##### Table of Contents



UNITED
    STATES SECURITIES AND EXCHANGE COMMISSIONWashington, 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, 2006oro

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

51-2198508(State or Other Jurisdiction
    of

(I.R.S. EmployerIncorporation or
    Organization)

Identification Number)10 Haamal Street, Park
    Afek, Rosh Haayin, Israel

48092(Address of Principal Executive
    Offices)

(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
 o o þ
  Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE
  Form 10-K Form 10-K,




---



##### 



BACKWEB
    TECHNOLOGIES LTD.
    ANNUAL REPORT ON
    FORM 10-K
    Year Ended December 31, 2006
    TABLE OF CONTENTS
  PagePART IItem 1

Business


1Item 1A.

Risk
    Factors


9Item 1B.

Unresolved Staff
    Comments


20Item 2.

Properties


20Item 3.

Legal
    Proceedings


20Item 4.

Submission of
    Matters to a Vote of Security Holders


21PART IIItem 5.

Market for
    Registrants Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities


22Item 6.

Selected
    Consolidated Financial Data


23Item 7.

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


24Item 7A.

Quantitative and
    Qualitative Disclosures About Market Risk


36Item 8.

Financial
    Statements and Supplementary Data


37Item 9.

Changes in and
    Disagreements With Accountants On Accounting and Financial
    Disclosure


65Item 9A.

Controls and
    Procedures


65Item 9B.

Other
    Information


65PART IIIItem 10.

Directors and
    Executive Officers of the Registrant


66Item 11.

Executive
    Compensation


68Item 12.

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


70Item 13.

Certain
    Relationships and Related Transactions, and Director
    Independence


72Item 14.

Principal
    Accountant Fees and Services


73PART IVItem 15.

Exhibits and
    Financial Statement Schedules


73Signatures


75EXHIBIT 10.13EXHIBIT 23.1EXHIBIT 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. For example, our statements regarding
    revenue and expense trend expectations, the expected impact of
    the restructurings we implemented in 2006, the ability of our
    strategic relationship efforts to increase the market for and
    visibility of our product lines and our plans to invest in
    selected strategic opportunities in this Annual Report are
    forward-looking statements. The words believes,
    expects, anticipates,
    intends, forecasts,
    projects, plans, estimates
    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. 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. Except
    as required by law, 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 CAS ,
    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 CAS 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 3




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optimized transformation of the pages for offline viewing. OTML
    is an extension to HTML and applications other than OAS
    software, such as the browser, will ignore the HTML tags.
    Although portals, for example, include both personalized and
    non-personalized content, our OAS acquires content in the
    context of individual users and creates a single personalized
    information package for each user. Because a large portion of
    the content is shared among many users and because that content
    may be very large, it is necessary to consolidate shared
    information so that it can be retrieved and stored once for all
    targeted users. The OAS stores content, including documents and
    Web pages, in separate information packages that are sent to
    more than one user. Once content has been acquired, transformed
    and consolidated, it is packaged for offline delivery into units
    called InfoPaks. Such packaging includes the creation of
    database records for targeting, delivery tracking, user
    interaction reporting and version control of the content,
    calculating byte-level differences between versions of the
    content, which is critical when only a small portion of a
    document is modified, and optimized storage and communication
    with users plug-ins.  
    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
  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.
    We
    have a history of losses and we expect future
    losses.
    Wireless
    networking technology and geographic coverage could limit our
    market.
    If we
    require additional financing for our future capital or
    operational 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, and we may be required to
    further reduce our operations.
   9




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Rapid
    technological changes could cause our products to become
    obsolete.
      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.
    We
    have restructured our company in October 2004 and further
    reduced headcount in 2006, 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.
   10




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A lack
    of effective internal control over financial reporting could
    result in an inability to accurately report our financial
    results that could lead to a loss of investor confidence in our
    financial reports and have an adverse effect on our share
    price.
  Form 10-K,
    Form 10-K,
  Our
    business is difficult to evaluate because we have changed our
    strategic focus on several occasions and repositioned our
    product line.
    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; 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.
   13




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Competition
    in the Internet communications market may reduce the demand for,
    or price of, our products.
    The
    loss of our right to use software licensed to us by third
    parties could harm our business.
    Our
    growth may suffer because of the complexities involved in
    implementing our products.
    Our
    financial performance and workforce reductions may adversely
    affect the morale and performance of our personnel and our
    ability to hire new personnel.
    We may
    experience tax liabilities in connection with the liquidation of
    wholly owned subsidiaries that have ceased
    operations.
   14




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Our
    products may be used in an unintended and negative
    manner.
    We may
    experience difficulties managing our operations 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.  Our
    efforts to protect our proprietary rights may be
    inadequate.
   15




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We may
    not have sufficient insurance to cover all potential product
    liability and warranty claims.
    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.
   16




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Because
    our revenues are generated in U.S. dollars but a large
    portion of our expenses is incurred in New Israeli Shekels
    (NIS), our results of operations may be seriously harmed by
    currency fluctuations.
    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 in encryption
    research and development and export our products that
    incorporate encryption.
    Israeli
    courts might not enforce judgments rendered outside of Israel
    that may make it difficult to collect on judgments rendered
    against us or our directors or officers, and you may have
    difficulties asserting U.S. securities laws
    claims.
        
    the judgment was rendered by a court that was, according to the
    laws of the state of the court, competent to render the judgment; 17




