provider of voicemail-to-text service for telecommunications carriers. Prior to that, from 1998 to
2006, Mr. Clear served as a general manager at Amdocs. Mr. Clears prior background includes senior management positions at SBC, Convergys and a broad base of other product development and business growth management positions.
Robert C. Aldworth
joined us in April 2009 as our chief financial officer. Mr. Aldworth served as our chief
financial officer from 2001 to 2005. Between 2005 and 2009, Mr. Aldworth served as SVP-Finance at Infor Global Solutions. Mr. Aldworth has extensive experience in finance, operations and investor relations.
Guy Tweedale
joined us in October 2007 as our executive of our European operations. Mr. Tweedale has more than 19 years of
experience in the IT industry and his background includes a strong focus on business process automation and enhancement in key areas such as customer management, field-based activities and financial control. From January 2004 to June 2007
Mr. Tweedale served as Managing Director for Saratoga Systems in Northern Europe for their CRM and Mobile Data Access divisions. Prior to January 2004 Mr. Tweedale has held a number of senior management roles with companies such as
Extensity, Microsoft (Visio), TDK (mobile communications hardware), and Toshiba (mobile computing platforms).
Eyal Shpin
joined us in November 2006 as our Vice President of Research and Development. From September 2005 to October 2006, Mr. Shpin served as Director of CRM and PLM development at Infor/SSA. From February 2001 to August 2005 Mr. Shpin served
as VP R&D of C-Ark/Baan Israel. Prior to February 2001 Mr. Shpin has held a number of senior management roles with startup companies such MindEcho and Net2Wirless. Mr. Shpin holds a Bachelor of Science in Computer Science and Physics
from Ben Gurion University in Israel.
Gideon Hollander
was a co-founder of Jacada in 1990. Mr. Hollander has been
the Chairman of our Board of Directors since January 2008, having served as our Chief Executive officer from 1990 to December 2007. From 1988 to 1990, Mr. Hollander worked in the area of research and development at Comverse Technology. From
1982 to 1987, Mr. Hollander served in various technology and management positions in an elite unit of the Israeli Defense Forces, where he specialized in expert systems and user interface design. Two of the projects that Mr. Hollander
managed won the most prominent Israeli award for technological innovations. Gideon Hollander is Yossie Hollanders brother.
Yossie Hollander
has been director since 1990 and was the Chairman of our Board of Directors from November 1995 to December 2007. Mr. Hollander was a founder, and from 1983 to 1994 served as the Chief Executive Officer, of New
Dimension Software Ltd., an enterprise system and management software company that was acquired by BMC Software in April 1999. Mr. Hollander is a member of the executive board of the Weizmann Institute of Science. Yossie Hollander is Gideon
Hollanders brother
Ohad Zuckerman
has served as a director since December 2000. Mr. Zuckerman is the CEO of
UniVerve Ltd., a renewable energy group, specializing in Waste-to-Energy and Microalgae-to-Biofuel. Between January 2000 and March 2008 Mr. Zuckerman served as the President & CEO of Zeraim Gedera Ltd., an agricultural company which
specializes in breeding of vegetable varieties as well as in production and marketing to the seeds of such varieties worldwide. Prior to this position Mr. Zuckerman served as Zeraim Gederas Executive Vice President between 1998-2000
and as its
39
Marketing Manager between 1990-1998. Between 1998-2002 Mr. Zuckerman served as a member of the board of directors at Maximal Innovative Intelligence Ltd., a provider of software for
extracting information from data warehouses, which was sold to Microsoft.
Naomi Atsmon
has served as a director since
June 2001. Ms. Atsmon served as a Division President of Amdocs Ltd., a provider of information system solutions to communications companies, from July 1997 to December 2002. From 1994 until 1997, Ms. Atsmon served as a vice president at
Amdocs Ltd. Ms. Atsmon previously held various positions at Amdocs since 1986.
Dan Falk
has served as a director
since August 2004. Mr. Falk serves as a member of the boards of directors of Orbotech Ltd., Attunity Ltd., Nice System Ltd., Orad Hi-Tech Systems Ltd., Ormat Technologies Inc., Plastopil Ltd., Nova Measuring Systems Ltd., AVT Ltd., Amiad
Filteration Systems Ltd, Oridion Madical Ltd. and Chromagen Ltd. In 1999 and 2000, Mr. Falk was President and Chief Operating Officer of Sapiens International Corporation N.V. From 1985 to 1999, Mr. Falk served in various positions in
Orbotech Ltd., the last of which were Chief Financial Officer and Executive Vice President. From 1973 to 1985, he served in several executive positions in the Israel Discount Bank.
Avner Atsmon
joined us in October 2006 as a director. Prior to his retirement Mr. Atsmon served as Vice President of Engineering
of Starhome Ltd. from January 2000 to June 2002. From December 1993 to December 1999 Mr. Atsmon served in several positions at Comverse Infosys including as a Chief Operating Officer. From November 1991 to November 1993 Mr. Atsmon was Fax
Application Manager of National Semi-Conductors, Palo Alto California. Naomi Atsmon and Avner Atsmon are not related.
The
aggregate remuneration we paid for the year ended December 31, 2009 to all executive officers as a group, including our former senior vice president of global marketing, former chief executive officer and former chief financial officer was
$1.72 million in salaries, fees, commissions and bonuses. This also includes $0.4 million paid as severance to our terminating executive officers and $0.3 million paid to a former executive for the purchase of their stock options. As of August 2008
each our directors receive annual compensation of NIS 42,600 (approximately $11,000) plus NIS 2,200 (approximately $600) for each meeting of the board and each meeting of a committee of the board attended. Between January 1, 2009 and
June 30, 2009 Mr. Gideon Hollander received a quarterly fee of $12,000 as total consideration for his services as a consultant, director and the chairman of our board. As of July 1, 2009, and for as long as Mr. Gideon Hollander
serves as our chairman of the board, Mr. Hollander receives a quarterly fee of $6,000 in addition to his compensation as a director. In addition, all directors are entitled to be reimbursed for their expenses incurred in connection with the
discharge of their responsibilities as board members, including attending board of directors meetings. Directors also receive options to purchase our ordinary shares.
As of February 28, 2010 options to purchase 1,790,000 ordinary shares granted to our directors and executive officers (10 persons) under our option plans were outstanding. The weighted average
exercise price of these options was $3.26 per share ranging from $1.50 to $9.13, and the expiration dates of the options range from January 2, 2011 to February 2, 2017.
40
Election and Term of Directors
Directors are elected by an ordinary resolution at the annual general meeting of shareholders, and by a vote of the holders of a majority of
the voting power represented at the meeting. Our ordinary shares do not have cumulative voting rights in the election of directors. As a result, the holders of ordinary shares that represent more than 50% of the voting power have the power to elect
all of our directors.
At our annual meeting in August 2004, the shareholders voted to fix the number of directors at six
directors. In accordance with the terms of our articles of association, the board of directors is divided into four classes, with the following terms of office:
|
|
|
Class I directors, whose terms expire at the annual meeting of shareholders to be held in 2012;
|
|
|
|
Class II directors, whose terms expire at the annual meeting of shareholders to be held in 2010;
|
|
|
|
Class III directors, whose terms expire at the annual meeting of shareholders to be held in 20011; and
|
|
|
|
A class of directors whose terms expire after one year, at each annual meeting of shareholders.
|
Our Class I directors are Avner Atsmon and Ohad Zuckerman. Our Class II director is Naomi Atsmon. Our Class III directors are Gideon
Hollander and Yossie Hollander. Our director with a term of one year is Dan Falk.
At each annual meeting of shareholders, the
successors to directors whose terms will then expire will be elected to serve from the time of election and qualification until the third annual meeting following the election, other than the class of directors whose terms expire after one year. Any
additional directorships resulting from an increase in the number of directors will be distributed among the four classes. This classification of our board of directors may have the effect of delaying or preventing changes in control or management
of our company.
Directors may be removed at any time by the holders of 75% of the voting power at a general meeting of
shareholders. Shareholders may, by a majority vote (Ordinary Resolution), elect a director to fill the vacancy. If the shareholders do not elect a director to fill such vacancy within 30 days after the removal of the incumbent director, the board of
directors may also elect a director to fill such vacancy. Any director elected to fill a vacancy will hold office for the remainder of the full term of the class of directors in which the vacancy occurred and until such directors successor is
elected and qualified.
We do not have service contracts with any of our directors, other than with, Gideon Hollander, our
chairman of the board.
Audit Committee
41
Under the Companies Law, an audit committee is required to be appointed by the board of
directors. The audit committee must consist of at least three members, and include the two external directors we are also required to appoint pursuant to Israeli law. Neither the Chairman of the board of directors, directors employed by us or
granting services to us on a permanent basis, nor any controlling shareholder or any relative of a controlling shareholder may serve on the audit committee.
The responsibilities of the audit committee include identifying irregularities in the management of our business and approving related-party transactions as required by law. In addition, under its
charter, our audit committee is responsible for monitoring the integrity of our financial statements and auditing, accounting and financial reporting processes, appointing and evaluating the qualifications and independence of the external auditor.
Pursuant to the current listing requirements of the Nasdaq Global Market, we are required to have at least three independent
directors on our audit committee. We have appointed such audit committee. Pursuant to the Sarbanes-Oxley Act of 2002, the Nasdaq Global Market has introduced listing standards requiring all members of an audit committee to comply with tightened
independence requirements. All four members of our audit committee currently comply with those requirements.
The current
members of the audit committee are: Ohad Zuckerman, Naomi Atsmon, Dan Falk and Avner Atsmon.
In addition, the Companies Law
requires the board of directors of a public company to appoint an internal auditor nominated by the audit committee. A person who does not satisfy certain independence requirements may not be appointed as an internal auditor. We have appointed
Mr. Doron Cohen from Fahn Kanne Control Management Ltd. to serve as our internal auditor.
Options Committee
The responsibilities of the options committee include granting options under our stock options plans in accordance with policies determined
by our board of directors.
The current members of the options committee are Gideon Hollander and Ohad Zuckerman.
External Directors
Under the Companies Law, Israeli companies that are registered under the laws of Israel and whose shares are listed for trading on a stock exchange outside of Israel are treated as public companies. Under this law, a public company, like
ours, is required to appoint at least two external directors. This law provides that a person may not be appointed as an external director if the person or the persons relative, partner, employer or any entity under the persons control,
has, as of the date of the persons appointment to serve as external director, or had, during the two years preceding that date, any affiliation with the company, any entity controlling the company or any entity controlled by the company or
this controlling entity. The term affiliation includes an employment relationship, a business or professional relationship maintained on a regular basis, control and service as an office holder. External directors are elected at a
shareholders meeting, provided that either the majority of shares voted at the meeting, including at least one third of the shares of non-controlling shareholders voted at the meeting, vote in favor of such election or the total number of shares
voted against the election does not exceed one percent of the aggregate voting rights in the company. External directors do not have powers or authority that are different from those granted to all other directors. An external
42
director is appointed for a term of three years and may be reelected to one additional term of three years by a majority vote at a shareholders meeting, subject to the conditions described
above for the election of external directors. In addition, external directors of public companies whose shares are also registered for trading in certain stock exchanges outside of Israel, like ours, may be elected for additional three year terms
(in excess of the original six year term) provided that in light of such external directors expertise and special contribution to the work of the companys board of directors and audit committee, the re-election of such external director
is for the benefit of the company.
A person may not serve as an external director if the persons position or other
business creates, or may create, conflict of interests with the persons responsibilities as an external director. Any committee of the board of directors must include at least one external director, except that the audit committee must include
both external directors. An external director is only entitled to compensation as provided in regulations promulgated under the Companies Law. Ohad Zuckerman, Naomi Atsmon and Avner Atsmon are currently serving as our external directors. Naomi
Atsmon and Avner Atsmon are not related.
The Companies Law requires that at least one external director have financial and
accounting expertise and that the other external director meet certain professional qualifications. Certain regulations promulgated under the Companies Law set out the conditions and criteria for a director qualifying as having a financial and
accounting expertise or a professional qualification. A director with financial and accounting expertise is a director who, due to his education, experience and skills, possesses capabilities relating to and an understanding of
business and accounting matters and financial statements, which enable him to understand in depth the companys financial statements and to initiate a debate regarding the manner in which the companys financial information is presented.
However, a public company whose shares are also registered for trading in certain stock exchanges outside of Israel, like ours, is not required to appoint an external director with financial and accounting expertise, if at such time there is another
director serving on the board of directors of such company who has financial and accounting expertise and who is an independent director for purposes of membership on the audit committee thereof, in accordance with the applicable laws of the state
in which such shares are registered (and the rules and regulations of such foreign stock exchange). Our Board of Directors has determined that Mr. Dan Falk has financial and accounting expertise. Mr. Falk also meets the requirements of the
Nasdaq Global Market listing standards to be an independent director and audit committee member. Therefore we are not required to appoint an external director with financial and accounting expertise under the Companies Law. A director
who meets certain professional qualifications is a director who satisfies one of the following requirements: (i) the director holds an academic degree in either economics, business administration, accounting, law or public administration,
(ii) the director either holds another academic degree or has obtained other high education in the companys primary field of business or in an area that is relevant to his position, (iii) the director has at least five (5) years
of experience serving in one of the following capacities or an aggregate of at least five (5) years of experience in two or more of the following capacities: (a) a senior business management position of a company with a substantial scope
of business, (b) a senior position in the primary field of business of the company or (c) a senior public administration position. A proposed external director must submit to the company a declaration as to his or her compliance with the
requirements for his or her election as an external director (including with respect to such persons financial and according expertise or professional qualification).
Nomination Committee Charter Exemption
43
As a foreign private issuer we are entitled to follow our home country practice in lieu of
compliance with the Nasdaq rule that requires adoption of a formal written charter or board resolution addressing the nominations process. Under the Companies Law, the nominations process is conducted by the full board of directors, and there is no
requirement to adopt a formal written charter or board resolution addressing a companys nomination process.
Compensation Committee
Exemption
As a foreign private issuer we are entitled to follow our home country practice in lieu of compliance
with the Nasdaq rule that requires that the compensation of the chief executive officer and all other executive officers of the company be determined, or recommended to the board for determination, either by a majority of the independent directors,
or by a compensation committee comprised solely of independent directors. Under the Companies Law, the compensation of such officers is determined by the full board of directors, and there is no requirement for a recommendation or determination by
independent directors or a compensation committee.
As of
December 31, 2009, we had 49 employees in Israel, 59 in the United States and 28 in Europe. Of our 136 employees, 30 were engaged in research and development, 26 in sales, marketing and business development, 54 in professional services and
technical support and 26 in finance, administration and operations. With respect to our Israeli and European employees, we are subject to local labor laws and regulations. These laws principally concern matters such as paid annual vacation, paid
sick days, length of the workday and work week, minimum wages, pay for overtime, insurance for work-related accidents, severance pay, termination of employment procedures and other conditions of employment.
Furthermore, with respect to our Israeli employees, we are subject to provisions of the collective bargaining agreements between the
Histadrut (General Federation of Labor in Israel) and the Coordination Bureau of Economic Organizations (including the Industrialists Association) by order of the Israeli Ministry of Labor and Welfare. These provisions principally concern cost of
living increases, recreation pay and other conditions of employment. To date, we have not experienced any work stoppages.
The following table
sets forth for the last three financial years, the number of our employees broken down into categories.
|
|
|
|
|
|
|
Period ending December 31,
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
|
Research and Development
|
|
30
|
|
31
|
|
38
|
Marketing, Sales, Services and Customer Support
|
|
80
|
|
90
|
|
93
|
Administration Management and Information Systems
|
|
26
|
|
29
|
|
32
|
Discontinued Operations
|
|
|
|
-
|
|
8
|
Total
|
|
136
|
|
150
|
|
171
|
44
Other then Gideon Hollander and Yossie Hollander, whose shareholdings are described in
Item 7 below, none of our officers and directors owns in excess of one percent of our outstanding ordinary shares
Option
Plans. We currently maintain three option plans, the 1996 Option Plan, the 1999 Option Plan and the 2003 Share Option Plan. The purpose of our option plans is to afford an incentive to officers, directors, employees and consultants of ours, or any
of our subsidiaries, to acquire a proprietary interest in us, to continue as officers, directors, employees and consultants, to increase their efforts on behalf of us and to promote the success of our business.
As of December 31, 2009, 1,688,963 ordinary shares were available for future grants under these option plans to be granted to officers,
directors, employees and consultants. As of December 31, 2009, options to purchase 2,895,417ordinary shares were outstanding under the option plans. As of December 31, 2009, the weighted average exercise price of options outstanding under
our option plans is $3.14. Our option plans are administered by our board of directors and the options committee of our board of directors. Under the option plans, options to purchase our ordinary shares may be granted to officers, directors,
employees or consultants. In addition, pursuant to the option plans, the exercise price of options shall be determined by our board of directors or our options committee but may not be less than the par value of the ordinary shares and is typically
the fair market value on the date of grant. The vesting schedule of the options is also determined by our board of directors or our options committee but generally the options vest over a four year period. Generally, options granted under the option
plans are exercisable until seven to ten years from the date of the grant. The 1996 Option Plan and the 1999 Option Plan expired on December 31, 2005 and December 31, 2009 respectively. The 2003 Share Option Plan will expire on
December 31, 2012.
Item 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
During 2008 we purchased a total of 4,447,184 of our ordinary shares pursuant to a share repurchase program as well as a self tender offer conducted by us. The shares we repurchased are held by us as treasury shares. Under the Companies Law
for so long as such treasury shares are owned by us they have no rights and, accordingly, are neither eligible to participate in or receive any future dividends which may be paid to our shareholders nor are they entitled to participate in, be voted
at or be counted as part of the quorum for, any meetings of our shareholders. The financial and shareholders information provided under this annual report do not consider these treasury shares as part of our issued and outstanding share capital.
The following table sets forth, to the best of our knowledge, as of March 31, 2010, those shareholders that own 5% or
more of our capital stock and officers that own 1% or more of our capital stock.
|
|
|
|
|
|
Name of Beneficial Owner
|
|
Number of Shares
Owned
|
|
Percentage
|
|
Yossie Hollander (1)
|
|
2,236,510
|
|
13.38
|
%
|
Gideon Hollander (2)
|
|
2,064,987
|
|
12.09
|
%
|
KVO Capital Management, LLC (3)
|
|
1,118,651
|
|
6.75
|
%
|
Emancipation Capital, LP (4)
|
|
996,189
|
|
6.01
|
%
|
New Resources (5)
|
|
920,000
|
|
5.55
|
%
|
Gunar Anstalt (6)
|
|
895,000
|
|
5.40
|
%
|
45
(1)
|
Based on a Directors and Officers Questionnaire submitted to us by Mr. Hollander. Represents 1,301,280 ordinary shares owned individually by Mr. Hollander,
302,670 ordinary shares owned by Mr. Hollanders spouse and 500,060 ordinary shares owned individually by Dana Hollander Settlement 1991, LLC, a Nevada limited liability company, as to which Mr. Hollander is an income beneficiary of a
trust holding a 99% membership interest therein. Includes 132,500 ordinary shares issuable pursuant to options held by Mr. Hollander which are exercisable within 60 days of the date hereof. Does not include 480,000 ordinary shares owned by
Mr. Hollander mother as Mr. Hollander disclaims beneficial ownership of such shares and an aggregate of 1,549,600 ordinary shares owned indirectly by various trusts, as equity holders of certain foreign entities, as to which
Mr. Hollander and/or his children, as beneficiaries of such trusts, may be deemed to have interests. Any such interest would be in an indeterminable number of the ordinary shares owned indirectly by such trusts. Mr. Hollander disclaims
beneficial ownership of any ordinary shares so held by such trusts. We make no representation as to the accuracy or completeness of the information reported. The address of Mr. Hollander is 400 Perimeter Center Terrace, Suite 100, Atlanta,
Georgia 30346.
|
(2)
|
Based on a Directors and Officers Questionnaire submitted to us by Mr. Hollander. Represents 1,564,987 ordinary shares owned individually by Mr. Hollander,
and 500,000 ordinary shares issuable pursuant to options held by Mr. Hollander which are exercisable within 60 days of the date hereof. Does not include 480,000 ordinary shares owned by Mr. Hollander mother as Mr. Hollander
disclaims beneficial ownership of such shares. We make no representation as to the accuracy or completeness of the information reported. The address of Mr. Hollander is 11 Shenkar Street, Herzliya 46725, Israel.
|
(3)
|
Based on a Schedule 13G/A filed with the Commission on February 4, 2010. Includes 85,291 shares held in a private account on behalf of Mr. Robert B.
Ashton, a portfolio manager of KVO Capital Management, LLC, over which KVO has both voting and dispositive power pursuant to contract and 885,572 shares held in other private accounts over which KVO has both voting and dispositive power pursuant to
contract. We make no representation as to the accuracy or completeness of the information reported. The address of KVO Capital Management, LLC and Mr. Robert B. Ashton is 33 S. Main Street, Hanover, NH 03755 USA.
|
(4)
|
Based on a Schedule 13G/A filed with the Commission on February 8, 2010. This amount represents ordinary shares held by the following entities: Emancipation
Capital, LP, Emancipation Capital, LLC, Emancipation Capital Master, Ltd., Charles Frumberg, and Hurley Capital, LLC. We make no representation as to the accuracy or completeness of the information reported. The address of Emancipation Capital, LP
and of Hurley Capital, LLC is 825 Third Avenue New York, NY 10022, USA.
|
(5)
|
Based on a Schedule 13G filed with the Commission on February 16, 2010. We make no representation as to the accuracy or completeness of the information
reported. New Resources address is P.O. Box 309 GT, Ugland House, South Church Street, George Town, Grand Cayman, Cayman Islands.
|
(6)
|
Based on a Schedule 13G filed with the Commission on February 22, 2010. We make no representation as to the accuracy or completeness of the information
reported. Gunar Anstalts address is AeuleStrasse 5, FL-9490 Vaduz, Liechtenstein.
|
The shareholders that
own 5% or more of our capital stock do not have different voting rights.
