UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K
(Mark One)
-----
 X      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
-----   EXCHANGE ACT OF 1934

                  For the fiscal year ended December 31, 2004
                                       Or
-----
        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
-----   EXCHANGE ACT OF 1934

For the transition period from ___________________________ to _________________

                        Commission file number 000-30827

-------------------------------------------------------------------------------

                        CLICKSOFTWARE TECHNOLOGIES LTD.
             (Exact name of registrant as specified in its charter)

               Israel                                      Not Applicable
  -------------------------------                         ---------------------
  (State or other jurisdiction of                          (I.R.S. Employer
   incorporation or organization)                         Identification No.)

            34 Habarzel Street
             Tel Aviv, Israel                                   69710
             ----------------                                 ----------
 (Address of principal executive offices)                     (Zip Code)


Registrant's telephone number, including area code:  (972-3) 765-9400
                                                     -----------------

Securities registered pursuant to Section 12(b) of the Act: None


Securities registered pursuant to Section 12(g) of the Act:

                      Ordinary Shares, NIS 0.02 par value
                -----------------------------------------------
                                (Title of class)



--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                      Page 1

<PAGE>




Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
          |X|  Yes        |_|  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
                                                 |_|

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
          |_|  Yes        |X| No

The aggregate market value of the Ordinary Shares held by non-affiliates of the
Registrant on June 30, 2004, the last business day of the Registrant's most
recently completed second fiscal quarter, was $35.8 million (based on the
closing market sales price of the Ordinary Shares on that date). Ordinary
shares held by each executive officer and director and by each person who owns
5% or more of the outstanding voting stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.

As of March 14, 2005, there were 27,480,809 Ordinary Shares of the Registrant
outstanding.



--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                      Page 2

<PAGE>


                                     INDEX


PART I
Item 1.    Business
Item 2.    Properties
Item 3.    Legal Proceedings
Item 4.    Submission of Matters to a Vote of Security Holders

PART II
Item 5.    Market for the Registrant's Common Equity and Related Stockholder
           Matters
Item 6.    Selected Consolidated Financial Data
Item 7.    Management's Discussion and Analysis of Financial Condition and
           Results of Operations
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk
Item 8.    Financial Statements
Item 8A.   Unaudited Consolidated Quarterly Financial Data
Item 9.    Changes In and Disagreement with Accountants on Accounting and
           Financial Disclosure
Item 9A.   Controls and Procedures

PART III
Item 10.   Directors and Executive Officers of the Registrant
Item 11.   Executive Compensation
Item 12.   Security Ownership of Certain Beneficial Owners and Management and
           Related Stockholder Matters
Item 13.   Certain Relationships and Related Transactions
Item 14.   Principal Accounting Fees and Services
Item 15.   Exhibits, Financial Statement Schedules

SIGNATURES.



--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                      Page 3

<PAGE>


PART I



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains certain forward-looking statements (as such term is
defined in Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934) and information relating to us that are based
on the beliefs of our management as well as assumptions made by and information
currently available to our management, including statements related to
products, markets, and future results of operations and profitability, and may
include implied statements concerning market acceptance of our products, and
our growing leadership role in the marketplace. In addition, when used in this
report, the words "likely," "will," "suggests," "may," "would," "could,"
"anticipate," "believe," "estimate," "expect," "intend," "plan, "predict" and
similar expressions and their variants, as they relate to us or our management,
may identify forward-looking statements. Such statements reflect our judgment
as of the date of this Annual Report on Form 10-K with respect to future
events, the outcome of which are subject to certain risks that may have a
significant impact on our business, operating results or financial condition,
including the risk factors described in the Section of this Report entitled
"Management Discussion and Analysis of Financial Condition and Results of
Operations - FACTORS THAT MAY AFFECT FUTURE RESULTS." Investors are cautioned
that our forward-looking statements are inherently uncertain. Should one or
more of the risks that we describe in this Annual Report and our Quarterly
Reports on Form 10-Q or other uncertainties materialize, or should underlying
assumptions prove incorrect, actual results or outcomes may vary materially
from those described herein. We undertake no obligation to update
forward-looking statements, whether as a result of new information, future
events or otherwise.

ITEM 1. BUSINESS

We provide software products for optimizing service operations, which are
designed to improve customer responsiveness and the utilization of service
resources. Our products allow our clients to respond quickly to customers'
demands for service and efficiently handle planned maintenance, while improving
utilization of service personnel and reducing operational costs.

We offer solutions to support the various levels of clients' management and
operations, including execution, operational planning, tactical planning and
strategic planning levels. Our Service Optimization suite of products allows
clients to concentrate on both micro and macro level scheduling, service
execution, real time monitoring, short term resource planning, and long term
capacity planning. Our solution is designed to enable our clients to increase
the productivity of their service resources, resulting in reduced costs and
increased revenue opportunities that would otherwise be lost.

We were incorporated in Israel in 1979. Our directly and indirectly held
principal operating wholly-owned subsidiaries and their countries of
incorporation are:

o     Clicksoftware Technologies Inc. (United States)
o     Clicksoftware Central Europe GmbH (Germany)
o     Clicksoftware Europe Limited (United Kingdom)
o     Clicksoftware Belgium N.V. (Belgium)
o     Clicksoftware Australia Pty Limited (Australia)


Our product development efforts are conducted primarily in Israel. Our sales
and marketing and implementation efforts in North America, Europe, and Asia
Pacific and Africa are conducted for the most part by our subsidiaries.

PRODUCTS

We provide solutions for end-to-end service chain optimization that are
designed to increase revenue and customer responsiveness while reducing costs.
Our Service Optimization suite includes strategic and tactical workforce
planning, optimized service scheduling, intelligent problem resolution, mobile
workforce management, and business analytics, connecting various organizational
levels and all functions, from executive strategy to operational execution.


--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                      Page 4

<PAGE>


Our service optimization solutions are utilized by leading service organizations
in a number of service industry segments, including: telecommunications,
utilities and energy, insurance, high-technology, computer and office equipment,
industrial equipment, medical equipment, building automation, aerospace &
defense, and home services. ClickSoftware's solutions can deliver improvements
in:

o     field workforce productivity
o     responsiveness to customers
o     quality of service delivered
o     profitability of the service operation
o     reduction in missed customer commitments

We have developed our service chain optimization solutions through years of
experience in a variety of service operations. The result is a highly advanced
technology with the flexibility to model and accommodate varying business types
and processes. The ease with which it can be integrated with leading customer
relationship management (CRM) and enterprise resource planning (ERP) solutions,
often with standard interface adaptors, enables ClickSoftware customers to
accelerate the deployment of the solution.

Service Optimization Suite of Products

Our Service Optimization suite includes:

ClickSchedule optimizes service scheduling and routing for improving workforce
productivity by balancing customer, service and asset resources, and
organizational preferences including contractual commitments, priority, drive
time, skills, and service and asset resources availability. Configuration
capabilities, a high degree of scalability and use of standard eXtensible
Markup Language (XML) interfaces are designed to improve integration with
enterprise systems and deployment according to organizational business policies
and processes. ClickSchedule accounts for more than 15% of our annual revenues.

ClickAnalyze provides service business analytics for workforce performance
measurement and strategic decision support. ClickAnalyze enables drill-down
analysis of key performance indicators including resource productivity,
operational costs, and responsiveness to customers. Integrated within the
Service Optimization suite, ClickAnalyze provides executive level summaries as
well as detailed analysis by territory, job type, time frame and other
criteria.

ClickPlan provides interactive and automated workforce planning for staffing
and deployment of the field workforce based on forecasted workload. ClickPlan
enables service organizations to resolve workforce shortages and surpluses
weeks and months in advance. Comparing available resources to forecasted
workloads, ClickPlan helps determine the best strategy to ensure the right
people are in the right place, at the right time.

ClickForecast provides field service workload forecasting to help companies
project workforce capacity. ClickForecast can combine historical service
workload with future business events to create a forecast for each territory,
job type, or business unit. ClickForecast enables service managers, marketing,
and sales to collaboratively determine the demand levels of their customers,
and create multiple forecast scenarios, each with different business
assumptions.

ClickFix provides intelligent diagnostics and problem resolution for reducing
service costs. ClickFix enables faster resolution of customer issues at
multiple levels of service contact, from the call center to the field. Based on
an intelligent engine that utilizes specific knowledge about our customers'
equipment, ClickFix diagnoses and resolves problems independent of the user's
skills, experience and knowledge. Accessibility via the Web empowers customers
to resolve problems themselves at any time of day, and often without a service
resource, requiring fewer onsite visits.

ClickMobile provides wireless workforce management for monitoring field
workforce activities and reducing the labor of dispatching personnel.
ClickMobile enables job detail notification from the field and allows for field
updates even when service resources are out of wireless coverage. Assignments
created in ClickSchedule are dispatched to field devices based on configurable
workflows while enabling real-time visibility into workforce activity including
job status, start and end time.


--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                      Page 5

<PAGE>

In January 2005 we released version 7.5 of our Service Optimization Suite that
expands on previous versions of the product suite with feature and user
interface enhancements, including a more configurable schedule optimizer, real
time key performance indicator monitor, and enhanced support for multi-lingual
implementations.

Our ClickRoster product is currently in the development stage. ClickRoster is
expected to provide interactive and automated workforce shift planning based on
forecasted workload, planning decisions, working contracts, rules and
regulations and engineer preferences.

TECHNOLOGY

The Service Optimization suite utilizes a foundation of core technologies that
we developed over a period of more than 10 years in the service industry.
Originally brought to market as W-6 Service Scheduler and TechMate, these
technologies include sophisticated algorithms and business process
representation tools. Our research and development personnel have been working
on optimization technology solutions since 1985, including algorithmic software
solutions, system integration and implementations. The Service Optimization
suite, with its depth and breadth, reflects our experience and investment into
the complex optimization and decision support troubleshooting needs of service
organizations.

Analogous to, but more complex than the supply chain, the service chain
involves different variables and challenges including the scheduling of
personnel with varying skills in different locations to complete both simple
and complex tasks. These variables must be considered in constantly changing
conditions to meet the fast pace typical of service-level and profit driven
organizations.

Our applications are standards-based, facilitating integration with related
CRM, ERP or supply chain functions. The application server supports leading
database management systems, including Oracle (Microsoft technology based and
non-Microsoft technology based) and Microsoft SQL Server, and is scalable to
meet the demands of large service organizations. Our service optimization suite
of applications delivers inherent scalability based on a dynamic load balancing
architecture that uses a stateless server model, multi-threaded application
servers and relational databases.