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
    the judgment may no longer 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.    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.
      Tax
    reform in Israel may reduce our tax benefit, which might
    adversely affect our profitability.
   18




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Our
    results of operations may be negatively affected by the
    obligation of key personnel to perform military
    service.
    Risks
    Relating to Our Ordinary Shares
  In
    January 2007, our Ordinary Shares were delisted from trading on
    The Nasdaq Capital Market, and the ability of our shareholders
    to trade our shares and obtain liquidity for their shares, may
    have been significantly impaired and the market price of our
    Ordinary Shares may continue to decline
    significantly.
  non-U.S. companies
  Our
    share 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 strategic allies;
    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.    Holders
    of our Ordinary Shares who are United States residents face
    income tax risks.
   19




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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  month-to-month.
    Item 3.
    Legal
    Proceedings  No. 01-CV-10000,
 20




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Rule 10b-5
          Item 4.
    Submission
    of Matters to a Vote of Security Holders     For


22,187,867Withhold Authority


63,520     For


22,215,215Against


25,602Abstain


10,570Broker Non-Votes


21,597,348  21




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##### Table of Contents



PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities  intra-day
  2005

High


LowFirst Quarter

$
0.84


$
0.44Second Quarter

$
0.57


$
0.41Third Quarter

$
0.63


$
0.45Fourth Quarter

$
0.74


$
0.37   2006

High


LowFirst Quarter

$
0.90


$
0.54Second Quarter

$
0.95


$
0.47Third Quarter

$
0.56


$
0.35Fourth Quarter

$
0.41


$
0.20              22




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Item 6.
    Selected
    Consolidated Financial Data    Years Ended December 31,2006


2005


2004


2003


2002(In thousands, except per share data)Consolidated Statements of
    OperationsRevenue:License

$
1,868


$
3,312


$
1,593


$
3,232


$
2,119Service


2,928



3,599



3,906



3,270



4,228Total revenue


4,796



6,911



5,499



6,502



6,347Cost of revenue:License


64



51



72



128



213Service


762



684



1,170



1,057



3,050Total cost of revenue


826



735



1,242



1,185



3,263Gross profit


3,970



6,176



4,257



5,317



3,084Operating expenses:Research and development


2,211



2,178



3,298



4,487



6,059Sales and marketing


3,655



3,452



4,071



6,272



10,298General and administrative


1,981



1,787



1,958



3,939



4,557Restructuring charges






(105
)


469



443



4,678Write-off and amortization of
    intellectual property, other intangibles and deferred stock
    compensation


















3,546Total operating expenses


7,847



7,312



9,796



15,141



29,138Loss from operations


(3,877
)


(1,136
)


(5,539
)


(9,824
)


(26,054
)Interest and other income, net


171



103



396



98



1,172Write down of equity investments














(1,000
)


Net loss

$
(3,706
)

$
(1,033
)

$
(5,143
)

$
(10,726
)

$
(24,882
)Basic and diluted net loss per
    share

$
(0.09
)

$
(0.03
)

$
(0.13
)

$
(0.27
)

$
(0.63
)Weighted average number of shares
    used in computing basic and diluted net loss per share(1)


41,250



41,011



40,711



40,000



39,284   As of December 31,2006


2005


2004


2003


2002(In thousands)Consolidated Balance Sheets
    Data:Cash, cash equivalents and
    short-term investments

$
4,494


$
7,876


$
10,320


$
14,457


$
23,757Working capital


3,662



6,801



7,903



12,301



20,334Total assets


6,527



10,003



12,555



18,515



29,409Total shareholders equity

$
3,831


$
7,041


$
7,938


$
12,961


$
22,521  23




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##### Table of Contents



(1)
    
    For the calculation of the weighted average number of shares
    used to calculate basic and diluted net loss per share, please
    see Note 2 of the Notes to Consolidated Financial
    Statements, Net Loss Per Share.  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
        Business
    Overview
   24




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Critical
    Accounting Policies
   25




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
    revenue recognition; and
    estimating valuation allowances and accrued liabilities,
    specifically the trade receivable allowance for doubtful
    accounts.  Revenue
    Recognition
    97-2 (SOP 97-2), SOP 98-9, SOP 97-2, (SOP 98-9). SOP 98-9
  SOP 98-9.
  SOP 97-2:
       26




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agreed-upon out-of-pocket
    Estimating
    Valuation Allowances and Accrued Liabilities, Including the
    Allowance for Doubtful Accounts
    Form 10-K.
 27




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Results
    of Operations
    Year Ended December 31,2006


2005


2004Revenue:License


39
%


48
%


29
%Service


61



52



71Total revenue


100



100



100Cost of revenue:License


1



0



1Service


16



10



22Total cost of revenue


17



10



23Gross profit


83



90



77Operating expenses:Research and development


46



32



60Sales and marketing


76



50



74General and administrative


41



26



36Restructuring charges


0



(2
)


8Total operating expenses


164



106



178Loss from operations


(81
)


(16
)


(101
)Interest and other income, net


4



2



7Net loss


(77
)%


(14
)%


(94
)%   Revenue
  December 31,Change





Change2006


$


%


2005


$


%


2004(In thousands, except percentages)Total revenue

$
4,796


$
(2,115
)