Based on information available to us, as of
March 1, 2010, there were 44 record holders of our shares in the United States, which represented approximately 38% of the outstanding shares as of such date. To our knowledge, no corporation, foreign government or other natural or legal person
directly or indirectly controls Jacada.
B.
|
Related Party Transactions
|
As of August 2008 our directors each receive annual compensation of NIS 42,600 (approximately $11,000) plus NIS 2,200 (approximately $600) for each meeting of the board and each meeting of a committee of the board attended. Between
January 1, 2009 and June 30, 2009 Mr. Gideon Hollander received a quarterly fee of $12,000 as total consideration for his services as a consultant,
46
director and the chairman of our board. As of July 1, 2009, and for as long as Mr. Gideon Hollander serves as our chairman of the board, Mr. Hollander receives a quarterly fee of
$6,000 in addition to his compensation as a director. See Item 6:
Directors, Senior Management And Employees
for disclosure about our directors compensation. In March 2009, our board of directors approved the purchase of
vested options held by our departing CFO for an aggregate amount of $0.25 million.
C.
|
Interests of Expert and Counsel
|
Not applicable.
Item 8: FINANCIAL INFORMATION
A.
|
Consolidated Statements and Other Financial Information
|
See Item 18 for audited consolidated financial statements.
Export Sales
We generated $7.7 million, approximately 47% of our revenues, in North America and $8.8 million, approximately 52% in
Europe through wholly owned subsidiaries during the period beginning January 1, 2009 and ending December 31, 2009. Our export sales consist mainly of intercompany transactions with our subsidiaries.
Legal Proceedings
We are,
from time to time, a party to legal proceedings that are incidental to our business.
In August 1999, a former distributor
filed an arbitration demand in the United Stated against our subsidiary located in the United Kingdom. This demand alleged that the subsidiary breached its agreement with the distributor by directly selling products to a customer, while the
distributor had an exclusive right to sell products to said customer, and that the distributor was entitled to damages of $3.5 million. A decision by a United States arbitrator was entered during 2001, which awarded the distributor a net amount of
$0.4 million and 50% of amounts collected from this customer in the future and legal expenses related to the arbitration.
On
April 24, 2001, our subsidiary filed a separate action to vacate the arbitration award. Subsequently, the distributor filed an application for enforcement of the arbitration award. Pursuant to an October 21, 2003 Order, the arbitration
award was validated by the United States Court for the Western District of Michigan, and the subsidiarys motion to vacate was denied. The subsidiary filed an appeal with the United States Court for the Sixth Judicial Circuit and on
March 18, 2005, the Court of Appeals confirmed the District Courts decision. The subsidiarys motion for rehearing filed with the Court of Appeals was also denied. The arbitration award was therefore final. To have the arbitration
award enforced, however, the distributor was required to file for enforcement in the courts of the United Kingdom.
On
October 2, 2008, the distributor sent an attorney letter indicating the distributors intention to enforce the Judgment and requested to resolve the matter by a mutual settlement prior to their commencement of any enforcement proceedings.
On December 8, 2008, our subsidiary responded claiming that an attempt to enforce the Judgment in the United Kingdom would be misconceived and
47
bound to fail due to various reasons, including inter alia, the expiration of the statutory limitation period for enforcement of an arbitration award in the United Kingdom.
As of October 2009, the statutory limitation period for enforcement of the arbitration award and the district court judgment in the United
Kingdom expired. As a result, we reversed a provision associated with the claim during the 2009 fourth quarter in the amount of $0.6 million, net of taxes.
We do not believe that any legal proceeding to which we currently are a party is likely to have a material impact upon us.
Dividend Policy
Our policy has been not to pay dividends. See Item
10.B
Memorandum and Articles of Association
for disclosure regarding the procedures for dividend distribution and Item 16.E
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
for disclosure
regarding our repurchase program and self tender offer.
During March 2010 we invested in securities of US entities traded in US stock markets for an aggregated purchase price of approximately $10 million. See Item 5.B
Liquidity and Capital Resources
.
Item 9: THE OFFER AND LISTING
A.
|
Offer and Listing Details
|
Share
History
Our ordinary shares are quoted on the Nasdaq Global Market under the symbol
JCDA
and on the Tel
Aviv Stock Exchange (TASE) under the same symbol or its Hebrew equivalent.
The following table shows the high and
low market prices on the Nasdaq Global Market of our ordinary shares in the indicated years. Trading in our shares on the Nasdaq commenced on October 14, 1999.
|
|
|
|
|
|
|
Year
|
|
Period
|
|
High
|
|
Low
|
|
|
|
|
2005
|
|
01/01/05 12/31/05
|
|
3.58
|
|
1.93
|
2006
|
|
01/01/06 12/31/06
|
|
3.10
|
|
2.06
|
2007
|
|
01/01/07 12/31/07
|
|
4.27
|
|
2.46
|
2008
|
|
01/01/08 12/31/08
|
|
4.07
|
|
2.03
|
2009
|
|
01/01/09 12/31/09
|
|
3.32
|
|
1.24
|
The following table shows the high and
low market prices on the Nasdaq Global Market for our ordinary shares for each financial quarter during our two most recent financial years.
|
|
|
|
|
Period
|
|
High
|
|
Low
|
01/01/08 03/31/08
|
|
4.07
|
|
2.76
|
04/01/08 06/30/08
|
|
3.97
|
|
3.06
|
07/01/08 09/30/08
|
|
3.90
|
|
3.17
|
10/01/08 12/31/08
|
|
3.83
|
|
2.03
|
01/01/09 03/31/09
|
|
3.28
|
|
1.41
|
04/01/09 06/30/09
|
|
3.32
|
|
1.91
|
07/01/09 09/30/09
|
|
2.16
|
|
1.65
|
10/01/09 12/31/09
|
|
2.10
|
|
1.24
|
48
The following table shows the high and low market prices on the Nasdaq Global Market for our
ordinary shares for the most recent six months.
|
|
|
|
|
Month
|
|
High
|
|
Low
|
09/09
|
|
1.91
|
|
1.65
|
10/09
|
|
2.10
|
|
1.65
|
11/09
|
|
1.81
|
|
1.24
|
12/09
|
|
1.70
|
|
1.28
|
01/10
|
|
1.60
|
|
1.37
|
02/10
|
|
1.70
|
|
1.32
|
The following table
shows the high and low market prices on the TASE of our ordinary shares in the indicated years. Trading in our shares on the TASE commenced on June 18, 2001. Share prices in the TASE are denominated in New Israeli Shekels (NIS). The following
prices are denominated in U.S. Dollars in accordance with the applicable exchange rate between the U.S. Dollar and the NIS.
|
|
|
|
|
|
|
Year
|
|
Period
|
|
High
|
|
Low
|
2005
|
|
01/01/05 12/31/05
|
|
3.37
|
|
1.86
|
2006
|
|
01/01/06 12/31/06
|
|
3.11
|
|
2.19
|
2007
|
|
01/01/07 12/31/07
|
|
4.38
|
|
2.48
|
2008
|
|
01/01/08 12/31/08
|
|
4.20
|
|
2.24
|
2009
|
|
01/01/09 12/31/09
|
|
3.70
|
|
1.22
|
The following table
shows the high and low market prices on the TASE for our ordinary shares for each financial quarter during our two most recent financial years. Share prices in the TASE are denominated in New Israeli Shekels (NIS). The following prices are
denominated in U.S. Dollars in accordance with the applicable exchange rates between the U.S. Dollar and the NIS.
|
|
|
|
|
Period
|
|
High
|
|
Low
|
01/01/08 03/31/08
|
|
4.14
|
|
2.90
|
04/01/08 06/30/08
|
|
4.20
|
|
3.21
|
07/01/08 09/30/08
|
|
4.12
|
|
3.25
|
10/01/08 12/31/08
|
|
3.82
|
|
2.24
|
01/01/09 03/31/09
|
|
3.42
|
|
2.13
|
04/01/09 06/30/09
|
|
3.70
|
|
2.03
|
07/01/09 09/30/09
|
|
2.23
|
|
1.56
|
10/01/09 12/31/09
|
|
1.95
|
|
1.22
|
The following table
shows the high and low market prices on the TASE for our ordinary shares for the most recent six months. Share prices in the TASE are denominated in New Israeli Shekels (NIS). The following prices are denominated in U.S. Dollars in accordance with
the applicable exchange rates between the U.S. Dollar and the NIS.
|
|
|
|
|
Month
|
|
High
|
|
Low
|
09/09
|
|
1.99
|
|
1.62
|
10/09
|
|
1.95
|
|
1.61
|
11/09
|
|
1.90
|
|
1.26
|
12/09
|
|
1.71
|
|
1.22
|
01/10
|
|
1.63
|
|
1.31
|
02/10
|
|
1.56
|
|
1.39
|
49
Not
applicable.
Our ordinary
shares are quoted on the Nasdaq Global Market under the symbol
JCDA
and on the TASE under the same symbol or its Hebrew equivalent.
Not
applicable.
Not applicable.
Not applicable.
Item 10: ADDITIONAL INFORMATION
Not
applicable.
B.
|
Memorandum and Articles of Association
|
For a copy of our Memorandum of Association and our Articles of Association, see Item 19, Exhibits 1.1 and 1.2 which have been incorporated by reference as part of this Annual Report from our
Registration Statement on Form F-1, File No. 333-10882, as well as Exhibit 1.3 (incorporated by reference to Exhibit 1.3 to the our Annual Report on Form 20-F for the year ended December 31, 2003) and Exhibit 1.4 (incorporated by reference
to Exhibit 1.4 to our Annual Report on Form 20-F for the year ended December 31, 2004). In addition, because we are an Israeli company, we are governed by the provisions of the Companies Law, which are described below along with certain
provisions of our governing documents.
Objects and Purposes
The objects and purposes of our company appear in our Memorandum of Association and include engaging in all businesses of trade, finance,
import, export, distribution, services, economic initiatives and capital investments; production, processing and development of any kind; engaging in any activities of initiators, founders, and managers of plants, companies, corporations, and real
estate; serving as brokers and agents for any person, business or corporation in Israel and abroad; and engaging in research, exploration, and development.
50
Approval of Specified Related Party Transactions
The Companies Law imposes a duty of care and a duty of loyalty on all of the companys office holders as defined below, including
directors and executive officers. The duty of care requires an office holder to act with the level of care that a reasonable office holder in the same position would have acted under the same circumstances. The duty of loyalty generally requires an
office holder to act in good faith and for the good of the company. An office holder as defined in the Companies Law is a director, a general manager, a chief executive officer, a deputy chief executive officer, a vice chief executive
officer, other managers directly subordinate to the chief executive officer and any person who fills one of the above positions without regard to title.
The Companies Law requires that an office holder of a company promptly disclose any personal interest that he or she may have and all related material information known to him or her, in connection with
any existing or proposed transaction by the company. Once an office holder complies with these disclosure requirements, the board of directors may approve a transaction between the company and the office holder, or a third party in which an office
holder has a personal interest, unless the articles of association provide otherwise. A transaction that is adverse to the companys interest cannot be approved. If the transaction is an extraordinary transaction under the Companies Law, then,
in addition to any approval stipulated by the articles of association, it also requires audit committee approval before board approval and, in specified circumstances, subsequent shareholder approval. Any transaction between a company and one of its
directors relating to the conditions of the directors service, including in relation to compensation exculpation, insurance or indemnification, or in relation to the terms of the directors service in any other capacity requires audit
committee approval before board approval and subsequent shareholder approval. The Companies Law also provides that a director with an interest in an extraordinary transaction brought before the board or the audit committee for its approval may not
vote on the approval and may not be present for the discussion of the issue. However, this rule would not apply if a majority of the directors or a majority of the members of the audit committee also possessed an interest in the transaction.
Under our articles of association, our board can, among other things, determine our plans of activity and the principles of
financing such plans, examine our financial situation and set the framework of credit which we may take and decide to issue a series of debentures.
Our directors are not subject to any age limit requirement, nor are they disqualified from serving on our board of directors because of a failure to own our shares.
Insurance, Indemnification, and Exculpation of Directors and Officers
Under the Companies Law, an Israeli company may not exculpate an office holder from liability for a breach of the duty of loyalty of the office holder. However, the company may approve an act performed in
breach of the duty of loyalty of an office holder provided that the office holder acted in good faith, the act or its approval does not harm the company, and the office holder discloses the nature of his or her personal interest in the act and all
material facts and documents a reasonable time before discussion of the approval. An Israeli company may exculpate an office holder in advance from liability to the company, in whole or in part, for a breach of duty of care but only if a provision
authorizing such exculpation is inserted in its articles of association. Our articles of association include such a provision. An Israeli company may not exculpate a director for liability arising out of a prohibited dividend or distribution to
shareholders.
51
An Israeli company may indemnify an office holder in respect of certain liabilities either
in advance of an event or following an event provided a provision authorizing such indemnification is inserted in its articles of association. Our articles of association contain such an authorization. An undertaking provided in advance by an
Israeli company to indemnify an office holder with respect to a financial liability imposed on him or her in favor of another person pursuant to a judgment, settlement or arbitrators award approved by a court must be limited to events which in
the opinion of the board of directors can be foreseen based on the companys activities when the undertaking to indemnify is given, and to an amount or according to criteria determined by the board of directors as reasonable under the
circumstances, and such undertaking shall detail the abovementioned events and amount or criteria. In addition, a company may undertake in advance to indemnify an office holder against the following liabilities incurred for acts performed as an
office holder:
|
|
|
reasonable litigation expenses, including attorneys fees, incurred by the office holder as a result of an investigation or proceeding instituted
against him or her by an authority authorized to conduct such investigation or proceeding, provided that (i) no indictment was filed against such office holder as a result of such investigation or proceeding; and (ii) no financial
liability, such as a criminal penalty, was imposed upon him or her as a substitute for the criminal proceeding as a result of such investigation or proceeding or, if such financial liability was imposed, it was imposed with respect to an offense
that does not require proof of criminal intent; and
|
|
|
|
reasonable litigation expenses, including attorneys fees, incurred by the office holder or imposed by a court in proceedings instituted against
him or her by the company, on its behalf or by a third party or in connection with criminal proceedings in which the office holder was acquitted or as a result of a conviction for a crime that does not require proof of criminal intent.
|
An Israeli company may insure an office holder against the following liabilities incurred for acts
performed as an office holder:
|
|
|
a breach of duty of loyalty to the company, to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act
would not prejudice the company;
|
|
|
|
a breach of duty of care to the company or to a third party, including a breach arising out of the negligent conduct of the office holder; and
|
|
|
|
a financial liability imposed on the office holder in favor of a third party.
|
An Israeli company may not indemnify or insure an office holder against any of the following:
|
|
|
a breach of duty of loyalty, except to the extent that the office holder acted in good faith and had a reasonable basis to believe that the act would
not prejudice the company;
|
|
|
|
a breach of duty of care committed intentionally or recklessly, excluding a breach arising out of the negligent conduct of the office holder;
|
|
|
|
an act or omission committed with intent to derive illegal personal benefit; or
|
|
|
|
a fine levied against the office holder.
|
Under the Companies Law, exculpation, indemnification and insurance of office holders must be approved by our audit committee and our board of directors and, in respect of our directors, by our
shareholders.
52
Our articles of association, provide that, subject to the provisions of the Companies Law,
we may enter into a contract for the insurance of all or part of the liability of any of our office holders with respect to:
|
|
|
a breach of his duty of care to us or to another person;
|
|
|
|
a breach of his duty of loyalty to us, provided that the office holder acted in good faith and had reasonable cause to assume that his act would not
prejudice our interests; or
|
|
|
|
a financial liability imposed upon such office holder in favor of another person concerning an act performed by the office in his/her capacity as an
office holder.
|
Our articles of association also provide that we may indemnify an office holder against:
|
|
|
a financial liability imposed on him in favor of another person by a court judgment, including a compromise judgment or an arbitrators award
which has been confirmed by a court; and
|
|
|
|
reasonable litigation expenses, including attorneys fees, expended by the office holder or which were imposed on the office holder by a court in
proceedings instituted against the office holder by us or in our name or by any other person or in a criminal charge from which the office holder was acquitted or in a criminal proceeding in which the office holder was convicted for a criminal
offense that does not require proof of criminal intent.
|
Required Approvals
Under the Companies Law, indemnification of, and procurement of insurance coverage for office holders must be approved by the audit committee
and board of directors and, in specified circumstances, by the shareholders of a company. In August 2003, August 2004 and October 2006, our shareholders approved indemnification agreements with our directors under which we have undertaken to
indemnify our directors to the fullest extent permitted under the Companies Law. In April 2009, our audit committee and board of directors approved an indemnification agreement with our chief executive officer and chief financial officer under which
we have undertaken to indemnify such officers to the fullest extent permitted under the Companies Law.
Rights, Preferences and
Restrictions upon Shares
Our Board of Directors may from time to time declare, and cause us to pay, an interim dividend
and final dividend for any fiscal year only out of retained earnings, or earnings derived over the two most recent fiscal years, whichever is higher. Our articles provide that the final dividend in respect of any fiscal year shall be proposed by the
Board of Directors and shall be payable only after the same has been approved by a resolution of our shareholders, approved by a majority of the shares voting thereon. However, no such resolution shall provide for the payment of an amount exceeding
the amount proposed by the Board of Directors for the payment of such final dividend, and no such resolution or any failure to approve a final dividend shall affect any interim dividend theretofore declared and paid. The Board of Directors shall
determine the time for payment of such dividends, both interim and final, and the record date for determining the shareholders entitled thereto.
Subject to the provisions of our articles of association and subject to any rights or conditions attached at that time to any of our shares granting preferential, special or deferred rights or not
granting any rights with respect to dividends, profits which shall be declared as dividends shall be distributed according to the proportion of the nominal value paid upon account of the shares held at the date so
53
appointed by us, without regard to the premium paid in excess of the nominal value, if any. No amount paid or credited as paid on a share in advance of calls shall be treated as paid on a share.
If we are wound up, after satisfying liabilities to creditors, then subject to applicable law and to the rights of the
holders of shares with special rights upon winding up, our assets available for distribution among the shareholders shall be distributed to them in proportion to their respective holdings.
Holders of ordinary shares have one vote for each fully-paid share held of record, on every resolution, without regard to whether the vote
thereon is conducted by a show of hands, by written ballot or by any other means.
We may, subject to applicable law, issue
redeemable shares and redeem the same. In addition, our Board of Directors may, from time to time, as it, in its discretion, deems fit, make calls for payment upon shareholders in respect of any sum which has not been paid up in respect of shares
held by such shareholders.
Under the Companies Law, the disclosure requirements that apply to an office holder also apply to
a controlling shareholder of a public company. A controlling shareholder includes a shareholder that holds 25% or more of the voting rights in a public company if no other shareholder owns more than 50% of the voting rights in the company.
Extraordinary transactions with a controlling shareholder or in which a controlling shareholder has a personal interest, and the terms of compensation of a controlling shareholder who is an office holder, require the approval of the audit committee,
the board of directors and the shareholders of the company. The shareholder approval requires that: (a) the majority of shares voted at the meeting, including at least one third of the shares of disinterested shareholders voted at the meeting,
vote in favor of the transaction; or (b) the total number of shares of disinterested shareholders voted against the transaction does not exceed one percent of the aggregate voting rights in the company.
The Companies Law also requires a shareholder to act in good faith towards a company in which he holds shares and towards other shareholders
and to refrain from abusing his power in the company, including in connection with voting at a shareholders meeting on:
|
|
|
Any amendment to the articles of association;
|
|
|
|
An increase in the companys authorized capital;
|
|
|
|
Approval of some of the acts and transactions which require shareholder approval.
|
A shareholder has the general duty to refrain from depriving other shareholders of their rights. Any controlling shareholder, any
shareholder that knows that it possesses the power to determine the outcome of a shareholder vote and any shareholder that, under the provisions of the articles of association, has the power to appoint an office holder in the company, is under a
duty to act in fairness towards the company. The Companies Law does not describe the substance of this duty except to state that the remedies generally available upon a breach of contract will apply also in the event of a breach of the duty to act
with fairness.
54
Amendment of Articles of Association
Our Articles of Association require, in order to amend the articles, the approval of the holders of at least 75% of the shares represented at
a meeting, in person or by proxy, with the right to vote on the issue. Our articles differ from the Companies Law in this respect as the law requires only the consent of at least 50% of the voting power of the company represented at a meeting and
voting on the change for amendment of articles of association.
Shareholders Meetings and Resolutions
We are required to hold an annual general meeting of our shareholders once every calendar year, but no later than 15 months after the date of
the previous annual general meeting. All meetings other than the annual general meeting of shareholders are referred to as extraordinary general meetings. Extraordinary general meetings may be called by our board whenever it sees fit, at such time
and place, within or without the State of Israel, as it may determine. In addition, the Companies Law provides that the board of a public company is required to convene an extraordinary meeting upon the request of (a) any two directors of the
company or one quarter of the companys board of directors or (b) one or more shareholders holding, in the aggregate, (i) five percent of the outstanding shares of the company and one percent of the voting power in the company or
(ii) five percent of the voting power in the company.
The quorum required by our articles for a meeting of shareholders
consists of at least two shareholders present in person or by proxy who hold or represent between them at least 33.3% of the voting power in our Company. Our articles differ from the Companies Law in this respect, as under the Companies Law only the
presence of two shareholders holding at least 25% of the voting power in the Company is required for a quorum. A meeting adjourned for lack of quorum is adjourned to the same day in the following week at the same time and place or any time and place
as the chairman of the meeting decides with the consent of the holders of a majority of the voting power represented at such meeting. At such reconvened meeting, the required quorum consists of any two shareholders present in person or by proxy.