Our proprietary optimization algorithms provide efficient solutions for complex
problems arising from, among others, the following:

   o    the vast number of possible solutions for evaluation when optimizing
        the scheduling of personnel;
   o    the number of service organization-specific resources and variables
        including skills, availability, location, customer preference, workload
        balancing, contractual commitments, employee preferences, customer
        priority, and others;
   o    the need to instantly respond to concurrent users' service requests in
        a highly dynamic decision-making environment;
   o    the vast number of potential routes within a specific geographic area,
        each having an impact on the cost of service; and
   o    various time zone considerations in large service organizations.

The Service Optimization suite also includes sophisticated service business
scenario modeling power. We have developed models based on a vast number of
variables and resource characteristics common to service organizations. By
employing these models, the Service Optimization suite addresses the market
needs of different segments of the service industry and broadens the potential
customer base for our products.

The Service Optimization suite incorporates several critical technologies to
provide intelligent decision support in a scalable and open architecture:

   o    Application software and web servers capable of performing
        optimization, problem resolution, and HTTP-based access to the
        application host system; and
   o    Application Programming Interfaces (APIs) based on eXtensible Markup
        Language (XML), enable other applications to integrate and access
        Service Optimization data and services without additional training or
        applications for users to adopt.

Our optimization applications merge mathematical disciplines and experience
with real-life service operations. The result is an algorithm that combines the
traits of several optimization disciplines including adaptive learning, genetic
algorithms, taboo search, and geographic clustering. ClickFix's diagnostic and
problem resolution engine includes algorithms for problem resolution based on
equipment design and field knowledge, a knowledge base with self-learning
capabilities, and an intelligent component that creates new trouble shooting
solutions based on modeling both equipment structure and historic data.

Our development methodology involves direct analysis of customers' business
requirements, software module design to meet these requirements, software
development and coding, testing, and quality assurance. Our research and
development group and their processes are ISO 9001 certified.

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                      Page 6
<PAGE>
PROFESSIONAL SERVICES AND CUSTOMER SUPPORT

Our professional services organization is staffed by qualified employees with
experience in the resource optimization field. We provide our clients, as well
as our implementation partners, with consulting and deployment services,
upgrades, and comprehensive training and support to help achieve business goals
with a quicker return on investment. Our consulting services include:

   o    Business Analysis. Our consultants assess current or planned service
        optimization needs and develop and document the Functional Requirement
        Specification. We provide a configuration and implementation roadmap to
        help meet business goals, including an analysis of return on investment
        and business change management. Such services often include
        establishing a benchmark of the then-current organizational key
        performance indicators (KPIs) to measure the improvement to these KPIs
        following the delivery of our solutions.

   o    Project Implementations. Our professional services consultants
        individually, or as members of our project teams, implement and assist
        in the configuration of our solutions to accelerate the project
        deployment schedule and ensure a successful implementation process.
        Such activities include the design, configuration and testing of our
        deliverables as well as training and supporting the customer
        organization during the rollout and when the applications go live. The
        implementation activities also include the development and
        configuration of interfaces to other enterprise solutions - either
        commercial or in-house legacy systems, as needed based on the project.

   o    Project Advisory Services. We offer a packaged set of reviews and
        consulting services targeted at ensuring the ability of our
        implementation partners to deliver a working solution. We have provided
        this service to date to support relatively simple implementations of
        specific niche customers such as utilities.

   o    "ClickSoftware University." We offer a series of high-level management
        workshops that convey proven methods and principles for improving the
        efficiency and effectiveness of the field service operation. These
        courses share lessons learned from years of best practice research and
        field experience implementing service optimization solutions.

Customer support is available by telephone and over the Internet. Customer
support is typically billed as a percentage of license fees depending upon the
level of support coverage requested by the customer. Support is provided by the
technical support team located within our development facility, ensuring
detailed product knowledge and access to experts and testing facilities when
required. The customer support team works closely with the professional
services organization to provide technical support during two distinct phases:
(a) supporting the project team during delivery phase and (b) supporting the
customer IT organization after the project has gone live and has moved to
production.

SALES AND MARKETING

We market and sell our products mostly through our direct sales force, which is
located in North America, Europe and the Asia Pacific region, as well as
through reseller agreements with partners. Over the past twelve months, we have
significantly increased our efforts to create and strengthen partner relations.
Our multidisciplinary sales teams consist of field sales executives, sales
support engineers and internal sales staff. The internal sales staff is
responsible for generating leads and qualifying prospective clients. Sales
support engineers assist the sales executives in the technical aspects of the
sales process, including preparing demonstrations and technical proposals. Our
sales executives are responsible for completing the sales process and managing
the post-sale client relationship, which consists of ongoing relationship
management and the sale of additional licenses and products, as clients require
additional resources. Our management also takes an active role in our sales
efforts. The knowledge gained by our sales and marketing force is also
communicated to our product marketing group, which guides our development team.
This enables our organization to align the functionality of our products with
customer needs.

We typically direct our sales and marketing efforts to the client's executive
officers, including the vice president of customer service, the chief
information officer, the chief financial officer and other senior executives
responsible for improving customer service at our clients' organizations. We
target our marketing efforts on identifying potential new clients, generating
new sales opportunities, and creating awareness in our target markets about the
value of our products and their applications. Our programs target prospective
clients across a wide variety of industries, business relationships and
geographies. In order to effectively promote product awareness, we engage in
marketing activities in a wide variety of areas including public relations and
analyst relations, email campaigns, web seminars with our customers and
industry analysts, newsletters and advertising creation and placement, direct
mailings and trade shows. As of December 31, 2004, we employed 43 individuals
in our sales and marketing department.

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                      Page 7

<PAGE>

Our business development organization supports joint marketing activities with
our business partners. Our business relationships with large ERP and CRM
vendors, such as SAP A.G., enable us to use our partners' market presence and
sales channels to create additional revenue opportunities. Our strategy is
based on having approved certified adaptors that enable rapid integration and
implementation of our products into certain ERP and CRM systems.

We also market our products and services through resellers. Our reseller
agreements generally provide the parties with the right to use each other's
name in marketing and advertising materials, and to conduct joint marketing
programs. We provide sales materials and training to resellers on the
marketing, selling and implementation of our software solutions. We believe
these relationships will extend our presence and brand name in new and existing
markets.

We have also established relationships with large System Integrator (SI)
organizations such as Accenture Ltd. and International Business Machines
Corporation (IBM). These partners have committed various levels of resources to
integrate, customize and implement our solutions. Depending on the strength of
the relationship, we have co-invested in jointly developing industry-specific
solutions, training and certifying their professional services teams,
developing co-marketing programs, and incorporating our products into their
marketing/referral strategies.

At the end of the second quarter of 2004, we formalized a strategic alliance
with IBM pursuant to which we will team with IBM in providing state-of-the-art
workforce optimization solutions. We believe that this teaming relationship
with IBM marks a significant step towards our partner channel strategy. In
connection with this strategic alliance, we issued 100,000 of our ordinary
shares to IBM for a purchase price of 0.02 NIS (New Israel Shekels) per share
and agreed to issue an additional 100,000 of our ordinary shares to IBM for a
purchase price of 0.02 NIS per share upon the first anniversary of the initial
issuance, unless the contract is Earlier terminated by either IBM or the
Company. We also issued IBM 250,000 warrants that are exercisable into our
ordinary shares with an exercise price of $2.38 per share. Immediately upon
entering into the strategic alliance 62,500 of these warrants became
exercisable. At the end of each of the three years following the warrant
issuance, up to 62,500 warrants may become exercisable based on the attainment
of certain revenue targets relating to revenue generated from the strategic
alliance. If all performance milestones are met, approximately 1.7% of
ClickSoftware's outstanding share capital would be issued to IBM. We continue
to value our relationships with our other channel partners, and believe that
these channel relationships will be key contributors to our future growth,
although no assurances can be given in that regard.

As part of our strategic alliance with IBM, we have established a Project
Office to manage the day-to-day affairs in connection with the relationship.
Both IBM and ClickSoftware have designated employees to manage and foster the
relationship. Under our teaming agreement, in the first year of the strategic
alliance we will reimburse IBM for a portion of the expenses related to
implementation of the Project Office.

See exhibits 10.25, 10.26 and 10.27 to this annual report that are incorporated
herein by reference.

BACKLOG

Our product order backlog (excluding deferred revenues of approximately $3
million) as of December 31, 2004 was approximately $8.0 million (including $1.5
million long term order backlog that is not expected to be realized in 2005),
as compared with $8.8 million (including $3.7 million long term backlog) at
December 31, 2003. Our backlog includes undelivered orders for licenses and
professional services, as well as multi-year customer contracts. Backlog levels
vary with demand, product and service availability and our delivery lead times
and are subject to significant decreases as a result of, among other things,
customer order delays, changes or cancellations. As such, backlog levels may
not be a reliable indicator of future operating results.

CUSTOMERS
We sell our products to a broad base of customers representing a variety of
industries with unique needs, including telecommunications, utilities and
energy and high-technology service providers, and insurance and home equipment
retailers.

Sales to each of T-Systems, a subsidiary of Deutsche Telecom (Germany), and
Telstra Corporation accounted for more than 10% of revenues during the year
ended December 31, 2004.

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                      Page 8

<PAGE>
RESEARCH AND DEVELOPMENT

We have invested significant time and resources in creating a structured
process for undertaking all product development projects. These include
documenting product requirements, specifying product features and workflow,
developing the software, performing quality assurance and creating
documentation and packaging. Our research and development center in Israel is
ISO 9001 compliant and continuously updates its software development procedures
to maintain an ongoing improvement process and high quality products.

Our future research and development strategies will concentrate on
strengthening our product offerings in decision support, forecasting, capacity
planning and monitoring and schedule optimization; continuing to enhance the
technology and scalability of our products; and continuing the development of
offerings for specific vertical industries.

COMPETITION

The market for our products is competitive and rapidly changing. Competition
may increase in the future as the service optimization market gains size and
increased business focus, current competitors expand their product offerings,
and new companies enter the market.

The principal competitive factors in the service optimization industry are:

   o    The technological capabilities and performance of the solution;

   o    Installed base, domain expertise and experience with large-scale
        implementations; and

   o    The acceptance and adaptability of the service optimization solution to
        the solution offerings of large system integrators and CRM/ERP vendors,
        and the ability to form marketing alliances with the foregoing.

We believe that our solutions compare favorably based on these competitive
factors. We believe that key competitive factors include a broad base of users,
strategic alliances, key reference customers, interoperability, integration of
complementary products and services, technological leadership, product
performance, price, customer support, name recognition, relationships with
partners and distribution channels and the ability to respond quickly to
emerging opportunities.