(30.6
)%

$
6,911


$
1,412



25.7
%

$
5,499   e-Accelerator
 28




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##### Table of Contents



License
    Revenue
  December 31,Change





Change2006


$


%


2005


$


%


2004(In thousands, except percentages)License revenue

$
1,868


$
(1,444
)


(43.6
)%

$
3,312


$
1,719



107.9
%

$
1,593As a percentage of total revenue


38.9
%






(9.0
)%


47.9
%






18.9
%


29.0
%       Service
    Revenue
  December 31,Change





Change2006


$


%


2005


$


%


2004(In thousands, except percentages)Service revenue

$
2,928


$
(671
)


(18.6
)%

$
3,599


$
(307
)


(7.9
)%

$
3,906As a percentage of total revenue


61.1
%






(9.0
)%


52.1
%






18.9
%


71.0
%      29




---



##### Table of Contents



Cost
    of Revenue
  December 31,Change





Change2006


$


%


2005


$


%


2004(In thousands, except percentages)Cost of revenue

$
826


$
91



12.4
%

$
735


$
(507
)


(40.8
)%

$
1,242As a percentage of total revenue


17.2
%






6.6
%


10.6
%






(12.0
)%


22.6
%     Cost of
    License Revenue
    December 31,Change





Change2006


$


%


2005


$


%


2004(In thousands, except percentages)Cost of license revenue

$
64


$
13



25.5
%

$
51


$
(21
)


(29.2
)%

$
72As a percentage of license revenue


3.4
%






1.9
%


1.5
%






(5.0
)%


6.5
%As a percentage of total revenue


1.3
%






0.6
%


0.7
%






(0.6
)%


1.3
%       Cost of
    Service Revenue
    December 31,Change





Change2006


$


%


2005


$


%


2004(In thousands, except percentages)Cost of service revenue

$
762


$
78



11.4
%

$
684


$
(486
)


(41.5
)%

$
1,170As a percentage of service revenue


26.0
%






7.0
%


19.0
%






(11.0
)%


30.0
%As a percentage of total revenue


15.9
%






6.0
%


9.9
%






(11.4
)%


21.3
%  30




---



##### Table of Contents



Operating
    Expenses
  Research
    and Development
    December 31,Change





Change2006


$


%


2005


$


%


2004(In thousands, except percentages)Research and development

$
2,211


$
33



1.5
%

$
2,178


$
(1,120
)


(34.0
)%

$
3,298As a percentage of total revenue


46.1
%






14.6
%


31.5
%






(28.4
)%


59.9
%       Sales and
    Marketing
    December 31,Change





Change2006


$


%


2005


$


%


2004(In thousands, except percentages)Sales and marketing

$
3,655


$
203



5.9
%

$
3,452


$
(619
)


(15.2
)%

$
4,071As a percentage of total revenue


76.2
%






26.2
%


50.0
%






(24.0
)%


74.0
%      31




---



##### Table of Contents



General
    and Administrative
    December 31,Change





Change2006


$


%


2005


$


%


2004(In thousands, except percentages)General and administrative

$
1,981


$
194



10.9
%

$
1,787


$
(171
)


(8.7
)%

$
1,958As a percentage of total revenue


41.3
%






15.4
%


25.9
%






(9.7
)%


35.6
%       Restructuring
    Charges
  December 31,Change





Change2006


$


%


2005


$


%


2004(In thousands, except percentages)Restructuring and other charges

$



$
105



100.0
%

$
(105
)

$
(574
)


(122.4
)%

$
469As a percentage of total revenue



%






1.5
%


(1.5
)%






(10.0
)%


8.5
%     Interest
    and Other Income, Net
    December 31,Change





Change2006


$


%


2005


$


%


2004(In thousands, except percentages)Interest and other income, net

$
171


$
68



66.0
%

$
103


$
(293
)


74.0
%

$
396As a percentage of total revenue


3.6
%






2.1
%


1.5
%






(5.7
)%


7.2
%    32




---



##### Table of Contents



Income
    Taxes
    Off-Balance
    Sheet Financings and Liabilities
  Off-Balance Sheet Arrangement.
  Liquidity
    and Capital Resources
         33




---



##### Table of Contents



Contractual
    Obligations
    Payments Due by PeriodLessThan 1


1-3


3-5


After 5Total


Year


Years


Years


Years(In thousands)Operating lease obligations

$
1,428


$
530


$
898


$



$
   Effective
    Corporate Tax Rates
         34




---



##### Table of Contents



Impact of
    Inflation and Currency Fluctuations
    Recently
    Issued Accounting Pronouncements
      SFAS 115-1 SFAS 124-1, Other-Than-Temporary other-than-temporary
   35




---



##### Table of Contents



SFAS No. 109-1, Application of FASB Statement No. 109, Accounting for
    Income Taxes No. 109-1) No. 109-1,
  Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk    Foreign
    Currency Exchange Rate Risk
   36




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data    First Qtr


Second Qtr


Third Qtr


Fourth QtrUnaudited(In thousands, except per share data)2006Total revenue

$
1,656


$
1,142


$
724


$
1,274Gross profit


1,395



941



549



1,085Net loss


(842
)


(1,097
)


(1,563
)


(204
)Basic and diluted net loss per
    share

$
(0.02
)

$
(0.03
)

$
(0.04
)

$
(0.00
)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
)   (b)
    Financial
    Statements  Form 10-K.
  Report of Independent Registered
    Public Accounting Firm


