##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
      Form 10-K
      þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended
    December 31, 2005oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          
    to   Commission file number 0-26241
   BackWeb Technologies
    Ltd.
 (Exact name of registrant as
    specified in its charter)
  Israel(State or other
    jurisdiction of
    incorporation or organization)

51-2198508(I.R.S. Employer
    Identification Number)10 Haamal Street, Park
    Afek, Rosh Haayin, Israel(Address of principal
    executive offices)

48092(Zip
    Code)   (972) 3-6118800
 (Registrants Telephone Number, Including Area Code)
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange on Which
    RegisteredNone

None   Securities registered pursuant to Section 12(g) of the
    Act:
  Ordinary Shares, NIS 0.03 par value
 (Title of Class)
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  Large
    accelerated filer o
    Accelerated
    filer o
    Non-accelerated
    filer þ  Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE




---



##### 



BACKWEB
    TECHNOLOGIES LTD.
    ANNUAL REPORT ON
    FORM 10-K
    Year Ended December 31, 2005
    TABLE OF CONTENTS
  PagePART IItem 1

Business

1Item 1A.

Risk Factors

9Item 1B.

Unresolved Staff
    Comments

20Item 2.

Properties

20Item 3.

Legal
    Proceedings

21Item 4.

Submission of
    Matters to a Vote of Security Holders

22PART IIItem 5.

Market for Our
    Common Stock and Related Stockholder Matters

22Item 6.

Selected
    Consolidated Financial Data

24Item 7.

Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations

26Item 7A.

Quantitative and
    Qualitative Disclosures About Market Risk

39Item 8.

Financial
    Statements and Supplementary Data

40Item 9.

Changes in and
    Disagreements With Accountants On Accounting and Financial
    Disclosure

68Item 9A.

Controls and
    Procedures

68Item 9B.

Other
    Information

68PART IIIItem 10.

Directors and
    Executive Officers of the Registrant

68Item 11.

Executive
    Compensation

71Item 12.

Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters

74Item 13.

Certain
    Relationships and Related Transactions

76Item 14.

Principal
    Accountant Fees and Services

76PART IVItem 15.

Exhibits and
    Financial Statement Schedules

76Signatures

78EXHIBIT 3.1EXHIBIT 23.1EXHIBIT 23.2EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1    Form 10-K.
  e-Accelerator,
   i




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Cautionary
    Statement Regarding Forward-Looking Statements
  This Annual Report on
    Form 10-K
    contains express or implied forward-looking statements within
    the meaning of Section 27A of the Securities Act of 1933
    and Section 21E of the Securities Exchange Act of 1934.
    Forward-looking statements are those that predict or describe
    future events or trends and that do not relate solely to
    historical matters. The words believes,
    expects, anticipates,
    intends, forecasts,
    projects, plans, estimates,
    anticipates, or similar expressions may identify
    forward-looking statements. Readers are cautioned not to place
    undue reliance on our forward-looking statements, as they
    involve many risks and uncertainties. Our actual results may
    differ materially from such statements. Factors that may cause
    or contribute to such differences include those discussed in
    this Annual Report under the caption Risk Factors
    and elsewhere in this Annual Report. Although we believe that
    the assumptions underlying our forward-looking statements are
    reasonable, any of the assumptions could prove inaccurate, and,
    therefore, we cannot assure you that the results contemplated in
    such forward-looking statements will be realized. The inclusion
    of such forward-looking information should not be regarded as a
    representation by us, or any other person, that the future
    events, plans or expectations contemplated by us will be
    achieved. Forward-looking statements reflect our current views
    with respect to future events and financial performance or
    operations and speak only as of the date of this report. We
    undertake no obligation to issue any updates or revisions to any
    forward-looking statements to reflect any change in our
    expectations with regard thereto or any change in events,
    conditions, or circumstances on which any such statements are
    based.
 PART I  Item 1.
    Business  Overview
  e-learning
     1




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BackWeb
    Technology and Products
      
    Improved mobile user productivityby making it possible
    for mobile and field employees to use their applications when
    and where they are needed, and allowing them to make use of
    disconnected time that would otherwise be unproductive due to
    the lack of access to their applications;
    Acceleration of business processesby allowing offline
    data entry submission for items such as service orders, expense
    reports, sales forecasts, time sheets and collaboration
    sessions, enabling users to productively use forced down
    time while traveling;
    Increased customer satisfactionby providing our
    customers field workforce access to important business
    information when servicing a customer in the field, enabling
    them to respond to their customers more quickly and effectively;
    Decreased coststhrough the reduction of the costs
    incurred in manually distributing information, and the costs
    associated with unnecessary repeat service calls resulting from
    the inability of users to access service data;
    Elimination of costly development projectsbecause
    BackWeb can enable existing web applications for mobile use and
    eliminate the need for projects to develop special mobilized
    versions of those applications;
    Improved Web and portal effectivenessthrough tracking
    and reporting offline interactions, to analyze what content,
    information, and applications mobile users need most
    often; and
    Leveraging current information technology, or IT, investments
    and lower total cost of ownershipby deploying in a matter
    of weeks, and integrating with a customers existing portal
    environment to maintain the existing Web user interface and
    eliminate the need to rewrite code.  Technology
    Polite
    Synchronization
   2




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
    Polite Agentmonitors the network activity of the plug-in
    and communicates with BackWeb Polite Sync Servers only when the
    connection is idle. It is able to interrupt BackWeb
    communications when other applications request use of the
    users network connection.
    Polite Proxyallows communication between the BackWeb
    proxy server and BackWeb Polite Sync Servers only when wide area
    network, or WAN, bandwidth utilization is below a specified
    threshold. It achieves this by monitoring the WAN.
    Polite Neighborcastenables the automatic transmission of
    digital data from one BackWeb plug-in to others on the same
    local area network, or LAN, eliminating the need for
    transmission of the data from the server to each BackWeb
    plug-in. The transmission from BackWeb plug-in to BackWeb
    plug-in on the same LAN enables fast, efficient and
    cost-effective transmission of data.
    Polite Upstreamenables the automatic transmission of
    digital data from BackWeb plug-ins to the BackWeb Polite Sync
    Server when the network connection is idle.  OTML
    Offline Web Integration
    Products
  BackWeb
    Offline Access Server
    
    The Web Integration Server,which is also known as
    Content Acquisition Server, is a component of the OAS that is
    designed for highly scalable Web content acquisition from
    corporate portal, intranet, and Web applications. On an ongoing
    basis, the OAS logs into the portal, intranet or Web application
    as if it were an individual user and retrieves HTML pages using
    standard HTTP or HTTPS protocols (either secure or non-secure).
    Each page links to additional Web pages or documents that are
    retrieved once the links are identified. Content transformation
    and OTML tags parse the HTML pages and create an offline
    equivalent of the page that is sent to users. The Content
    Acquisition Server retrieves additional pages when it identifies
    links to additional portal pages, external documents or Web
    pages. Since the presentation of content sometimes changes, it
    is necessary to keep the content transformation correct
    regardless of visual presentation changes. Content
    transformation is accomplished by embedding OTML tags into the
    portal, intranet, or Web application page, which tags control
    the optimized transformation of the pages for offline viewing. 3




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
    The BackWeb Polite Sync Server,which is also available
    as a separate product as described below, is a highly scalable
    content delivery engine for desktops and laptops that enables
    offline access to Web content via BackWeb plug-ins. The BackWeb
    Polite Sync Server is designed to manage the delivery of
    thousands of gigabytes of data every day to end users. The
    server consults the BackWeb OAS database to find out whether
    there is new content relevant to the corresponding user. The
    BackWeb plug-in then begins downloading InfoPaks incrementally
    via the Polite Sync Server to enable scalable content delivery.
    The Polite Sync Server includes several key features:
    Interruptible content deliveryactivates only when the
    network connection is idle;
    Byte-level differentiationdetermines which content has
    been modified based on the content already stored on the
    users computer and ensures the delivery of only the
    changes rather than the entire content item; and
    Polite Neighborcastdistributes content over a LAN using
    the distributed client-based caching system, thereby reducing
    the amount of WAN traffic.  BackWeb
    Polite Sync Server
    Customers
   4