Our articles enable our board to fix a record date to allow us to determine the shareholders entitled to notice of, or to
vote at, any general meeting of our shareholders. The Companies Law provides that a record date may not be more than 40 nor less than four days before the date of the meeting. Each shareholder of record as of the record date determined by the board
may vote the shares then held by that shareholder unless all calls and other sums then payable by the shareholder in respect of its shares have not been paid.
Limitation on Ownership of Securities
The ownership and voting of our
ordinary shares by non-residents of Israel are not restricted in any way by our articles or by the laws of the State of Israel, except for shareholders who are subjects of countries that are in a state of war with the State of Israel.
Mergers and Acquisitions; Anti-takeover Provisions
The Companies Law includes provisions allowing corporate mergers. These provisions require that the board of directors of each company that is party to the merger approve the transaction. In addition, the
shareholders of our Company must approve a merger involving our company by a vote of
55
the 75% of our shares, present and voting on the proposed merger at a shareholders meeting, provided that the merger is not objected to by a majority of the shares represented at the
meeting after excluding shares held by the other party to the merger or any person holding at least a 25% interest in such other party, including related parties or entities under the other partys control. Our articles differ from the
Companies Law in this respect, as under the law mergers require approval only of a majority of the voting power of a company represented at the relevant shareholders meeting and voting thereon after excluding shares held by the other party to the
merger or any person holding at least a 25% interest in such other party, including related parties or entities under the other partys control.
The Companies Law does not require court approval of a merger other than in specified situations. However, upon the request of a creditor of either party to the proposed merger, a court may delay or
prevent the merger if it concludes that there exists a reasonable concern that as a result of the merger, the surviving company will be unable to satisfy the obligations of any of the parties of the merger to their creditors.
A merger may not be completed unless at least 50 days have passed from the date that a request for the approval of the merger was filed with
the Israeli registrar of companies and 30 days from the date that shareholder approval of both merging companies was obtained. The request for the approval of a merger may be filed once a shareholder meeting has been called to approve the merger.
The Companies Law also provides that the acquisition of shares in a public company on the open market must be made by means
of a tender offer if, as a result of the acquisition, the purchaser would become a 25% shareholder of the company. The rule does not apply if there already is another 25% shareholder of the company. Similarly, the law provides that an acquisition of
shares in a public company must be made by means of a tender offer if, as a result of the acquisition, the purchaser would become a 45% shareholder of the company, unless there already is another 45% shareholder of the company.
If, following any acquisition of shares, the purchaser would hold 90% or more of the shares of the company that acquisition must be made by
means of a tender offer for all of the target companys shares. An acquirer who wishes to eliminate all minority shareholders must do so by means of a tender offer and acquire 95% of all shares not held by or for the benefit of the acquirer
prior to the acquisition. However, the acquirer may not acquire in such tender offer any tendered shares to the extent that the acquisition of those shares would bring the acquirers ownership to more than 90% but less than 95% of the shares of
the target company. In addition, in the event that the tender offer to acquire that 95% is not successful, the acquirer may not acquire tendered shares if by doing so the acquirer would own more than 90% of the shares of the target company.
Our articles contain provisions which could delay, defer or prevent a change in our control. These provisions include the
staggered board provisions of our articles described above under Item 6C.
Changes in Capital
Our articles enable us to increase our share capital. Any such changes are subject to the provisions of the Companies Law and must be
approved by a resolution passed by a majority of the holders of at least 75% of our shares represented, in person or by proxy, at a general meeting voting on such change in the capital. Our articles differ from the Companies Law in this respect, as
under the law changes in capital require approval only of a majority of the voting power of a company represented at the relevant shareholders meeting and voting thereon.
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None.
In
1998, the Israeli currency control regulations were liberalized significantly, so that Israeli residents generally may freely deal in foreign currency and foreign assets, and nonresidents may freely deal in Israeli currency and Israeli assets. There
are currently no Israeli currency control restrictions on remittances of dividends on the ordinary shares or the proceeds from the sale of the shares provided that all taxes were paid or withheld; however, legislation remains in effect pursuant to
which currency controls can be imposed by administrative action at any time.
Nonresidents of Israel may freely hold and trade
our securities. Neither our Memorandum of Association nor our Articles of Association nor the laws of the State of Israel restrict in any way the ownership or voting of ordinary shares by nonresidents, except that such restrictions may exist with
respect to citizens of countries which are in a state of war with Israel. Israeli residents are allowed to purchase our ordinary shares.
The following discussion sets
forth the material United States and Israeli tax consequences of the ownership of ordinary shares by a holder that holds our ordinary shares, as capital assets.
The following discussion does not address the tax consequences to holders of ordinary shares to which special tax rules may apply, such as tax-exempt entities, certain insurance companies, broker-dealers,
traders in securities that elect to mark to market, holders liable for alternative minimum tax, holders that actually or constructively own 10% or more of our voting stock, holders that hold ordinary shares as part of a straddle or a hedging or
conversion transaction or holders whose functional currency is not the U.S. dollar. This discussion also does not apply to holders who acquired their ordinary shares pursuant to the exercise of employee stock options or otherwise as compensation or
through a tax-qualified retirement plan. This discussion is based on the tax laws of Israel and the United States, including the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations under the Internal
Revenue Code, published rulings and court decisions, as in effect on the date of this document, as well as the Income Tax Treaty between the United States of America and Israel, as amended (the Treaty), all of which are subject to change
or change in interpretation, possibly with retroactive effect.
United States Federal Income Taxation of Owning and Selling
Ordinary Shares.
This discussion does not address any aspects of United States taxation other than United States federal income
taxation. Holders are urged to consult their tax advisors regarding the United States federal, state and local and the Israeli and other tax consequences of owning and disposing of ordinary shares.
For purposes of this discussion, a U.S. holder is any beneficial owner of ordinary shares that is:
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a citizen or resident of the United States;
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a corporation or other entity taxable as a corporation organized under the laws of the United states or any political subdivision of the United States;
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an estate the income of which is subject to United States federal income taxation without regard to its source; or
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a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the trust.
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If a partnership (or any other entity treated
as a partnership for U.S. federal income tax purposes) holds ordinary shares, the tax treatment of such partnership and a partner in such partnership generally will depend on the status of the partner and the activities of the partnership. Such a
partnership or partner should consult its own tax advisors as to its consequences.
Dividends and Distributions
U.S. Holders
Subject to the passive foreign investment company rules discussed below, U.S. holders will include in gross income the gross amount of any dividend paid, before reduction of Israeli withholding taxes, by
us out of current or accumulated earnings and profits, as determined for Untied States federal income tax purposes, as ordinary income when the dividend is actually or constructively received by the U.S. holder. Dividends will be income from sources
outside the United States for foreign tax credit limitation purposes, but generally will be passive income which is a type of income that is treated separately from other types of income for foreign tax credit limitation purposes.
Dividends will not be eligible for the dividends-received deduction generally allowed to United States corporations in respect of dividends received from other United States corporations. The amount of the dividend distribution included in income of
a U.S. holder will be the U.S. dollar value of the NIS payments made, determined at the spot NIS/U.S. dollar rate on the date such dividend distribution is included in the income of the U.S. holder, regardless of whether the payment is in fact
converted into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend distribution is included in income to the date such dividend distribution is converted into U.S.
dollars will be treated as ordinary income or loss. Such gain or loss will generally be income from sources within the United States for foreign tax credit limitation purposes. Distributions in excess of current and accumulated earnings and profits,
as determined for United States federal income tax purposes, will be treated as a return of capital to the extent of the U.S. holders basis in the ordinary shares and thereafter as capital gain. We will notify our shareholders of any
distribution in excess of current and accumulated earnings and profits at the time of such distribution in accordance with the requirements of the Internal Revenue Code.
Subject to certain limitations, the Israeli tax withheld in accordance with the Treaty and paid over to Israel will be creditable against the U.S. holders United States federal income tax liability.
To the extent a refund of the tax withheld is available to a U.S. holder under the laws of Israel or under the Treaty, the amount of tax withheld that is refundable will not be eligible for credit against the U.S. holders United States federal
income tax liability, whether or not the refund is actually obtained.
For certain non-corporate U.S. Holders, subject to the discussion below
under Passive Foreign Investment Company Rules (the PFIC discussion), for taxable years before January 1, 2011, a dividend paid by us to certain shareholders will be taxed at the preferential tax rates applicable to
long-term capital gains if (a) we are a qualified foreign corporation (as defined below), (b) the U.S. Holder receiving such dividend is an individual, estate, or trust and (c) such dividend is paid on our
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shares that have been held by such U.S. Holder for more than 60 days during the 120-day period beginning 60 days before the ex-dividend date (i.e., the first date that a purchaser of
such Share will not be entitled to receive such dividend). Generally, we may be considered a qualified foreign corporation (a QFC) if we are eligible for the benefits of a comprehensive income tax treaty with the United
States which includes an information exchange program that the IRS determines is satisfactory. However, even we are so eligible, we will not be treated as a QFC if we were a PFIC for the taxable year during which we paid a dividend or for the
preceding taxable year. See the discussion below as to PFIC status.
Non-U.S. Holders
A non-U.S. holder is not subject to United States federal income tax with respect to dividends paid on ordinary shares unless (i) the
dividends are effectively connected with that non-U.S. holders conduct of a trade or business in the United States, and attributable to a permanent establishment maintained in the United States (if that is required by an applicable
income tax treaty as a condition for subjecting that non-U.S. holder to United States taxation on a net income basis), or (ii) that non-U.S. holder is an individual present in the United States for at least 183 days in the taxable year of the
dividend distribution and certain other conditions are met. In such cases, a non-U.S. holder will be taxed in the same manner as a U.S. holder. A corporate non-U.S. holder may also, under certain circumstances, be subject to an additional branch
profits tax at a 30% rate, or at a lower rate if that corporate non-U.S. holder is eligible for the benefits of an income tax treaty providing for a lower rate, with respect to gains that are effectively connected with its conduct of a
trade or business in the United States.
Subject to the discussion under Backup Withholding Tax and Information
Reporting Requirements below in this section, a non-U.S. Holder of ordinary shares generally will not be subject to U.S. federal income or withholding tax on dividends received on shares or unless such income is effectively connected with the
conduct by such non-U.S. Holder of a trade or business in the United States.
Sale or Exchange of Ordinary Shares
U.S. Holders
Subject to the passive foreign investment company rules discussed below, a U.S. holder that sells or otherwise disposes of ordinary shares generally will recognize capital gain or loss for United States federal income tax purposes equal to
the difference between the U.S. dollar value of the amount realized on the sale or disposition and the tax basis, determined in U.S. dollars, in the ordinary shares. Capital gain of a non-corporate U.S. holder is generally taxed at a maximum rate of
15% if the ordinary shares were held for more than one year. The gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes.
Non-U.S. Holders
A non-U.S. holder will not be subject to United States federal income tax on gain recognized on the sale or other disposition of ordinary shares unless (i) the gain is effectively connected with the non-U.S. holders
conduct of a trade or business in the United States, and the gain is attributable to a permanent establishment maintained in the United States (if that is required by an applicable income tax treaty as a condition for subjecting that non-U.S. holder
to United States taxation on a net income basis), or (ii) the non-U.S. holder is an individual and present in the United States for at least 183 days
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in the taxable year of the sale and certain other conditions are met. In such cases, a non-U.S. holder will be taxed in the same manner as a U.S. holder. A corporate non-U.S. holder may also,
under certain circumstances, be subject to an additional branch profits tax at a 30% rate, or at a lower rate if eligible for the benefits of an income tax treaty that provides for a lower rate, on effectively connected gains
recognized.
Passive Foreign Investment Company Rules
We believe that we are not a passive foreign investment company (a PFIC) for United States federal income tax purposes, and we will attempt to manage our business so as to avoid PFIC status,
to the extent consistent with our other business goals, but we cannot predict whether our business plans will allow us to avoid PFIC status in the future or whether our business plans will change in a manner that affects our PFIC determination.
Ultimately, our status is a factual determination made annually and may be subject to change. A U.S. Holder may have less advantageous tax consequences upon the sale, exchange or receipt of dividends with respect to our shares if we are deemed a
PFIC, unless such U.S. Holder makes certain elections which may have additional tax consequences, as described below. Making these elections or protective elections for the year 2009 may be particularly relevant this year given that our
PFIC status for 2009 depends both on our non-PFIC status for all preceding years and on us not being a PFIC in both 2010 and 2011.
Generally, a non-United States corporation is deemed to be a PFIC if either (i) 75% or more of its gross income (including the pro rata gross income of any company (United States or non-United States) in which such corporation is
considered to own 25% or more of the stock by value) for the taxable year is passive income (generally referred to as the income test) or (ii) 50% or more of the average value of its assets (including the pro rata value of the
assets of any company in which such corporation is considered to own 25% or more of the stock by value) during the taxable year, measured at the end of each quarter, produce, or are held for the production of, passive income in the taxable year
(generally referred to as the asset test).
Based on the active nature of our assets and income, and subject to
the specific exemption described below, we do not believe that we have been a PFIC for the tax years through and ending on December 31, 2009. However, the statutory provisions, legislative history and administrative pronouncements related to
the application of the asset test leave unanswered a number of questions pertaining to the application of such test to us. In addition, there are circumstances both in our control and out of our control that may affect our potential status as a
PFIC. For example, sale of non-passive assets in exchange for passive assets (such as cash) may impact the percentage of passive assets in applying the assets test. Fluctuation in the market price of our shares may also impact the application of
such test.
In 2009, we held passive assets in an amount that could have caused us to become a PFIC, absent a specific
exemption on which we are relying. This exemption generally requires that we meet all of the following conditions: (i) we were never a PFIC in any prior taxable year; (ii) it is established to the satisfaction of the Internal Revenue
Service that (a) substantially all of our passive income this year is attributable to proceeds from the disposition of one or more active trades or businesses, and (b) we will not be a PFIC in 2010 or 2011; and (iii) we in fact will
not be a PFIC in 2010 or 2011. We believe that we meet the conditions to this exemption as described above. However, since this exemption can be failed by us either being a PFIC in the past or in the future, U.S. Holders should consider making one
of the elections, including protective elections, described below.
While we will attempt to manage our business
so as to avoid PFIC status, to the extent consistent with our other business goals, we cannot predict whether our business plans will allow us to
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avoid PFIC status in the future or whether our business plans will change in a manner that affects our PFIC determination.
Taxation of U.S. Holders of PFIC Shares Generally
If we were deemed to be
a PFIC for any taxable year during which a U.S. Holder held our ordinary shares and such holder failed to make either a QEF election or a mark-to-market election (each as described below), then the following would apply to
the U.S. Holder:
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gain recognized by the U.S. Holder upon the disposition of, as well as income recognized upon receiving excess distributions on, our ordinary shares
would be taxable as ordinary income (excess distributions are the portion of any distributions received in a taxable year in excess of 125% of the average annual distributions received in the three preceding taxable years, or, if
shorter, during the U.S. Holders holding period for our ordinary shares);
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the U.S. Holder would be required to allocate such excess distribution income and/or disposition gain ratably over such holders entire holding
period for our ordinary shares;
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the amount allocated to each year other than the year of the distribution payment or disposition would be subject to tax at the highest individual or
corporate tax rate, as applicable, in effect for such other year, and an interest charge for the deemed deferral benefit would be imposed with respect to the resulting tax liability for each such other year;
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the U.S. Holder would be required to file an annual return on IRS Form 8621 regarding distributions received on, and gain recognized on dispositions
of, our ordinary shares; and
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any U.S. Holder who acquired our ordinary shares upon the death of a U.S. Holder would not receive a step-up of the income tax basis to the fair market
value of such shares. Instead, such U.S. Holder beneficiary would have a tax basis equal to the decedents basis, if lower.
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A determination as to a corporations PFIC status is made annually. However, a determination that a corporation is a PFIC for any taxable year generally will cause the PFIC status to continue to
apply during all future years with respect to U.S. Holders who hold the corporations shares during the year in which the determination was made and who did not timely make a QEF election or mark-to-market election (each as described below) for
the first tax year in which such U.S. Holder owned the shares and the corporation was a PFIC. This PFIC treatment will continue to apply even if the corporation actually ceases to be a PFIC in later years. However, once a corporations PFIC
status ceases, a U.S. Holder may avoid some of the adverse consequences of the PFIC regime by making a deemed sale election with respect to the subject shares. In such case, the U.S. Holder will be treated as if it had sold the subject shares for
their fair market value on the last day of the taxable year and will recognize gain, but not loss, on such deemed sale in accordance with the general PFIC rules, including the interest charge provisions described above. Thereafter, the U.S.
Holders interest will be treated as an interest in a non-PFIC.
Taxation of U.S. Holders of PFIC Shares Making Timely QEF Election
In order to avoid some of the adverse consequences resultant from our being deemed a PFIC, a U.S. Holder that holds our
ordinary shares may elect to have us treated, with respect to that person, as a Qualified Electing Fund or QEF. (We refer to such election as a QEF Election and to a U.S. Holder who makes such QEF election as an
Electing Shareholder). The QEF Election applies to all ordinary
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shares that the Electing Shareholder held or subsequently acquired and can only be revoked with consent of the United States Internal Revenue Service (the IRS). The QEF Election must
be made on or before the due date (after taking into account extensions) for the Electing Shareholders tax return for the taxable year for which the election is made and, once made, will be effective for all subsequent taxable years of such
person unless revoked.
An Electing Shareholder generally will be required to include currently in gross income his or her pro
rata share of our annual ordinary earnings and net capital gains, if any, in any taxable year for which we are a PFIC, regardless of whether or not distributions were received from us by the Electing Shareholder. Any income inclusion will be
required whether or not the Electing Shareholder owns our ordinary shares for an entire taxable year or merely at the end of our taxable year. The amount required to be included in income will be determined without regard to our prior year losses.
Tax would need to be paid currently on such income, unless an election is made to defer such payment (interest charges would apply as a result, however). The Electing Shareholders adjusted tax basis in our ordinary shares would be increased to
reflect such taxes paid on undistributed earnings and profits. Subsequent distributions of our earnings and profits that had been previously taxed will result in a corresponding reduction in the adjusted tax basis in the ordinary shares held by
the Electing Shareholder and will not be taxed again once distributed.
A primary advantage of a QEF election relates to
treatment of gain upon disposition of ordinary shares. So long as an Electing Shareholders QEF election is in effect with respect to the entire holding period for its ordinary shares, any gain or loss realized by such shareholder on the sale
or exchange of such ordinary shares held as capital assets ordinarily would be a capital gain or loss and taxable to such shareholder in the same manner as if the shares were not shares in a PFIC.
Even it is not made in a timely fashion, a QEF election can still be made together with a deemed sale election or purging
election for the same taxable year. If a purging election is made, the U.S. Holder will be treated if it had sold our ordinary shares for their fair market value on the last day of the taxable year and will recognize gain, but not loss, on
such deemed sale in accordance with the general PFIC rules, including the interest charge provisions described above. Thereafter, the U.S. Holders interest will be treated as an interest in a QEF.
Protective QEF Election
A
protective QEF election is a useful tool that allows U.S. Holders to continue to treat their stock as non-PFIC stock, while preserving their right to make a retroactive QEF election if it is later determined that they in fact held PFIC
shares. U.S. Holders will be permitted to make retroactive elections in particular circumstances, including if the U.S. Holder had a reasonable belief that the Company was not a PFIC and filed a protective election. If it is later determined that
the company was a PFIC, U.S. Holders may then make a valid retroactive QEF election and will be taxed on their cumulative annual pro rata share of the companys ordinary earnings and net capital gains (regardless of whether any distributions
were received) as the election was made on a timely basis (
i.e.
, on a non-retroactive basis), plus an interest charge to eliminate the tax deferral arising from the retroactive election. U.S. Holders should consult their tax advisors as to
the consequences of making a protective QEF election or other consequences of making the QEF election.
Taxation of U.S. Holders of PFIC
Shares Making Mark-to-Market Election
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Alternatively, if we were to be deemed a PFIC for any taxable year and our ordinary shares
are treated as marketable stock, a U.S. Holder would be allowed to make a mark-to-market election with respect to the ordinary shares he or she holds. The term marketable stock generally includes stock of a PFIC
that is regularly traded on a qualified exchange or other market as these terms are explained below.
Generally, a qualified exchange or other market means (i) a national securities exchange which is registered with the United States Securities and Exchange Commission or the national market system established pursuant to
Section 11A of the United States Securities Exchange Act of 1934; or (ii) a foreign securities exchange that is regulated or supervised by a governmental authority of the country in which the market is located and that has the following
characteristics: (a) the exchange has trading volume, listing, financial disclosure, surveillance and other requirements designed to prevent fraudulent and manipulative acts and practices, to remove impediments to and perfect the mechanism of a
free and open, fair and orderly, market, and to protect investors, and the laws of the country in which the exchange is located and the rules of the exchange ensure that such requirements are actually enforced and (b) the rules of the exchange
effectively promote active trading of listed stocks. A class of stock is regularly traded on a qualified exchange or other market for any calendar year during which such class of stock is traded (other than in de minimis quantities) on
at least 15 days during each calendar quarter, subject to special rules for an initial public offering.
As with a QEF
election, a mark-to-market election is made on a shareholder-by-shareholder basis, applies to all ordinary shares held or subsequently acquired by a U.S. Holder and can only be revoked with consent of the IRS (except to the extent the ordinary
shares no longer constitute marketable stock). As a result of a mark-to-market election, in any taxable year in which we are a PFIC, a U.S. Holder would generally be required to report gain or loss annually to the extent of the
difference between the fair market value of our ordinary shares at the end of the taxable year and such U.S. Holders adjusted tax basis in our ordinary shares at that time. Any gain under this computation, and any gain on an actual disposition
of the ordinary shares, would be treated as ordinary income. Any loss under this computation, and any loss on an actual disposition of ordinary shares, generally would be treated as ordinary loss to the extent of the cumulative net mark-to-market
gain previously included. Any remaining loss from marking ordinary shares to market will not be allowed, and any remaining loss from an actual disposition of ordinary shares generally would be capital loss. The U.S. Holders tax basis in the
ordinary shares is adjusted annually for any gain or loss recognized under the mark-to-market election.