38Consolidated Balance Sheets


39Consolidated Statements of
    Operations


40Consolidated Statements of
    Shareholders Equity


41Consolidated Statements of Cash
    Flows


42Notes to the Consolidated
    Financial Statements


43  37




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
               
    38




---



##### Table of Contents



BACKWEB
    TECHNOLOGIES LTD.
  CONSOLIDATED
    BALANCE SHEETS
  December 31,2006


2005(In thousands, except share and per share data)ASSETSCurrent assets:Cash and cash equivalents

$
2,426


$
1,583Short-term investments


2,068



6,293Trade accounts receivable, net of
    allowance for doubtful accounts of $329 and $279 at
    December 31, 2006 and 2005, respectively


1,369



1,554Other accounts receivable and
    prepaid expenses


495



325Total current assets


6,358



9,755Long-term investments and other
    long term assets


42



35Property and equipment, net


127



213Total assets

$
6,527


$
10,003LIABILITIES AND
    SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable

$
249


$
247Accrued liabilities


1,499



1,731Deferred revenue


948



976Total current liabilities


2,696



2,954Long-term deferred revenue






8Commitments and contingenciesShareholders equity:Preferred Shares, nominal value
    NIS 0.01 per share; 50,000,000 shares authorized and
    zero shares outstanding at December 31, 2006 and
    December 31, 2005






Ordinary Shares, nominal value NIS
    0.03 per share; 152,854,103 and 150,067,829 shares
    authorized at December 31, 2006 and 2005, respectively;
    41,303,994 and 41,140,813 shares issued and outstanding at
    December 31, 2006 and 2005, respectively


152,258



151,763Accumulated other comprehensive
    loss






(2
)Accumulated deficit


(148,427
)


(144,720
)Total shareholders equity


3,831



7,041Total liabilities and
    shareholders equity

$
6,527


$
10,003    39




---



##### Table of Contents



BACKWEB
    TECHNOLOGIES LTD.
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
  Year Ended December 31,2006


2005


2004(In thousands, except per share data)Revenue:License

$
1,868


$
3,312


$
1,593Service


2,928



3,599



3,906Total revenue


4,796



6,911



5,499Cost of revenue:License


64



51



72Service


762



684



1,170Total cost of revenue


826



735



1,242Gross profit


3,970



6,176



4,257Operating expenses:Research and development


2,211



2,178



3,298Sales and marketing


3,655



3,452



4,071General and administrative


1,981



1,787



1,958Restructuring and other charges






(105
)


469Total operating expenses


7,847



7,312



9,796Loss from operations


(3,877
)


(1,136
)


(5,539
)Interest and other income, net


171



103



396Net loss

$
(3,706
)

$
(1,033
)

$
(5,143
)Basic and diluted net loss per
    share

$
(0.09
)

$
(0.03
)

$
(0.13
)Weighted average number of shares
    used in computing basic and diluted net loss per share


41,250



41,011



40,711    40




---



##### Table of Contents



BACKWEB
    TECHNOLOGIES LTD.
  CONSOLIDATED
    STATEMENT OF SHAREHOLDERS EQUITY
  AccumulatedDeferred


Other








TotalOrdinary Shares


Stock


Comprehensive


Accumulated


Comprehensive


ShareholdersShares


Amount


Compensation


Income/(Loss)


Deficit


Income/(Loss)


EquityBalance at December 31,
    2003


40,560,182


$
151,496


$



$
9


$
(138,544
)





$
12,961Issuance of Ordinary Shares
    pursuant to options exercised and ESPP purchases, 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 and ESPP purchases, 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
)





$
7,041Issuance of Ordinary Shares
    pursuant to options exercised and ESPP purchases, net


163,181



74



















74Net loss


















(3,706
)


(3,706
)


(3,706
)FAS 123R equity compensation






421



















421Unrealized income on available for
    sale marketable securities














2







2



2Total comprehensive loss






















(3,704
)


Balance at December 31,
    2006


41,303,994


$
152,258


$



$



$
(148,426
)





$
3,831    41




---



##### Table of Contents



BACKWEB
    TECHNOLOGIES LTD.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Year Ended December 31,2006


2005


2004(In thousands)Operating activitiesNet loss

$
(3,706
)

$
(1,033
)

$
(5,143
)Adjustments to reconcile net loss
    to net cash used in operating activities:Depreciation


156



140



252Gain on disposal of property and
    equipment










(260
)Stock based compensation


421







Changes in operating assets and
    liabilities:Trade accounts receivable


185



123



726Other accounts receivable, prepaid
    expenses and other long-term assets


(177
)


44



950Accounts payable and accrued
    liabilities


(231
)


93



(2,439
)Deferred revenue


(35
)


(1,748
)


1,501Net cash used in operating
    activities


(3,387
)


(2,381
)


(4,413
)Investing activitiesPurchases of property and equipment


(70
)


(199
)


(105
)Proceeds from disposals of
    property and equipment










260Purchases of short-term investments






(1,186
)


Proceeds from sales of short-term
    investments


4,225







5,324Net cash provided by (used in)
    investing activities


4,155



(1,385
)


5,479Financing activitiesProceeds from issuance of Ordinary
    Shares pursuant to options exercised and ESPP purchases


75



136



121Net cash provided by financing
    activities


75



136



121Net increase (decrease) in cash
    and cash equivalents


843



(3,630
)