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Sales and
    Marketing
  Sales
      Marketing
      Customer
    Service and Support
   5




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on-site
  Research
    and Development
      Competition
    
    small companies attempting to address the needs of mobile or
    disconnected Web users such as iOra;
    large enterprise software companies attempting to address the
    needs of mobile or disconnected Web users that have announced or
    may have plans to develop mobile technology, such as IBM,
    Microsoft, and SAP;
    mobile middleware vendors such as Everypath and Sybase
    iAnywhere; and
    wireless data networking solutions such as wireless fidelity, or
    WiFi, and cellular data services such as Sprint EVDO.     6




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Intellectual
    Property and Proprietary Rights
             7




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
    be time-consuming to defend;
    result in costly litigation;
    divert managements attention and resources;
    cause product shipment delays; or
    require us to enter into royalty or licensing agreements.    Employees
     8




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Item 1A.
    Risk
    Factors    Risks
    Relating to Our Business
  We
    have a history of losses and we expect future
    losses.
    Our
    business strategy requires that we derive a significant amount
    of license revenue from our OAS product. If demand for OAS does
    not increase, our total revenue will not increase and our
    business will suffer.
    Wireless
    networking technology and geographic coverage could limit our
    market.
    Rapid
    technological changes could cause our products to become
    obsolete.
     9




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If we
    require additional financing for our future capital needs but
    are not able to obtain it, we may be unable to develop or
    enhance our products, expand operations or respond to
    competitive pressures.
    We
    have restructured our company, which could make it more
    difficult for us to achieve our business objectives or could
    result in further restructurings if we dont meet the goals
    of the restructuring.
    Our
    quarterly license revenue typically depends on a small number of
    large orders, and any failure to complete one or more
    substantial license sales in a quarter could materially and
    adversely affect our operating results.
    The
    economic outlook has adversely affected, and may continue to
    adversely affect, the demand for our current products and our
    results of operations.
   10




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Our
    business is difficult to evaluate because our operating history
    is limited, and we have changed our strategic focus and
    repositioned our product line.
    We are
    increasingly relying on sales and marketing partnerships, rather
    than direct sales and marketing, for revenue generation and
    failure to establish successful partnerships could negatively
    affect our revenues.
    Our
    long and unpredictable sales cycle depends on factors outside
    our control and may cause our license revenue to vary
    significantly.
   11




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Our
    quarterly operating results are subject to
    fluctuations.
    
    demand for our products and services;
    internal budget constraints and the approval processes of our
    current and prospective customers;
    the timing and mix of revenue generated by product licenses and
    professional services;
    the length and unpredictability of our sales cycle;
    loss of customers;
    new product introductions or internal development efforts by
    competitors or partners;
    costs related to acquisitions of technology or
    businesses; and
    economic conditions generally, as well as those specific to the
    Internet and related industries.  quarter-to-quarter
  If we
    lose a major customer, our revenue could suffer because of our
    customer concentration.
    Failure
    to successfully develop versions and updates of our products
    that run on the operating systems used by our current and
    prospective customers could reduce our sales.
   12




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We
    depend on increased business from new customers, as well as
    additional business from existing customers, and if we fail to
    grow our customer base or generate repeat business, our
    operating results could be harmed.
    e-Accelerator,
  Factors
    outside our control may cause the timing of our license revenue
    to vary from
    quarter-to-quarter,
    possibly adversely affecting our operating
    results.
    Our
    inability to integrate our products with other third-party
    software could adversely affect market acceptance of our
    products.
    Competition
    in the Internet communications market may reduce the demand for,
    or price of, our products.
   13




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The
    loss of our right to use software licensed to us by third
    parties could harm our business.
    Changes
    in existing financial accounting standards or practices or
    taxation rules or practices may adversely affect our results of
    operations.
  Share-Based
    Payment, Accounting for Stock-Based Compensation, Accounting for Stock Issued to Employees. fair-value-based
  Our
    growth may suffer because of the complexities involved in
    implementing our products.
    Our
    business will suffer if the Internet infrastructure cannot
    support the demands placed on it.
   14




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We may
    experience tax liabilities in connection with the liquidation of
    wholly owned subsidiaries that have ceased
    operations.
    We may
    experience difficulties managing our expected growth and
    geographic dispersion.
    Our
    international operations are subject to additional
    risks.
    
    laws and business practices favoring local competition;
    compliance with multiple, conflicting and changing laws and
    regulations;
    longer sales cycles;
    greater difficulty or delay in accounts receivable collection;
    import and export restrictions and tariffs;
    difficulties in staffing and managing foreign operations;
    difficulties in investing in foreign operations at appropriate
    levels to compete effectively; and
    political and economic instability.   15




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Our
    efforts to protect our proprietary rights may be
    inadequate.
        Our
    products may be used in an unintended and negative
    manner.
    We may
    not have sufficient insurance to cover all potential product
    liability and warranty claims.
    Our
    financial performance and workforce reductions may adversely
    affect the morale and performance of our personnel and our
    ability to hire new personnel.
   16




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Legislation
    and regulatory changes may cause us to incur increased costs,
    limit our ability to obtain director and officer liability
    insurance, and make it more difficult for us to attract and
    retain qualified officers and directors.
    Risks
    Relating to Our Location in Israel
  Any
    major developments in the political or economic conditions in
    Israel could cause our business to suffer because we are
    incorporated in Israel and have important facilities and
    resources located in Israel.
    Any
    future profitability may be diminished if tax benefits from the
    State of Israel are reduced or withheld.
      Israeli
    regulations may limit our ability to engage encryption research
    and development and export our products that incorporate
    encryption.
   17




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Israeli
    courts might not enforce judgments rendered outside of Israel
    that may make it difficult to collect on judgments rendered
    against us.
      
    the judgment was rendered by a court that was, according to the
    laws of the state of the court, competent to render the judgment;
    the judgment is no longer able to be appealed;
    the obligation imposed by the judgment is enforceable according
    to the rules relating to the enforceability of judgments in
    Israel and the substance of the judgment is not contrary to
    public policy; and
    the judgment is executory in the state in which it was given.    
    the judgment was obtained by fraud;
    there was no due process;
    the judgment was rendered by a court not competent to render it
    according to the laws of private international law in Israel;
    the judgment is at variance with another judgment that was given
    in the same matter between the same parties and which is still
    valid; or
    at the time the action was brought in the foreign court a suit
    in the same matter and between the same parties was pending
    before a court or tribunal in Israel.   18




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We
    have adopted anti-takeover provisions that could delay or
    prevent an acquisition of BackWeb, even if an acquisition would
    be beneficial to our shareholders.
      Our
    results of operations may be negatively affected by the
    obligation of key personnel to perform military
    service.
    Risks
    Relating to Our Ordinary Shares
  Our
    stock price has been volatile and could fluctuate in the
    future.
    
    in response to quarterly variations in operating results;
    in response to announcements of technological innovations or new
    products by us or our competitors or partners;
    because of market conditions in the enterprise software or
    portal industry;
    in reaction to changes in financial estimates by securities
    analysts, and our failure to meet or exceed the expectations of
    analysts or investors;
    in response to our announcements of strategic relationships or
    joint ventures; and
    in response to sales of our Ordinary Shares.    Our
    stock is listed on the Nasdaq Capital Market and our continued
    listing on the Nasdaq Capital Market listing is not
    assured.
   19




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Holders
    of our Ordinary Shares who are United States residents face
    income tax risks.
    shareholder-by-shareholder
  mark-to-market
  mark-to-market
  Our
    officers, directors and affiliated entities own a large
    percentage of BackWeb and could significantly influence the
    outcome of actions.
    Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties   20




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month-to-month.
    Item 3.
    Legal
    Proceedings  No. 01-CV-10000, Rule 10b-5
         21