Our current and potential competitors include:

   o    Direct competitors in the service optimization space, including Service
        Power Technologies plc. Vidus Limited, which was acquired by @Road, and
        Wishbone, which was acquired by Indus International Inc.

   o    Software application vendors that offer field force management
        solutions with certain optimization modules, including Viryanet Ltd.
        and MDSI Mobile Data Solutions Inc.

   o    Traditional ERP and CRM software application vendors, including Siebel
        and Oracle; and

   o    Systems integrators and internal information technology departments
        that may elect to develop a solution in-house.

Some of our current and potential competitors have greater name recognition,
longer operating histories, larger customer bases and significantly greater
financial, technical, marketing, public relations, sales, distribution and
other resources than we do.

Competition could result in price reductions, fewer customer orders, reduced
gross margin and loss of market share, any of which could cause our business to
suffer. We may not be able to compete successfully, and competitive pressures
may harm our business. In addition, our market is characterized by rapid
technological change, dynamic client needs, mergers and acquisitions, and
frequent introductions of new products and product enhancements, which can make
existing products, including ours, obsolete or unmarketable.

INTELLECTUAL PROPERTY

We believe that the improvement of existing products, our technologies and the
development of new products are important in establishing and maintaining a
competitive advantage. We rely on a combination of trade secrets, copyrights,
trademarks, patents and intellectual property law, together with non-disclosure
and invention assignment agreements, to establish and protect the technology
used in our products.

We have two patent applications pending. As we continue to develop new
applications of our products, we will consider additional patent applications.
We can offer no assurance that patents will issue from any of these pending
applications or, if patents do issue, that the claims allowed will be
sufficiently broad to protect our technology. In addition, we can offer no
assurance that any patents issued to us will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will adequately protect us.

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                      Page 9
<PAGE>

We own U.S. trademark registrations for the marks AITEST, CLICKANALYZE,
CLICKFIX, CLICKFORECAST and CLICKPLAN, and have filed applications for
registration of the mark CLICKSCHEDULE. In the European Community, we own
trademark registrations for CLICKFIX, CLICKSCHEDULE, CLICKANALYZE,
CLICKFORECAST, and CLICKPLAN, and a U.K. trademark for CLICKSOFTWARE.

Although we rely on copyright, trade secret and trademark law to protect our
technology, we believe that factors such as the technological and creative
skills of our personnel, new product developments, frequent product
enhancements and reliable product maintenance are more essential to
establishing and maintaining a technology leadership position. We can give no
assurance that others will not develop technologies that are similar or
superior to our technology. See "Risks Related to Our Business" and
"Competition".

We generally enter into nondisclosure agreements with our customers, partners,
employees and consultants and generally control access to and distribution of
our software, documentation and other proprietary information.

Our end-user licenses are designed to prohibit unauthorized use, copying and
disclosure of our software and technology in the United States, Israel and
other foreign countries. However, these provisions may be unenforceable under
the laws of some jurisdictions and foreign countries. Unauthorized third
parties may be able to copy some portions of our products or reverse engineer
or obtain and use information and technology that we regard as proprietary.
Third parties could also independently develop competing technology or design
around our technology. If we are unable to successfully detect infringement
and/or to enforce our rights to our technology, we may lose competitive
position in the market. We cannot assure you that our means of protecting our
intellectual property rights in the United States, Israel or elsewhere will be
adequate or that competing companies will not independently develop similar
technology. In addition, some of our licensed users may allow additional
unauthorized users to use our software, and if we do not detect such use, we
could lose potential license fees.

From time to time, we may encounter disputes over rights and obligations
concerning intellectual property. We also indemnify most of our customers
against any future claim that our products infringe the intellectual property
rights of others. We believe that our products do not infringe upon the
intellectual property rights of third parties. However, we cannot assure you
that we will prevail in all future intellectual property disputes. We have not
conducted an exhaustive search for existing patents and other intellectual
property registrations, and we cannot assure you that our products do not
infringe any issued patents. In addition, because patent applications in the
United States and Israel are not publicly disclosed until the patent is issued,
applications may have been filed which would relate to our products.

Substantial litigation regarding technology rights exists in the software
industry, and we expect that software products may be increasingly subject to
third-party infringement and ownership claims as the number of competitors in
our industry segment grows and the functionality of products in different
industry segments overlap. In addition, our competitors may file or have filed
patent applications, which are covering aspects of their technology that they
may claim our technology infringes. Third parties may assert infringement or
competing ownership claims with respect to our products and technology. Any
such claims, with or without merit, could be time-consuming to defend, result
in costly litigation, and divert management's attention and resources or cause
product shipment delays. In the event of an adverse ruling in any such
litigation, we might be required to pay substantial damages, discontinue the
use and sale of infringing products, expand significant resources to develop
non-infringing technology or obtain licenses to or pay royalties to use a third
party's technology. Such royalty or licensing agreements may not be available
on terms acceptable to us, if at all. A successful claim of patent or copyright
infringement against us could significantly harm our business.

EMPLOYEES

As of December 31, 2004, we had 154 full-time employees: 34 engaged in
research and development, 43 in sales, marketing and business development,
55 in professional services and technical support and 22 in finance,
administration and operations. None of our employees is represented by a
labor union. We consider our relations with our employees to be good.

Israeli law and certain provisions of the nationwide collective bargaining
agreements between the Histadrut (General Federation of Labor in Israel) and
the Coordinating Bureau of Economic Organizations (the Israeli federation of
employers' organizations) apply to our Israeli employees. These provisions
principally concern the maximum length of the work day and the work week,
minimum wages, paid annual vacation, contributions to a pension fund,
insurance for work-related accidents, procedures for dismissing employees,
determination of severance pay and other conditions of employment. We
provide our employees with benefits and working

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 10

<PAGE>

conditions above the required minimums. Furthermore, pursuant to such
provisions, the wages of most of our employees are subject to cost of living
adjustments, based on changes in the Israeli CPI. The amounts and frequency of
such adjustments are modified from time to time. Israeli law generally requires
the payment of severance pay upon the retirement or death of an employee or
upon termination of employment by the employer or, in certain circumstances, by
the employee. We currently fund our ongoing severance obligations for our
Israeli employees by making monthly payments for insurance policies and
severance funds. Severance payment expenses amounted to $336,000 in 2004,
$234,000 in 2003 and $283,000 in 2002.

ITEM 2. PROPERTIES

We have a lease for approximately 8,800 square feet of office space in
Burlington, Massachusetts that expires in May 2009, which are used for sales,
marketing and implementation activities for the North American market. We also
have a lease for approximately 20,000 square feet of office space in Tel Aviv,
Israel that expires in June 2006, which are used for management, marketing,
sales, research and development. Of this amount, approximately 17,000 square
feet are currently being used by our company.

Our U.K. subsidiary currently operates from a leased facility of approximately
3,800 square feet in Slough, near London, which are used for sales, marketing
and implementation activities for the European market. We also lease additional
smaller offices in various sites throughout Europe and Asia. We consider that
our current office space is sufficient to meet our anticipated needs for the
foreseeable future and is suitable for the conduct of our business.

ITEM 3. LEGAL PROCEEDINGS

On August 25, 2003, a complaint was filed against us, one of our officers and
one of our former officers in the United States District Court for the District
of Massachusetts. None of the defendants have been served. According to an
electronic search of the court documents, the case is in the preliminary
stages. To date, we have not received any further formal documentation from the
court or the plaintiffs. The complaint is substantially similar to a complaint
previously filed in the same court against these parties and dismissed by the
court for failure to perfect service on the defendants in a timely manner. The
complaint is purportedly brought on behalf of investors who purchased our
securities between June 22, 2000 and October 21, 2002 and seeks unspecified
damages. The complaint contains various allegations, including violations of
the Securities Exchange Act of 1934 and common law claims with respect to our
financial results for 2000, 2001 and the first six months of 2002. It is not
possible for us to quantify the extent of our potential liability, if any. An
unfavorable outcome in this or any other case could have a material adverse
effect on our business, financial condition, results of operations, cash flow
and the trading price of our ordinary shares. In addition, defending any
litigation may be costly and divert management's attention from the day-to-day
operations of our business.

From time to time, we are involved in various routine legal proceedings
incidental to the ordinary course of our business. We do not believe that the
outcome of these pending legal proceeding will have a material adverse effect
on our business or consolidated financial condition.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.


PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS

Market for Ordinary Shares

Our ordinary shares have been quoted on the NASDAQ SmallCap Market under the
symbol "CKSW" since August 29, 2002 (except between November 6, 2002 and March
6, 2003, when they were quoted under the symbol "CKSWE"). The following table
sets forth for the periods indicated the high and low sales prices of our
ordinary shares as quoted by the NASDAQ SmallCap Market for the last two fiscal
years. These prices are over-the-counter market quotations which reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may
not necessarily represent actual transactions.

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 11

<PAGE>

Fiscal year ended December 31, 2004                    HIGH               LOW
-----------------------------------                   -------          --------
First Quarter                                          $5.28            $ 3.25
Second Quarter                                         $4.14            $ 2.06
Third Quarter                                          $3.01            $ 1.20
Fourth Quarter                                         $3.02            $ 1.73

Fiscal year ended December 31, 2003                     HIGH              LOW
-----------------------------------                    -----            -------
First Quarter                                          $0.23            $ 0.12
Second Quarter                                         $2.33            $ 0.19
Third Quarter                                          $2.85            $ 1.52
Fourth Quarter                                         $4.95            $ 1.95


As of March 14, 2005, 27,480,809 of our ordinary shares were issued and
outstanding. At such date, the last reported sale price of the ordinary shares
was $2.35 per share.

Holders of Record

As of March 14, 2005, there were approximately 47 stockholders of record of our
Ordinary Shares.

Dividends

We currently intend to retain earnings, if any, for use in our business. We
have never declared or paid cash dividends and have no intention to pay any
cash dividends on our capital stock in the foreseeable future.

Recent Sale of Unregistered Securities

In connection with the strategic alliance we formed with IBM in June, 2004, we
issued 100,000 of our ordinary shares to IBM for a purchase price of 0.02 NIS
(New Israel Shekels) per share and agreed to issue an additional 100,000 of our
ordinary shares to IBM for a purchase price of 0.02 NIS per share upon the
first anniversary of the initial issuance, unless the contract is Earlier
terminated by either IBM or the Company. We also issued IBM 250,000 warrants
that are exercisable into our ordinary shares with an exercise price of $2.38
per share. Immediately upon entering into the strategic alliance 62,500 of
these warrants became exercisable. At the end of each of the three years
following the warrant issuance, up to 62,500 warrants may become exercisable
based on the attainment of certain revenue targets relating to revenue
generated from the strategic alliance. If all performance milestones are met,
approximately 1.7% of ClickSoftware's outstanding share capital would be issued
to IBM.