1,187Cash and cash equivalents at
    beginning of the year


1,583



5,213



4,026Cash and cash equivalents at end
    of the year

$
2,426


$
1,583


$
5,213Supplemental disclosure of
    non-cash investing and financing transactionsTaxes paid

$
14


$
16


$
59    42




---



##### 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
   43




---



##### Table of Contents



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
    Other
    Long-Term Assets
   44




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   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     Revenue
    Recognition
    97-2, (SOP 97-2), SOP 98-9, SOP 97-2, (SOP 98-9). SOP 98-9
  SOP 98-9.
  SOP 97-2:
   45




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      agreed-upon out-of-pocket
    Research
    and Development
    Advertising
    Costs
    Income
    Taxes
   46




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Forward
    Exchange Contracts
      Concentration
    of Credit Risk
      Net
    Loss Per Share
   47




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Year Ended December 31,2006


2005


2004Net loss

$
(3,706
)

$
(1,033
)

$
(5,143
)Basic and diluted:Weighted-average shares


42,030



41,625



41,144Less weighted-average shares
    subject to repurchase


(780
)


(614
)


(433
)Shares used in computing basic and
    diluted net loss per share


41,250



41,011



40,711Basic and diluted net loss per
    share

$
(0.09
)

$
(0.03
)

$
(0.13
)     Accounting
    for Stock-Based Compensation
       48




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year EndedDecember 31, 2006(In thousands)Stock options

$
399ESPP


22Total stock-based compensation
    expense

$
421       Stock
    Options
    Year EndedDecember 31, 2006Dividend yield


0
%Expected volatility


122
%Risk-free interest rate


4.5
%Expected life (in years)


6.5   Year EndedDecember 31,Stock Options

2006


2005


2004Risk-free interest rates(1)


4.5
%


4.4
%


3.6
%Expected lives (in years)(2)


6.5



5



5Dividend yield(3)


0
%


0
%


0
%Expected volatility(4)


122
%


70
%


124
%   Year EndedDecember 31,Stock Purchase Shares

2006


2005


2004Risk-free interest rates(1)


5.1



4.4
%


3.6
%Expected lives (in years)(2)


0.5



0.5



0.5Dividend yield(3)


0
%


0
%


0
%Expected volatility(4)


215
%


70
%


124
%  49




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      (1)
    
    The risk-free interest rate is based on U.S. Treasury debt
    securities with maturities close to the expected term of the
    option.(2)
    
    The expected term represents the estimated period of time until
    exercise and is based on historical experience of similar
    awards, giving consideration to the contractual terms, vesting
    schedules and expectations of future employee behavior(3)
    
    No cash dividends have been declared on the Companys
    Ordinary Shares since the Companys inception, and the
    Company currently does not anticipate paying cash dividends over
    the expected term of the option.(4)
    
    Expected volatility is based on relevant historical volatility
    of the Companys stock factoring in daily share price
    observations.  WeightedAverageWeighted


Remaining


AggregateAverage


Contractual


IntrinsicShares


Exercise Price


Terms (Years)


ValueOptions outstanding as of
    December 31, 2005


6,323,840


$
2.85



5.07


$
462,600Granted


130,000


$
0.45Exercised


(36,525
)

$
0.53Canceled


(486,049
)

$
0.46Forfeited


(232,174
)

$
1.15Options outstanding as of
    December 31, 2006


5,699,092


$
3.09



3.95


$
600Options vested as of
    December 31, 2006


4,614,467


$
3.63



3.57


$
0Options vested as of
    December 31, 2006 and options expected to vest after
    December 31, 2006


5,186,174


$
3.07



3.52


$
492       Employee
    Stock Purchase Plan (ESPP)
    Year EndedDecember 31, 2006Dividend yield


0
%Expected volatility


215
%Risk-free interest rate


5.1
%Expected life (in years)


0.5  50




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2006


2005


2004Shares purchased under the ESPP


127,000



175,000



154,000Cash received for the purchase of
    shares under the ESPP

$
54,000


$
75,000


$
93,000Weighted-average purchase price
    per share

$
0.43


$
0.43


$
0.56     Reserved
    for Future Issuance
    SharesEmployee equity incentive plans


17,564,135Employee stock purchase plans


4,653,491Total


22,217,626   Stock-Based
    Compensation for Fiscal Years 2005 and 2004
      December 31,2005


2004(In thousands, except per share data)Net loss as reported

$
(1,033
)

$
(5,143
)Add  stock based
    expense reported in net loss






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


(645
)


(907
)Pro forma net loss

$
(1,678
)

$
(6,050
)Pro forma basic and diluted net
    loss per share

$
(0.04
)

$
(0.15
)Basic and diluted net loss per
    share

$
(0.03
)

$
(0.13
)  51




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year EndedDecember 31,Stock Options

2005


2004Risk-free interest rates


4.4
%


3.6
%Expected lives (in years)


5



5Dividend yield


0
%


0
%Expected volatility


70
%


124
%   Year EndedDecember 31,Stock Purchase Shares

2005


2004Risk-free interest rates


4.4
%


3.6
%Expected lives (in years)


0.5



0.5Dividend yield


0
%


0
%Expected volatility


70
%


124
%   96-18,
  Stock
    Options
    Weighted-AverageWeighted-


FairShares








Average


Value ofAvailable For


Options


Exercise Price


Exercise


OptionGrant


Outstanding


per Share


Price


GrantedBalance 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   Severance
    Pay
   52