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Item 4.
    Submission
    of Matters to a Vote of Security Holders      For


20,885,626Withhold Authority


24,662     For


20,927,546Withhold Authority


40,855     For


20,873,149Against


93,849Abstain


4,548Broker Non-Votes


20,163,994     For


20,869,879Against


97,229Abstain


4,438Broker Non-Votes


20,163,994     For


20,930,054Against


39,719Abstain


1,773Broker Non-Votes


20,163,994  PART II  Item 5.
    Market
    for Our Common Stock and Related Stockholder
    Matters    High


Low2004First Quarter

$
1.77


$
0.84Second Quarter

$
1.24


$
0.62Third Quarter

$
0.84


$
0.30Fourth Quarter

$
0.88


$
0.32   22




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##### Table of Contents



High


Low2005First Quarter

$
0.84


$
0.44Second Quarter

$
0.57


$
0.41Third Quarter

$
0.63


$
0.45Fourth Quarter

$
0.74


$
0.37            23




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##### Table of Contents



Item 6.
    Selected
    Consolidated Financial Data    Years Ended
    December 31,2005


2004


2003


2002


2001(In thousands, except per share
    data)Consolidated Statements of
    OperationsRevenue:License

$
3,312


$
1,593


$
3,232


$
2,119


$
13,807Service


3,599



3,906



3,270



4,228



6,831Total revenue


6,911



5,499



6,502



6,347



20,638Cost of revenue:License


51



72



128



213



443Service


684



1,170



1,057



3,050



5,238Total cost of revenue


735



1,242



1,185



3,263



5,681Gross profit


6,176



4,257



5,317



3,084



14,957Operating expenses:Research and development


2,178



3,298



4,487



6,059



9,230Sales and marketing


3,452



4,071



6,272



10,298



22,882General and administrative


1,787



1,958



3,939



4,557



10,494Restructuring charges


(105
)


469



443



4,678



2,825Write-off and amortization of
    intellectual property, other intangibles and deferred stock
    compensation














3,546



3,806Total operating expenses


7,312



9,796



15,141



29,138



49,237Loss from operations


(1,136
)


(5,539
)


(9,824
)


(26,054
)


(34,280
)Interest and other income, net


103



396



98



1,172



2,037Write down of equity investments










(1,000
)






(2,500
)Net loss

$
(1,033
)

$
(5,143
)

$
(10,726
)

$
(24,882
)

$
(34,743
)Basic and diluted net loss per
    share

$
(0.03
)

$
(0.13
)

$
(0.27
)

$
(0.63
)

$
(0.91
)Weighted average number of shares
    used in computing basic and diluted net loss per share(1)


41,011



40,711



40,000



39,284



38,225   24




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As of
    December 31,2005


2004


2003


2002


2001(In thousands)Consolidated Balance Sheets
    Data:Cash, cash equivalents and
    short-term investments

$
7,876


$
10,320


$
14,457


$
23,757


$
41,824Working capital


6,801



7,903



12,301



20,334



37,905Total assets


10,003



12,555



18,515



29,409



56,512Total shareholders equity

$
7,041


$
7,938


$
12,961


$
22,521


$
46,581     (1)
    
    For the calculation of the weighted average number of shares
    used to calculated basic and diluted net loss per share, please
    see Note 2 of the Notes to Consolidated Financial
    Statements, Net Loss Per Share. 25




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Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  The following discussion and analysis should be read in
    conjunction with, and is qualified by, the Selected
    Consolidated Financial Data and our consolidated financial
    statements and notes thereto included elsewhere in this report,
    as well as Risk Factors. In addition, this
    discussion contains forward-looking statements and is,
    therefore, subject to the overall qualification on
    forward-looking statements that appears at the beginning of this
    report.
  e-learning
         26




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Business
    Overview
    F-Secure. F-Secure F-Secure
      Critical
    Accounting Policies
   27




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
    revenue recognition; and
    estimating valuation allowances and accrued liabilities,
    specifically the trade receivable allowances for doubtful
    accounts.  Revenue
    Recognition
    (SOP 97-2), SOP 98-9, SOP 97-2, (SOP 98-9). SOP 98-9
  SOP 98-9.
  SOP 97-2:
       28




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out-of-pocket
    Estimating
    Valuation Allowances and Accrued Liabilities, Including the
    Allowance for Doubtful Accounts
    Form 10-K.
    Results
    of Operations
    Year Ended
    December 31,2005


2004


2003Revenue:License


48
%


29
%


50
%Service


52



71



50Total revenue


100



100



100Cost of revenue:License


0



1



2Service


10



22



16Total cost of revenue


10



23



18Gross profit


90



77



82 29




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Year Ended
    December 31,2005


2004


2003Operating expenses:Research and development


32



60



69Sales and marketing


50



74



96General and administrative


26



36



61Restructuring charges


(2
)


8



7Total operating expenses


106



178



233Loss from operations


(16
)


(101
)


(151
)Interest and other income, net


2



7



2Write down of equity investments










(15
)Net loss


(14
)%


(94
)%


(164
)%   Revenue
  December 31,Change





Change2005


$


%


2004


$


%


2003(In thousands, except
    percentages)Total revenue

$
6,911


$
1,412



25.7%


$
5,499


$
(1,003
)


(15.4)%


$
6,502   e-Accelerator
     30




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##### Table of Contents



License
    Revenue
  December 31,Change





Change2005


$


%


2004


$


%


2003(In thousands, except
    percentages)License revenue

$
3,312


$
1,719



107.9
%

$
1,593


$
(1,639
)


(50.7
)%

$
3,232As a percentage of total revenue


47.9
%










29.0
%










49.7
%       Service
    Revenue
  December 31,Change





Change2005


$


%


2004


$


%


2003(In thousands, except
    percentages)Service revenue

$
3,599


$
(307
)


(7.9
)%

$
3,906


$
634



19.4
%

$
3,270As a percentage of total revenue


71.0
%










71.0
%










50.3
%       Cost
    of Revenue
  December 31,Change





Change2005


$


%


2004


$


%


2003(In thousands, except
    percentages)Cost of revenue

$
735


$
(507
)


(40.8
)%

$
1,242


$
57



4.8
%

$
1,185As a percentage of total revenue


10.6
%






12.0
%


22.6
%






4.4
%


18.2
%  31




---



##### Table of Contents



Cost of
    License Revenue
    December 31,Change





Change2005


$


%


2004


$


%


2003(In thousands, except
    percentages)Cost of license revenue

$
51


$
(21
)


(29.2)%


$
72


$
(56
)


(43.8
)%

$
128As a percentage of license revenue


1.5
%






(5.0)%



6.5
%






2.5
%


4.0
%As a percentage of total revenue


0.7
%






(0.6)%



1.3
%






(0.7
)%


2.0
%       Cost of
    Service Revenue
    December 31,Change





Change2005


$


%


2004


$


%


2003(In thousands, except
    percentages)Cost of service revenue

$
684


$
(486
)


(41.5)%


$
1,170


$
113



10.7
%

$
1,057As a percentage of service revenue


19.0
%






(11.0)%



30.0
%






(2.3
)%


32.3
%As a percentage of total revenue


9.9
%






(11.4)%



21.3
%






5.0
%


16.3
%      32




---



##### Table of Contents



Operating
    Expenses
  Research
    and Development
    December 31,Change





Change2005


$


%


2004


$


%


2003(In thousands, except
    percentages)Research and development

$
2,178


$
(1,120
)


(34.0)%


$
3,298


$
(1,189
)


(26.5)%


$
4,487As a percentage of total revenue


31.5
%






(28.4)%



59.9
%






(9.1)%



69.0
%       Sales and
    Marketing
    December 31,Change





Change2005


$


%


2004


$


%


2003(In thousands, except
    percentages)Sales and marketing

$
3,452


$
(619
)


(15.2)%


$
4,071


$
(2,201
)