Unless either
(i) the mark-to-market election is made with respect to the taxable year in which the U.S. Holders holding period for the ordinary shares commences or (ii) a QEF election has been in effect for such persons entire holding
period, any mark-to-market gain for the election year generally will be subject to the general rules applicable to the disposition of shares of a PFIC, discussed above.
U.S. HOLDERS OF OUR ORDINARY SHARES SHOULD CONSULT THEIR TAX ADVISORS ABOUT THE PFIC RULES, INCLUDING THE POSSIBILITY, AND ADVISABILITY OF, AND THE PROCEDURE AND TIMING FOR MAKING A QEF (OR A PROTECTIVE
QEF) ELECTION OR MARK-TO-MARKET ELECTION IN CONNECTION WITH THEIR HOLDING OF ORDINARY SHARES, AS WELL AS OPTIONS TO ACQUIRE OUR ORDINARY SHARES.
Information Reporting and Backup Withholding
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U.S. information reporting requirements and backup withholding tax generally will apply to
payments to some U.S non-corporate holders of ordinary shares. Information reporting generally will apply to payments of dividends on, and to proceeds from the sale or redemption of, ordinary shares by a payor within the United States to a holder of
ordinary shares other than an exempt recipient, including a corporation and any payee that is not a U.S. holder that provides an appropriate certification.
A payor within the United States will be required to withhold at the fourth lowest rate of tax applicable to single individual taxpayers (currently 28%) on any payments of dividends on, or proceeds from
the sale of, ordinary shares within the United States to a holder, other than an exempt recipient, if the holder fails to furnish its correct taxpayer identification number or otherwise fails to comply with, or establish an exemption
from, backup withholding tax requirements.
Israeli Taxation
The following is a summary of the principal tax laws applicable to companies in Israel, with special reference to their effect on us, and
certain Israeli Government programs benefiting us. This section also contains a discussion of certain Israeli tax consequences to persons acquiring ordinary shares. This summary does not discuss all the acts of Israeli tax law that may be relevant
to a particular investor in light of his or her personal investment circumstances or to certain types of investors subject to special treatment under Israeli law, such as traders in securities or persons that own, directly or indirectly, 10% or more
of our outstanding voting share capital. To the extent that the discussion is based on new tax legislation which has not been subject to judicial or administrative interpretation, there can be no assurance that the views expressed in this discussion
will be accepted by the tax authorities. This discussion is not intended, should not be construed, as legal or professional tax advice and is not exhaustive of all possible tax considerations.
Potential investors are urged to consult their own tax advisors as to the Israeli or other tax consequences of the purchase, ownership and
disposition of ordinary shares, including, in particular, the effect of any foreign, state or local taxes.
General
Corporate Tax Structure
Generally, Israeli companies are subject to Corporate Tax on their taxable income at
the rate of 26% for the 2009 year tax and 25% for the 2010 tax year. The tax rate will be 25% in 2010, 24% in 2011, 23% in 2012, 22% in 2013, 21% in 2014, 20% in 2015 and 18% in 2016 and thereafter. Corporate Tax rates, which were reduced from a
rate of 31% for the 2006 tax year, to a rate of 29% for the 2007 tax year, 27% for the 2008 tax year, 26% for the 2009 tax year and 25% for the 2010 tax year, will further decrease to, 24% in 2011, 23% in 2012, 22% in 2013, 21% in 2014, 20% in 2015
and 18% in 2016 and thereafter. However, the effective tax rate payable by a company which derives income from an approved enterprise (as further discussed below) may be considerably less.
The Israeli Income Tax Ordinance (the Ordinance), was amended in 2009 to provide that an Israeli corporation may elect a
corporate tax rate of 5% (instead of 25%) on income from dividend distributions received from a foreign subsidiary which is used in Israel in 2009, or within one year after actual receipt of the dividend, whichever is later. The 5% tax rate is
subject to various conditions, which include, among other things, conditions with regard to the identity of the corporation that distributes the dividends, the source of the dividend, the nature of the use of the dividend income, and the period
during which the dividend income will be used in Israel.
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Israeli companies are generally subject to capital gains taxes. Pursuant to amendments to
the Ordinance in 2002 and 2005, capital gains taxes on Israeli companies were applied in 2009 at a reduced rate of 25% in respect of those gains arising after January 1, 2003, instead of the regular corporate tax rate, which will be imposed on
such gains as of 2010. In addition, capital losses carried forward for tax purposes may be offset against capital gains indefinitely. The 2002 amendment also provides for the possibility to offset capital losses from sale of properties outside
Israel against capital gains in Israel.
Besides being subject to the general corporate tax rules in Israel, we have also from
time to time applied for and received certain tax benefits from, and participate in, programs sponsored by the Government of Israel, as described below.
Tax Benefits under the Law for the Encouragement of Industry (Taxes), 5672-1969
The Law for the Encouragement of Industry (Taxes), 5672-1969, generally referred to as the Industry Encouragement Law, provides several tax benefits for industrial companies. A company qualifies as an Industrial Company if it is
resident in Israel and at least 90% of its income in a given tax year, determined in NIS (exclusive of income from specified government loans, and specific kinds of passive income such as capital gains, interest and dividends), is derived from
Industrial Enterprises owned by that company. An Industrial Enterprise is defined as an enterprise whose major activity in a particular tax year is industrial manufacturing activity.
Under the Industry Encouragement Law, Industrial Companies are entitled to the following preferred corporate tax benefits, among others:
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Deduction of purchases of know-how. patents and the right to use a patent over an eight-year period for tax purposes;
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Right to elect, under specified conditions, to file a consolidated tax return with additional related Israeli Industrial Companies;
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Accelerated depreciation rates on equipment and buildings; and
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Expenses related to a public offering on the Tel Aviv Stock Exchange and on recognized stock markets outside of Israel, are deductible in equal amounts
over three years.
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Under some tax laws and regulations, an industrial enterprise may be eligible for special
depreciation rates for machinery, equipment and buildings. These rates differ based on various factors, including the date the operations begin and the number of work shifts. An industrial company owning an Approved Enterprise may choose between
these special depreciation rates and the depreciation rates available to the Approved Enterprise.
Eligibility for benefits
under the Industry Encouragement Law is not contingent upon the approval of any Government agency. No assurance can be given that we will continue to qualify as an Industrial Company, or will be able to avail us of any of the benefits described
above under the Industry Encouragement Law in the future.
We believe that we currently qualify as an industrial company
within the definition of the Industry Encouragement Law. We cannot assure you that the Israeli tax authorities will agree that we qualify, or, if we qualify, that we will continue to qualify as an industrial company or that the benefits described
above will be available to us in the future.
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Law for the Encouragement of Capital Investments, 5719-1959
The Law for Encouragement of Capital Investments, 5719-1959, which is referred to below as the Capital Investments Law, provides that a
proposed capital investment in a production facility or other eligible assets may, upon application to the Israeli Investment Center of the Ministry of Industry and Commerce, referred to as the Investment Center, be designated as an Approved
Enterprise. Each certificate of approval for an Approved Enterprise relates to a specific investment program in the Approved Enterprise, delineated both by the financial scope of the investment and by the physical characteristics of the
facility or other asset. An Approved Enterprise is entitled to certain benefits, including Israeli Government cash grants, state-guaranteed loans and tax benefits.
The tax benefits available under any such approval relate only to taxable profits attributable to the specific program and are contingent upon meeting the criteria set out in the approval. If a company
has more than one approval or only a portion of its capital investments are approved, its effective tax rate is the weighted average of the various applicable tax rates, excluding any tax-exempt income. Subject to applicable provisions concerning
income under the alternative package of benefits, if a company with one or more approvals distributes dividends, the dividends are deemed attributable to the entire company.
The Capital Investments Law was significantly amended effective April 2005. Tax benefits granted in accordance with the provisions of the
Capital Investments Law prior to its revision remain in force, but any benefits granted subsequently are subject to the provisions of the amended law. Therefore, the following discussion summarizes the Capital Investments Law prior to its amendment
as well as the relevant changes contained in the new legislation. As explained below, following the amendment, companies may receive tax benefits under the Capital Investments Law without applying for an Approved Enterprise status.
Tax benefits prior to April 2005 Amendment
Before April 1, 2005, an Approved Enterprise was entitled to receive a grant from the Government of Israel or an alternative package of tax benefits, which we refer to as alternative benefits. We
selected the alternative tax benefits rout. Taxable income derived from an Approved Enterprise under the Capital Investments Law grants program is subject to tax at the maximum rate of 25%, rather than the regular corporate tax rate, for the benefit
period that income is eligible for further reductions in tax rates depending on the percentage of the foreign investment in our share capital. The tax rate is 20% if the foreign investment is 49% or more but less than 74%, 15% if the foreign
investment is 74% or more but less than 90%, and 10% if the foreign investment is 90% or more. The lowest level of foreign investment during the year will be used to determine the relevant tax rate for that year. These tax benefits are granted for a
limited period not exceeding seven years, or 10 years for a company whose foreign investment level exceeds 25%, from the first year in which the Approved Enterprise has taxable income, after the year in which production commenced (as determined by
the Investment. The period of benefits may in no event, however, exceed the lesser of 12 years from the year in which the production commenced (as determined by the Investment Center) or 14 years from the year of receipt of Approved Enterprise
status, whichever is earlier. The time limitation does not apply to the exemption period.
An Approved Enterprise may elect to
forego any entitlement to the grants otherwise available under the Capital Investments Law and, in lieu of the foregoing, may participate in an Alternative Benefits Program. Under the Alternative Benefits Program, a companys
undistributed income derived
66
from an Approved Enterprise will be exempt from company tax for a period of between two and 10 years from the first year of taxable income, depending on the geographic location of the Approved
Enterprise within Israel, and the company will be eligible for a reduced tax rate of 10%-25% for an additional five to eight years, depending on the extent of foreign investment in the company. There can be no assurance that the current benefit
programs will continue to be available or that we will continue to qualify for benefits under the current programs.
Dividends
paid out of income generated by an Approved Enterprise (or out of dividends received from a company whose income is generated by an Approved Enterprise) are generally subject to withholding tax at the rate of 15%, or at the lower rate under an
applicable tax treaty. This withholding tax is deductible at source by the Approved Enterprise. The 15% tax rate is limited to dividends and distributions out of income derived during the benefits period and actually paid at any time up to twelve
years thereafter. Under the Capital Investments Law, a company that has elected the alternative package of benefits is not obligated to distribute retained profits, and may generally decide from which years profits to declare dividends.
The Investments Law also provides that an Approved Enterprise is entitled to accelerated depreciation on its property and equipment that are
included in an Approved Enterprise program in the first five years of using the equipment.
Tax benefits Subsequent to the
April 2005 Amendment
On April 1, 2005, the Capital Investments Law was significantly amended. This amendment applies
to new investment programs and investment programs commencing after 2004, and does not apply to investment programs approved prior to December 31, 2004. The amendment provides that terms and benefits included in any approval that was granted
before the amendment came into effect will remain subject to the provisions of the Law as they were on the date of such approval. Furthermore, the Investment Center will continue to grant Approved Enterprise status to qualifying investments.
However, the amendment limits the scope of enterprises that may be approved by the Investment Center by setting criteria for the approval of a facility as an Approved Enterprise, such as provisions generally requiring that at least 25% of the
Approved Enterprises income will be derived from export.
The amendment provides that Approved Enterprise status will
only be necessary for receiving cash grants. As a result, it is no longer necessary for a company to acquire Approved Enterprise status in order to receive the tax benefits previously available under the Alternative Benefits Provisions. Rather, a
company may claim the tax benefits offered by the Investment Law directly in its tax returns, provided that its facilities meet the criteria for tax benefits set out by the amendment. Companies or programs receiving these tax benefits are referred
to as Benefited Enterprises. Companies are entitled to approach the Israeli Tax Authority for a pre-ruling regarding their eligibility for benefits under the amendment.
Tax benefits are available under the amendment to production facilities (or other eligible facilities), which are generally required to derive more than 25% of their business income from export to
specific markets with a population of at least 12 million. In order to receive the tax benefits, the amendment states that the company must make an investment that meets all the conditions set out in the amendment for tax benefits and exceeds a
minimum amount specified in the Investment Law. Such investment allows the company to receive Benefited Enterprise status, and may be made over a period of no more than three years ending at the end of the year in which the company requested to have
the tax benefits
67
apply to the Benefited Enterprise. Where the company requests to have the tax benefits apply to an expansion of existing facilities, only the expansion will be considered to be a Benefited
Enterprise and the companys effective tax rate will be the weighted average of the applicable rates. In this case, the minimum investment required in order to qualify as a Benefited Enterprise is required to exceed a certain percentage of the
value of the companys production assets before the expansion.
The extent and time period of the tax benefits available
under the amendment are determined by, among other things, the geographic location of the Benefited Enterprise.
We believe
that our capital investments qualify to receive tax benefits as an Approved Enterprise, however no assurance can be given that such investments will be approved as in fact qualifying for such tax benefits by the Israeli tax authorities.
Additionally, no assurance can be given that we will, in the future, be eligible to receive additional tax benefits under this law. See Risk Factors, and specifically -
Any failure to obtain the tax benefits from the State of Israel
that we anticipate receiving could adversely affect our plans and prospects
and
The government grants we have received for research and development expenditures restrict our ability to manufacture products and transfer
technologies outside of Israel and require us to satisfy specified conditions
for a discussion of the risks our business and prospects for growth face in connection with Tax benefits under Israeli law.
We currently have Approved Enterprise programs under the Capital Investments Law, which to our belief, entitle us to certain tax benefits.
The tax benefit period for these programs has not yet commenced. We have elected the Alternative Benefits Program which provides for the waiver of grants in return for tax exemption. Accordingly, our income is tax exempt for a period of two years
commencing with the year we first earn taxable income relating to each expansion program, and is subject to corporate taxes at the reduced rate of 10% to 25%, for an additional period of five years to eight years, depending on the percentage of the
companys ordinary shares held by foreign shareholders in each taxable year. The exact rate reduction is based on the percentage of foreign ownership in each tax year. See note 9 to our consolidated financial statements.
A company that qualifies for tax benefits under the amendment and that subsequently pays a dividend out of the income derived from the
Benefited Enterprise during the tax exemption period will be subject to corporate tax in respect of the gross amount of the dividend at the otherwise applicable rate of 25%, or lower in the case of a qualified FIC which is at least 49% owned by
non-Israeli residents. The dividend recipient is subject to withholding tax at the reduced rate of 15%, applicable to dividends and distributions out of income derived from a Benefited Enterprise during the benefits period and actually paid at any
time up to twelve years thereafter. The withholding tax rate will be 25% after such period. In the case of a company with over 25% foreign investment level, as defined by law, the 12-year limitation on reduced withholding tax on dividends does not
apply. This tax should be withheld by the company at the source, regardless of whether the dividend is converted into foreign currency. See Israeli Taxation Applicable to Non-Israeli Shareholders.
From time to time, the Israeli Government has discussed reducing the benefits available to companies under the Capital Investments Law. The
termination or substantial reduction of any of the benefits available under the Capital Investments Law could materially impact the cost of our future investments.
The benefits available to an Approved Enterprise are conditional upon the fulfillment of certain conditions stipulated in the Capital Investments Law and its regulations and the criteria set forth in the
specific certificate of approval, as described above. In the event that these conditions are violated, in
68
whole or in part, we would be required to refund the amount of tax benefits, together with linkage differences to the Israeli consumer price index (CPI) and interest. We believe that our Approved
Enterprise programs operate in compliance with all such conditions and criteria.
Foreign Investors Company (FIC)
A company that has an Approved Enterprise program is eligible for further tax benefits if it qualifies as a FIC. A FIC is a
company with a level of foreign investment of more than 25%. The level of foreign investment is measured as the percentage of rights in the company (in terms of shares, rights to profits, voting and appointment of directors), and of combined share
and loan capital, that are owned, directly or indirectly, by persons who are not residents of Israel. The determination as to whether or not a company qualifies as an FIC is made on an annual basis. A company that qualifies as a FIC and has an
Approved Enterprise program is eligible for tax benefits for up to ten-year benefit period. As specified above, depending on the geographic location of the approved enterprise within Israel, income derived from the Approved Enterprise program may be
entitled to the following:
|
|
|
Exemption from tax on its undistributed income up to ten years.
|
|
|
|
An additional period of reduced corporate tax liability at rates ranging between 10% and 25%, depending on the level of foreign (i.e., non-Israeli)
ownership of our shares.
|
|
|
|
The twelve years limitation period for reduced tax rate of 15% on dividend from the approved enterprise does not apply to FIC.
|
Measurement of Taxable Income
Commencing with taxable year 2003, we have elected to measure our results for tax purposes. on the basis of the changes in the exchange rate of NIS against the dollar, according to the Israeli Income Tax
Regulations (Principles Regarding the Management of Books of Account of Foreign Invested Companies and Certain Partnerships and the Determination of Their Taxable Income), 1986. We believe that we meet the necessary conditions and as such, continue
to measure our results for tax purposes based on the U.S. dollar.
Tax Benefits of Research and Development
Israeli tax law allows, under specified conditions, a tax deduction for expenditures, including capital expenditures, in the year incurred
relating to scientific research and development projects, if the expenditures are approved by the relevant Israeli Government ministry, determined by the field of research, and the research and development is for the promotion of the company and is
carried out by or on behalf of the company seeking such deduction. However, the amount of such deductible expenses shall be reduced by the sum of any funds received through government grants for the finance of such scientific research and
development projects. Expenditures not approved by the relevant Israeli government ministry, but otherwise qualifying for deduction, are deductible over a three-year period. However, the amounts of any government grants made available to us are
subtracted from the amount of the deductible expenses.
Transfer Pricing Regulations
69
On November 29, 2006, Income Tax Regulations (Determination of Market Terms), 2006,
promulgated under Section 85A of the Tax Ordinance, came into effect (the Transfer Pricing Regulations). Section 85A of the Tax Ordinance and the Transfer Pricing Regulations generally requires that all cross-border
transactions carried out between related parties be conducted on an arms length principle basis and will be taxed accordingly.
Israeli Withholding and Capital Gains Taxes Applicable to Non-Israeli Shareholders
Nonresidents of Israel are
subject to income tax on income accrued or derived from sources in Israel. These sources of income include passive income such as dividends, royalties and interest, as well as non-passive income from services rendered in Israel. On distribution of
dividends other than bonus shares or stock dividends, income tax is withheld at source at the following rates: (i) 20% for dividends paid to an individual or foreign corporation who is not a substantial shareholder; (ii) 25% for dividends
paid to a substantial shareholder at any time during the 12-month period preceding such distribution, unless a different rate is provided in a treaty between Israel and the shareholders country of residence; and (iii) rate of 12.5% for
dividends paid to U.S. taxpayers, if the dividend recipient is a corporation that holds 10% or more of our voting during the part of the tax year which precedes the date of payment of the dividend and during the whole of its prior tax year,.
Notwithstanding the foregoing, with regard to dividends generated by an Approved Enterprise or Benefited Enterprise, we are required to withhold income tax at the rate of 15%, unless a different rate is provided in a treaty between Israel and
shareholders country of residence. If the dividend is attributable partly to income derived from an Approved Enterprise, and partly to other sources of income, the withholding rate will be a blended rate reflecting the relative portions of the
two types of income. The withheld tax is the final tax in Israel on dividends paid to non-residents who do not conduct business in Israel.
Israeli law generally imposes a capital gains tax on the sale of publicly traded securities. Pursuant to changes made to the Ordinance in January 2006, capital gains on the sale of our ordinary shares
will be subject to Israeli capital gains tax, generally at a rate of 20% unless the holder claims a deduction for financing expenses in connection with such shares or holds 10% or more of our voting power during the 12 months preceding the sale, in
which case it will be subject to a 25% capital gains tax. However, as of January 1, 2003, nonresidents of Israel are exempt from any capital gains tax derived from the sale of our ordinary shares for so long as (i) our ordinary shares are
listed for trading on a stock exchange outside of Israel, (ii) the capital gains are not accrued or derived by the nonresident shareholders permanent establishment in Israel, (iii) the ordinary shares in relation to which the capital
gains are accrued or derived were acquired by the nonresident shareholder after the initial listing of the ordinary shares on a stock exchange outside of Israel, and (d) neither the shareholder nor the particular capital gain is otherwise
subject to certain sections of the Ordinance. These provisions dealing with capital gains are not applicable to a person whose gains from selling or otherwise disposing of the shares are deemed to be business income. Notwithstanding this,
non-Israeli companies may not benefit from this exemption if Israeli residents (i) have a controlling interest of 25% or more in the non-Israeli company or (ii) are the beneficiaries of, or are entitled to, 25% or more of the revenues or
profits of the non-Israeli company, whether directly or indirectly.
In addition, under the Convention Between the Government
of the United States of America and the Government of Israel with Respect to Taxes on Income, as amended (the U.S.-Israel Tax Treaty), the sale, exchange or disposition of Ordinary Shares by a person who (i) holds the ordinary
shares as a capital asset; (ii) qualifies as a resident of the United States within the meaning of the U.S.-Israel Tax Treaty ;and (iii) is entitled to claim the benefits afforded to such resident by the U.S.-Israel Tax Treaty (called a
Treaty U.S. Resident) will generally be exempt from Israeli capital gains tax.