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Fair
    Value of Financial Instruments
        Accumulated
    Other Comprehensive Loss
      December 31,2006


2005Beginning balance

$
(2
)

$
(19
)Unrealized gain on
    available-for-sale
    investments


2



17Total accumulated other
    comprehensive loss

$
(0
)

$
(2
)   Recently
    Issued Accounting Pronouncements
     53




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  SFAS 115-1 SFAS 124-1, Other-Than-Temporary other-than-temporary
        SFAS No. 109-1, Application of FASB Statement No. 109 Accounting
    for Income Taxes No. 109-1) No. 109-1, SFAS 190-1
 54




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  3.
    Short-Term
    Investments  available-for-sale
  December 31,2006


2005Unrealized


Estimated





Unrealized


EstimatedCost


Gains/(Losses)


Fair Value


Cost


Gains/(Losses)


Fair ValueCertificates of deposit

$



$



$



$
331


$
(17
)

$
314Money market


2,068







2,068



5979







5,979Totals

$
2,068


$



$
2,068


$
6,310


$
(17
)

$
6,293     4.
    Property
    and Equipment, net    December 31,2006


2005Computer and peripheral equipment

$
3,329


$
3,417Office, furniture and equipment


159



190Leasehold improvements


1,099



1,1134,587



4,720Less: accumulated depreciation


(4,460
)


(4,507
)Property and equipment, net

$
127


$
213     5.
    Accrued
    Liabilities    December 31,2006


2005Accrued employee compensation and
    related expense

$
579


$
761Accrued legal expenses


538



557Accrued vacation


275



272Sales and marketing events


9



Other


98



141$
1,499


$
1,731   6.
    Restructuring
    and Other Charges   55




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Involuntary


FacilitiesTerminations


and Other


TotalTotal 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

$



$



$
   7.
    Commitments
    and Contingencies  Leases
    2007

$
530,0002008


465,0002009


400,0002010


33,000$
1,428,000     2007

$
210,0002008


210,0002009


210,0002010


18,000$
648,000   Contingencies
    No. 01-CV-10000,
 56




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Rule 10b-5
        Letter
    of Credit
    Line
    of Credit
   57




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    8.
    Shareholders
    Equity  Ordinary
    Shares
    December 31,2006


2005Exercise of outstanding options


5,699,092



6,323,840Ordinary Shares available for
    grant under stock option plans


11,865,043



11,277,654Ordinary Shares available for
    grant under ESPP plans


4,653,491



2,305,32422,217,626



19,906,818     Preferred
    Shares
    Stock
    Option Plans
       58




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
             59




---



##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Weighted-Average FairShares








Weighted-


Value ofAvailable for


Options


Exercise Price


Average


OptionsGrant


Outstanding


per Share


Exercise Price


GrantedBalance 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


2,286,287



(2,286,287
)

$
1.20-$12.50


$
3.77Options Expired


(834
)










Balance at December 31,
    2005


11,276,820



6,323,840


$
2.85-$17.25


$
0.58


$
0.46Options granted


(130,000
)


130,000


$
0.22-$0.85


$
0.45Options exercised






(36,525
)

$
0.59-$0.92


$
0.53Options canceled


486,049



(486,049
)

$
0.37-$7.32


$
0.46Options Expired


232,174



(232,174
)





$
1.15Balance at December 31,
    2006


11,865,043



5,699,092


$
0.22-$17.25


$
3.09


$
0.38Options vested as of
    December 31, 2006


4,614,467Options vested as of
    December 31, 2006 and options expected to vest after
    December 31, 2006


5,186,174     Options Outstanding


Options ExercisableNumber


Weighted Average


Weighted


NumberRange of

Outstanding as


Remaining


Average


Exercisable asExercise Prices

of
    12/31/06


Contractual Years


Exercise Price


of
    12/31/06$0.22 - $0.26


80,000



8.26


$
0.23



20,000$0.39 - $0.39


2,062,000



4.84


$
0.39



1,847,041$0.40 - $0.57


342,500



6.67


$
0.49



142,278$0.58 - $0.60


537,000



4.61


$
0.60



342,000$0.61 - $0.81


488,300



3.17


$
0.72



480,800$0.82 - $1.20


429,392



2.49


$
1.11



386,980$1.21 - $1.32


725,000



5.00


$
1.32



362,500$1.33 - $7.32


281,900



1.34


$
5.34



279,868$7.33 - $17.25


753,000



0.65


$
17.24



753,000$0.22 - $17.25


5,699,092



3.95


$
3.09



4,614,467    60




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Warrants
    Issued
    9.
    BackWeb
    Technologies Inc. 401(k) Plan    10.
    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:
     61




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
         U.S. Income
    Taxes
      Pre-tax
    Loss
    Year Ended December 31,2006


2005


2004Domestic (Israel)

$
3,741


$
183


$
4,937Foreign


(35
)


850



206$
3,706


$
1,033


$
5,143     Deferred
    Taxes
    December 31,2006


2005U.S. net operating loss
    carryforwards

$
2,386


$
2,265Reserves not currently deductible


198



149Other, net


346



339Net deferred assets before
    valuation allowance


2,929



2,753Valuation allowance


(2,929
)


(2,753
)Net deferred tax assets

$



$
  62




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    11.
    Geographic
    Information and Major Customer    Year Ended December 31,2006