(35.1)%


$
6,272As a percentage of total revenue


50.0
%






(24.0)%



74.0
%






(22.5)%



96.5
%      33




---



##### Table of Contents



General
    and Administrative
    December 31,Change





Change2005


$


%


2004


$


%


2003(In thousands, except
    percentages)General and administrative

$
1,787


$
(171
)


(8.7)%


$
1,958


$
(1,981
)


(50.3)%


$
3,939As a percentage of total revenue


25.9
%






(9.7)%



35.6
%






(25.0)%



60.6
%       Restructuring
    Charges
  December 31,Change





Change2005


$


%


2004


$


%


2003(In thousands, except
    percentages)Restructuring and other charges

$
(105
)

$
(574
)


(122.4)%


$
469


$
26



5.9%


$
443As a percentage of total revenue


(1.5
)%






(10.0)%



8.5
%






1.7%



6.8
%    34




---



##### Table of Contents



Interest
    and Other Income, Net
    December 31,Change





Change2005


$


%


2004


$


%


2003(In thousands, except
    percentages)Interest and other income, net

$
103


$
(293
)


74.0
%

$
396


$
298



304%


$
98As a percentage of total revenue


1.5
%






(5.7
)%


7.2
%






5.5%



1.7
%     Write-Down
    of Equity Investments
  December 31,Change





Change2005


$


%


2004


$


%


2003(In thousands, except
    percentages)Write-down of equity investments

$



$




%


$



$
(1,000
)


(100)%


$
1,000As a percentage of total revenue



%






%




%






(15.4)%



15.4
%     Income
    Taxes
    Off-Balance
    Sheet Financings and Liabilities
  Off-Balance Sheet Arrangement.
 35




---



##### Table of Contents



Liquidity
    and Capital Resources
         36




---



##### Table of Contents



Contractual
    Obligations
    Payments Due by PeriodLessThan 1


1-3


3-5


After 5Total


Year


Years


Years


YearsOperating lease obligations

$
908


$
844


$
64


$



$
   Effective
    Corporate Tax Rates
            Impact of
    Inflation and Currency Fluctuations
   37




---



##### Table of Contents



Recently
    Issued Accounting Pronouncements
    FAS 115-1 FAS 124-1, Other-Than-Temporary other-than-temporary
  No. 05-06, (EITF 05-6). EITF 05-6
       38




---



##### Table of Contents



SFAS No. 109-1, Application of FASB Statement No. 109 Accounting
    for Income Taxes No. 109-1) No. 109-1,
  SFAS No. 109-2, Accounting and Disclosure Guidance for the Foreign
    Earnings Repatriation Provision No. 109-2) No. 109-2
  Earnings per Share Earnings per Share year-to-date year-to-date
  Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk   39




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data    First Qtr


Second Qtr


Third Qtr


Fourth QtrUnaudited(In thousands, except per share
    data)2005Total revenue

$
1,657


$
1,718


$
1,782


$
1,754Gross profit


1,493



1,518



1,585



1,580Net loss


(249
)


(233
)


(208
)


(343
)Basic and diluted net loss per
    share


(0.01
)


(0.01
)


(0.01
)


(0.01
)2004Total revenue

$
1,638


$
1,147


$
1,181


$
1,533Gross profit


1,221



910



822



1,304Net loss


(1,371
)


(1,323
)


(1,537
)


(912
)Basic and diluted net loss per
    share


(0.03
)


(0.03
)


(0.04
)


(0.02
)   (b)
    Financial
    Statements  Form 10-K.
  Report of Grant Thornton LLP,
    Independent Registered Public Accounting Firm

41Report of Ernst & Young
    LLP, Independent Registered Public Accounting Firm

42Consolidated Balance Sheets

43Consolidated Statements of
    Operations

44Consolidated Statements of
    Shareholders Equity

45Consolidated Statements of Cash
    Flows

46Notes to the Consolidated
    Financial Statements

47  40




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
                 41




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
               42




---



##### Table of Contents



BACKWEB
    TECHNOLOGIES LTD.
  CONSOLIDATED
    BALANCE SHEETS
  December 31,2005


2004(In thousands, except share and
    per share data)ASSETSCurrent assets:Cash and cash equivalents

$
1,583


$
5,213Short-term investments


6,293



5,107Trade accounts receivable, net of
    allowance for doubtful accounts of $279 and $643 at
    December 31, 2005 and 2004, respectively


1,554



1,677Other accounts receivable and
    prepaid expenses


325



378Total current assets


9,755



12,375Long-term investments and other
    long term assets


35



26Property and equipment, net


213



154Total assets

$
10,003


$
12,555LIABILITIES AND
    SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable

$
247


$
175Accrued liabilities


1,731



1,625Deferred revenue


976



2,672Total current liabilities


2,954



4,472Accrued severance pay, net






85Long-term deferred revenue


8



60Commitments and contingenciesShareholders equity:Preferred Shares, nominal value
    NIS 0.01 per share; 50,000,000 shares authorized and
    zero outstanding at December 31, 2005 and December 31,
    2004, Series E Preferred Shares, nominal value NIS
    0.01 per share; zero and one share authorized and issued
    and outstanding at December 31, 2005 and December 31,
    2004, respectively






Ordinary Shares, nominal value NIS
    0.03 per share; 150,067,829 shares authorized at
    December 31, 2005 and 2004; 41,140,813 and
    40,832,116 shares issued and outstanding at
    December 31, 2005 and 2004, respectively


151,763



151,644Accumulated other comprehensive
    loss


(2
)


(19
)Accumulated deficit


(144,720
)


(143,687
)Total shareholders equity


7,041



7,938Total liabilities and
    shareholders equity

$
10,003


$
12,555    43




---



##### Table of Contents



BACKWEB
    TECHNOLOGIES LTD.
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Year Ended
    December 31,2005


2004


2003(In thousands, except per share
    data)Revenue:License

$
3,312


$
1,593


$
3,232Service


3,599



3,906



3,270Total revenue


6,911



5,499



6,502Cost of revenue:License


51



72



128Service


684



1,170



1,057Total cost of revenue


735



1,242



1,185Gross profit


6,176



4,257



5,317Operating expenses:Research and development


2,178



3,298



4,487Sales and marketing


3,452



4,071



6,272General and administrative


1,787



1,958



3,939Restructuring and other charges


(105
)


469



443Total operating expenses


7,312



9,796



15,141Loss from operations


(1,136
)


(5,539
)


(9,824
)Interest and other income, net


103



396



98Write down of equity investments










(1,000
)Net loss

$
(1,033
)

$
(5,143
)

$
(10,726
)Basic and diluted net loss per
    share

$
(0.03
)

$
(0.13
)

$
(0.27
)Weighted average number of shares
    used in computing basic and diluted net loss per share


41,011



40,711



40,000    44




---



##### Table of Contents



BACKWEB
    TECHNOLOGIES LTD.
  CONSOLIDATED
    STATEMENTS OF SHAREHOLDERS EQUITY
  Shareholders
    EquityNotes


AccumulatedSeries E








Receivable


Other








TotalPreferred Shares


Ordinary Shares


from


Comprehensive


Accumulated


Comprehensive


ShareholdersShares


Amount


Shares


Amount


Shareholders


Income/(Loss)


Deficit


Income/(Loss)


Equity(In thousands, except share
    data)Balance at December 31,
    2002










39,772,254



150,867



(506
)


(22
)


(127,818
)






22,521Issuance of Ordinary Shares
    pursuant to options exercised, ESPP purchases and exchange of
    Series E preferred shares, net










787,928



629



















629Repayment of notes receivable from
    shareholders


















506















506Comprehensive loss:Net loss


























(10,726
)


(10,726
)


(10,726
)Unrealized income on available for
    sale marketable securities






















31







31



31Total comprehensive loss





























$
(10,695
)


Balance at December 31,
    2003





$




40,560,182


$
151,496


$



$
9


$
(138,544
)





$
12,961Issuance of Ordinary Shares
    pursuant to options exercised, ESPP purchases and exchange of
    Series E preferred shares, net