70
Such exemption will not apply if (i) such Treaty U.S. Resident is an individual and was present in Israel for more than 183 days during the relevant taxable year or (ii) such Treaty
U.S. Resident held, directly or indirectly, shares representing 10% or more of the voting power of a company during any part of the 12-month period preceding such sale, exchange or disposition, subject to certain conditions, or (iii) the
capital gains from such sale, exchange or disposition can be allocated to a permanent establishment in Israel. In such case, a sale, exchange or disposition of Ordinary Shares would be subject to such Israeli tax, to the extent applicable; however,
under the U.S.-Israel Tax Treaty, such Treaty U.S. Resident would be permitted to claim a credit for such taxes against the U.S. federal income tax imposed with respect to such sale, exchange or disposition, subject to the limitations in U.S. laws
applicable to foreign tax credits. The U.S.-Israel Tax Treaty does not relate to U.S. state or local taxes. A nonresident of Israel who receives interest, dividend or royalty income derived from or accrued in Israel, from which tax was withheld at
the source, is generally exempt from the duty to file tax returns in Israel with respect to such income, provided such income was not derived from a business conducted in Israel by the taxpayer and the taxpayer has no other taxable sources of income
in Israel.
F.
|
Dividends and Paying Agents
|
Not applicable.
Not
applicable.
We
are currently subject to the information and periodic reporting requirements of the U.S. Securities Exchange Act of 1934, as amended, and file periodic reports and other information with the Securities and Exchange Commission through its electronic
data gathering, analysis and retrieval (EDGAR) system. Our securities filings, including this Annual Report and the exhibits thereto, are available for inspection and copying at the public reference facilities of the Securities and Exchange
Commission located at Room 1024, 450 Fifth Street, NW, Washington, D.C. 20549, and the Commissions regional offices located in New York, New York and Chicago, Illinois. Copies of all or any part of our registration statement or other filings
may be obtained from these offices after payment of fees required by the Commission. Please call the Commission at 1-800-SEC-0330 for further information. The Commission also maintains a website at http://www.sec.gov from which certain EDGAR filings
may be accessed.
As a foreign private issuer, we are exempt from certain rules under the Securities Exchange Act of 1934, as
amended, prescribing the furnishing and content of proxy statements to our shareholders. In addition, we, our directors, and our officers are also exempt from the shortswing profit recovery and disclosure regime of Section 16 of the Exchange
Act.
I.
|
Subsidiary Information
|
Not applicable.
Item 11: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
71
Our results of operations are reported in U.S. dollars, however, a significant portion of
our revenues and expenses in 2009 were generated and incurred outside of the United States and in currencies other than the U.S Dollar, particularly in NIS, English Pounds and Euros. As a result, we are subject to a foreign currency risk. Our sales
in Europe and in the UK and our expenses in Israel, Europe and the UK are recorded in local currencies which exposes us to the direct risk of local currency devaluations or fluctuations against the U.S dollar rate of exchange. As a result,
fluctuations in exchange rates between the currencies in which our costs are incurred or revenues are recorded and the U.S. dollar may have a material adverse effect on our results of operations. We therefore use currency exchange forward contracts
to hedge the impact of the variability in the exchange rates on future cash flows from certain NIS-denominated expenses. Our hedging program reduces, but does not eliminate, the impact of foreign currency rate movements. As of December 31,
2009, we had forward contracts to sell $1,878,917 for a total amount of NIS 7,092,912 that matures prior to December 1, 2010.
The table below details the hedging acquired in derivative instruments in order to limit the exposure to exchange rate fluctuations. The data is as of December 31, 2009 and is presented in U.S. dollars (in thousands).
|
|
|
|
|
|
|
|
|
Cross Currency
|
|
Notional Amount
|
|
Fair Value
|
Foreign contracts to hedge payroll expenses
|
|
New Israeli Shekel
|
|
1,879
|
|
39
|
In addition, our
subsidiaries enter into transactions denominated in a currency other than their respective functional currency, which in our case, is their local currency. A change in exchange rates between the functional currency and the currency in which a
transaction is denominated increases or decreases the expected amount of functional currency cash flows upon settlement of the transaction. Transaction gains or losses result from a change in exchange rates between the functional currency and the
currency in which a foreign currency transaction is denominated.
The table below details the net balance sheet exposures in
currencies other than the functional currency, by geography, as of December 31, 2009. All data in the table have been converted to U.S. dollar equivalents (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro
|
|
|
New Israeli Shekel
|
|
|
Other
|
|
Total
|
|
Israel
|
|
(47
|
)
|
|
(78
|
)
|
|
14
|
|
(111
|
)
|
United Kingdom
|
|
305
|
|
|
|
|
|
|
|
305
|
|
We invest
our cash, cash equivalents, short-term investments and equity securities investments in a variety of investment vehicles in a number of countries with and in the custody of financial institutions with high credit ratings. While our investment
policy and strategy attempt to manage interest rate risk, limit credit risk, limit stock markets risk and only invest in what we view as high-quality securities, the outlook for our investment holdings is dependent on general economic conditions,
interest rate trends and volatility in the financial and stock marketplace, which can all affect the income that we receive, the value of our investments, and our ability to sell them. We believe that our investment securities are carried at
fair value. However, over time the economic and market environment may provide additional insight regarding the fair value of certain securities which could cause us to change our judgment regarding impairment. This could result in unrealized or
realized losses relating to other than temporary declines being charged against future income. Given the current market conditions, there is continuing risk that further declines in fair value may occur and additional
72
impairments may be charged to income in future periods, resulting in realized losses. See Risk Factor: Negative conditions in the global credit markets may impair the liquidity and
value of our investment portfolio.
The table below details the fair value of marketable securities, which are subject
to risk of changes in interest rates, segregated by maturity dates. The data is as of December 31, 2009 and is presented in U.S. dollars (in thousands).
|
|
|
|
|
|
|
|
|
Estimated Fair Value
|
|
|
|
|
Up to 1 year
|
|
1-3 years
|
|
Total
|
Corporate debentures
|
|
1,971
|
|
2,844
|
|
4,815
|
U.S. government securities
|
|
3,703
|
|
|
|
3,703
|
Other government securities
|
|
16
|
|
1,612
|
|
1,628
|
U.S. government sponsored enterprise securities
|
|
520
|
|
|
|
520
|
At the start of 2008,
we purchased $3 million principal amount of an auction rate security, or ARS. While the issuer of the ARS we purchased was rated AAA and the ARS was guaranteed by the US government, the negative conditions in the credit markets during
2008 restricted our ability to liquidate our holdings of our ARS on December 31, 2008 because the amount of such securities submitted for sale in the market exceeded the amount of purchase orders for such securities. During
2008, we were unable to sell the ARS via a successful auction or redemption process. Given the failed auction, the entire remaining amount of our ARS was classified as a long-term investment, and, during
the fourth quarter of 2008, we recorded an impairment charge of $353,130 with respect to such ARS, reflecting what we determined to be an other-than-temporary decline in its value. In March 2009 we sold such ARS for the par value thereof, a total
sum of $3 million, plus accrued interest and the other-than-temporary loss on the investment was reversed in 2009.
Item 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
PART II
Item 13: DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
Item 14: MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
There have been no changes in the rights of holders of any of our registered securities.
The effective date of the registration statement (No. 333-10882) for our initial public offering of our ordinary shares, par value NIS
0.01 per share, was October 14, 1999. The offering commenced on October 20, 1999, and terminated after the sale of all the securities registered. The managing underwriter of the offering was Lehman Brothers. We registered 5,175,000
ordinary shares in the offering, including shares issued pursuant to the exercise of the underwriters over-allotment option. We sold 5,175,000 ordinary shares at an aggregate offering price of $56,925,000 ($11.00 per share). Under the terms of
the offering, we incurred underwriting discounts of $3,984,750. We also incurred expenses of $2,769,250 million in connection with the offering. None of these amounts was paid
73
directly or indirectly to any director, officer, general partner of ours or to their associates, persons owing ten percent or more of any class of our equity securities, or to any of our
affiliates.
The net proceeds that we received as a result of the offering were $50,568,390. Through December 31, 2009,
the net proceeds have been used to invest in a variety of financial instruments and for general corporate purposes. A portion of the proceeds, $6.9 million, was used in August 2001 to purchase certain assets of Propelis Software, Inc., a business
unit of Computer Network Technology Corporation. During 2008 we purchased 4,447,184 of our ordinary shares pursuant to a share repurchase program as well as a self tender offer conducted by us for a total of $17.9 million including related expenses.
None of the net proceeds of the offering was paid directly or indirectly to any director, officer, general partner of ours or to their associates, persons owning ten percent or more of any class of our equity securities, or to any of our affiliates.
Item 15: CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures. Our chief executive officer and chief financial officer, after evaluating the effectiveness of our
disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Exchange Act) as of December 31, 2009, have concluded that, as of such date, our disclosure controls and procedures were effective to
ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow timely
decisions regarding required disclosure and is recorded, processed, summarized and reported within the periods specified by the SECs rules and forms.
(b) Management Annual Report on Internal Control over Financial Reporting. Our board of directors and audit committee are responsible for establishing and maintaining adequate internal control over
financial reporting. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of our consolidated financial statements for external purposes
in accordance with generally accepted accounting principles. Our chief executive officer and chief financial officer assessed the effectiveness of our internal control over financial reporting (as defined in Rule 13a-15(f) and Rule
15d-(f) promulgated under the Exchange Act) as of December 31, 2009. In making this assessment, they used the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Based on this assessment, our chief executive officer and chief financial officer have concluded that, as of December 31, 2009, our internal control over financial reporting is effective based on those criteria.
Notwithstanding the foregoing, all internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect misstatements and can provide only reasonable
assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
(c) This annual report does not include an
attestation report of our registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC
that permit us to provide only managements report in this annual report.
(d) Changes in Internal Control over Financial
Reporting. During the period covered by this annual report, there were no changes in our internal control over financial reporting that have
74
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 15T: CONTROLS AND PROCEDURES
Not
applicable
Item 16A: AUDIT COMMITTEE FINANCIAL EXPERT
At our annual shareholders meeting in December 2009, the shareholders re-elected Dan Falk to the Companys Board of Directors to serve
for a one year term. Our Board of Directors has determined that Mr. Falk qualifies as an audit committee financial expert, and Mr. Falk was appointed by the Board to serve on the audit committee. Mr. Falk also meets the requirements
of the NASDAQ Stock Market listing standards to be an independent director and audit committee member.
Item 16B: CODE OF ETHICS
In March 2003, our Board of Directors adopted a Code of
Ethics relating to, among others, our principal executive officer, principal financial officer and principal accounting officer. The code was filed as exhibit 11 to our Annual Report for the year ended December 31, 2003 and is incorporated by
reference to that filing, which is available and can be reached through the Investor Relations link on our website, www.jacada.com. Pursuant to the requirements of the Nasdaq Stock Market, we adopted, in May 2004, a Code of Business Conduct and
Ethics that is applicable to all our directors, officers and employees. This code is also available on our website.
Item 16C: PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
|
|
|
|
2008
|
|
$
|
130,000
|
2009
|
|
$
|
155,000
|
Audit Related Fees
Tax Fees
|
|
|
|
2008
|
|
$
|
133,000
|
2009
|
|
$
|
105,000
|
75
Other Fees
The audit related fees we
incurred in 2009 were related to Sarbanes-Oxley compliance reviews. The tax fees we incurred in 2009 were related to the preparation of tax returns and consultations regarding our international taxes and our status as a PFIC. The tax fees we
incurred in 2008 were related to preparation of tax returns, consultations regarding options plans, international taxes, tax implication of our self tender offer and regarding our status as a PFIC. The other fees we incurred in 2008 were related to
consultations regarding the sale of our traditional market business.
Our audit committee is responsible for the appointment
and oversight of our independent auditors work. Pursuant to its charter, the audit committee also has the sole authority to review in advance, and grant any appropriate pre-approvals of, (a) all auditing services to be provided by our
independent auditors; (b) all non-audit services to be provided by our independent auditors as permitted by Section 10A of the U.S. Securities Exchange Act of 1934; and (c) all fees and other terms of engagement. The audit
committees policy is to specifically pre-approve all annual services provided by our independent auditors in connection with the preparation of their audit, which may include audit services, audit-related services, tax services and other
services. The audit committee sets forth the basis for its pre-approval in detail, listing the particular services or categories of services which are pre-approved, and setting a specific budget for such services. Additional services may be
commissioned on the basis of a pre-approval by the audit committee for non-annual audit related services up to a specified amount (a de minimis exception). During 2009, five percent of the tax fees described above were approved through
the de minimis exception provision to the requirement that all services be approved by the audit committee. Once such services have been pre-approved and performed, the independent auditors and our management report to the audit committee on a
periodic basis regarding the extent of services actually provided in accordance with the applicable pre-approval, and regarding the fees for the services performed.
Item 16D: EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
Item 16E: PURCHASES OF EQUITY SECURITIES BY THE
ISSUER AND AFFILIATED PURCHASERS
Not applicable.
Item 16F: CHANGES IN REGISTRANTS CERTIFYING ACCOUNTANT
Not applicable.
Item 16G: CORPORATE GOVERNANCE
76
As a foreign private issuer we are entitled to follow our home country practice in lieu of
compliance with the Nasdaq rule that requires adoption of a formal written charter or board resolution addressing the nominations process. Under the Companies Law, the nominations process is conducted by the full board of directors, and there is no
requirement to adopt a formal written charter or board resolution addressing a companys nomination process.
As a
foreign private issuer we are entitled to follow our home country practice in lieu of compliance with the Nasdaq rule that requires that the compensation of the chief executive officer and all other executive officers of the company be determined,
or recommended to the board for determination, either by a majority of the independent directors, or by a compensation committee comprised solely of independent directors. Under the Companies Law, the compensation of such officers is determined by
the full board of directors, and there is no requirement for a recommendation or determination by independent directors or a compensation committee. If the chief executive officer or any other executive officer is also a director, then the Companies
Law requires that the terms of compensation of the officer must be approved by the audit committee, board of directors and shareholders of a company and that the officer may not be present when the audit committee or board of directors discusses or
acts upon the terms of his or her compensation.
As a foreign private issuer we are entitled to follow our home country
practice in lieu of compliance with the Nasdaq rule that requires disclosure of the compensation of our directors and members of our administrative, supervisory or management bodies. Since under the Companies Law such disclosure is not required on
an individual basis, the compensation of our executive officers is provided on an aggregate basis.
77
PART III
Item 17: FINANCIAL STATEMENTS
See Item 18.
Item 18: FINANCIAL STATEMENTS
78
JACADA LTD. AND ITS SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2009
U.S. DOLLARS IN THOUSANDS
INDEX
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
JACADA LTD.
We have audited the accompanying consolidated
balance sheets of Jacada Ltd. and its subsidiaries ("the Company") as of December 31, 2009 and 2008 and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2009. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over
financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated
financial position of the Company as of December 31, 2009 and 2008 and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2009, in conformity with U.S. generally
accepted accounting principles.
|
|
|
Tel-Aviv, Israel
|
|
KOST FORER GABBAY & KASIERER
|
March 31, 2010
|
|
A Member of Ernst & Young Global
|
F-2
JACADA LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2009
|
|
2008
|
ASSETS
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
12,624
|
|
$
|
11,059
|
Marketable securities
|
|
|
6,210
|
|
|
8,915
|
Trade receivables (net of allowance for doubtful accounts of $ 3 and $ 200 at December 31, 2009 and
2008, respectively)
|
|
|
4,949
|
|
|
4,713
|
Restricted cash held by trustee
|
|
|
-
|
|
|
2,640
|
Restricted cash
|
|
|
557
|
|
|
559
|
Prepaid expenses
|
|
|
576
|
|
|
609
|
Other current assets
|
|
|
1,309
|
|
|
1,413
|
Assets of discontinued operations
|
|
|
-
|
|
|
64
|
|
|
|
|
|
|
|
Total current assets
|
|
|
26,225
|
|
|
29,972
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM ASSETS:
|
|
|
|
|
|
|
Marketable securities
|
|
|
4,456
|
|
|
9,896
|
Severance pay fund
|
|
|
286
|
|
|
586
|
Property and equipment, net
|
|
|
994
|
|
|
1,266
|
Goodwill
|
|
|
3,096
|
|
|
3,096
|
|
|
|
|
|
|
|
Total long-term assets
|
|
|
8,832
|
|
|
14,844
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
35,057
|
|
$
|
44,816
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the
consolidated financial statements.
F-3
JACADA LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands, except
share and per share data
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Trade payables
|
|
$
|
1,194
|
|
|
$
|
1,245
|
|
Accrued expenses and other liabilities
|
|
|
2,398
|
|
|
|
3,096
|
|
Deferred revenues
|
|
|
685
|
|
|
|
1,006
|
|
Liabilities of discontinued operations
|
|
|
-
|
|
|
|
1,363
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
4,277
|
|
|
|
6,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM LIABILITIES:
|
|
|
|
|
|
|
|
|
Accrued severance pay
|
|
|
505
|
|
|
|
1,120
|
|
Other long-term liabilities
|
|
|
123
|
|
|
|
185
|
|
|
|
|
|
|
|
|
|
|
Total
long-term liabilities
|
|
|
628
|
|
|
|
1,305
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENT LIABILITIES (Note 6)
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY:
|
|
|
|
|
|
|
|
|
Share capital -
|
|
|
|
|
|
|
|
|
Ordinary shares of NIS 0.01 par value -
|
|
|
|
|
|
|
|
|
Authorized: 30,000,000 shares at December 31, 2009 and 2008; Issued: 21,026,193 and 20,985,805 shares at
December 31, 2009 and 2008, respectively; Outstanding: 16,579,009 and 16,538,621 shares at December 31, 2009 and 2008, respectively
|
|
|
60
|
|
|
|
60
|
|
Additional paid-in capital
|
|
|
75,422
|
|
|
|
75,173
|
|
Treasury shares at cost - 4,447,184 Ordinary shares as of December 31, 2009 and 2008
|
|
|
(17,863
|
)
|
|
|
(17,863
|
)
|
Accumulated other comprehensive income
|
|
|
278
|
|
|
|
160
|
|
Accumulated deficit
|
|
|
(27,745
|
)
|
|
|
(20,729
|
)
|
|
|
|
|
|
|
|
|
|
Total
shareholders equity
|
|
|
30,152
|
|
|
|
36,801
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders equity
|
|
$
|
35,057
|
|
|
$
|
44,816
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
F-4
JACADA LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
U.S. dollars in thousands, except
share and per share data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Software licenses
|
|
$
|
1,370
|
|
|
$
|
7,647
|
|
|
$
|
3,706
|
|
Services
|
|
|
12,967
|
|
|
|
14,540
|
|
|
|
8,479
|
|
Maintenance
|
|
|
2,324
|
|
|
|
2,178
|
|
|
|
1,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
|
16,661
|
|
|
|
24,365
|
|
|
|
13,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Software licenses
|
|
|
238
|
|
|
|
544
|
|
|
|
449
|
|
Services
|
|
|
10,047
|
|
|
|
11,038
|
|
|
|
7,009
|
|
Maintenance
|
|
|
648
|
|
|
|
856
|
|
|
|
745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
cost of revenues
|
|
|
10,933
|
|
|
|
12,438
|
|
|
|
8,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
5,728
|
|
|
|
11,927
|
|
|
|
5,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
3,490
|
|
|
|
4,819
|
|
|
|
4,402
|
|
Sales and marketing
|
|
|
6,205
|
|
|
|
8,829
|
|
|
|
9,787
|
|
General and administrative
|
|
|
4,433
|
|
|
|
5,583
|
|
|
|
5,249
|
|
Restructuring costs
|
|
|
-
|
|
|
|
451
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
14,128
|
|
|
|
19,682
|
|
|
|
19,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(8,400
|
)
|
|
|
(7,755
|
)
|
|
|
(13,644
|
)
|
Financial income, net
|
|
|
708
|
|
|
|
715
|
|
|
|
1,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before taxes
|
|
|
(7,692
|
)
|
|
|
(7,040
|
)
|
|
|
(12,096
|
)
|
Income tax benefit
|
|
|
93
|
|
|
|
2,043
|
|
|
|
8,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
|
(7,599
|
)
|
|
|
(4,997
|
)
|
|
|
(3,424
|
)
|
Income from discontinued operation, net of taxes (in the amount of $ 227, $ 7,734 and $ 3,354,
respectively)
|
|
|
583
|
|
|
|
18,234
|
|
|
|
7,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(7,016
|
)
|
|
$
|
13,237
|
|
|
$
|
4,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
From continuing operations
|
|
$
|
(0.46
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
(0.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From discontinued operation
|
|
$
|
0.04
|
|
|
$
|
0.94
|
|
|
$
|
0.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net earnings (loss) per share
|
|
$
|
(0.42
|
)
|
|
$
|
0.68
|
|
|
$
|
0.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in computing basic and diluted net earnings (loss) per
share
|
|
|
16,565,323
|
|
|
|
19,354,810
|
|
|
|
20,364,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
F-5
JACADA LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
U.S. dollars in thousands, except
share data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares
|
|
|
Additional
paid-in
|
|
|
Treasury
shares
|
|
|
Accumulated
other
comprehensive
|
|
|
Accumulated
|
|
|
Total
comprehensive
|
|
|
Total
shareholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
at cost
|
|
|
income (loss)
|
|
|
deficit
|
|
|
income (loss)
|
|
|
equity
|
|
Balance as of January 1, 2007
|
|
20,132,164
|
|
|
$
|
58
|
|
|
$
|
71,547
|
|
|
$
|
-
|
|
|
$
|
(128
|
)
|
|
$
|
(38,082
|
)
|
|
|
|
|
|
$
|
33,395
|
|
Exercise of stock options
|
|
468,701
|
|
|
|
1
|
|
|
|
1,016
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
1,017
|
|
Stock-based compensation related to options granted to employees and directors
|
|
-
|
|
|
|
-
|
|
|
|
791
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
791
|
|
Stock-based compensation related to options granted to non-employees
|
|
-
|
|
|
|
-
|
|
|
|
39
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
39
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,116
|
|
|
$
|
4,116
|
|
|
|
4,116
|
|
Changes in unrealized gains from available-for-sale marketable securities, net
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
411
|
|
|
|
-
|
|
|
|
411
|
|
|
|
411
|
|
Changes in unrealized gains from derivatives, net
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
135
|
|
|
|
-
|
|
|
|
135
|
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
20,600,865
|
|
|
|
59
|
|
|
|
73,393
|
|
|
|
-
|
|
|
|
418
|
|
|
|
(33,966
|
)
|
|
|
|
|
|
|
39,904
|
|
Exercise of stock options
|
|
384,940
|
|
|
|
1
|
|
|
|
913
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
914
|
|
Stock-based compensation related to options granted to employees and directors
|
|
-
|
|
|
|
-
|
|
|
|
860
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
860
|
|
Stock-based compensation related to options granted to non-employees
|
|
-
|
|
|
|
-
|
|
|
|
7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
7
|
|
Treasury shares at cost
|
|
(4,447,184
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(17,863
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
(17,863
|
)
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,237
|
|
|
$
|
13,237
|
|
|
|
13,237
|
|
Changes in unrealized gains from available-for-sale marketable securities, net
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(66
|
)
|
|
|
-
|
|
|
|
(66
|
)
|
|
|
(66
|
)
|
Changes in unrealized losses from derivatives, net
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(192
|
)
|
|
|
-
|
|
|
|
(192
|
)
|
|
|
(192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
16,538,621
|
|
|
|
60
|
|
|
|
75,173
|
|
|
|
(17,863
|
)
|
|
|
160
|
|
|
|
(20,729
|
)
|
|
|
|
|
|
|
36,801
|
|
Exercise of stock options
|
|
40,388
|
|
|
|
*
|
)
|
|
|
68
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
68
|
|
Stock-based compensation related to options granted to employees and directors
|
|
-
|
|
|
|
-
|
|
|
|
420
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
420
|
|
Stock-based compensation related to options granted to non-employees
|
|
-
|
|
|
|
-
|
|
|
|
11
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
11
|
|
Repurchase of options
|
|
-
|
|
|
|
-
|
|
|
|
(250
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
(250
|
)
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,016
|
)
|
|
$
|
(7,016
|
)
|
|
|
(7,016
|
)
|
Changes in unrealized gains from available-for-sale marketable securities, net
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(121
|
)
|
|
|
-
|
|
|
|
(121
|
)
|
|
|
(121
|
)
|
Changes in unrealized gains from derivatives, net
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
70
|
|
|
|
-
|
|
|
|
70
|
|
|
|
70
|
|
Foreign currency translation adjustments
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
169
|
|
|
|
-
|
|
|
|
169
|
|
|
|
169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(6,898
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
16,579,009
|
|
|
|
60
|
|
|
$
|
75,422
|
|
|
$
|
(17,863
|
)
|
|
$
|
278
|
|
|
$
|
(27,745
|
)
|
|
|
|
|
|
$
|
30,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated unrealized gain from derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated unrealized income from available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*)
|
Represents an amount lower than $1
|
The accompanying notes are an integral part of the consolidated financial statements.