2005


2004Revenue from sales to unaffiliated
    customers:North America

$
3,703


$
4,565


$
4,537Israel










92Europe


1,093



2,346



870$
4,796


$
6,911


$
5,499   December 31,2006


2005Long-lived assets:North America

$
102


$
173Israel


57



74Other


10



1$
169


$
248     12.
    Accounting
    for and Disclosure of Guarantees  Guarantors Accounting for
    Guarantees. time-to-time
   63




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##### Table of Contents



NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Other Liabilities and Other Claims. Accounting for Asset Retirement Obligations,
 64




---



##### 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.
 65




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##### Table of Contents



PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance  Directors
    and Executive Officers
    Name

Age


PositionEli Barkat


43


Chairman of the BoardKara Andersen


42


DirectorUday Bellary


52


DirectorAmir Makleff


59


DirectorWilliam Heye


46


Chief Executive Officer and
    DirectorKen Holmes


41


Chief Financial Officer   Eli Barkat
  Kara Andersen
  Uday Bellary
  Amir Makleff
 66




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##### Table of Contents



William Heye
      Audit
    Committee
  Regulation S-K, Rule 10A-3(b)(1)
  Section 16(a)
    Beneficial Ownership Reporting Compliance
      Code of
    Ethics
    Stockholder
    Nominations of Directors
   67




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##### Table of Contents



Item 11.
    Executive
    Compensation    Summary
    Compensation Table
  Name and










Option


All OtherPrincipal Position

Year


Salary


Bonus


Awards(3)


Compensation(4)


Total(5)William Heye(1)


2006


$
198,333


$
34,750


$
78,790


$



$
233,083Chief Executive Officer


2005



180,000



90,000







14,461



284,4612004



180,000



44,126







11,763



235,889Ken Holmes(2)


2006



164,167



19,797



17,815







183,964Chief Financial Officer


2005



155,000



56,364











211,3642004



155,000



25,480











180,480     (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 became our Chief Financial Officer in January
    2007. Prior to this time, Mr. Holmes served as our Vice
    President, Finance from October 2004 to January 2007 and our
    Senior Director, Finance from May 2003 until October 2004.(3)
    
    The amounts in this column represent the amounts recognized as
    compensation expense for financial statement reporting purposes
    in accordance with SFAS No. 123R in connection with
    the options granted to the named executive officer. We adopted
    SFAS No. 123R on January 1, 2006. Please see
    Note 2 of the Notes to the Consolidated Financial
    Statements for a discussion of all assumptions made in
    determining the grant date fair values of these options.(4)
    
    The Other Annual Compensation consists of commission
    payments and vacation payout amounts.(5)
    
    The dollar value in this column for each named executive officer
    represents the sum of all compensation reflected in the
    preceding columns.  Grants of
    Plan-Based Awards in Fiscal 2006
   68




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##### Table of Contents



Outstanding
    Equity Awards at Fiscal Year End
    Outstanding
    Equity Awards at December 31, 2006
  Number of SecuritiesUnderlying


Option


OptionUnexercised Options


Exercise


ExpirationName

Exercisable


Unexercisable


Price


Date(1)William Heye


30,000






$
1.20



3/3/0850,000







2.10



12/31/0880,000







7.32



11/1/0732,089







0.76



10/22/0915,911







0.76



10/22/0910,000







0.76



7/1/0775,000



75,000



0.60



10/1/1137,500







0.77



4/15/0947,500



12,500



1.15



10/25/10485,041



214,959



0.39



11/4/11Ken Holmes


193,000






$
0.39



11/4/1152,500



7,500



0.61



7/21/104,500



1,500



1.15



10/25/10     (1)
    
    These option vest as to 25% of the Ordinary Shares subject to
    the option on the first anniversary of the grant date and as to
    1/48th of
    the Ordinary Shares subject to the option each month thereafter
    until the option is fully vested four years from the grant date.  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.   69




---



##### Table of Contents



Compensation
    Committee Interlocks and Insider Participation
    Form 10-K,
  Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters      70




---



##### Table of Contents



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 Israel Yuval 63 Holdings (1995) Ltd.(2)


3,352,342



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


3,352,342



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


5,067,966



11.8
%William Heye(5)


1,068,208



2.5
%Ken Holmes(6)


268,250



*Uday Bellary(7)


39,687



*Amir Makleff(8)


39,687



*Kara Andersen(9)


17,708



*Executive officers and directors
    as a group (6 persons)(9)


6,501,506



14.6
%     *
    
    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 539,691 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 except to the
    extent of their pecuniary interest therein.(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 539,691 Ordinary Shares held by BRM Technologies Ltd. in
    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
    except to the extent of their pecuniary interest therein.(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 539,691 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 except to the extent of their pecuniary
    interest therein.(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 1,715,624 Ordinary Shares that are
    exercisable within sixty days of March 6, 2007. The shares
    listed in the table above for Eli Barkat do not include 539,691
    Ordinary Shares held by BRM Technologies Ltd. in which EliBarkat
    Holdings Ltd., an entity substantially controlled by
    Mr. Barkat, is a shareholder, with respect to which shares
    Mr. Barkat and EliBarkat Holdings Ltd. disclaim beneficial
    ownership except to the extent of their pecuniary interest
    therein.(5)
    
    The shares listed in the table above for Mr. Heye include
    options to purchase 1,061,541 Ordinary Shares that are
    exercisable within sixty days of March 6, 2007.(6)
    