271,934



148



















148Comprehensive loss:Net loss


























(5,143
)


(5,143
)


(5,143
)Unrealized income on available for
    sale marketable securities






















(28
)






(28
)


(28
)Total comprehensive loss





























$
(5,171
)


Balance at December 31,
    2004





$




40,832,116


$
151,644


$



$
(19
)

$
(143,687
)





$
7,938Issuance of Ordinary Shares
    pursuant to options exercised, ESPP purchases and exchange of
    Series E preferred shares, net










308,697



119



















119Comprehensive loss:Net loss


























(1,033
)


(1,033
)


(1,033
)Unrealized income on available for
    sale marketable securities






















17







17



17Total comprehensive loss






























(1,016
)


Balance at December 31,
    2005





$




41,140,813


$
151,763


$



$
(2
)

$
(144,720
)





$
7,041    45




---



##### Table of Contents



BACKWEB
    TECHNOLOGIES LTD.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Year Ended
    December 31,2005


2004


2003(In thousands)Operating activitiesNet loss

$
(1,033
)

$
(5,143
)

$
(10,726
)Adjustments to reconcile net loss
    to net cash used in operating activities:Provision for bad and doubtful
    debts










104Depreciation


140



252



878Gain on disposal of property and
    equipment






(260
)


Write down of an equity investment










1,000Changes in operating assets and
    liabilities:Trade accounts receivable


123



726



(848
)Other accounts receivable, prepaid
    expenses and other long-term assets


44



950



556Accounts payable and accrued
    liabilities


93



(2,439
)


(1,130
)Deferred revenue


(1,748
)


1,501



(204
)Net cash used in operating
    activities


(2,381
)


(4,413
)


(10,370
)Investing activitiesPurchases of property and equipment


(199
)


(105
)


(96
)Proceeds from disposals of
    property and equipment






260



Purchases of short-term investments


(1,186
)






Proceeds from sales of short-term
    investments






5,324



8,575Net cash provided by (used in)
    investing activities


(1,385
)


5,479



8,479Financing activitiesProceeds from repayment of
    shareholders notes receivable










506Proceeds from issuance of Ordinary
    Shares pursuant to options exercised and ESPP purchases


136



121



629Net cash provided by financing
    activities


136



121



1,135Net increase (decrease) in cash
    and cash equivalents


(3,630
)


1,187



(756
)Cash and cash equivalents at
    beginning of the year


5,213



4,026



4,782Cash and cash equivalents at end
    of the year

$
1,583


$
5,213


$
4,026Supplemental disclosure of
    non-cash investing and financing transactionsTaxes paid

$
16


$
59


$
78    46




---



##### Table of Contents



BACKWEB
    TECHNOLOGIES LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  1.
    Organization
    and Basis of Presentation            2.
    Summary
    of Significant Accounting Policies    Use of
    Estimates
   47




---



##### Table of Contents



BACKWEB
    TECHNOLOGIES LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Financial
    Statements in U.S. Dollars
      Principles
    of Consolidation
    Cash
    Equivalents
    Short-Term
    Investments
    available-for-sale
  Long-Term
    Investments
     48




---



##### Table of Contents



BACKWEB
    TECHNOLOGIES LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Other
    Long-Term Assets
    Property
    and Equipment, Net
    YearsComputer and peripheral equipment

2-3Office furniture and equipment

3Leasehold improvements

Over the shorter of term of
    lease
    or estimated life     Intellectual
    Property and Other Purchased Intangible Assets
      Revenue
    Recognition
    (SOP 97-2), SOP 98-9, SOP 97-2,
 49




---



##### Table of Contents



BACKWEB
    TECHNOLOGIES LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  (SOP 98-9). SOP 98-9
  SOP 98-9.
  SOP 97-2:
      out-of-pocket
   50




---



##### Table of Contents



BACKWEB
    TECHNOLOGIES LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Research
    and Development
    Advertising
    Costs
    Income
    Taxes
    Forward
    Exchange Contracts
      Concentration
    of Credit Risk
   51




---



##### Table of Contents



BACKWEB
    TECHNOLOGIES LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Net
    Loss Per Share
      Year Ended
    December 31,2005


2004


2003Net loss

$
(1,033
)

$
(5,143
)

$
(10,726
)Basic and diluted:Weighted-average shares


41,625



41,144



40,299Less weighted-average shares
    subject to repurchase


(614
)


(433
)


(299
)Shares used in computing basic and
    diluted net loss per share


41,011



40,711



40,000Basic and diluted net loss per
    share

$
(0.03
)

$
(0.13
)

$
(0.27
)     Accounting
    for Stock-Based Compensation
   52




---



##### Table of Contents



BACKWEB
    TECHNOLOGIES LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
       Year EndedDecember 31,Stock Options

2005


2004


2003Risk-free interest rates


4.4
%


3.6
%


3.3
%Expected lives (in years)


5



5



5Dividend yield


0
%


0
%


0
%Expected volatility


70
%


124
%


123
%   Year EndedDecember 31,Stock Purchase Shares

2005


2004


2003Risk-free interest rates


4.4
%


3.6
%


3.3
%Expected lives (in years)


0.5



0.5



0.5Dividend yield


0
%


0
%


0
%Expected volatility


70
%


124
%


123
%     December 31,2005


2004


2003(In thousands, except per share
    data)Net loss as reported

$
(1,033
)

$
(5,143
)

$
(10,726
)Add  stock based
    expense reported in net loss










Less  stock based
    compensation expense determined under the fair value method


(645
)


(907
)


(2,155
)Pro forma net loss

$
(1,678
)

$
(6,050
)

$
(12,881
)Pro forma basic and diluted net
    loss per share

$
(0.04
)

$
(0.15
)

$
(0.32
)Basic and diluted net loss per
    share

$
(0.03
)

$
(0.13
)

$
(0.27
)       Severance
    Pay
   53




---



##### Table of Contents



BACKWEB
    TECHNOLOGIES LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Fair
    Value of Financial Instruments
        Accumulated
    Other Comprehensive Loss
      December 31,2005


2004Beginning balance

$
(19
)

$
9Unrealized gain/(loss) on
    available-for-sale
    investments


17



(28
)Total accumulated other
    comprehensive (loss)

$
(2
)

$
(19
)   Recently
    Issued Accounting Pronouncements
    FAS 115-1 FAS 124-1, Other-Than-Temporary other-than-temporary
 54




---



##### Table of Contents



BACKWEB
    TECHNOLOGIES LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    No. 05-06, (EITF 05-6). EITF 05-6
        SFAS No. 109-1, Application of FASB Statement No. 109 Accounting
    for Income Taxes No. 109-1) No. 109-1,
  SFAS No. 109-2, Accounting and Disclosure Guidance for the Foreign Earnings
    Repatriation Provision No. 109-2)
 55




---



##### Table of Contents



BACKWEB
    TECHNOLOGIES LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  No. 109-2
  Earnings per Share Earnings per Share year-to-date year-to-date
  3.
    Short-Term
    Investments  available-for-sale
  December 31,2005


2004Unrealized


Estimated





Unrealized


EstimatedCost


Losses


Fair Value


Cost


Gains


Fair ValueCertificates of deposit

$
331


$
(17
)

$
314


$
2,738


$
(76
)

$
2,662Money market


5,979







5,979



2,445







2,445Totals

$
6,310


$
(17
)

$
6,293


$
5,183


$
(76
)

$
5,107     4.
    Property
    and Equipment, net    December 31,2005


2004Computer and peripheral equipment

$
3,417


$
3,835Office, furniture and equipment


190



2,487Leasehold improvements


1,113



1,1354,720



7,457Less: accumulated depreciation


(4,507
)


(7,303
)Property and equipment, net

$
213


$
154  56




---



##### Table of Contents



BACKWEB
    TECHNOLOGIES LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     5.
    Long-Term
    Investments           57




---



##### Table of Contents



BACKWEB
    TECHNOLOGIES LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   6.
    Accrued
    Liabilities    December 31,2005