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 12

<PAGE>


ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated statement of operations data for the years ended
December 31, 2004, 2003, 2002, 2001 and 2000, and the selected consolidated
balance sheet data as of December 31, 2004, 2003, 2002, 2001 and 2000 have been
derived from our audited financial statements (as restated in 2003 with respect
to the years ended December 31, 2000 and 2001). The consolidated statements of
operations data for the years ended December 31, 2001 and 2000, selected
consolidated balance sheet data as of December 31, 2002, 2001 and 2000 are
derived from audited consolidated financial statements that are not included
herein (as restated in 2003 with respect to the years ended December 31, 2000
and 2001). These financial statements have been prepared in accordance with
accounting principles generally accepted in the United States. The following
selected financial data are qualified by reference to and should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Report.

<TABLE>
<CAPTION>

CONSOLIDATED STATEMENT OF OPERATIONS DATA:

                                                                            YEAR ENDED DECEMBER 31,
                                              ------------------------------------------------------------------------------------
                                                       2004              2003             2002            2001             2000
                                                       ----              ----             ----            ----             ----

                                                                (In thousands except share and per share data)
Revenues:
<S>                                                   <C>               <C>               <C>            <C>              <C>
  Software license                                    $10,603           $10,622           $7,113         $11,734          $ 7,412
  Services                                             12,102            11,788            8,640           6,441            5,178
                                              ------------------------------------------------------------------------------------
    Total Revenues                                     22,705            22,410           15,753          18,175           12,590
                                              ------------------------------------------------------------------------------------
Cost of Revenues:
  Software License                                      1,109               955              949             798              454
  Services                                              6,395             6,631            5,804           5,498            5,301
                                              ------------------------------------------------------------------------------------
    Total cost of revenues                              7,504             7,586            6,753           6,296            5,755
                                              ------------------------------------------------------------------------------------
Gross Profit                                           15,201            14,824            9,000          11,879            6,835
                                              ------------------------------------------------------------------------------------
 Operating Expenses:
  Research and Development expenses, net                2,710             1,911            2,806           3,246            4,300
  Selling and Marketing expenses                        8,939             7,836           10,473          12,499           13,654
  General and Administrative Expenses                   2,809             3,494            3,106           4,048            3,717
  Restructuring and assets impairment                       -                 -            2,665             294                -
  Amortization of deferred Stock-based
      Compensation                                          9               101              300             437            1,237
                                              ------------------------------------------------------------------------------------
Total Operating Expenses                               14,467            13,342           19,350          20,524           22,908
                                              ------------------------------------------------------------------------------------
Operating Profit (loss)                                   734             1,482         (10,350)         (8,645)         (16,073)
Interest and other income, net                            179               259              252             649              679
                                              ------------------------------------------------------------------------------------
Net Income (Loss)                                       $ 913            $1,741        $(10,098)        $(7,996)        $(15,394)
                                              ====================================================================================

Basic net Income (loss) per ordinary share             $ 0.03             $0.07          $(0.40)         $(0.32)         $ (0.68)
Diluted net Income (loss) per ordinary share           $ 0.03             $0.06          $(0.40)         $(0.32)          $(0.68)
Shares used in computing basic net income
(loss) per share                                   27,202,804        25,847,758       25,553,891      25,322,771       22,501,563
                                              ====================================================================================
Shares used in computing diluted net
income (loss) per share                            28,336,450        26,874,351       25,553,891      25,322,771       22,501,563
                                              ====================================================================================
</TABLE>

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 13

<PAGE>

<TABLE>
<CAPTION>

CONSOLIDATED BALANCE SHEET DATA:


                                                               DECEMBER 31,
                                   ------------------------------------------------------------------------
                                         2004         2003           2002            2001            2000
                                         ----         ----           ----            ----            ----

                                                              (in thousands)

<S>                                     <C>          <C>             <C>             <C>            <C>
Cash and cash equivalents               $4,196       $7,695          $3,400          $8,125         $4,438
Short-term Investments                   7,533        3,394           2,949           1,846         16,878
Working capital                         10,328        8,821           5,849          14,191         21,398
Total assets                            20,249       17,455          13,957          20,700         28,645
Long-term liabilities, net of
      current portion                    1,677        1,490           1,476           1,400          1,446
Shareholders' equity                    10,872        9,613           6,684          16,428         23,773
</TABLE>


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

OVERVIEW

We are specialists in the area of service optimization solutions and derive
revenues from the licensing of our software products and the provision of
consulting and support services.

Software license revenues are comprised of perpetual software license fees
primarily derived from contracts with our direct sales clients and our indirect
distribution channels. We recognize revenues in accordance with the AICPA
Statement of Position 97-2, "Software Revenue Recognition," or SOP 97-2, as
amended. (See note 2 of the notes to our consolidated financial statements
attached hereto).

Service revenues are comprised of revenues from consulting, training, and
post-contract customer support. Consulting services are billed at an
agreed-upon rate plus incurred expenses. Clients licensing our products
generally purchase consulting agreements from us. Post-contract customer
support arrangements provide technical support and the right to software
updates. Post-contract customer support revenues are charged as a percentage of
license fees depending upon the level of support coverage requested by the
customer. Our support contracts typically renew automatically for successive
twelve-month periods unless the customer informs us of its desire not to renew
annual support.

During the course of 2004, we had a second profitable year and our revenues
grew by 1%. However, revenues did not reach our original growth plans for the
year. We believe that the main reasons for the slower-than-expected growth were
lower revenues in North America due to longer sales cycles, and that channel
sales are ramping up slower than anticipated.

In 2005, we anticipate growth in our business based on our backlog, current
sales prospects, pilot projects that may develop into full-scale contracts and
expectations of expanding channel relationships. As in 2004, we believe that
our performance in 2005 will primarily depend on our ability to continue
attracting customers and implementing service optimization solutions. We
believe that we can manage the level of our expenses so as to maintain annual
profitability if we achieve our revenue targets. This projection is subject to
many risk factors, including those described in the section of this Report
entitled "FACTORS THAT MAY AFFECT FUTURE RESULTS."

We restated our financial statements for 1999, 2000, 2001 and for the first six
months of 2002 and filed an amendment to our Forms 10-K for the three years
ended 1999, 2000 and 2001 on January 24, 2003. The financial results provided
in this annual report reflect this restatement. See note 3 of the notes to our
consolidated financial statements that are included on the Form 10-K/A for the
year December 31, 2001 that we filed the U.S. Securities and Exchange
Commission on January 24, 2003.

As of December 31, 2004, our cash and cash-equivalents, and short and long-term
investments increased to $12.0 million from $11.7 million as of December 31,
2003.

With more transactions involving larger customers and generating larger
transactions, and with the greater involvement of our channel partners in
many of the transactions, the results of any quarter will be more

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 14

<PAGE>

difficult to predict and will not necessarily be indicative of full-year
performance. Because a significant portion of our expenses, such as
administrative and management, payroll and rent and utilities, are fixed in the
short term and cannot be quickly reduced to respond to decreases in revenues,
if revenue levels fall below expectations, net income may be disproportionately
affected. All of our projections are subject to many risk factors, including
those described in the section of this Report entitled "FACTORS THAT MAY AFFECT
FUTURE RESULTS."


The reporting currency of the Company is the U.S. dollar, which is the
functional currency of the Company and its subsidiaries. A significant portion
of our research and development expenses and other expenses are incurred in New
Israeli Shekels, or NIS, and a portion of our revenues and expenses are
incurred in British pounds, European Community euros and Australian dollars.
The results of our operations are subject to fluctuations in these exchange
rates, which are influenced by various global economic factors.


RESULTS OF OPERATIONS

Our operating results for each of the five years ended December 31, 2004, 2003,
2002, 2001 and 2000 expressed as a percentage of revenues are as follows:

<TABLE>
<CAPTION>

                                                           YEAR ENDED DECEMBER 31,
                                             -----------------------------------------------------
                                                 2004      2003       2002       2001        2000

<S>                                               <C>       <C>        <C>        <C>         <C>

Revenues:
  Software license                                47%       47%        45%        65%         59%
  Services                                        53%       53%        55%        35%         41%
                                             -----------------------------------------------------
    Total Revenues                                100       100        100        100         100
                                             -----------------------------------------------------
Cost of Revenues:
  Software License                                  5         4          6          4           4
  Services                                         28        30         37         31          42
                                             -----------------------------------------------------
    Total cost of revenues                         33        34         43         35          46
                                             -----------------------------------------------------
Gross Profit                                       67        66         57         65          54
                                             -----------------------------------------------------
Operating Expenses:
  Research and Development
        expenses, net                              12         8         18         18          34
  Selling and Marketing expenses                   39        35         66         69         108
  General and Administrative
        Expenses                                   13        16         20         22          30
  Restructuring and assets impairment               -         -         17          2           -
  Amortization of deferred Stock-based
           Compensation                             0         0          2          2          10
                                             -----------------------------------------------------
Total Operating Expenses                           64        59        123        113         182
                                             -----------------------------------------------------
Operating Profit (loss)                             3         7       (66)       (48)       (128)
Interest and other income, net                      1         1          2          4           5
                                             -----------------------------------------------------
Net Income (loss)                                  4%        8%      (64%)      (44%)      (123%)
                                             -----------------------------------------------------
</TABLE>


--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 15

<PAGE>

Revenues

<TABLE>
<CAPTION>
                                                      Revenue Breakdown
                                                      -----------------
                                ------------------------------------------------------------------
                                      2004       % Change      2003        % Change        2002
                                      ----       --------      ----        --------        ----

                                                        (In thousands)

<S>                                  <C>            <C>        <C>             <C>       <C>

Revenues:
  Software license                   $10,603        0%         $10,622         49%       $7,113
  Percentage of total revenues           47%                       47%                      45%
  Services                            12,102        3%          11,788         36%        8,640
  Percentage of total revenues           53%                       53%                      55%
                                -------------              ------------                ---------
    Total Revenues                  $ 22,705        1%        $ 22,410         42%      $15,753
                                -------------              ------------                ---------
</TABLE>



Revenues increased $0.3 million or 1% to $22.7 million in 2004, from $22.4
million in 2003 because our channel sales did not grow as anticipated and there
were weak sales in North America due to longer sales cycles. In 2003 revenues
increased $6.6 million or 42% to $22.4 million from $15.8 million in 2002. The
increase in revenues from 2002 through 2003 was the result of our ability to
increasingly attract and implement large-scale projects. In particular, we
expanded our presence in the utilities and telecommunications industries.