F-6
JACADA LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Cash flows from operating activities
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(7,016
|
)
|
|
$
|
13,237
|
|
|
$
|
4,116
|
|
Less: net income from discontinued operation
|
|
|
(583
|
)
|
|
|
(18,234
|
)
|
|
|
(7,540
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
|
(7,599
|
)
|
|
|
(4,997
|
)
|
|
|
(3,424
|
)
|
Adjustments required to reconcile net loss from continuing operations to net cash used in operating activities
from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
546
|
|
|
|
811
|
|
|
|
746
|
|
Stock-based compensation related to options granted to employees, non-employees and directors
|
|
|
431
|
|
|
|
867
|
|
|
|
830
|
|
Accrued interest and amortization of premium (accretion of discount) on marketable securities
|
|
|
139
|
|
|
|
389
|
|
|
|
(155
|
)
|
Loss (gain) on marketable securities
|
|
|
(353
|
)
|
|
|
372
|
|
|
|
-
|
|
Accrued severance pay, net
|
|
|
(315
|
)
|
|
|
(18
|
)
|
|
|
51
|
|
Increase in trade receivables, net
|
|
|
(236
|
)
|
|
|
(1,100
|
)
|
|
|
(2,655
|
)
|
Decrease (increase) in other current assets
|
|
|
176
|
|
|
|
(478
|
)
|
|
|
(668
|
)
|
Deferred taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,404
|
)
|
Increase (decrease) in trade payables
|
|
|
(51
|
)
|
|
|
78
|
|
|
|
(35
|
)
|
Decrease in deferred revenues
|
|
|
(307
|
)
|
|
|
(948
|
)
|
|
|
(954
|
)
|
Increase (decrease) in accrued expenses and other liabilities
|
|
|
(908
|
)
|
|
|
(212
|
)
|
|
|
735
|
|
Increase (decrease) in other long-term liabilities
|
|
|
(62
|
)
|
|
|
185
|
|
|
|
-
|
|
Other
|
|
|
-
|
|
|
|
10
|
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities from continuing operations
|
|
|
(8,539
|
)
|
|
|
(5,041
|
)
|
|
|
(10,951
|
)
|
Net cash provided by (used in) operating activities from discontinued operations
|
|
|
(475
|
)
|
|
|
(1,684
|
)
|
|
|
7,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(9,014
|
)
|
|
|
(6,725
|
)
|
|
|
(3,226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in marketable securities
|
|
|
(12,801
|
)
|
|
|
(29,297
|
)
|
|
|
(12,566
|
)
|
Proceeds from marketable securities
|
|
|
21,039
|
|
|
|
37,523
|
|
|
|
16,455
|
|
Purchase of property and equipment
|
|
|
(275
|
)
|
|
|
(982
|
)
|
|
|
(478
|
)
|
Proceeds from sale of property and equipment
|
|
|
-
|
|
|
|
5
|
|
|
|
23
|
|
Decrease (increase) in restricted cash
|
|
|
2
|
|
|
|
(559
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities from continuing operations
|
|
|
7,965
|
|
|
|
6,690
|
|
|
|
3,434
|
|
Net cash provided by discontinued operation, net
|
|
|
2,640
|
|
|
|
22,083
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
10,605
|
|
|
|
28,773
|
|
|
|
3,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
F-7
JACADA LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
Cash flows from financing activities
:
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury shares
|
|
|
-
|
|
|
|
(17,863
|
)
|
|
|
-
|
Repurchase of options
|
|
|
(250
|
)
|
|
|
-
|
|
|
|
-
|
Proceeds from exercise of stock options
|
|
|
68
|
|
|
|
914
|
|
|
|
1,017
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities from continuing operations *)
|
|
|
(182
|
)
|
|
|
(16,949
|
)
|
|
|
1,017
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
156
|
|
|
|
-
|
|
|
|
-
|
Increase in cash and cash equivalents
|
|
|
1,565
|
|
|
|
5,099
|
|
|
|
1,225
|
Cash and cash equivalents at the beginning of the year
|
|
|
11,059
|
|
|
|
5,960
|
|
|
|
4,735
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the year
|
|
$
|
12,624
|
|
|
$
|
11,059
|
|
|
$
|
5,960
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flows activities
:
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
Taxes on income
|
|
$
|
158
|
|
|
$
|
76
|
|
|
$
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
*)
|
There were no cash flows from financing activities related to discontinued operations.
|
The accompanying notes are an integral part of the consolidated financial statements.
F-8
JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except
share and per share data
NOTE 1:- GENERAL
|
a.
|
Jacada Ltd. and its subsidiaries (collectively - the Company) develop, market and support unified service desktop and process
optimization solutions that simplify and automate customer service processes. The Company generates revenues from licensing its software products and from services such as implementation and customization, consulting, training and maintenance and
support.
|
Jacada Ltd.s wholly-owned subsidiaries include Jacada, Inc., a corporation
organized under the laws of the state of Delaware, Jacada (Europe) Limited, a company organized under the laws of England and Jacada Nordic AB, a company organized under the laws of Sweden during 2009. Jacada (Europe) Limited owns 100% of the stock
of Jacada Deutschland GmbH, a limited liability company organized under the laws of Germany. The majority of the Companys sales are made in North America and Europe.
|
b.
|
Discontinued operations:
|
On December 19, 2007, the Company signed an agreement for the sale of its traditional market business. The closing took place on January 1, 2008.
The proceeds from the sale amounted to $ 26,000, of which $ 2,600 was held in escrow by a trustee through July 2009 as a
security for payment of potential indemnification claims. The escrow amount, together with accrued interest of $ 40, are presented as restricted cash held by trustee on the balance sheet as of December 31, 2008. In July 2009, the $2,600 was
released to the Company. The capital gain, net of taxes, amounted to $ 18,399, and recorded in 2008.
In
accordance with the provisions of Accounting Standard Codification 205-20, Discontinued Operations (ASC 205-20), the activity of the disposed traditional market business was classified as discontinued operation in previous
and in these consolidated financial statements.
As of December 31, 2008, the carrying amounts of the
major classes of assets and liabilities included as part of the discontinued operations are as follows:
|
|
|
|
Trade receivables
|
|
$
|
11
|
Other current assets
|
|
|
53
|
|
|
|
|
Assets of discontinued operations
|
|
$
|
64
|
|
|
|
|
Accrued expenses and other liabilities
|
|
$
|
1,363
|
|
|
|
|
Liabilities of discontinued operations
|
|
$
|
1,363
|
|
|
|
|
There were no assets and liabilities
associated with the discontinued operations as of December 31, 2009.
F-9
JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except
share and per share data
NOTE 1:- GENERAL (Cont.)
The results of the discontinued operations for the years ended
December 31, 2009, 2008 and 2007 are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
Revenues
|
|
$
|
-
|
|
$
|
-
|
|
$
|
12,719
|
Pretax income *)
|
|
$
|
810
|
|
$
|
25,968
|
|
$
|
10,894
|
Net income **)
|
|
$
|
583
|
|
$
|
18,234
|
|
$
|
7,540
|
|
*)
|
In 2008, this amount includes capital gain before taxes on income, in the amount of $26,133.
|
|
**)
|
In 2008, this amount includes capital gain, net of taxes on income in the amount of $18,399.
|
The disposal of the traditional market business meets the criteria of discontinued operations under ASC 205-20, because,
among other things, no significant cash outflow or cash inflow are expected to be generated or paid by the Company in respect of the discontinued operations and the Company will have no significant continuing involvement in the operations of the
traditional market business after its disposal.
|
c.
|
As for major customers, see Note 11b.
|
On December 1, 2008, the Companys board of directors approved a comprehensive global Restructuring Plan (the Plan). The Plan included a reduction in the Companys work force
and other related cost containment strategies in order to align the Companys operations and expenses with the Companys anticipated business levels during 2009. These changes resulted in a 14% reduction in workforce worldwide. The Plan
established the benefits that employees would receive upon termination. In accordance with Accounting Standard Codification 420, Exit or Disposal Cost Obligations (ASC 420), the Company recorded $ 201 related to one-time
termination benefits provided to terminated employees. As of December 31, 2008, all terminated employees no longer provided services to the Company. In addition, the Company incurred costs for abandonment of office space and other costs in the
amounts of $ 164 and $ 86 respectively. As of December 31, 2009, the Company has completed its restructuring plan and, accordingly, no reserves for these restructuring costs remained.
F-10
JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except
share and per share data
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles
(U.S. GAAP).
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those estimates.
|
b.
|
Financial statements in U.S. dollars:
|
A significant portion of the revenues and expenses of the Company are generated in United States dollars (dollars). The Companys management believes that the dollar
is the currency of the primary economic environment in which the Company operates. Thus, the functional and reporting currency of the Company is the dollar.
In accordance with Accounting Standard Codification 830, Foreign Currency Matters (ASC 830), for those foreign subsidiaries whose functional currency has been
determined to be a currency other than the dollar, assets and liabilities are translated at year-end exchange rates and statements of operations items are translated at average exchange rates prevailing during the year for that currency. Translation
adjustments are recorded in accumulated other comprehensive income (loss), a separate component of shareholders equity.
Monetary accounts maintained in currencies other than the dollar are remeasured into dollars. All transaction gains and losses of the remeasurement of monetary balance sheet items are reflected in the
statement of operations as financial income or expenses, as appropriate.
|
c.
|
Principles of consolidation:
|
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany transactions and balances have been eliminated upon consolidation.
Cash equivalents are short-term, highly liquid investments that are readily convertible to cash with original maturities of three months or less at acquisition.
|
e.
|
Investments in marketable securities:
|
The Company accounts for investments in marketable securities in accordance with Accounting Standard Codification 320, Investments - Debt and Equity Securities (ASC
320).
Management determines the appropriate classification of its investments at the time of purchase
and reevaluates such determinations at each balance sheet date.
The Company classifies all of its securities
as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, reported in accumulated other comprehensive income (loss) in shareholders equity. The amortized cost of marketable securities
is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization and accretion are included in financial income, net.
F-11
JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except
share and per share data
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Interest on securities is included in financial income, net. Realized
gains and losses on sale of investments are included in earnings and are derived using the specific identifications method for determining the cost of securities.
On April 1, 2009, the Company adopted a new guidance, ASC 320-10-65-1, Recognition and Presentation of Other-Than-Temporary Impairments (formerly FSP FAS
No. 115-2 and FSP FAS No. 124-2), that changed the impairment and presentation model for its available for sale debt securities. Under the amended impairment model, an other-than-temporary impairment loss is recognized in earnings if the
entity has the intent to sell the debt security, or if it is more likely than not that it will be required to sell the debt security before recovery of its amortized cost basis. However, if an entity does not expect to sell a debt security, it still
needs to evaluate expected cash flows to be received and determines if a credit loss exists. In the event of a credit loss, only the amount of impairment associated with the credit loss is recognized currently in earnings. Amounts relating to
factors other than credit losses are recorded in other comprehensive income (loss).
Upon adoption of the new
guidance, an entity is required to record a cumulative-effect adjustment as of the beginning of the period of adoption to reclassify the noncredit component of a previously recognized other-than-temporary impairment from retained earnings to
accumulated other comprehensive income (loss). The adoption of the new guidance had no impact on the Companys consolidated financial position, results of operations or cash flows.
Restricted cash is invested in bank deposits, which are pledged in favor of the banks which provides to the Company guarantees with respect to office lease agreements and hedging transactions.
|
g.
|
Property and equipment:
|
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated by the straight-line method over the estimated useful lives of the assets at the following annual
rates:
|
|
|
|
|
%
|
Computers and peripheral equipment
|
|
20 - 33
|
Office furniture and equipment
|
|
6 - 15
|
Leasehold improvements
|
|
Over the shorter of the related lease period (including option terms) or the life of the asset
|
F-12
JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except
share and per share data
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
h.
|
Impairment of long-lived assets:
|
The Companys long-lived assets, tangible and intangible, other than goodwill, are reviewed for impairment in accordance with ASC 360, Property Plant and Equipment (formerly SFAS
No. 144), whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the
future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
In 2009 and 2008, no impairment losses were identified. In 2007, the Company recorded an impairment loss in the amount of $ 155 in cost of revenues.
Goodwill represents the excess of the cost of businesses acquired over the fair value of the net assets acquired in the acquisition. Under ASC 350, Intangibles - Goodwill and Other (formerly
SFAS No. 142) goodwill is not amortized but instead is tested for impairment at least annually (or more frequently if impairment indicators arise).
ASC 350 prescribes a two-phase process for impairment testing of goodwill. The first phase screens for impairment, while the second phase (if necessary) measures impairment.
In the first phase of impairment testing, goodwill attributable to the reporting units is tested for impairment by
comparing the fair value of the reporting unit with its carrying value. If the carrying value of the reporting unit exceeds its fair value, the second phase is then performed. The second phase of the goodwill impairment test compares the implied
fair value of the reporting units goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting units goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount
equal to that excess.
Goodwill attributable to the Companys single reporting unit as defined under ASC
350 was tested for impairment by comparing its fair value with its carrying value.
Fair value is determined
using the Companys market capitalization and the discounted cash flows method. The Company performs the impairment tests during the third fiscal quarter. During 2009, 2008 and 2007, no impairment losses were identified.
|
j.
|
Research and development costs:
|
Research and development costs are charged to the statement of operations as incurred. ASC 985-20 Costs of Software to Be Sold, Leased, or Marketed, requires capitalization of certain software
development costs subsequent to the establishment of technological feasibility.
Based on the Companys
product development process, technological feasibility is established upon completion of a working model. No costs are incurred by the Company between the completion of the working model and the point at which the products are ready for general
release. Therefore, research and development costs have been expensed as incurred.
F-13
JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except
share and per share data
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The Company accounts for income taxes in accordance with ASC 740, Income Taxes. This Statement prescribes the use of the liability method, whereby deferred tax asset and liability account
balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company
provides a valuation allowance, if necessary, to reduce deferred tax assets to their estimated realizable value.
On January 1, 2007, the Company adopted ASC 740-10-55 in relation with Accounting for Uncertainty in Income Taxes (ASC 740-10-55). ASC 740-10-55 contains a two-step approach to recognizing and measuring
uncertain tax positions. The first step is to evaluate the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that it is more likely than not that, on an evaluation of the
technical merits, the tax position will be sustained on audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon
ultimate settlement. The adoption of ASC 740-10-55 did not have a material impact on the Companys consolidated financial statements.
The Company derives its revenue principally from:
|
|
|
the initial sales of licenses to use the Companys products, including customization, implementation and integration services,
|
|
|
|
incremental license fees resulting from a customers increase in agent licenses required,
|
|
|
|
post-implementation consulting and integration services for the Companys solutions, and
|
|
|
|
the recurring revenue from ongoing support and maintenance, also called post-contract support or PCS, which includes telephone support, bug repairs,
and rights to receive upgrades and enhancements to licensed software on a when-and-if-available basis.
|
Sales of software licenses are recognized when persuasive evidence of an agreement exists, delivery of the product has occurred, the fee is fixed or determinable, and collectability is probable. The
Company considers all arrangements with payment terms extending beyond six months from the delivery of the elements, not to be fixed or determinable. If the fee is not fixed or determinable, revenue is recognized as payments become due from the
customer, provided that all other revenue recognition criteria have been met. The Company does not grant a right of return to its customers. In transactions where a customers contractual terms include a provision for customer acceptance,
revenues are recognized either when such acceptance has been obtained or as the acceptance provision lapses.
The Company usually sells its software licenses as part of an overall solution offered to a customer that combines the sale of software licenses with customization, implementation and integration services. These services are considered
essential to the software. In arrangements which include significant customization of software and services, the Company accounts for the services together with the software under contract accounting in accordance with ASC 605-35,
Construction-Type and Production-Type Contracts.
F-14
JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except
share and per share data
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
Revenues recognized in accordance with ASC 605-35 are accounted for
using the percentage of completion method. The percentage of completion method is used when the required services are quantifiable, based on the estimated number of labor hours necessary to complete the project, and under that method revenues are
recognized using labor hours incurred as the measure of progress towards completion.
Provisions for estimated
losses on uncompleted contracts are made in the period in which such losses are determined in the amount of the estimated loss on the entire contract. As of December 31, 2009 and 2008, no such estimated losses were identified.
Revenue from software that does not require services, including licenses sold subsequent to the initial installation, is
recognized upon delivery, assuming all other revenue recognition criteria has been met.
Revenue from
post-implementation consulting and integration services is recognized as work is performed.
Maintenance
revenue is recognized ratably over the term of the maintenance agreement. Deferred revenues include unearned amounts received under maintenance and support agreements and amounts received from customers, for which revenues have not yet been
recognized.
Software arrangements involving multiple elements, such as software, post-contract customer
support, consulting and training, revenues are allocated to the different elements in the arrangement under the residual method when Vendor Specific Objective Evidence (VSOE) of fair value exists for all undelivered elements
and no VSOE exists for the delivered elements. The residual method of allocation requires an entity to first allocate revenue to the fair value of the undelivered elements (maintenance and other services) and the residual revenue to the delivered
element (software licenses). Any discount in the arrangement is allocated to the delivered element. VSOE of fair value for maintenance and other services is determined based on the price charged for the undelivered element when sold separately.
VSOE of fair value for maintenance and other services is determined based on the price charged for the
undelivered element when sold separately. The Companys process for establishing VSOE of fair value of maintenance services (PCS) is through performance of VSOE compliance test which is an analysis of the entire population of PCS renewal
activity for our installed base of customers. The Companys process for the establishment of VSOE of fair value for consulting and training services is through a performance of an analysis of the entire population of separate sales of services.
The Company accounts for reimbursements received for out-of-pocket expenses incurred, in accordance with ASC
605-45-45, Reimbursements Received for Out-of-Pocket Expenses Incurred, under which reimbursements received for out-of-pocket expenses incurred should be characterized as revenue in the income statement. The reimbursements received for
out-of-pocket expenses for years ended December 31, 2009, 2008 and 2007 amounted to $ 727, $ 1,310 and $ 655, respectively
F-15
JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except
share and per share data
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
|
m.
|
Accounting for stock-based compensation:
|
The Company accounts for stock-based compensation under ASC 718 Compensation - Stock Compensation, which requires the measurement and recognition of compensation expense based
on estimated fair values for all stock-based payment awards made to employees and directors. ASC 718 requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The value of the
portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods in the Companys consolidated statements of operations.
The Company recognizes compensation expenses for the value of its awards based on the accelerated attribution method over
the requisite service period of each of the awards, net of estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Estimated
forfeitures are based on actual historical pre-vesting forfeitures.
The Company has historically not paid
dividends and has no foreseeable plans to pay dividends. The Company used its historical stock prices for calculating volatility. The risk-free interest rate assumption is based on the rate of zero-coupon U.S. government securities appropriate for
the expected term of the Companys employee stock options. In 2007 the Company determined the expected life of the options according to the simplified method, average of vesting and the contractual term of the Companys stock option. In
2009 and 2008, the Company determined the expected life of the options according to the historical exercise data.