2004Accrued employees compensation and
    related expense

$
761


$
765Sales and marketing events






17Restructuring accrual






119Other


970



724$
1,731


$
1,625   7.
    Related
    Parties  Stock
    Options
      8.
    Restructuring
    and Other Charges  EITF 94-3,
   58




---



##### Table of Contents



BACKWEB
    TECHNOLOGIES LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Involuntary


FacilitiesTerminations


and Other


TotalTotal charge  2002
    restructuring

$
1,600


$
3,100


$
4,700Cash
    payments  2002 restructuring


(1,300
)


(2,000
)


(3,300
)Balance at December 31, 2002


300



(1,100
)


(1,400
)Change in
    estimate  2002 restructuring






400



400Cash
    payments  2002 restructuring


(300
)


(1,000
)


(1,300
)Balance at December 31, 2003






500



500Change in
    estimate  2002 restructuring






(300
)


(300
)Cash
    payments  2002 restructuring






(200
)


(200
)Total charge  2004
    restructuring


500







500Cash
    payments  2004 restructuring


(400
)






(400
)Balance at December 31, 2004

$
100


$



$
100Cash
    payments  2005 restructuring


(100
)






(100
)Balance at December 31, 2005

$



$



$
   9.
    Commitments
    and Contingencies  Leases
    2006

$
844,0002007


64,0002008


$
908,000     Contingencies
    No. 01-CV-10000,
 59




---



##### Table of Contents



BACKWEB
    TECHNOLOGIES LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Rule 10b-5
        Letter
    of Credit
    Line
    of Credit
   60




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##### Table of Contents



BACKWEB
    TECHNOLOGIES LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   10.
    Shareholders
    Equity  Ordinary
    Shares
    December 31,2005


2004Exercise of outstanding options


6,323,840



7,986,485Ordinary Shares available for
    grant under stock option plans


11,277,654



9,444,02617,601,494



17,430,511     Preferred
    Stock
    Stock
    Option Plans
       61




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##### Table of Contents



BACKWEB
    TECHNOLOGIES LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
             62




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##### Table of Contents



BACKWEB
    TECHNOLOGIES LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Weighted-Shares








Weighted-


Average FairAvailable For


Options


Exercise Price


Average


Value ofGrant


Outstanding


per Share


Exercise Price


Option GrantedBalance at December 31,
    2002


7,711,094



8,772,774


$
0.12-$19.00


$
3.38


$
0.71Options granted


(1,271,388
)


1,271,388


$
0.23-$ 1.15


$
0.90Options exercised






(591,235
)

$
0.12-$ 0.77


$
0.70Options canceled


2,661,847



(2,661,847
)

$
0.24-$17.00


$
2.26Balance at December 31,
    2003


9,101,553



6,791,080


$
0.12-$19.00


$
3.62


$
0.78Options authorized


1,960,000











Options granted


(3,352,500
)


3,352,500


$
0.37-$ 1.61


$
0.47Options exercised






(117,687
)

$
0.23-$ 1.05


$
0.70Options canceled


1,927,314



(1,927,314
)

$
0.23-$17.25


$
1.90Balance at December 31,
    2004


9,636,367



8,098,579


$
0.24-$19.00


$
2.77


$
0.38Options granted


(645,000
)


645,000


$
0.42-$ 0.57


$
0.46Options exercised






(133,452
)

$
0.52-$ 0.75


$
0.58Options canceled


2,286,687



(2,286,287
)

$
1.20-$12.50


$
3.77Options Expired


(834
)










Balance at December 31,
    2005


11,277,654



6,323,840


$
2.85-$17.25


$
0.58


$
0.46     Options Outstanding


Options ExercisableNumber


Weighted Average


Weighted


Number


WeightedRange of

Outstanding as


Remaining


Average


Exercisable as


AverageExercise Prices

Of 12/31/05


Contractual Years


Exercise Price


of 12/31/05


Exercise Price$ 0.26 - $ 0.37


42,500



4.99


$
0.32



26,250


$
0.29$ 0.38 - $ 0.39


2,177,500



5.84


$
0.39



997,332


$
0.39$ 0.40 - $ 0.57


782,500



7.03


$
0.46



57,674


$
0.45$ 0.60 - $ 0.65


708,500



5.53


$
0.61



359,841


$
0.61$ 0.72 - $ 1.15


769,773



3.14


$
0.95



660,788


$
0.92$ 1.20 - $ 1.20


30,000



2.17


$
1.20



30,000


$
1.20$ 1.32 - $ 1.32


725,000



6.00


$
1.32



271,875


$
1.32$ 1.50 - $ 7.32


335,067



2.26


$
5.03



331,410


$
5.06$15.63 - $15.63


3,000



1.40


$
15.63



3,000


$
15.63$17.25 - $17.25


750,000



1.65


$
17.25



750,000


$
17.25$ 0.26 - $17.25


6,323,840



4.93


$
2.85



3,488,170


$
4.68    63




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##### Table of Contents



BACKWEB
    TECHNOLOGIES LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Warrants
    Issued
    11.  BackWeb
    Technologies Inc. 401(k) Plan (Plan)
    12.
    Income
    Taxes  Israeli
    Income Taxes
  Measurement
    of Taxable Income Under the Income Tax (Inflationary
    Adjustments) Law, 1985:
    Tax
    Benefits Under the Israeli Law for the Encouragement of Industry
    (Taxation), 1969:
    Tax
    Benefits Under the Law for the Encouragement of Capital
    Investments, 1959:
   64




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##### Table of Contents



BACKWEB
    TECHNOLOGIES LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            U.S. Income
    Taxes
      Pretax
    Loss
    Year Ended
    December 31,2005


2004


2003Domestic (Israel)

$
183


$
4,937


$
9,144Foreign


850



206



1,582$
1,033


$
5,143


$
10,726    65




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##### Table of Contents



BACKWEB
    TECHNOLOGIES LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Deferred
    Taxes
    December 31,2005


2004U.S. net operating loss
    carryforwards

$
2,265


$
2,689Reserves not currently deductible


149



1,471Other, net


339



390Net deferred assets before
    valuation allowance


2,753



4,550Valuation allowance


(2,753
)


(4,550
)Net deferred tax assets

$



$
     13.
    Geographic
    Information and Major Customer    Year Ended
    December 31,2005


2004


2003Revenue from sales to unaffiliated
    customers:North America

$
4,565


$
4,537


$
4,757Israel






92



795Europe


2,346



870



950$
6,911


$
5,499


$
6,502   December 31,2005


2004


2003Long-lived assets:North America

$
173


$
123


$
193Israel


74



55



102Other


1



2



6$
248


$
180


$
301    66




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##### Table of Contents



BACKWEB
    TECHNOLOGIES LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Note 14.
    Accounting
    for and Disclosure of Guarantees  Guarantors Accounting for
    Guarantees. time-to-time
        Other Liabilities and Other Claims. Accounting for Asset Retirement Obligations,
 67




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##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants On Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Evaluation of disclosure controls and
    procedures. Rule 13a-15(e)
  Form 10-K, Form 10-K
  Changes in internal control over financial
    reporting.
  Item 9B.
    Other
    Information  Litigation against Chris Marshall, a former
    employee.
 PART III  Item 10.
    Directors
    and Executive Officers of the Registrant  Directors
    and Executive Officers
    Name

Age

PositionEli Barkat


42


Chairman of the BoardKara Andersen


41


DirectorUday Bellary


51


DirectorAmir Makleff


58


DirectorWilliam Heye


45


Chief Executive OfficerKen Holmes


40


Vice President, FinanceMoshe Raccah


39


Vice President, Sales &
    Business Development   Eli Barkat
 68




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##### Table of Contents



Kara Andersen
  Uday Bellary
  Amir Makleff
  William Heye
  Ken Holmes
  Moshe Raccah
 69




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##### Table of Contents



Audit
    Committee
  Regulation S-K, Rule 10A-3(b)(1)
  Section 16(a)
    Beneficial Ownership Reporting Compliance
      Code of
    Ethics
   70