<TABLE>
<CAPTION>

                                               Revenues By Territory
                                               ---------------------
                  -------------------------------------------------------------------------------
                      2004          %            2003           %           2002         %
                                 Revenues                    Revenues                 Revenues
                                                 (In thousands)

Revenues:

<S>                    <C>            <C>      <C>              <C>       <C>             <C>
North America          $6,998         31%      $10,239          46%       $7,600          48%
Europe                 12,056         53%        9,155          41%        4,734          30%
Israel                     12          0%           71           0%          297           2%
Asia Pacific
and Africa              3,639         16%        2,945          13%        3,122          20%
                  ------------             ------------                 ---------
    Total
Revenues              $22,705        100%      $22,410         100%      $15,753         100%
                  ------------             ------------                 ---------
</TABLE>

In 2004, 53% of our revenues were generated in Europe (with 22% in the U.K.,
20% in Germany), 31% in North America (with 23% in the U.S.), and 16% in Asia
Pacific and Africa. The increase in the percentage of revenues from the
European region in 2004 is the result of a few large projects that we sold
directly and through our channel partners, and the sale of our products into
new vertical market industries. In 2003, 46% of our revenues were generated in
North America (with 36% in the U.S.), 41% in Europe (with 19% in the U.K., 11%
in Germany and 8% in the Netherlands), 0% in Israel and 13% in Asia Pacific and
Africa. In 2002, 48% of our revenues were generated in North America (with 37%
in the U.S.), 30% in Europe (with 12% in the U.K., 8% in the Netherlands and 7%
in Germany), 2% in Israel and 20% in Asia Pacific and Africa. The increase in
the percentage of revenues from the Europe region in 2003 is the result of a
few large projects that we sold directly and through our channel partners.

We believe that our North American sales will increase in relative terms over
other geographic regions in 2005.


--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 16

<PAGE>

Software Licenses As reflected in the table entitled "Revenue Breakdown",
above, software license revenues were $10.6 million or 47% of revenues in 2004,
$10.6 million or 47% of revenues in 2003, and $7.1 million or 45% of revenues
in 2002. The increase in software license revenues from 2002 to 2003 by $3.5
million or 49% was primarily the result of our ability to attract and implement
large-scale projects in 2003 through direct sales and our channel partners.

Services Service revenues in 2004 increased by $0.3 million or 3% to $12.1
million or 53% of revenues, compared with $11.8 million or 53% of revenues in
2003, and $8.6 million or 55% of revenues in 2002. The slight increase in
services revenues from 2003 to 2004 was primarily due to an increase in
post-contract support agreements, partially offset by a decrease in consulting
revenues. The increase in services revenues from 2002 to 2003 by $3.2 million
or 36% was primarily due to an increased base of customers with implementations
that went "live," which contributed to a substantial increase in post-contract
support agreements, together with a smaller increase in revenues from
consulting services.

Cost of Revenues

Cost of revenues consists of cost of software license revenues and cost of
services. Cost of software license revenues consists of expenses related to
media duplication and packaging of our products, costs of software purchased or
licensed for resale and royalties payments to the Chief Scientist. Cost of
services consists of expenses related to salaries and expenses of our
professional services organizations, costs related to third-party consultants,
equipment costs and royalties payments to the Chief Scientist.

Cost of revenues was $7.5 million or 33% of revenues in 2004, $7.6 million or
34% of revenues in 2003, and $6.8 million or 43% of revenues in 2002. The
slight decrease in the cost of revenues from 2003 to 2004 by $82,000 or 1% was
primarily due to a decrease in our consulting activities partially offset by an
increase in third-party licenses and adaptors costs. The increase in the cost
of revenues from 2002 to 2003 by $0.8 million or 12% on an absolute basis was
primarily due to higher costs associated with professional services performed
by the Company and an increase in royalties paid to the Chief Scientist. We
expect our cost of revenues on an absolute basis to continue to increase in
2005 as a natural consequence of the projected growth of our revenues.

Cost of Software Licenses

Cost of software license revenues were $1.1 million or 5% of revenues in 2004,
$955,000 or 4% of revenues in 2003, and $949,000 or 6% of revenues in 2002. The
increase in cost of software license revenues in 2004 from 2003 by $0.2 million
was primarily due to an increase in third party licenses and adaptors to other
ERP and CRM systems sold during 2004. The increase in royalty payments to the
Chief Scientist by $0.2 million from 2002 to 2003 was fully offset by a
decrease in third party licenses and adaptors to other ERP and CRM systems sold
during 2003.

Cost of Services

Cost of service revenues were $6.4 million or 28% of revenues in 2004, $6.6
million or 30% of revenues in 2003, and $5.8 million or 37% of revenues in
2002.

The decrease in the cost of services from 2003 to 2004 by $0.2 million or 4%
was primarily due to the decrease of our consulting activities during 2004 and
primarily resulted from $0.1 million in decreased related payroll expenses and
$0.1 million from other implementation related costs. The increase in the cost
of services from 2002 to 2003 by $0.8 million or 14% on an absolute basis was
primarily due to the increased demand for our professional services and an
increase in royalties paid to the Chief Scientist.

Gross profit

Gross profit was $15.2 million, or 67% of revenues, in 2004, $14.8 million, or
66% of revenues, in 2003 and $9 million, or 57% of revenues, in 2002.

The increase in gross profit from 2003 to 2004 by $0.4 million, or 3%, was due
to higher service revenues and higher margins on service revenues. The slight
increase in gross margins from 2003 to 2004 resulted from higher-margin from
services activities due to higher revenues from post-contract support
agreements. The increase in gross profit from 2002 to 2003 by $5.8 million, or
65%, was due to higher revenues and margins. The increase in gross margins from
2002 to 2003 was due to a change in the revenue mix in favor of higher-margin
license revenues and due to more profitable generation of service revenues.

If we meet our software license revenue target in 2005, we believe that we will
be able to maintain our current gross profitability.

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 17

<PAGE>

Operating Expenses

Operating expenses are categorized into research and development expenses,
selling and marketing expenses, general and administrative expenses, and share
based compensation.

<TABLE>
<CAPTION>
                                                                   Operating Expenses
                                                                   ------------------
                                            ------------------------------------------------------------------
                                               2004        % Change        2003        % Change       2002

                                                                     (In thousands)
Operating Expenses:
<S>                                             <C>              <C>        <C>           <C>         <C>
  Research and Development                      $ 2,710          42%        $ 1,911       (32)%       $ 2,806
        Expenses, net
  Selling and Marketing Expenses                  8,939          14%          7,836       (25)%        10,473

  General and Administrative Expenses             2,809        (20)%          3,494         12%         3,106
  Restructuring and assets impairment                 -          N.A              -         N.A         2,665
  Amortization of deferred Stock-based
     Compensation                                     9        (91)%            101       (66)%           300
                                            ------------                ------------               -----------
Total Operating Expenses                        $14,467           8%        $13,342       (31)%       $19,350
                                            ------------                ------------               -----------
Average No. of Employees                            142                         118                       150
                                            ------------                ------------               -----------
</TABLE>


Total operating expenses were $14.4 million or 64% of revenues in 2004, $13.3
million or 59% of revenues in 2003, and $19.4 million or 123% of revenues in
2002.

The increase in operating expenses from 2003 to 2004 by $1.1 million or 8%
mainly reflects an increase in our selling and marketing expenses activities as
we expand our activities and personnel to support these efforts and an increase
in the number of employees engaged in research and development activities. The
increase in operating expenses was partially offset by a decrease in general
and administrative expenses.

The decrease in operating expenses from 2002 to 2003 by $6.0 million or 31%
(excluding restructuring and impairment costs of $2.7 million, the decrease was
$3.3 million or 20%) was primarily due to cost-cutting measures implemented
during 2002.

We anticipate an increase in our operating expenses in 2005, particularly our
selling, marketing and R&D expenses, as we expand our sales and R&D efforts.

Research and Development Expenses, Net

Research and development expenses consist primarily of personnel costs to
support product development, net of grants received from the Chief
Scientist. In return for some of these grants, we are obligated to pay the
Israeli Government royalties as described below which are included in cost
of revenues. Software research and development costs incurred prior to the
establishment of technology feasibility are included in research and
development expenses as incurred. Software development costs incurred
subsequent to the establishment of technological feasibility through the
period of general market availability of the products are capitalized, if
material, after consideration of various factors, including net realizable
value. To date, software development costs that are eligible for
capitalization have not been material and have been expensed.

Research and development expenses, net of related grants, were $2.7 million
or 12% of revenues in 2004, $1.9 million or 8% of revenues in 2003, and $2.8
million or 18% of revenues in 2002. Research and development expenses, prior
to participation grants from the Office of the Chief Scientist of the
Government of Israel, totaled $3.1 million for the year ended December 31,
2004, $2.4 million for the year ended December 31, 2003, and $3.8 million
for the year ended December 31, 2002. We received or accrued grants from the
Chief Scientist in the amount of $0.4 million in 2004, $0.5 million in 2003
and $1.0 million in 2002. The increase in research and development expenses
from 2003 to 2004 by $0.8 million, or 42%, was primarily due to an increase
in the number of our research and development personnel and related payroll
costs, which resulted in an increase of $0.5 million in payroll, a decrease
of $0.2 million in grants received from the Office of the Chief Scientist
and an increase of $0.1 million in other costs. The decrease in research and
development expenses from 2002 to 2003 by $0.9 million, or 32%, was
primarily due to the impact of cost cutting measures

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 18

<PAGE>

implemented during 2002 which reduced expenses by $1.4 million. This expense
reduction was partially offset by a decrease of $0.5 million in grants received
from the Office of the Chief Scientist.

We anticipate an increase in our research and development expenses in 2005 as
we expand our R&D efforts.

Selling and Marketing Expenses

Selling and marketing expenses consist primarily of personnel and related costs
for marketing and sales functions, including related travel, direct advertising
costs, expenditures on trade shows, market research and promotional printing.

Selling and marketing expenses were $8.9 million or 39% of revenues in 2004,
$7.8 million or 35% of revenues in 2003, and $10.5 million or 66% of revenues
in 2002. The increase in the selling and marketing expenses from 2003 to 2004
by $1.1 million or 14% was due to an increase in the number of employees that
resulted in an increase of $0.5 in related payroll expenses and an increase in
our selling and marketing expenses activities by $0.6 million. The decrease in
the selling and marketing expenses from 2002 to 2003 by $2.6 million or 25% was
primarily due to cost cutting measures implemented during 2002.