The Company estimates the fair value of stock options awards using the Black-Scholes option pricing model. The fair value for options granted in 2009, 2008 and 2007 was estimated at the date of grant using the following weighted average
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Dividend yield
|
|
0
|
%
|
|
0
|
%
|
|
0
|
%
|
Expected volatility
|
|
48
|
%
|
|
41
|
%
|
|
46
|
%
|
Risk-free interest
|
|
1.95
|
%
|
|
2.71
|
%
|
|
4.03
|
%
|
Expected life (years)
|
|
4.4
|
|
|
4.6
|
|
|
4.5
|
|
Advertising expenses are charged to the statement of operations, as incurred. Advertising expenses for the years ended December 31, 2009, 2008 and 2007 were $ 245, $ 439 and $ 574,
respectively.
The Companys liability for severance pay for its Israeli employees is calculated pursuant to Israels Severance Pay Law based on the most recent salary of the employees multiplied by the number
of years of employment, as of the balance sheet date. Israeli employees are entitled to severance equal to one months salary for each year of employment or a portion thereof. The Companys liability for all of its Israeli employees is
fully provided by monthly deposits with insurance policies and by an accrual. The value of these policies is recorded as an asset in the Companys balance sheet.
F-16
JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except
share and per share data
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The deposited funds include profits (losses) accumulated up to the
balance sheet date. The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to Israels Severance Pay Law or labor agreements. The value of the deposited funds is based on the cash surrendered value of these
policies.
Commencing from 2005, new employees of the Company are subject to Section 14 of the Severance
Pay Law, under which the payments to the pension funds and insurance companies discharge the Companys obligation to the employees. Accumulated amounts in the pension funds and with the insurance companies are not under the control or
administration of the Company, and accordingly, neither those amounts nor the corresponding accrual for severance pay are reflected in the balance sheet. The obligation of the Company, under law and labor agreements, for termination benefits to
employees not covered by the aforementioned pension or insurance plans are included in the balance sheet.
The severance pay expense for the years ended December 31, 2009, 2008 and 2007 amounted to $ 394, $ 492 and $ 435, respectively.
|
p.
|
Fair value of financial instruments:
|
Effective January 1, 2008, the Company adopted the provisions of ASC 820, Fair Value Measurements and Disclosures. Under ASC 820, fair value is defined as the price
that would be received to sell an asset or paid to transfer a liability (i.e., the exit price) in an orderly transaction between market participants at the measurement date.
In determining fair value, the Company uses various valuation approaches. ASC 820 establishes a hierarchy for inputs used
in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in
pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Companys assumptions about the assumptions market participants would use in pricing
the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the observability of inputs as follows:
|
|
|
Level 1 - Valuations based on quoted prices in active markets for identical assets that the Company has the ability to access. Valuation adjustments
and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.
|
|
|
|
Level 2 - Valuations based on one or more quoted prices in markets that are not active or for which all significant inputs are observable, either
directly or indirectly.
|
|
|
|
Level 3 - Valuations based on unobservable inputs which are supported by little or no market activity and significant to the overall fair value
measurement.
|
F-17
JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except
share and per share data
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The availability of observable inputs can vary from investment to
investment and is affected by a wide variety of factors, including, for example, the type of investment, the liquidity of markets and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that
are less observable or unobservable in the market, the determination of fair value requires more judgment and the investments are categorized as Level 3.
The carrying amounts of financial instruments carried at cost, including cash and cash equivalents, trade receivables, other current assets, trade payables and other liabilities approximate their fair
value due to the short-term maturities of such instruments.
|
q.
|
Derivative instruments:
|
The Company carries out transactions involving foreign currency exchange derivative financial instruments. The transactions are designed to hedge the Companys exposure in currencies other than the
dollar. The Company recognizes derivative instruments as either assets or liabilities and measures those instruments at fair value. If a derivative meets the definition of a hedge and is so designated, changes in the fair value of the derivative are
recognized in other comprehensive income (loss) until the hedged item is recognized in earnings. The ineffective portion of a derivative designated as a hedge is recognized in earnings. If a derivative does not meet the definition of a hedge, the
changes in the fair value are included in earnings.
|
r.
|
Net earnings (loss) per share:
|
Basic net loss per share is computed based on the weighted average number of Ordinary shares outstanding during each year. Diluted net loss per share is computed based on the weighted average number of
Ordinary shares outstanding during each year, plus dilutive potential Ordinary shares considered outstanding during the year, in accordance with ASC 260, Earnings Per Share.
All outstanding stock options have been excluded from the calculation of the diluted net earnings (loss) per share from
continuing operations because the securities are anti-dilutive for all periods presented. The total weighted average number of shares related to the outstanding stock options excluded from the calculations of diluted net earnings (loss) per share
due to their anti-dilutive effect were 3,053,357, 3,520,450 and 3,646,461 for the years ended December 31, 2009, 2008 and 2007, respectively.
|
s.
|
Concentrations of credit risk:
|
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, marketable securities and trade receivables.
Cash and cash equivalents are invested mainly in U.S. dollars with major banks in the United States, Israel and other
international banks. Such cash and cash equivalents in the United States may be in excess of insured limits and are not insured in other jurisdictions. Management believes that the financial institutions that hold the Companys investments are
institutions with high credit standing, and accordingly, minimal credit risk exists with respect to these investments.
F-18
JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except
share and per share data
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
The Companys marketable securities include investments in
debentures of U.S. corporations, U.S. government securities, other government securities, U.S. government sponsored enterprises securities and other securities. The Companys investment policy limits the amount the Company may invest in any one
type of issuer, except U.S. government securities, thereby reducing credit risk concentrations.
The
Companys trade receivables are mainly derived from sales to customers in North America and Europe. In judging the probability of collection from customers the Company continuously monitors collection and payments based upon the Companys
historical experience of its existing customers. In connection with customers with whom the Company does not have previous experience, it evaluates the creditworthiness of those customers. An allowance for doubtful accounts is determined with
respect to those amounts that the Company has determined to be doubtful of collection.
The Company presents the cost to repurchase treasury shares as a reduction of shareholders equity.
|
u.
|
Adoption of New Accounting Standards:
|
On July 1, 2009, the Financial Accounting Standards Board (FASB) issued the FASB Accounting Standards Codification (the ASC). The ASC became the single
source of authoritative nongovernmental U.S. generally accepted accounting principles (GAAP), superseding existing pronouncements issued by the FASB, the American Institute of Certified Public Accountants, the Emerging Issues Task Force
and related literature. The ASC eliminates the previous U.S. GAAP hierarchy and establishes one level of authoritative GAAP. Rules and interpretive releases issued by the Securities and Exchange Commission (SEC) under authority of
federal securities law are also sources of the authoritative GAAP for SEC registrants. All other literature is considered non-authoritative. The ASC is effective for interim and annual periods ending after September 15, 2009.
In April 2009, the FASB issued authoritative guidance on recognition and presentation of other-than-temporary impairments.
This guidance clarifies the interaction of the factors that should be considered when determining whether a debt security is other than temporarily impaired; provides guidance on the amount of an other-than-temporary impairment recognized in
earnings and other comprehensive income; and expands the disclosures required for other-than-temporary impairments for debt and equity securities. The guidance requires an entity to assess whether it intends to sell, or it is more likely than not
that it will be required to sell a security before recovery of its amortized cost basis. If either of those criteria is met, the entire difference between amortized cost and fair value is recognized in earnings. For securities that do not meet these
criteria, the amount of impairment recognized in earnings is limited to the amount related to credit losses, while impairment related to other factors is recognized in other comprehensive income. The Company adopted this guidance on April 1,
2009. See also Note 2(e) above.
In May 2009, the FASB issued authoritative guidance on subsequent events,
which sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may have occurred for potential recognition or disclosure in the financial statements. The guidance
also sets forth the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. The Company adopted this guidance in these financial statements.
F-19
JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except
share and per share data
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.)
In March 2008, the FASB issued amended guidance on disclosures about
derivative instruments and hedging activities. This guidance applies to all derivative instruments and non-derivative instruments that are designated and qualify as hedging instruments and related hedged items. This guidance requires entities to
provide greater transparency through additional disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for, and how derivative instruments and related hedged items
affect an entitys financial position, results of operations and cash flows. The adoption of this guidance did not impact the Companys consolidated financial results as it requires additional disclosure, rather than a change in
accounting. See Note 7.
NOTE 3:- MARKETABLE SECURITIES
The following is a summary of the Companys investment in marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
December 31, 2008
|
|
|
Amortized
cost
|
|
Gross
unrealized
Gains
|
|
Gross
unrealized
losses
|
|
|
Fair
value
|
|
Amortized
cost
|
|
Gross
unrealized
gains
|
|
Gross
unrealized
losses
|
|
Fair
value
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debentures
|
|
$
|
4,761
|
|
$
|
61
|
|
$
|
(7
|
)
|
|
$
|
4,815
|
|
$
|
7,358
|
|
$
|
114
|
|
$
|
-
|
|
$
|
7,472
|
U.S. government securities
|
|
|
3,703
|
|
|
-
|
|
|
-
|
|
|
|
3,703
|
|
|
3,900
|
|
|
-
|
|
|
-
|
|
|
3,900
|
States of the U.S securities *)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
2,647
|
|
|
-
|
|
|
-
|
|
|
2,647
|
Other government securities
|
|
|
1,641
|
|
|
-
|
|
|
(13
|
)
|
|
|
1,628
|
|
|
1,533
|
|
|
21
|
|
|
-
|
|
|
1,554
|
U.S. government sponsored enterprises securities
|
|
|
508
|
|
|
12
|
|
|
-
|
|
|
|
520
|
|
|
3,182
|
|
|
56
|
|
|
-
|
|
|
3,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,613
|
|
$
|
73
|
|
$
|
(20
|
)
|
|
$
|
10,666
|
|
$
|
18,620
|
|
$
|
191
|
|
$
|
-
|
|
$
|
18,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*)
|
At December 31, 2008, the Company had $ 3,000 of principal invested in Auction Rate Security (ARS). The ARS held by the Company is
a municipal bond of a U.S state, guaranteed by the Federal government, under the Federal Family Education Loan Program for financing student loans, with long-term nominal maturities for which the interest rates are reset through an auction each
month. The monthly auctions historically have provided a liquid market for these securities.
|
At the time of purchase the ARS investment had AAA credit ratings. With the liquidity issues experienced in global credit and capital markets, the ARS held by the Company at December 31, 2008 had experienced multiple failed auctions as
the amount of securities submitted for sale had exceeded the amount of purchase orders. As of December 31, 2008 the ARS continued to pay interest according to its stated terms.
The estimated market value of the ARS as of December 31, 2008 was $ 2,647, which was determined based on valuation
model performed by the Company. As the Company had no intent to hold the ARS until its fair value recovered, the Company recorded an other-than-temporary impairment charge of $ 353 to financial expenses in 2008.
In March 2009, the Company sold the ARS for its par value of $ 3,000, plus any and all accrued interest and recorded a
gain of $ 353 in financial income.
F-20
JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except
share and per share data
NOTE 3:- MARKETABLE SECURITIES (Cont.)
The amortized cost and fair value of marketable securities as of
December 31, 2009, by contractual maturity, are shown below:
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
Amortized
cost
|
|
Fair
market value
|
Matures in one year
|
|
$
|
6,190
|
|
$
|
6,210
|
Matures after one year through five years
|
|
|
4,423
|
|
|
4,456
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,613
|
|
$
|
10,666
|
|
|
|
|
|
|
|
NOTE 4:- PROPERTY AND EQUIPMENT, NET
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2009
|
|
2008
|
Cost:
|
|
|
|
|
|
|
Computers and peripheral equipment
|
|
$
|
4,574
|
|
$
|
4,861
|
Office furniture and equipment
|
|
|
1,003
|
|
|
977
|
Leasehold improvements
|
|
|
620
|
|
|
734
|
|
|
|
|
|
|
|
|
|
|
6,197
|
|
|
6,572
|
Accumulated depreciation
|
|
|
5,203
|
|
|
5,306
|
|
|
|
|
|
|
|
Depreciated cost
|
|
$
|
994
|
|
$
|
1,266
|
|
|
|
|
|
|
|
Depreciation expenses for the years
ended December 31, 2009, 2008 and 2007 were $ 546, $ 693 and $ 411, respectively.
NOTE
5:- ACCRUED EXPENSES AND OTHER LIABILITIES
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2009
|
|
2008
|
Employees and payroll accruals
|
|
$
|
1,070
|
|
$
|
1,933
|
Accrued expenses
|
|
|
1,328
|
|
|
1,163
|
|
|
|
|
|
|
|
|
|
$
|
2,398
|
|
$
|
3,096
|
|
|
|
|
|
|
|
F-21
JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except
share and per share data
NOTE 6:- COMMITMENTS AND CONTINGENT LIABILITIES
In August 1999, a former distributor filed an arbitration demand in the United States against a subsidiary of Jacada Ltd. located in the United Kingdom. This demand alleged that the subsidiary breached
its agreement with the distributor by directly selling products to a customer, while the distributor had an exclusive right to sell products to said customer, and that the distributor was entitled to damages of $ 3,500. A decision by a United
States arbitrator was entered during 2001, which awarded the distributor a net amount of $ 392 and 50% of amounts collected from this customer in the future and legal expenses related to the arbitration.
On April 24, 2001, the subsidiary of the Company filed a separate action to vacate the arbitration award.
Subsequently, the distributor filed an application for enforcement of the arbitration award. Pursuant to an October 21, 2003 Order, the arbitration award was validated by the United States Court for the Western District of Michigan, and the
subsidiarys motion to vacate was denied. The subsidiary filed an appeal with the United States Court for the Sixth Judicial Circuit and on March 18, 2005, the Court of Appeals confirmed the District Courts decision. The
subsidiarys motion for rehearing filed with the Court of Appeals was also denied. The arbitration award was therefore final. To have the arbitration award enforced, however, the distributor was required to file for enforcement in the courts of
the United Kingdom.
On October 2, 2008, the distributor sent an attorney letter indicating the
distributors intention to enforce the Judgment and requested to resolve the matter by a mutual settlement prior to their commencement of any enforcement proceedings. On December 8, 2008, the subsidiary of the Company responded claiming
that an attempt to enforce the Judgment in the United Kingdom would be misconceived and bound to fail due to various reasons, including inter alia, the expiration of the statutory limitation period for enforcement of an arbitration award in the
United Kingdom.
As of October 2009, the statutory limitation period for enforcement of the arbitration award
and the district court judgment in the United Kingdom expired. As a result, the Company reversed a provision associated with the claim during the 2009 fourth quarter in the amount of $583, net of taxes, which was recorded in income from discontinued
operations, net of taxes.
The Companys facilities are leased under various operating lease agreements, which expire on various dates, the latest of which is in 2013. Future minimum lease payments under non-cancelable
operating leases as of December 31, 2009 are as follows:
|
|
|
|
2010
|
|
$
|
687
|
2011
|
|
|
638
|
2012
|
|
|
445
|
2013
|
|
|
59
|
|
|
|
|
|
|
$
|
1,829
|
|
|
|
|
Total rent expenses for the years
ended December 31, 2009, 2008 and 2007 were approximately $ 733, $ 832 and $ 916, respectively.
F-22
JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except
share and per share data
NOTE 7:- DERIVATIVE FINANCIAL INSTRUMENTS
In order to reduce the impact of changes in foreign currency exchange rates on its results, the Company enters into foreign
currency exchange forward contracts to purchase and sell foreign currencies to hedge a significant portion of its foreign currency net exposure resulting from expense transactions denominated in currencies other than the dollar. The Company
designates these contracts for accounting purposes as cash flow hedges. The Company currently hedges its exposure to the variability in future cash flows for a maximum period of one year.
The effective portion of the gain or loss on the derivative instruments is initially recorded as a component of other
comprehensive income (loss), a separate component of shareholders equity, and subsequently reclassified into earnings to the same line item as the related forecasted transaction and in the same period or periods during which the hedged
exposure affects earnings. The cash flow hedges are evaluated for effectiveness at least quarterly. As the critical terms of the forward contract or options and the hedged transaction are matched at inception, the hedge effectiveness is assessed
generally based on changes in the fair value for cash flow hedges as compared to the changes in the fair value of the cash flows associated with the underlying hedged transactions. Hedge ineffectiveness, if any, are recognized immediately in
interest (expense) income and other, net. Gain (loss) on the derivative instruments, which partially offset the foreign currency impact from the underlying exposures, reclassified from other comprehensive income (loss) into cost of service, cost of
maintenance, research and development and general and administrative for the year ended December 31, 2009 were $ (23), $ (3), $ (70) and $(24), respectively. There was no ineffective portion of the change in fair value of a cash flow hedge
for the year ended December 31, 2009.
The Companys derivatives expose it to credit risks from
possible non-performance by counterparties. The maximum amount of loss due to credit risk that the Company would incur if counterparties to the derivative financial instruments failed completely to perform according to the terms of the contracts,
based on the gross fair value of the Companys derivative contracts that are favorable to the Company, was approximately $ 46 as of December 31, 2009. The Company has limited its credit risk by entering into derivative transactions
exclusively with investment-grade rated financial institutions and monitors the creditworthiness of these financial institutions on an ongoing basis. The Company classifies cash flows from its derivative transactions as cash flows from operating
activities in the consolidated statements of cash flow.
The notional amounts of the Companys
derivative instruments as of December 31, 2009 amounted to $ 1,879. Notional values are dollar translated and calculated based on forward rates as of December 31, 2009. Gross notional amounts do not quantify risk or represent assets or
liabilities of the Company, but are used in the calculation of settlements under the contracts.
As of
December 31, 2009, amounts related to derivatives designated as cash flow hedges and recorded in accumulated other comprehensive income totaled $ 39 which will be reclassified into earnings within the next 12 months and will partially offset
the foreign currency impact from the underlying exposures. The amount ultimately realized in earnings will likely differ due to future changes in foreign exchange rates. Gains (losses) from cash flow hedges recognized in other comprehensive income
(loss) in the year ended December 31, 2009 amounted to $ 120. Gains (losses) reclassified from other comprehensive income (loss) into earnings in the year ended December 31, 2009 amounted to $ (50).
The Company records all derivative instruments on the balance sheet at fair value. The fair value of the open foreign
exchange contracts appears on its consolidated balance sheets as of December 31, 2009, as an asset in other current assets, in the amount of $ 39.
F-23
JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except
share and per share data
NOTE 8:- FINANCIAL INSTRUMENTS
The Company values its marketable securities using a market approach, using quoted prices in markets that are not
considered active, but for which all significant inputs are observable, either directly or indirectly. The Companys marketable securities are generally classified within level 2 of the fair value hierarchy. In accordance with ASC 820, the
Company does not adjust the quoted price for such instruments. The types of instruments that trade in markets that are not considered to be active, but are valued based on quoted market prices, broker or dealer quotations, or alternative pricing
sources with reasonable levels of price transparency (level 2) include corporate debentures, U.S government treasuries, other government securities and U.S. government sponsored enterprises securities.
The Company values its foreign currency derivative contracts using a market approach. Foreign currency derivative contracts
are classified within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments.
Investments in student loan Auction Rate Securities (ARS) with interest rates that are reset through periodic auctions are backed by pools of student loans. ARS were historically traded
and valued at par due to the auction mechanism and generally liquid markets that existed. Beginning in fiscal 2008, uncertainties in the credit markets resulted in auctions failing for certain types of ARS. Once the auctions failed, ARS could no
longer be valued using observations of auction market prices. Accordingly, in 2008 the ARS were classified within level 3 as its fair value was determined using internally developed methodology to discount for the lack of liquidity and
non-performance risk in the current market environment. In March 2009, the Company sold the ARS in consideration for its par value in amount of $ 3,000, plus any and all accrued interest.
F-24
JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except
share and per share data
NOTE 8:- FINANCIAL INSTRUMENTS (Cont.)
The following table presents the Companys assets and liabilities
measured at fair value on a recurring basis as of December 31, 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Fair value measurements using input type
|
|
|
|
Level 1
|
|
Level 2
|
|
|
Level 3
|
|
Total
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S government treasuries
|
|
$
|
-
|
|
$
|
4,000
|
|
|
$
|
-
|
|
$
|
4,000
|
|
|
|
|
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debentures
|
|
|
-
|
|
|
4,815
|
|
|
|
-
|
|
|
4,815
|
|
U.S government treasuries
|
|
|
-
|
|
|
3,703
|
|
|
|
-
|
|
|
3,703
|
|
Other government securities
|
|
|
-
|
|
|
1,628
|
|
|
|
-
|
|
|
1,628
|
|
U.S. government sponsored enterprises securities
|
|
|
-
|
|
|
520
|
|
|
|
-
|
|
|
520
|
|
Foreign currency derivative contracts
|
|
|
-
|
|
|
39
|
|
|
|
-
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
-
|
|
$
|
14,705
|
|
|
$
|
-
|
|
$
|
14,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
Fair value measurements using input type
|
|
|
|
Level 1
|
|
Level 2
|
|
|
Level 3
|
|
Total
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S government treasuries
|
|
$
|
-
|
|
$
|
1,000
|
|
|
$
|
-
|
|
$
|
1,000
|
|
|
|
|
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debentures
|
|
|
-
|
|
|
7,472
|
|
|
|
-
|
|
|
7,472
|
|
U.S government treasuries
|
|
|
-
|
|
|
3,900
|
|
|
|
-
|
|
|
3,900
|
|
Auction Rate Securities issued by a State of the U.S securities
|
|
|
-
|
|
|
-
|
|
|
|
2,647
|
|
|
2,647
|
|
Other government securities
|
|
|
-
|
|
|
1,554
|
|
|
|
-
|
|
|
1,554
|
|
U.S. government sponsored enterprises securities
|
|
|
-
|
|
|
3,238
|
|
|
|
-
|
|
|
3,238
|
|
Foreign currency derivative contracts
|
|
|
-
|
|
|
(14
|
)
|
|
|
-
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
-
|
|
$
|
17,150
|
|
|
$
|
2,647
|
|
$
|
19,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 9:- SHAREHOLDERS EQUITY
Since October 1999, the Companys shares have been traded on the NASDAQ Global Market. Since June 2001, the Companys shares have also been traded on the Tel-Aviv Stock Exchange. Ordinary shares
confer upon their holders the right to receive notice to participate and vote in general meetings of the Company, and the right to receive dividends if declared.