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##### Table of Contents



Item 11.
    Executive
    Compensation    Summary
    Compensation Table
  Long TermCompensationAnnual Compensation


AwardsOther Annual


SecuritiesSalary


Bonus


Compensation


UnderlyingName and Principal
    Position




($)


($)


($)(4)


Options (#)William Heye(1)


2005



180,000



90,000



14,461



Chief Executive Officer


2004



180,000



44,126



11,763



700,0002003



180,000



13,771



50,977



60,000Ken Holmes(2)


2005



155,000



56,364







Vice President, Finance


2004



155,000



25,480







193,0002003



99,260



9,141







66,000Moshe Raccah(3)


2005



43,750



2,500



18,089



150,000Vice President, Sales &
    Business


2004















Development


2003















     (1)
    
    Mr. Heye became our Chief Executive Officer in October
    2004. Prior to this time, he served as our Vice President,
    Business Development and Products.(2)
    
    Mr. Holmes joined BackWeb in May 2003.(3)
    
    Mr. Raccah joined BackWeb in October 2005 as the Vice
    President, Business Development and Professional Services.(4)
    
    The Other Annual Compensation includes commission
    payments, severance payments, and vacation payout amounts.  Stock
    Option Grants in Fiscal 2005
      1/48
 71




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##### Table of Contents



Option
    Grants in Fiscal 2005
  Potential RealizableNumber of


Percent of











Value at AssumedSecurities


Total Options











Annual Rates of StockUnderlying


Granted to


Exercise or








Price Appreciation forOptions


Employees in


Base Price





Expiration


Option TermName

Granted (#)


Fiscal Year


($/Share)


Grant Date


Date


5%


10%William Heye


























Ken Holmes


























Moshe Raccah


150,000



23.3
%

$
0.42



11/01/2005



11/01/2015


$
39,620


$
100,406   Aggregated
    Option Exercises in Last Fiscal Year and Fiscal Year End Option
    Values
    In-the-Money
  Aggregate
    Option Exercises in Fiscal 2005
  Number of Securities


Value of UnexercisedUnderlying Unexercised


In-the-Money
    OptionsOptions at Fiscal Year
    End


at Fiscal Year EndName

Exercisable


Unexercisable


Exercisable


UnexercisableWilliam Heye


591,666



573,834


$
42,592


$
76,408Ken Holmes


145,041



113,959


$
17,772


$
15,038Moshe Raccah






150,000


$



$
21,000   Employment
    Agreements and Change of Control Arrangements
        Compensation
    of Directors
    
    A retainer fee of $1,000, per fiscal quarter;
    A fee of $1,000 for each meeting of the Board of Directors
    attended; and
    A fee of $1,000 for each committee meeting attended, with the
    Chair of the Audit Committee being paid an additional $500 for
    each committee meeting. 72




---



##### Table of Contents



Compensation
    Committee Interlocks and Insider Participation
   73




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##### Table of Contents



Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    c/o BackWeb
  Number of


Percentage ofOrdinary Shares


Ordinary SharesBeneficial Owner

Beneficially Owned


Beneficially Owned5% or More
    ShareholdersEliBarkat Holdings Ltd.(1)


3,352,342



8.1
%8 Hamarpe Street
    Har Hotzvim
    Jerusalem 91450 IsraelYuval 63 Holdings
    (1995) Ltd.(2)


3,352,342



8.1
%8 Hamarpe Street
    Har Hotzvim
    Jerusalem 91450 IsraelNirBarkat Holdings Ltd.(3)


3,352,342



8.1
%8 Hamarpe Street
    Har Hotzvim
    Jerusalem 91450 IsraelNamed Executive Officers and
    DirectorsEli Barkat(4)


4,696,096



11.0
%William Heye(5)


703,375



1.7
%Ken Holmes(6)


191,708



*Moshe Raccah






Uday Bellary(7)


20,833



*Amir Makleff(8)


20,833



*Kara Andersen






Executive officers and directors
    as a group (7 persons)(9)


5,632,845



12.9
%     *
    
    Less than 1%(1)
    
    Eli Barkat substantially controls the voting power of EliBarkat
    Holdings Ltd. The shares listed in the table above for EliBarkat
    Holdings Ltd. do not include (i) 198,131 Ordinary Shares
    owned directly by Mr. Barkat, (ii) 1,000 Ordinary
    Shares owned directly by Mr. Barkats wife, with
    respect to which he disclaims beneficial ownership,
    (iii) and 163,285 Ordinary Shares held by BRM Technologies
    Ltd. in which EliBarkat Holdings Ltd. is a shareholder, with
    respect to which shares Mr. Barkat and EliBarkat Holdings
    Ltd. disclaim control and beneficial ownership.(2)
    
    Yuval Rakavy, a former BackWeb director, owns substantially all
    of the equity and voting power of Yuval Rakavy Ltd., the parent
    company of Yuval 63 Holdings (1995) Ltd. The shares listed
    in the table above for Yuval 63 Holdings (1995) Ltd. do not
    include 163,285 Ordinary Shares held by BRM Technologies Ltd. in 74




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##### Table of Contents



which Yuval 63 Holdings (1995) Ltd. is a shareholder, with
    respect to which shares Mr. Rakay and Yuval 63 Holdings
    (1995) Ltd. disclaim control and beneficial ownership.(3)
    
    Nir Barkat, a former BackWeb director, owns substantially all of
    the equity and voting power of Nir Barkat Ltd., the parent
    company of NirBarkat Holdings Ltd. Nir Barkat is the brother of
    Eli Barkat, our Chairman and former Chief Executive Officer. The
    shares listed in the table above for Nir Barkat Ltd. do not
    include 163,285 Ordinary Shares held by BRM Technologies Ltd. in
    which Nir Barkat Ltd. is a shareholder, with respect to which
    shares Mr. Barkat and Nir Barkat Ltd. disclaim control and
    beneficial ownership.(4)
    
    The shares listed in the table above for Eli Barkat include
    3,352,342 Ordinary Shares held by EliBarkat Holdings Ltd., an
    entity substantially controlled by Eli Barkat, 1,000 Ordinary
    Shares owned directly by Mr. Barkats wife, with
    respect to which he disclaims beneficial ownership or control,
    and options to purchase 1,343,750 Ordinary Shares that are
    exercisable within sixty days of March 4, 2006.(5)
    
    The shares listed in the table above for Mr. Heye include
    options to purchase 696,708 Ordinary Shares that are exercisable
    within sixty days of March 4, 2006.(6)
    
    The shares listed in the table above for Mr. Holmes include
    options to purchase 181,708 Ordinary Shares that are exercisable
    within sixty days of March 4, 2006.(7)
    
    The shares listed in the table above for Mr. Bellary
    include options to purchase 20,833 Ordinary Shares that are
    exercisable within sixty days of March 4, 2006.(8)
    
    The shares listed in the above table for Mr. Makleff
    include options to purchase 20,833 Ordinary Shares that are
    exercisable within sixty days of March 4, 2006.(9)
    
    The shares listed in the table above for our executive officers
    and directors as a group include 2,263,832 Ordinary Shares
    subject to options which are exercisable within 60 days of
    March 4, 2006.  Equity
    Compensation Plan Information
      Number of SecuritiesRemaining Availablefor Future IssuanceNumber of Securities





under Equityto be Issued upon


Weighted-Average


Compensation PlansExercise of


Exercise Price of


(Excluding SecuritiesOutstanding Options,


Outstanding Options,


Reflected in thePlan Category

Warrants and Rights


Warrants and Rights


First Column)Equity compensation plans approved
    by security holders(1)


6,323,840


$
2.85



13,582,144
(2)Equity compensation plans not
    approved by security holders


-0-



-0-



-0-Total


6,323,740


$
2.85



13,582,144     (1)
    