We expect selling and marketing expenses to increase in 2005 as we expand our
direct and indirect sales efforts, particularly in the market for large-scale
service optimization solutions.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel and related
costs for corporate functions, including information services, finance, legal,
accounting, human resources, facilities, provision for doubtful accounts and
costs related to our status as a public company.

General and administrative expenses were $2.8 million or 13% of revenues in
2004, $3.5 million or 16% of revenues in 2003, and $3.1 million or 20% of
revenues in 2002. General and administrative expenses included the amount of
$180,000 as a reduction in provision in bad debt charges in 2004, $220,000 in
bad debt charges in 2003 and $130,000 in 2002. General and administrative
expenses without bad debts were $3.0 million in 2004, $3.3 million in 2003 and
$3.0 million in 2002. The decrease of $0.3 million in general and
administrative expenses from 2003 to 2004, excluding bad debt charges, was
primarily due to a decrease in payroll expenses of $0.4 million and a decrease
of $0.1 million in other general and administrative expenses offset by an
increase of $0.2 million in legal and consultancy costs. The increase of $0.3
million in general and administrative expenses from 2002 to 2003, excluding bad
debt charges, was primarily due to an increase in payroll expenses of $0.7
million offset by a decrease of $0.4 million in legal and consultancy costs.

Amortization of stock-based compensation

Amortization of stock-based compensation represents the aggregate difference,
at the date of grant, between the respective exercise prices of stock options
and the deemed fair market value of the underlying stock. Deferred Stock-based
compensation is amortized over the vesting period of the underlying options,
generally four years.

Stock-based compensation expenses for the year ended December 31, 2004 amounted
to $9,000 of 2004 recorded deferred stock-compensation. Stock-based
compensation expenses for the year ended December 31, 2003 amounted to $101,000
of previously recorded deferred stock-compensation. Stock-based compensation
expenses for the year ended December 31, 2002 amounted to $300,000 of
previously recorded deferred stock-compensation. The decrease in share-based
compensation expenses over the years is attributed to the fact that the
amortization of the share-based compensation progressively decreases over the
four-year amortization period.

Due to the grant of shares and exercisable options to IBM, we recorded a
deferred stock compensation charge of $342,000 of which $56,000 was amortized
during 2004 as a deduction of revenues.

Restructuring and assets impairment

Restructuring and assets impairment costs consist of write-down of equipment
and leasehold improvements related to office space reduction, termination of
lease contract and employees severance and benefits costs in connection with
the termination of employment of employees.

There were no restructuring costs in 2004 and 2003. Restructuring costs were
$2.7 million or 17% of revenues in 2002. The restructuring expenses in 2002
consisted mainly of write-down of equipment and leasehold

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 19

<PAGE>

improvements related to office space reduction and termination of lease
contracts in connection mainly to the closing of our California office and
employee severance and benefits costs incurred by us in connection with the
restructuring.

Interest and Other Income, Net

Interest and other income includes interest income earned on our cash, cash
equivalents and short and long-term investments, offset by interest expense,
and also include the effects of foreign currency fluctuations.

Interest income net of interest expenses, was $179,000 or 1% of revenues in
2004; $259,000 or 1% of revenues in 2003; and $252,000 or 2% of revenues in
2002. The decrease in interest income from 2003 to 2004 is attributable to the
lower gains from currency fluctuations in 2004 compared to 2003, which was
partially mitigated by an increase in interest income in 2004.

Income Taxes

Our tax rate will mainly reflect a mix of the U.S. statutory tax rate on our
U.S. income, the U.K statutory tax rate on our U.K. income, the Belgium
statutory tax rate on our Belgium income, the German statutory tax rate on our
German income, the Australian tax rate on our Australian income and the Israeli
tax rate discussed below.

Israeli companies are generally subject to income tax at the rate of 35% of
taxable income. The regular Company Tax rate is to be gradually reduced to 34%
in 2005, 32% in 2006 and 30% in 2007. The majority of our income, however, is
derived from our capital investment program with "Approved Enterprise" status
under the Law for the Encouragement of Capital Investments, and is eligible
therefore for tax benefits. As a result of these benefits, we will have a tax
exemption on income derived during the first two years in which this investment
program produces taxable income and a reduced tax rate of 15-25% for the next 5
to 8 years. In the event of a distribution of a cash dividend out of retained
earnings that were exempt from tax due to its Approved Enterprise status, we
would be required to pay 25% corporate income tax on income from which the
dividend was distributed. All of these tax benefits are subject to various
conditions and restrictions. There can be no assurance that we will obtain
approval for additional Approved Enterprise Programs, or that the provisions of
the law will not change.

As of December 31, 2004, net operating loss carry forwards in Israel amounted
to approximately $21.6 million. Additional tax loss carry forwards of
approximately $26.4 million and $8.6 million remain attributable to the U.S.
subsidiary and the European subsidiaries, respectively. The Israeli and the
European net operating loss carry forwards have no expiration date. The U.S.
net operating loss carry forwards will expire gradually over the years 2008
through 2024.

Net Income (Loss)

Net income was $0.9 million or 4% of revenues in 2004, net income was $1.7
million or 8% of revenues in 2003, and net loss was ($10.1) million or (64%) of
revenues in 2002.

LIQUIDITY AND CAPITAL RESOURCES

Our cash and investments increased by $0.3 million or 3% to $12.0 million as of
December 31, 2004 from $11.7 million as of December 31, 2003. Our cash and
investments increased by $5.0 million or 76% to $11.7 million as of December
31, 2003 from $6.6 million as of December 31, 2002. Our primary sources of cash
and investments, net during 2004 were cash flows generated from operations in
the amount of $0.7 million and $0.3 million from exercises of employee stock
options and employee share purchase plans ("ESPP") purchases. Our primary
sources of cash and investments during 2003 were cash flows generated from
operations of $4.2 million and $1.1 million from exercises of employee stock
options and ESPP purchases.

As of December 31, 2004 we had cash and cash equivalents of approximately $4.2
million, short-term investments of approximately $7.5 million and long-term
investments of approximately $0.3 million. As of December 31, 2004,
approximately $0.3 million in long-term investments had been deposited with
banks to secure letters of credit totaling approximately $0.5 million, which
are described below. Our cash, short-term investments and long-term investments
are invested or deposited in low-risk and predominantly U.S-denominated
investments and bank deposits.

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 20

<PAGE>

<TABLE>
<CAPTION>
                                                  Cash and Investments
                                                  --------------------
                            ------------------------------------------------------------------------
                                2004         % Change         2003        % Change        2002
                                ----         --------         ----        --------        ----

                                                     (In thousands)

<S>                             <C>                          <C>                          <C>
 Cash and cash equivalents      $ 4,196                      $ 7,695                      $ 3,400
  Short-term investments          7,533                        3,394                        2,949
  Long-term investments             264                          580                          280
                            ------------                -------------                -------------
   Total Cash and
     investments                $11,993           3%        $ 11,669           76%        $ 6,629
                            ------------                -------------                 ------------
</TABLE>


For the year ended December 31, 2004, net cash provided by operations was $0.7
million, comprised of our net income of $0.9 million, an increase in trade
receivables of $2.0 million, an increase in other receivables of $0.3 million,
an increase in accounts payable of $0.7 million, and an increase in deferred
revenues of $0.7 million, which was partially offset by non-cash charges of
$0.7 million.

For the year ended December 31, 2003, net cash provided by operations was $4.2
million, comprised of our net income of $1.7 million, a decrease in trade
receivables of $0.7 million, a decrease in other receivables of $0.5 million, a
decrease in accounts payable of $1.3 million, and an increase in deferred
revenues of $1.9 million, which was partially offset by non-cash charges of
$0.7 million.

For the year ended December 31, 2002, net cash used in operations was $1.1
million, comprised of our net loss of $10.1 million, a decrease in short term
investments of $1.8 million, a decrease in trade receivables of $1.6 million, a
decrease in other receivables of $200,000, an increase in accounts payable of
$2.7 million, and an increase in deferred revenues of $0.3 million, which was
partially offset by non-cash charges of $2.3 million (including a one-time
impairment charge of $1.2 million).

Net cash used in investment activities was $4.5 million in 2004, of which $3.9
million was primarily invested in bank deposits and $0.6 million invested in
leasehold improvements and purchases of equipment and systems, including
computer equipment and fixtures and furniture. Net cash used in investment
activities was $0.9 million in 2003, of which $0.7 million was primarily
invested in bank deposits and $0.2 million invested in leasehold improvements
and purchases of equipment and systems, including computer equipment and
fixtures and furniture. Net cash used in investing activities was $3.5 million
in 2002, of which $3.2 million was primarily invested in bank deposits and $0.3
million invested in leasehold improvements and purchases of equipment and
systems, including computer equipment, fixtures and furniture.

Net cash provided by financing activities was $0.3 million in 2004, as a result
of the employee options exercises and ESPP purchases. Net cash provided by
financing activities was $1.1 million in 2003, as a result of the employee
options exercises and ESPP purchases. There were no material financing
activities in 2002.

As of December 31, 2004, we had outstanding trade receivables of approximately
$5.3 million, which represented approximately 23% of 2004 total revenues. As of
December 31, 2003, we had outstanding trade receivables of approximately $3.4
million, which represented approximately 15% of 2003 total revenues. As of
December 31, 2002 we had outstanding trade receivables of approximately $4.0
million, which represented approximately 26% of 2002 total revenues. Our trade
receivables are typically between 30 and 60 days, although we also negotiate
longer payment plans with some of our clients. Days sales outstanding ("DSO"),
calculated based on revenues for the most recent quarter and accounts
receivable at the balance sheet date, increased to 70 DSO as of December 31,
2004 from 48 DSO as of December 31, 2003. The increase in DSO from 2003 to 2004
is due to the timing of invoicing of new orders in the quarter, which are
occurring near the end of the quarter. DSO decreased to 48 days as of December
31, 2003 from 79 days as of December 31, 2002.

As of December 31, 2004, we had no material commitments for capital
expenditures.