F-25
JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except
share and per share data
NOTE 9:- SHAREHOLDERS EQUITY (Cont.)
|
b.
|
Options issued to employees and directors:
|
As of December 31, 2009, the Company had three Incentive Share Option Plans (the 1996, 1999 and 2003 plans), which provide for the grant of options to officers, management,
employees and key employees, directors, consultants and others of up to 7,760,450 of the Companys Ordinary shares. The options granted generally become fully exercisable after two to four years and expire between 7 to 10 years from the grant
date. Any options from 1999 and 2003 plans that are forfeited or canceled before expiration become available for future grants.
Pursuant to the option plans, the exercise price of options shall be determined by the Companys Board of Directors or the Companys compensation committee but may not be less than the par value
of the Ordinary shares.
As of December 31, 2009, an aggregate of 1,688,983 Ordinary shares of the
Company were still available for future grant under the Incentive Share Option Plans.
A summary of the
Companys option activity and related information with respect to options granted to employees for the year ended December 31, 2009 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
options
|
|
|
Weighted-
average
exercise
price
|
|
Weighted-
average
remaining
contractual
term (in years)
|
|
Aggregate
intrinsic
value
|
Outstanding at the beginning of the year
|
|
3,053,788
|
|
|
$
|
3.36
|
|
4.55
|
|
$
|
606
|
Granted
|
|
891,000
|
|
|
$
|
2.66
|
|
|
|
|
|
Exercised
|
|
(40,388
|
)
|
|
$
|
1.83
|
|
|
|
|
|
Repurchase *)
|
|
(203,500
|
)
|
|
$
|
2.72
|
|
|
|
|
|
Forfeited and cancelled
|
|
(936,233
|
)
|
|
$
|
3.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at the end of the year
|
|
2,764,667
|
|
|
$
|
3.16
|
|
4.09
|
|
$
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable options at the end of the year
|
|
1,632,894
|
|
|
$
|
3.36
|
|
2.76
|
|
$
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected-to-vest at the end of the year
|
|
2,656,070
|
|
|
$
|
3.17
|
|
4.03
|
|
$
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*)
|
In March 2009, the Company purchased 203,500 vested and unexercised options held by a departing executive for an aggregate amount of $ 250. The
repurchase price did not exceed the options fair value on the repurchase date, and accordingly the repurchase amount was charged to shareholders equity and reduced additional paid-in capital by $ 250.
|
The total intrinsic value of stock options exercised during 2009, 2008 and 2007 were $ 23, $ 395 and $ 616,
respectively.
The weighted-average estimated grant date fair value of employee stock options granted during
the years 2009, 2008 and 2007, was $ 1.11, $ 1.37 and $ 1.58 per share, respectively.
F-26
JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except
share and per share data
NOTE 9:- SHAREHOLDERS EQUITY (Cont.)
Stock-based compensation expense in respect of options granted to
employees amounted to $ 420, $ 860 and $ 791 for the years ended December 31, 2009, 2008 and 2007, respectively. The following table presents the stock-based compensation included in the line items below in the Companys
consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31
|
|
|
2009
|
|
2008
|
|
2007
|
Cost of revenues
|
|
$
|
41
|
|
$
|
82
|
|
$
|
97
|
Research and development
|
|
$
|
48
|
|
$
|
72
|
|
$
|
77
|
Sales and marketing
|
|
$
|
101
|
|
$
|
204
|
|
$
|
252
|
General and administrative
|
|
$
|
230
|
|
$
|
502
|
|
$
|
365
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
420
|
|
$
|
860
|
|
$
|
791
|
|
|
|
|
|
|
|
|
|
|
|
c.
|
Options issued to consultants:
|
The Companys outstanding options to consultants as of December 31, 2009, were as follows:
|
|
|
|
|
|
|
|
|
|
Grant date
|
|
Options for
Ordinary
shares
|
|
Exercise
price per
share
|
|
Options
exercisable
|
|
Exercisable
through
|
2000
|
|
4,750
|
|
$
|
4.38
|
|
4,750
|
|
2010
|
2001
|
|
5,000
|
|
$
|
2.89
|
|
5,000
|
|
2011
|
2002
|
|
11,000
|
|
$
|
2.61
|
|
11,000
|
|
2012
|
2004
|
|
30,000
|
|
$
|
2.94
|
|
30,000
|
|
2014
|
2007
|
|
40,000
|
|
$
|
3.18
|
|
40,000
|
|
2011
|
2009
|
|
40,000
|
|
$
|
2.34
|
|
15,000
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
130,750
|
|
|
|
|
105,750
|
|
|
|
|
|
|
|
|
|
|
|
|
In March 2007, the Company granted 40,000 options to consultant. On the grant
date, 10,000 options were fully vested and the remaining options will vest over a period of 1.5 years, commencing on the grant date, 10,000 options every six months. The fair value for these options was estimated using the Black-Scholes
option-pricing model, with the following assumptions: risk free interest rate of 1.96%, dividend yield 0%, volatility 36% and contractual life of 3 years.
In February 2009, the Company granted 40,000 options to consultant. On the grant date, 5,000 options were fully vested and the remaining options will vest over a period of 1.5 years,
commencing on the grant date, 10,000 options every six months until February 2010, 5,000 options in August 2010 and 10,000 options in February 2011. The fair value for these options was estimated using the Black-Scholes option-pricing model, with
the following assumptions: risk free interest rate of 2.13%, dividend yield 0%, volatility 31% and contractual life of 3.1 years.
Stock-based compensation expense in respect of options granted to non employees amounted to $ 11, $ 7 and $ 39 for the years ended December 31, 2009, 2008 and 2007, respectively.
F-27
JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except
share and per share data
NOTE 9:- SHAREHOLDERS EQUITY (Cont.)
|
d.
|
As of December 31, 2009, there was $ 649 of total unrecognized compensation cost related to non-vested share-based compensation arrangements
granted under the Companys stock option plans. That cost is expected to be recognized over a weighted-average period of 1.46 years.
|
|
e.
|
During 2008, the Company purchased a total of 4,447,184 of its Ordinary shares pursuant to a share repurchase program as well as a self tender offer
conducted by the Company. Such shares are held by the Company as treasury shares and are presented at cost. Under the Companies Law for so long as such treasury shares are owned by the Company they have no rights and, accordingly, are neither
eligible to participate in or receive any future dividends which may be paid to the Companys shareholders nor are they entitled to participate in, be voted at or be counted as part of the quorum for, any meetings of shareholders.
|
NOTE 10:- TAXES ON INCOME
|
a.
|
Tax benefits under the Law for the Encouragement of Capital Investments, 1959 (the law):
|
The production facilities of the Company have been granted the status of an Approved Enterprise under the law,
for four separate investment programs, which were approved in 1994, 1995, 1996 and 2002. The investment programs expire in 2007, 2008, 2010 and 2014, respectively.
According to the provisions of the law, the Company has elected the alternative benefits track - the waiver of grants in return for a tax exemption and, accordingly, the
Companys income is tax-exempt for a period of two years commencing with the year it first earns taxable income relating to each expansion program, and subject to corporate taxes at the reduced rate of 10% to 25%, for an additional period of
five years to eight years (based on the percentage of foreign ownership in each taxable year).
The period of
tax benefits, detailed above, is limited to the earlier of 12 years from the commencement of production, or 14 years from the approval date.
The entitlement to the above benefits is conditional upon the Companys fulfilling the conditions stipulated by the above law, regulations published thereunder and the letters of approval for the
specific investments in Approved Enterprises. In the event of failure to comply with these conditions, the benefits may be canceled and the Company may be required to refund the amount of the benefits, in whole or in part, including
interest.
As of December 31, 2009, management believes that the Company is meeting all of the
aforementioned conditions.
As the Company currently has no taxable income, these benefits have not yet
commenced for all programs since inception.
The tax-exempt income attributable to the Approved
Enterprises can be distributed to shareholders, without subjecting the Company to taxes only upon the complete liquidation of the Company. If this retained tax-exempt income is distributed in a manner other than on the complete liquidation of
the Company, it would be taxed at the corporate tax rate applicable to such profits as if the Company had not elected the alternative tax benefits (currently between 10% to 25% for an Approved Enterprise). As of December 31, 2009,
the accumulated deficit of the Company does not include tax-exempt income earned by the Companys Approved enterprise.
F-28
JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except
share and per share data
NOTE 10:- TAXES ON INCOME (CONT.)
Income not eligible for the Approved Enterprise benefits
mentioned above is taxed at the regular corporate tax rate.
An amendment to the law, which has been
officially published effective as of April 1, 2005 (the Amendment) has changed the provisions of the law. The Amendment limits the scope of enterprises which may be approved by the Investment Center by setting criteria for the
approval of a facility as an Approved Enterprise, such as provisions generally requiring that at least 25% of the Approved Enterprises income will be derived from export. Additionally, as explained below, the Amendment
enacted major changes in the manner in which tax benefits are awarded under the law so that companies no longer require Investment Center approval in order to qualify for tax benefits. However, the law provides that terms and benefits included in
any letter of approval already granted will remain subject to the provisions of the law as they were on the date of such approval. Therefore, the Companys existing Approved Enterprises will generally not be subject to provision of
the Amendment. As of December 31, 2009, there is no income attributed to the Amendment.
|
b.
|
Tax benefits under the Law for the Encouragement of Industry (Taxation), 1969:
|
The Company is an industrial company, as defined by this law and, as such, is entitled to certain tax benefits,
mainly accelerated depreciation of machinery and equipment, as prescribed by regulations published under the Inflationary Adjustments Law, the right to claim public issuance expenses and amortization of intangible property rights as a deduction for
tax purposes.
|
c.
|
Net operating losses carryforward:
|
As of December 31, 2009, the Company had a Israeli net operating loss carryforward of approximately $ 18,700 which can be carried forward and offset against taxable income with no expiration
date.
As of December 31, 2009, the U.S subsidiary had a U.S. net operating loss carryforward for income
tax purposes of approximately $ 3,800. The net operating loss carryforward expires within 13 to 17 years. Utilization of U.S. net operating losses may be subject to substantial annual limitations due to the change in ownership
provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses before utilization.
As of December 31, 2009, the European subsidiaries had net operating losses carryforward for income tax purposes, of approximately $ 2,200 which can be carried forward and
offset against taxable income with no expiration date.
In 2009 and 2008, the main reconciling items between the statutory tax rate of the Company and the effective tax rate are the non-recognition of tax benefits from accumulated net operating losses carried
forward due to the uncertainty of the realization of such tax benefits.
In 2007, the main reconciling item
between the statutory tax rate of the Company and the effective tax rate is the tax benefit from the reduction in valuation allowance in respect of deferred tax assets resulting from the expected utilization of the net operating losses carryforward
in respect of the sale of its traditional market business.
F-29
JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except
share and per share data
NOTE 10:- TAXES ON INCOME (CONT.)
|
e.
|
Deferred income taxes:
|
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Companys deferred tax assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss carryforward
|
|
$
|
5,523
|
|
|
$
|
5,003
|
|
Reserves and allowances
|
|
|
1,371
|
|
|
|
2,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax asset before valuation allowance
|
|
|
6,894
|
|
|
|
7,063
|
|
Valuation allowance
|
|
|
(6,894
|
)
|
|
|
(7,063
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
The Company has provided valuation allowances in respect of deferred tax assets resulting
from tax loss carryforward and temporary differences. Management currently believes that since the Company has a history of losses it is more likely than not that the deferred tax regarding the loss carryforward will not be realized in the
foreseeable future.
|
f.
|
Loss from continuing operations before taxes is comprised as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Domestic (Israel)
|
|
$
|
(7,081
|
)
|
|
$
|
(7,801
|
)
|
|
$
|
(9,722
|
)
|
Foreign
|
|
|
(611
|
)
|
|
|
761
|
|
|
|
(2,374
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(7,692
|
)
|
|
$
|
(7,040
|
)
|
|
$
|
(12,096
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
g.
|
Corporate tax rates in Israel:
|
The corporate tax rate in Israel is to be gradually reduced as follows: in 2007 - 29%, in 2008 - 27%, in 2009 - 26%, in 2010 - 25%, in 2011 - 24%, in 2012 - 23%, in 2013 - 22%, in 2014 - 21%, in 2015 -
20% and in 2016 and onward - 18%.
F-30
JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except
share and per share data
NOTE 10:- TAXES ON INCOME (CONT.)
|
h.
|
Income tax benefit is comprised as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Deferred income tax
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
5,404
|
|
Tax benefit from continuing operations
|
|
|
227
|
|
|
|
2,126
|
|
|
|
3,300
|
|
Current income tax expenses
|
|
|
(134
|
)
|
|
|
(83
|
)
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93
|
|
|
|
2,043
|
|
|
|
8,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
(132
|
)
|
|
|
2,126
|
|
|
|
4,910
|
|
Foreign
|
|
|
225
|
|
|
|
(83
|
)
|
|
|
3,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
93
|
|
|
$
|
2,043
|
|
|
$
|
8,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to the presentation of discontinued operation, the Company recorded tax benefit related
to current losses from continuing operation against tax expenses related to current profits from discontinued operation for the years 2009, 2008 and 2007 in accordance with ASC 740 (see Note 1b for discontinued operation).
NOTE 11:- GEOGRAPHIC INFORMATION AND MAJOR CUSTOMER DATA
|
a.
|
Summary information about geographical areas:
|
The Company manages its business on a basis of one reportable segment (see Note 1a for a brief description of the Companys business) and follows the requirements of ASC 280
Segment Reporting.
The following is a summary of revenues within geographic areas based on the
end-customers location:
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
7,740
|
|
$
|
10,502
|
|
$
|
5,766
|
Europe and other
|
|
|
8,921
|
|
|
13,863
|
|
|
8,231
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,661
|
|
$
|
24,365
|
|
$
|
13,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
Long-lived assets:
|
|
|
|
|
|
|
|
|
|
Israel
|
|
$
|
3,450
|
|
$
|
3,622
|
|
$
|
3,786
|
North America
|
|
|
597
|
|
|
693
|
|
|
400
|
Other
|
|
|
43
|
|
|
47
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,090
|
|
$
|
4,362
|
|
$
|
4,206
|
|
|
|
|
|
|
|
|
|
|
F-31
JACADA LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
U.S. dollars in thousands, except
share and per share data
NOTE 11:- GEOGRAPHIC INFORMATION AND MAJOR CUSTOMER DATA (CONT.)
|
b.
|
Major customers data as a percentage of total revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Customer A
|
|
34
|
%
|
|
30
|
%
|
|
2
|
%
|
Customer B
|
|
12
|
%
|
|
18
|
%
|
|
3
|
%
|
Customer C
|
|
10
|
%
|
|
0.4
|
%
|
|
0.2
|
%
|
Customer D
|
|
1
|
%
|
|
4
|
%
|
|
26
|
%
|
Customer E
|
|
1
|
%
|
|
2
|
%
|
|
14
|
%
|
NOTE
12:- SUPPLEMENTARY DATA ON SELECTED STATEMENTS OF INCOME
|
a.
|
Financial income, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Financial income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
$
|
53
|
|
|
$
|
-
|
|
|
$
|
29
|
|
Gain on marketable securities
|
|
|
369
|
|
|
|
|
|
|
|
|
|
Interest on marketable securities
|
|
|
345
|
|
|
|
1,537
|
|
|
|
1,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
767
|
|
|
|
1,537
|
|
|
|
1,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses on marketable securities
|
|
|
-
|
|
|
|
(372
|
)
|
|
|
-
|
|
Bank charges
|
|
|
(59
|
)
|
|
|
(113
|
)
|
|
|
(76
|
)
|
Foreign currency translation adjustments
|
|
|
-
|
|
|
|
(337
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(59
|
)
|
|
|
(822
|
)
|
|
|
(76
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
708
|
|
|
$
|
715
|
|
|
$
|
1,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
b.
|
Allowance for doubtful accounts:
|
The change in the allowance for doubtful accounts for the years ended December 31, 2009, 2008 and 2007, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Balance at the beginning of the year
|
|
$
|
200
|
|
|
$
|
-
|
|
|
$
|
8
|
|
Provision (Recovery) for doubtful accounts
|
|
|
(197
|
)
|
|
|
201
|
|
|
|
(7
|
)
|
Written-off bad debts
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at the end of the year
|
|
$
|
3
|
|
|
$
|
200
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-32
Item 19: EXHIBITS
|
|
|
Exhibit
Number
|
|
Description of Document
|
|
|
1.1
|
|
Memorandum of Association of the Company (incorporated by reference to Exhibit 3.1 from the Companys Registration Statement filed on Form F-1 (file no.
333-10882)).
|
|
|
1.2
|
|
Articles of Association of the Company (incorporated by reference to Exhibit 3.2 from the Companys Registration Statement filed on Form F-1 (file no.
333-10882)).
|
|
|
1.3
|
|
Amendments to the Companys Articles of Association, dated August 24, 2003 (incorporated by reference to Exhibit 1.3 to the Companys Annual Report on Form 20-F for the
year ended December 31, 2003).
|
|
|
1.4
|
|
Amendments to the Companys Articles of Association, dated August 25, 2004 (incorporated by reference to Exhibit 1.3 to the Companys Annual Report on Form 20-F for the
year ended December 31, 2004).
|
|
|
4.2
|
|
1996 Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.2 from the Companys Registration Statement filed on Form F-1 (file no.
333-10882)).
|
|
|
4.3
|
|
1999 Share Option and Incentive Plan (incorporated by reference to Exhibit 10.3 from the Companys Registration Statement filed on Form F-1 (file no.
333-10882)).
|
|
|
4.6
|
|
Amendment to 1999 Share Option and Incentive Plan (incorporated by reference to Exhibit 10.2 to the Companys Registration Statement on Form S-8 (file no.
333-73650)).
|
|
|
4.7
|
|
2003 Share Option Plan (incorporated by reference to Exhibit 99.1 to the Companys Registration Statement on Form S-8 (file no. 333-111303)).
|
|
|
4.8
|
|
Amendment no. 2 to the Jacada Ltd. Form of 1999 Share Option and Incentive Plan.
|
|
|
4.9
|
|
Amendment no. 1 to the Jacada Ltd. 2003 Share Option and Incentive Plan.
|
|
|
8
|
|
List of Jacadas Subsidiaries.
|
|
|
11
|
|
Code of Ethics of the Company (incorporated by reference to Exhibit 11 to the Companys Annual Report on Form 20-F for the year ended December 31, 2003).
|
|
|
12.1
|
|
Certificate of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a).
|
|
|
12.2
|
|
Certificate of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a).
|
|
|
13.1
|
|
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
|
|
|
14.1
|
|
Consent of Kost, Forer, Gabbay and Kasierer, a member of Ernst & Young Global.
|
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and it has duly caused and authorized the
undersigned to sign this Annual Report on its behalf on March 31, 2010.
|
|
|
JACADA LTD.
|
|
|
By:
|
|
/s/ Robert C. Aldworth
|
|
|
Robert C. Aldworth
|
|
|
Chief Financial Officer
|
EXHIBIT INDEX
|
|
|
Exhibit
Number
|
|
Description of
Document
|
|
|
|
1.1
|
|
Memorandum of Association of the Company (incorporated by reference to Exhibit 3.1 from the Companys Registration Statement filed on Form F-1 (file no.
333-10882)).
|
|
|
1.2
|
|
Articles of Association of the Company (incorporated by reference to Exhibit 3.2 from the Companys Registration Statement filed on Form F-1 (file no.
333-10882)).
|
|
|
1.3
|
|
Amendments to the Companys Articles of Association, dated August 24, 2003 (incorporated by reference to Exhibit 1.3 to the Companys Annual Report on Form 20-F for the
year ended December 31, 2003)
|
|
|
1.4
|
|
Amendments to the Companys Articles of Association, dated August 25, 2004 (incorporated by reference to Exhibit 1.3 to the Companys Annual Report on Form 20-F for the
year ended December 31, 2004).
|
|
|
4.2
|
|
1996 Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.2 from the Companys Registration Statement filed on Form F-1 (file no.
333-10882)).
|
|
|
4.3
|
|
1999 Share Option and Incentive Plan (incorporated by reference to Exhibit 10.3 from the Companys Registration Statement filed on Form F-1 (file no.
333-10882)).
|
|
|
4.6
|
|
Amendment to 1999 Share Option and Incentive Plan (incorporated by reference to Exhibit 10.2 the Companys Registration Statement on Form S-8 (file no.
333-73650)).
|
|
|
4.7
|
|
2003 Share Option Plan (incorporated by reference to Exhibit 99.1 to the Companys Registration Statement on Form S-8 (file no. 333-111303)
|
|
|
4.8
|
|
Amendment no. 2 to the Jacada Ltd. Form of 1999 Share Option and Incentive Plan.
|
|
|
4.9
|
|
Amendment no. 1 to the Jacada Ltd. 2003 Share Option and Incentive Plan.
|
|
|
8
|
|
List of Jacadas Subsidiaries.
|
|
|
11
|
|
Code of Ethics of the Company (incorporated by reference to Exhibit 11 to the Companys Annual Report on Form 20-F for the year ended December 31, 2003).
|
|
|
12.1
|
|
Certificate of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a)
|
|
|
12.2
|
|
Certificate of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a)
|
|
|
13.1
|
|
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
|
|
|
14.1
|
|
Consent of Kost, Forer, Gabbay and Kasierer, a member of Ernst & Young Global.
|
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