    Includes our 1996 Israel Stock Option Plan and 1998 United
    States Stock Option Plan, which provide for an annual increase
    in the number of Ordinary Shares available for issuance
    thereunder, on July 1 of each fiscal year, equal to the
    lesser of (a) 1,960,000 Ordinary Shares or (b) 5% of
    the Ordinary Shares outstanding on that date, with 30% of the
    Ordinary Shares being allocated to the 1996 Israel Stock Option
    Plan and 70% of such Shares being allocated to the 1998 United
    States Stock Option Plan. Also includes 1,820,608 Ordinary
    Shares reserved for issuance under our 1999 Employee Stock
    Purchase Plan, which provides for an annual increase in the
    number of shares available for issuance thereunder, on
    July 1 of each fiscal year, equal to the lesser of
    (a) 833,333 Ordinary Shares or (b) 2% of the Ordinary
    Shares outstanding on that date.(2)
    
    Includes 2,305,324 shares subject to issuance under our
    1999 Employee Stock Purchase Plan. 75




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##### Table of Contents



Item 13.
    Certain
    Relationships and Related Transactions    Item 14.
    Principal
    Accountant Fees and Services  Principal
    Accountant Fees and Services
    2005


2004Audit Fees

$
114,000


$
165,000Audit-Related Fees






Tax Fees






All Other Fees


Total

$
114,000


$
165,000   Audit Fees. Form 10-Q.
   PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules  Form 10-K:
  Financial Statements.
  Form 10-K
  Financial Statement Schedules.
   76




---



##### Table of Contents



SCHEDULE II
    BACKWEB TECHNOLOGIES, LTD.
    SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
    At December 31, 2005
  Write-off ofBalance at


Provision for


Previously


Balance atBeginning


Doubtful


Provided


End ofof Period


Accounts


Accounts


Period(In thousands)Year Ended December 31, 2005
    Allowance for Doubtful Accounts

$
643


$
0


$
(364
)

$
279Year Ended December 31, 2004
    Allowance for Doubtful Accounts

$
2,150


$
0


$
(1,507
)

$
643Year Ended December 31, 2003
    Allowance for Doubtful Accounts

$
2,046


$
104


$
0


$
2,150     Exhibits.
  Form 10-K
 77




---



##### Table of Contents



SIGNATURES    
  William
    Heye
    Chief Executive Officer
      Signature

Title

Date/s/  William
    HeyeWilliam
    Heye

Chief Executive Officer and a
    Director (Principal Executive Officer)

March 29, 2006/s/  Ken
    HolmesKen
    Holmes

Vice President, Finance
    (Principal Financial and
    Accounting Officer)

March 29, 2006/s/  Eli
    BarkatEli
    Barkat

Chairman of the Board of Directors

March 29, 2006/s/  Uday
    BellaryUday
    Bellary

Director

March 29, 2006/s/  Amir
    MakleffAmir
    Makleff

Director

March 29, 2006/s/  Kara
    AndersenKara
    Andersen

Director

March 29, 2006  78




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##### Table of Contents



EXHIBIT INDEX
  Exhibit No

Description3
.1

Articles of Association of BackWeb
    Technologies Ltd., as amended3
.2

Memorandum of Association of
    Registrant (English translation)(1)4
.1

Specimen of Ordinary Share
    Certificate(1)10
.1*

1996 Israel Stock Option Plan
    (English translation)(1)10
.2*

Appendix A to Israeli Stock Option
    Plan, effective January 1, 2003(2)10
.3*

Form of Option Agreement for
    Israeli Stock Option Plan(2)10
.4*

1996 U.S. Stock Option Plan(3)10
.5*

1998 U.S. Stock Option Plan
    (Amended and Restated as of January 1, 2002)(4)10
.6*

Form of Option Agreement for 1998
    U.S. Stock Option Plan(2)10
.7*

1999 Employee Stock Purchase
    Plan(5)10
.8

Lease Agreement for 10
    Haamal Street, Park Afek, Rosh Haayin, Israel
    (English translation)(10).10
.9

Master Lease Agreement between
    BackWeb Technologies Inc. and Speiker Properties, L.P. for the
    premises located at 2077 Gateway Place, Suite 500,
    San Jose, California(6)10
.10

1st Amendment to
    Lease  Expansion, made May 12, 2000,
    between Speiker Properties, L.P. and BackWeb Technologies,
    Inc.(7)10
.11

2nd Amendment to
    Lease  Expansion, made November 7, 2000,
    between Speiker Properties, L.P. and BackWeb Technologies,
    Inc.(2)10
.12

3rd Amendment to Lease, made
    between CA-Gateway Office Limited Partnership, as successor by
    conversion to EOP-Gateway Office, L.L.C., as successor in
    interest to Speiker Properties, L.P., and BackWeb Technologies
    Inc.(2)10
.13

Promissory Note by BackWeb
    Technologies Inc., as Maker, to CA-Gateway Office Limited
    Partnership, as Payee, date October 27, 2003(2)10
.14

Guaranty of Lease by BackWeb
    Technologies Ltd.(2)10
.15

Guaranty of Note by BackWeb
    Technologies Ltd.(2)10
.16

Warrant to Purchase 200,000
    Ordinary Shares, issued by BackWeb Technologies Ltd. to
    CA-Gateway Office Limited Partnership(2)10
.17

Form of Agreement by and among
    Interad (1995) Ltd. and NirBarkat Holdings Ltd., Eli Barkat
    Holdings Ltd., Yuval 63 Holdings (1995) Ltd., and Lior Hass and
    Iftah Sneh(9)10
.18*

Offer letter with William Heye(10)10
.19*

Offer letter with Ken Holmes(10)10
.20*

Director Cash Compensation
    Arrangement(10)10
.21*

Offer letter with Moshe Raccah(11)21
.1

Subsidiaries of the Registrant(10)23
.1

Consent of Grant Thornton LLP,
    Independent Registered Public Accounting Firm23
.2

Consent of Ernst & Young
    LLP, Independent Registered Public Accounting Firm31
.1

Certification of Principal
    Executive Officer, pursuant to
    Rule 13a-14(a)
    Under the Securities Exchange Act of 193431
.2

Certification of Principal
    Financial Officer, pursuant to
    Rule 13a-14(a)
    Under the Securities Exchange Act of 193432
.1

Certifications of Chief Executive
    Officer and Chief Financial Officer, pursuant to 18 U.S.C
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002     (1)
    
    Incorporated herein by reference to the corresponding Exhibit
    from the Companys Registration Statement on
    Form F-1
    (File
    No. 333-10358).(2)
    
    Incorporated herein by reference to the corresponding Exhibit
    from the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2003, filed March 30,
    2004.(3)
    
    Incorporated herein by reference to Exhibit 10.2 from the
    Companys Registration Statement on
    Form F-1
    (File
    No. 333-10358).




---



##### Table of Contents



(4)
    
    Incorporated herein by reference to the corresponding Exhibit
    from the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2001, filed April 2,
    2002.(5)
    
    Incorporated herein by reference to Exhibit 10.4 from the
    Companys Registration Statement on
    Form F-1
    (File
    No. 333-10358).(6)
    
    Incorporated herein by reference to Exhibit 10.7 from the
    Companys Registration Statement on
    Form F-1
    (File
    No. 333-10358).(7)
    
    Incorporated herein by reference to Exhibit 10.18 from the
    Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2000, filed April 1,
    2001.(8)
    
    Incorporated herein by reference to Exhibit 10.19 from the
    Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2000, filed April 1,
    2001.(9)
    
    Incorporated herein by reference to Exhibit 10.8 from the
    Companys Registration Statement on
    Form F-1
    (File
    No. 333-10358).(10)
    
    Incorporated herein by reference to the corresponding Exhibit
    from the Companys Annual Report on
    Form 10-K
    for the year ended December 31, 2004, filed March 31,
    2005.(11)
    
    Incorporated herein by reference to Exhibit 99.2 from the
    Companys Current Report on
    Form 8-K
    filed on November 3, 2005.*
    
    Indicates management contract or compensatory plan or
    arrangement.