We have various commitments primarily related to guarantees, letters of credit
and capital lease obligations. The following table provides details regarding
our contractual cash obligations and other commercial commitments subsequent to
December 31, 2004:

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 21

<PAGE>

--------------------------------------------------------------------------------
                                                 Amount of Commitment Expiration
Commercial Commitments        Total Amounts          Per Period (in thousands)
                              Committed (in     --------------------------------
                              thousands)              2005            2009
----------------------------- ----------------- ----------------- --------------
Guarantees/Letters of Credit      $532                $491               $41
----------------------------- ----------------- ----------------- --------------


       ------------------- ------------------------------------------------
       Contractual
       Obligations                Payments Due By Period (in thousands)
       ------------------- ------------------------------------------------
                             Total         2005          2006        2007
       ------------------- ----------- ------------- ------------ ---------
       Lease Obligations    $1,252         $636          $486        $130
       ------------------- ----------- ------------- ------------ ---------


We have entered into standby letter of credit agreements with banks and
financial institutions primarily relating to the guarantee of future
performance on certain contracts. As of December 31, 2004, contingent
liabilities on outstanding letter of credit agreements aggregated approximately
$0.5 million. Most of these obligations are scheduled to expire during 2005. We
expected to renew most of these letters of credit in 2005. The letters of
credit are secured by $0.3 million in deposits to cover potential payments
under the guarantees.

As permitted under Israeli law, we have agreements whereby we indemnify our
officers and directors for certain events or occurrences while the officer or
director is, or was serving, at our request in such capacity. The
indemnification period covers all pertinent events and occurrences during the
officer's or director's lifetime. We have director and officer insurance
coverage that may limit our exposure and may enable us to recover a portion of
any future amounts paid. In addition to the insurance coverage, the Company has
agreed to indemnify its directors in an amount not to exceed $20 million, for
all persons and all events to be indemnified, for certain events and
occurrences while the director is, or was serving, at our request in such
capacity in accordance with the Indemnification Agreements entered into with
the directors of the Company, which are substantially in the form of the
Amended Form of Indemnification Agreement filed as Exhibit 10.18 to this annual
report.

Since inception, we have received aggregate payments from the Government of the
State of Israel through the Office of the Chief Scientist of the Ministry of
Industry and Trade in the amount of $7.6 million related to research and
development. In return for the Government of Israel participation, we are
committed to pay royalties at a rate of 3% to 5% of sales of the developed
product, up to 100%-150% of the amount of grants received with annual interest
of LIBOR as of the date of approval for programs approved from 1999 and
thereafter. As of December 31, 2004, we had paid or accrued royalties related
to the results of research and development in the amount of $3.9 million. The
estimated current net commitment is approximately $3.7 million. The refund of
the grant is contingent on future sales, and we have no obligation to refund
these grants, if sufficient sales are not generated.

Our capital requirements depend on numerous factors, including market demand
and acceptance of our products, the resources we devote to developing,
marketing, selling and supporting our products, the timing and extent of
establishing additional international operations and investments in computers
and office equipment. We intend to continue investing significant resources in
our selling and marketing, research and development operations in the future
and investments in computers and office equipment. We attained profitability in
the three months ending March 31, 2003 and maintained profitability in the next
seven quarters. Our ability to maintain profitability will depend on our
ability to increase our revenues while continuing to control our expenses.
However, we cannot assure you that we will be able to maintain profitability,
as our ability to maintain our profitability on a quarterly basis is largely
dependent on the receipt of large orders in each quarter. If we are not
successful in doing so, we will be required to seek new, external sources of
financing, which may not be available to us on favorable terms or at all. If
additional funds are raised through the issuance of equity or debt securities,
these securities could have rights, preferences and privileges senior to those
of holders of ordinary shares, and the terms of these securities could impose

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 22

<PAGE>

restrictions on our operations. The sale of additional equity or convertible
debt securities could result in additional dilution to out shareholders.

We believe that we will have sufficient cash to fund our operations for at
least the next twelve months although there is no assurance that we will be
able to do so.

CRITICAL ACCOUNTING POLICIES

In preparing our consolidated financial statements, we are required to make
estimates, judgments and assumptions that affect the reported amounts of
revenues and expenses, assets and liabilities and contingent assets and
liabilities at the date of the financial statements.

On an ongoing basis, we evaluate our estimates, judgments and assumptions,
including those related to revenue recognition, and bad debt provisions. We
base our estimates, judgments and assumptions on historical experience and
forecasts, and on various other factors that are believed to be reasonable
under the circumstances. Actual results may differ from these estimates under
different assumptions or conditions. We believe that the following critical
accounting policies affect our more significant estimates, judgments and
assumptions used in the preparation of our consolidated financial statements.

Revenue Recognition

Revenue results are difficult to predict, and any shortfall in revenues or
delay in recognizing revenues could cause our operating results to vary
significantly from quarter to quarter and could result in future operating
losses. In addition, the timing of our revenue recognition influences the
timing of certain expenses, such as commissions and royalties. We follow very
specific and detailed guidelines in measuring revenues; however, certain
judgments affect the application of our revenue policy.

Our revenues are principally derived from the licensing of our software and the
provision of related services. We recognize revenues in accordance with SOP
97-2. Revenues from software license fees are recognized when persuasive
evidence of an arrangement exists, either by written agreement or a purchase
order signed by the customer, the software product has been delivered, the
license fees are fixed and determinable, and collection of the license fees is
considered probable. License fees from software arrangements which involve
multiple elements, such as post-contract customer support, consulting and
training, are allocated to each element of the arrangement based on the
relative fair values of the elements. We determine the fair value of each
element in multiple-element arrangements based on vendor specific objective
evidence, or VSOE. We determine the VSOE for each element according to the
price charged when the element is sold separately. In judging the probability
of collection of software license fees we continuously monitor collection and
payments from our customers and maintain a provision for estimated credit
losses based upon our historical experience and any specific customer
collection issues that we have identified. In connection with customers with
whom we have no previous experience, we may utilize independent resources to
evaluate the creditworthiness of those customers. For some customers, typically
those with whom we have long-term relationships, we may grant extended payment
terms. We perform on-going credit evaluations of our customers. If the
financial situation of any of our customers were to deteriorate, resulting in
an impairment of their ability to pay the indebtedness they incur with us,
additional allowances may be required.

Our software products generally do not require significant customization or
modification. Revenue from software licenses that require significant
customization, integration and implementation are recognized based on SOP 81-1
"Accounting for Performance of Construction-Type and Certain Production-Type
Contracts," using contract accounting on the percentage-of-completion method,
based on the relationship of actual labor costs incurred, to total labor costs
estimated to be incurred over the duration of the contract. In recognizing
revenues based on the percentage-of-completion method, we estimate time to
completion with revisions to estimates reflected in the period in which changes
become known. If we do not accurately estimate the resources required or the
scope of work to be performed, or do not manage our projects properly within
the planned periods of time or satisfy our obligations under the contracts,
then future services margins may be significantly and negatively affected or
losses on existing contracts may need to be recognized.

Service revenues include post-contract customer support, consulting and
training. Post-contract customer support arrangements provide for technical
support and the right to unspecified updates on an if-and-when-available basis.
Revenues from those arrangements are recognized ratably over the term of the
arrangement, usually one year. Consulting services are recognized on a time and
material basis, or in a fixed price contract, on a percentage of completion
basis. Revenues from training are recognized as the services are provided.

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 23

<PAGE>

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts using estimates that we make
based on factors we believe appropriate such as the composition of the accounts
receivable aging, historical bad debts, changes in payment patterns, customer
creditworthiness and current economic trends. If we used different assumptions,
or if the financial condition of customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional provisions for
doubtful accounts would be required and would increase our bad debt expense.

RECENT ACCOUNTING PRONOUNCEMENTS

         SFAS NO. 123 (REVISED 2004) "SHARE BASED PAYMENTS" - In December 2004,
the FASB issued SFAS No. 123 (revised 2004) "Share Based Payments" ("SFAS
123(R)"). This Statement is a revision of FASB Statement No. 123, "Accounting
for Stock-Based Compensation", which supersedes APB Opinion No. 25, "Accounting
for Stock Issued to Employees" and its authoritative interpretations. SFAS
123(R) will be implemented in the U.S. GAAP reconciliation Note. SFAS 123(R)
establishes standards for the accounting for transactions in which an entity
exchanges its equity instruments for goods or services; focuses primarily on
accounting for transactions in which an entity obtains employee and directors
services in share-based payment transactions; and does not change the
accounting guidance for share-based payment transactions with parties other
than employees or directors.

         SFAS 123(R) eliminates the alternative to use APB 25's intrinsic value
method of accounting that was provided in SFAS 123 as originally issued and
requires to measure the cost of employee services received in exchange for an
award of equity instruments based on the grant-date fair value of the award.
The fair-value-based method in this Statement is similar to the
fair-value-based method in SFAS 123 in most respects. The costs associated with
the awards will be recognized over the period during which an employee is
required to provide service in exchange for the award - the requisite service
period (usually the vesting period).

         The grant-date fair value of employee share options and similar
instruments will be estimated using option-pricing models adjusted for the
unique characteristics of those instruments (unless observable market prices
for the same or similar instruments are available). If an equity award is
modified after the grant date, incremental compensation cost will be recognized
in an amount equal to the excess of the fair value of the modified award over
the fair value of the original award immediately before the modification.

         The provisions of SFAS 123(R) apply to all awards to be granted by the
Company after June 30, 2005 and to awards modified, repurchased, or cancelled
after that date. When initially applying the provisions of SFAS 123(R), in the
third quarter of 2005, the Company will be required to elect between using
either the "modified prospective method" or the "modified retrospective
method". Under the modified prospective method, the Company is required to
recognize compensation cost for all awards granted after the adoption of SFAS
123(R) and for the unvested portion of previously granted awards that are
outstanding on that date.

         Under the modified retrospective method, the Company is required to
restate its previously issued financial statements to recognize the amounts
previously calculated and reported on a pro forma basis, as if the original
provisions of SFAS 123 had been adopted. Under both methods, it is permitted to
use either a straight line or an accelerated method to amortize the cost as an
expense for awards with graded vesting.

         Management has recently commenced identifying the potential future
impact of applying the provisions of SFAS 123(R), including each of its
proposed transition methods, yet is currently unable to fully quantify the
effect of this Standard on the Company's future financial position and results
of operations in accordance with U.S. GAAP. Nonetheless, it is expected that
the adoption of SFAS 123(R) will increase the stock-based-award expenses the
Company is to record in the future in comparison to the expenses recorded under
the guidance currently applied by the Company.

         SFAS 153, EXCHANGE OF NON-MONETARY ASSETS - In December 2004, the
FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets an amendment of
APB No. 29". This Statement amends Opinion 29 to eliminate the exception for
nonmonetary exchanges of similar productive assets and replaces it with a
general exception for exchanges of nonmonetary assets that do not have
commercial substance. The Statement specifies that a nonmonetary exchange
has commercial substance if the future cash flows of the entity are expected
to change significantly as a result of the exchange. This Statement is
effective for nonmonetary asset exchanges occurring in fiscal periods
beginning after June 15, 2005. Earlier application is

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 24

<PAGE>

permitted for nonmonetary asset exchanges occurring in fiscal periods beginning
after the date this Statement is issued. Retroactive application is not
permitted. The Company is assessing the impact of the adoption of this
Standard, and currently estimates that its adoption in not expected to have a
material effect on the Company's financial position and results of operations.