    The shares listed in the table above for Mr. Holmes include
    options to purchase 258,250 Ordinary Shares that are exercisable
    within sixty days of March 6, 2007. 71




---



##### Table of Contents



(7)
    
    The shares listed in the table above for Mr. Bellary
    represent options to purchase 39,687 Ordinary Shares that are
    exercisable within sixty days of March 6, 2007.(8)
    
    The shares listed in the above table for Mr. Makleff
    represent options to purchase 39,687 Ordinary Shares that are
    exercisable within sixty days of March 6, 2007.(9)
    
    The shares listed in the above table for Ms. Andersen
    represent options to purchase 17,708 Ordinary Shares that are
    exercisable within sixty days of March 6, 2007.(9)
    
    The shares listed in the table above for our executive officers
    and directors as a group include 3,132,497 Ordinary Shares
    subject to options which are exercisable within 60 days of
    March 6, 2007.  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)


5,699,092


$
3.09



14,043,711
(2)     (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 Ordinary Shares reserved
    for issuance under our 1999 Employee Stock Purchase Plan.(2)
    
    Includes 4,653,491 shares subject to issuance under our
    1999 Employee Stock Purchase Plan. The 1999 Employee Stock
    Purchase Plan 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.  Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence  Certain
    Relationships and Related Transactions
    Approval
    of Related Party Transaction
   72




---



##### Table of Contents



Independent
    Directors
    Item 14.
    Principal
    Accountant Fees and Services  Principal
    Accountant Fees and Services
    2006

2005Audit Fees

$
254,000


$
204,000   Form 10-Q.
   PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules  Form 10-K:
  Financial Statements.
  Form 10-K
  Financial Statement Schedules.
   73




---



##### Table of Contents



SCHEDULE II
  BACKWEB
    TECHNOLOGIES, LTD.
    SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
    At December 31, 2006
  Write-off ofBalance at


Provision for


Previously


Balance atBeginning


Doubtful


Provided


End ofof Period


Accounts


Accounts


Period(In thousands)Year Ended December 31, 2006
    Allowance for Doubtful Accounts

$
279


$
202


$
(152
)

$
329Year Ended December 31, 2005
    Allowance for Doubtful Accounts

$
643


$
10


$
(374
)

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

$
2,150


$
0


$
(1,507
)

$
643     Exhibits.
  Form 10-K
 74




---



##### Table of Contents



SIGNATURES      By:
    /s/  WILLIAM
    HEYE   Chief Executive Officer
      Signature

Title

Date/s/  WILLIAM
    HEYEWilliam
    Heye

Chief Executive Officer and a
    Director (Principal Executive Officer)

March 30, 2007/s/  KEN
    HOLMESKen
    Holmes

Chief Financial Officer
    (Principal Financial and Accounting Officer)

March 30, 2007/s/  ELI
    BARKATEli
    Barkat

Chairman of the Board of Directors

March 30, 2007/s/  UDAY
    BELLARYUday
    Bellary

Director

March 30, 2007/s/  AMIR
    MAKLEFFAmir
    Makleff

Director

March 30, 2007/s/  KARA
    ANDERSENKara
    Andersen

Director

March 30, 2007  75




---



##### Table of Contents



EXHIBIT INDEX
  Exhibit No

Description3
.1

Articles of Association of BackWeb
    Technologies Ltd., as amended(1)3
.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
    Israel 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 the
    Registrant 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 the Registrant(7)10
.11

2nd Amendment to
    Lease  Expansion, made November 7, 2000, between
    Speiker Properties, L.P. and the Registrant(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

4th Amendment to Lease,
    effective as of April 1, 2006, made between CA-Gateway
    Office Limited Partnership and the Registrant.10
.14

Promissory Note by BackWeb
    Technologies Inc., as Maker, to CA-Gateway Office Limited
    Partnership, as Payee, date October 27, 2003(2)10
.15

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

Guaranty of Note by BackWeb
    Technologies Ltd.(2)10
.17

Warrant to Purchase 200,000
    Ordinary Shares, issued by BackWeb Technologies Ltd. to
    CA-Gateway Office Limited Partnership(2)10
.18

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
.19*

Offer letter with William Heye(10)10
.20*

Offer letter with Ken Holmes(10)10
.21*

Director Cash Compensation
    Arrangement(10)21
.1

Subsidiaries of the Registrant(10)23
.1

Consent of Grant Thornton LLP,
    Independent Registered Public Accounting Firm31
.1

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

Certification of Chief 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 Registrants Registration Statement on
    Form F-1
    (File
    No. 333-10358).(2)
    
    Incorporated herein by reference to the corresponding Exhibit
    from the Registrant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
    Registrant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 Registrant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
    Registrants Registration Statement on
    Form F-1
    (File
    No. 333-10358).(6)
    
    Incorporated herein by reference to Exhibit 10.7 from the
    Registrants Registration Statement on
    Form F-1
    (File
    No. 333-10358).(7)
    
    Incorporated herein by reference to Exhibit 10.18 from the
    Registrant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
    Registrant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
    Registrants Registration Statement on
    Form F-1
    (File
    No. 333-10358).(10)
    
    Incorporated herein by reference to the corresponding Exhibit
    from the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2004, filed March 31,
    2005.*
    
    Indicates management contract or compensatory plan or
    arrangement.