Off-Balance Sheet Arrangements

Except as expressly disclosed in the Liquidity Section - Item 7, we do not have
any Off-Balance Sheet Arrangements.

FACTORS THAT MAY AFFECT FUTURE RESULTS

You should carefully consider the following factors and other information in
this statement before you decide to invest in our ordinary shares. If any of
the negative events referred to below occur, our business, financial condition
and results of operations could suffer. In any such case, the trading price of
our ordinary shares could decline, and you may lose all or part of your
investment.

RISKS RELATED TO OUR BUSINESS


WE MAY NOT BE ABLE TO MAINTAIN PROFITABILITY.

We expect to continue to incur significant sales and marketing and research and
development expenses. Some of our expenses, such as administrative and
management payroll and rent and utilities, are fixed in the short term and
cannot be quickly reduced if we experience revenue declines. As a result, we
need to generate and maintain growing revenues in order to remain profitable,
which we may not be able to do.

OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO FLUCTUATIONS AND IF WE FAIL TO
MEET THE EXPECTATIONS OF SECURITIES ANALYSTS OR INVESTORS, OUR SHARE PRICE MAY
DECREASE.

Our quarterly operating results are difficult to predict and are not a good
measure for comparison. Our operating history shows that a significant
percentage of our quarterly revenues comes from orders placed towards the end
of a quarter. Frequently, we are reliant upon a sale of significant size to a
single customer. A delay in the completion of any such sale past the end of a
particular quarter could negatively impact results for that quarter, and such
negative impact could be significant. Because of our expenses, such as
administrative and management payroll and rent and utilities, are fixed in the
short term and cannot be quickly reduced to respond to decreases in revenues,
if revenue levels fall below expectations, net income may be disproportionately
affected. Even without the delay of a significant sale, our future quarterly
operating results may fluctuate significantly and may not meet the expectations
of securities analysts or investors. If this occurs, the price of our ordinary
shares may decrease. The factors that may cause fluctuations in our quarterly
operating results include the following:

   o    the volume and timing of customer orders, including a trend toward
        larger customers generating larger transactions;

   o    the general seasonality of the enterprise software industry;

   o    internal budget constraints and approval processes of our current and
        prospective clients;

   o    the length and unpredictability of our sales cycle;

   o    the indirect nature of our sales efforts through our channel and
        strategic partners;

   o    the mix of revenue generated by product licenses and professional
        services;

   o    the geographic mix of revenue;

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 25

<PAGE>

   o    announcements or introductions of new products or product enhancements
        by us or our competitors;

   o    changes in prices of and the adoption of different pricing strategies
        for our products and those of our competitors;

   o    timing and amount of sales and marketing expenses;

   o    changes in the composition and success of our business and partner
        relationships;

   o    technical difficulties or "bugs" affecting the operation of our
        software;

   o    foreign currency exchange rate fluctuations; and

   o    general economic conditions.

Because of the numerous factors that may cause fluctuations in our quarterly
operating results, we believe that period-to-period comparisons of our results
of operations are not necessarily meaningful and that such comparisons should
not be relied upon as an indication of future performance.

OUR STOCK PRICE COULD BE VOLATILE AND COULD DECLINE SUBSTANTIALLY.

The stock market has experienced significant price and volume fluctuations, and
the market prices of technology companies have been highly volatile. The price
at which our ordinary shares trades is likely to be volatile and may fluctuate
substantially due to factors such as:

   o    announcements of technological innovations;

   o    announcements relating to strategic relationships, including
        developments in our recently announced relationship with IBM;

   o    conditions affecting the software industries;

   o    trends related to the fluctuations of stock prices of companies such as
        ours;

   o    our historical and anticipated quarterly and annual operating results;

   o    variations between our actual results and the expectations of investors
        or published reports or analyses regarding our business;

   o    announcements by us or others affecting our business, systems or
        expansion plans; and

   o    general conditions and trends in technology industries.

THE ECONOMIC OUTLOOK MAY ADVERSELY AFFECT THE DEMAND FOR OUR CURRENT PRODUCTS
AND OUR RESULTS OF OPERATIONS.

Predictions regarding general economic conditions remain uncertain. Unless the
economic outlook continues to improve, the rate of growth of information
technology spending may stagnate. Consequently, the demand for our products may
not grow or may decrease, which would adversely affect our results of
operations. In addition, it is difficult to predict economic conditions, and
further predicting the effects of the changing economy is even more difficult.
We may not accurately gauge the effect of the general economy on our business.
As a result, we may not react to such changing conditions in a timely manner
and this may result in an adverse impact on our results of operations. Any such
adverse impacts to our results of operations from a changing economy may cause
the price of our ordinary shares to decline.

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 26

<PAGE>
FAILURE OF THE MARKET TO ACCEPT OUR PRODUCTS WOULD ADVERSELY AFFECT OUR
PROFITABILITY.

Historically, all of our operating revenue has come from sales of, and services
related to, our Service Optimization Suite, which enables efficient
provisioning of services in enterprise environments. Our Service Optimization
Suite includes ClickSchedule, ClickFix, ClickAnalyze, ClickPlan, ClickMobile
and ClickForecast. We continually improve and enhance our Service Optimization
Suite to meet market requirements. Our growth depends on the development of
market acceptance of these products. We have no guarantee that the sales of our
products will continue to develop as we anticipate, or at all. Lack of
long-term demand for our products would have a material adverse effect on our
business and operating results.

IF WE FAIL TO EXPAND OUR RELATIONSHIPS WITH THIRD PARTIES THAT CAN PROVIDE
IMPLEMENTATION AND PROFESSIONAL SERVICES TO OUR CLIENTS, WE MAY BE UNABLE TO
INCREASE OUR REVENUES AND OUR BUSINESS COULD BE HARMED.

In order for us to focus more effectively on our core business of developing
and licensing software solutions, we need to continue to establish
relationships with third parties that can provide implementation and
professional services to our clients. Third-party implementation and consulting
firms can also be influential in the choice of resource optimization
applications by new clients. If we are unable to establish and maintain
effective, long-term relationships with implementation and professional
services providers, such as our recently announced strategic alliance with IBM,
or if these providers do not meet the needs or expectations of our clients, we
may be unable to grow our revenues and our business could suffer. As a result
of the limited resources and capacities of many third-party implementation
providers, we may be unable to attain sufficient focus and resources from the
third-party providers to meet all of our clients' needs, even if we establish
relationships with these third parties. If sufficient resources are
unavailable, we will be required to provide these services internally, which
could limit our ability to meet other demands. Even if we are successful in
developing relationships with third-party implementation and professional
services providers, we will be subject to significant risk, as we cannot
control the level and quality of service provided by third-party implementation
and professional services partners.

IF WE ARE UNABLE TO MAINTAIN OUR RELATIONSHIPS WITH OUR DISTRIBUTORS, VALUE
ADDED RESELLERS OR IF OUR DISTRIBUTORS' BUSINESSES ARE ADVERSELY AFFECTED BY
DEVELOPMENTS UNRELATED TO US, OUR SALES COULD BE HARMED.

Our marketing strategy includes sales through distributors and value added
resellers, as well as direct sales by our own sales force. There is no
assurance that we will be successful in extending the terms of our various
agreements or in establishing similar relationships with other distributors or
value added resellers if our current agreements are not extended, and changes
in our relationships with our distributors, value added resellers and agents,
or other changes to their respective businesses could have a material adverse
effect on our business, financial condition or results of operations.

OUR NEED FOR ADDITIONAL FINANCING IS UNCERTAIN, AS IS OUR ABILITY TO OBTAIN
FURTHER FINANCING IF REQUIRED.

Our ability to maintain or increase profitability using our currently available
balance of cash, cash equivalents and available credit will depend on our
ability to maintain or increase our revenues while continuing to control our
expenses. We cannot assure you that we will be successful in doing so. If we
are not successful in doing so, particularly given the uncertainties regarding
future information technology spending by our current and prospective
customers, we will need to raise additional capital to finance our operations.
There can be no assurances that we will be able to sell additional equity or
debt securities. If we are able to issue equity or debt securities, these
securities could have rights, preferences and privileges senior to those of
holders of our ordinary shares, and the terms of these securities could impose
restrictions on our operations. The sale of additional equity or convertible
debt securities would result in additional dilution to the stock holdings of
our shareholders. Additionally, prior to the issuance of additional equity or
convertible debt securities to entities outside of Israel, we will need to
obtain approval from the Chief Scientist and there can be no assurance that we
will be able to obtain this consent in the future.

Alternatively, we may seek other forms of financing, such as credit from banks
or institutional lenders. We cannot be certain that additional financing will
be available to us in amounts or on terms acceptable to us, if at all. If we
are unable to obtain this additional financing, we may be required to reduce
the scope of our planned product development and marketing efforts, which could
harm our business, financial condition or operating results.

OUR MARKET IS HIGHLY COMPETITIVE AND ANY REDUCTION IN DEMAND FOR, OR PRICES OF,
OUR PRODUCTS COULD NEGATIVELY IMPACT OUR REVENUES, REDUCE OUR GROSS MARGINS AND
CAUSE OUR SHARE PRICE TO DECLINE.

The market for our products is competitive and rapidly changing. Competition
may increase in the future as current competitors expand their product
offerings and new companies attempt to enter the market. Because

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 27
<PAGE>
the market for service and delivery optimization software is evolving, it is
difficult to determine what portion of the market each competitor currently
controls. However, competition could result in price reductions, fewer customer
orders, reduced gross margin and loss of market share, any of which could cause
our business to suffer. We may not be able to compete successfully, and
competitive pressures may harm our business. Some of our current and potential
competitors have greater name recognition, longer operating histories, larger
customer bases and significantly greater financial, technical, marketing,
public relations, sales, distribution and other resources than us. In addition,
some of our potential competitors are among the largest and most well
capitalized software companies in the world.

FAILURE TO FULLY DEVELOP OR MAINTAIN KEY BUSINESS RELATIONSHIPS COULD LIMIT OUR
ABILITY TO SELL ADDITIONAL LICENSES, THEREBY DECREASING OUR REVENUES AND
INCREASING OUR SALES AND MARKETING COSTS.

We believe that our success in penetrating our target markets depends in part
on our ability to develop and maintain business relationships with software
vendors, resellers, systems integrators, distribution partners and customers.
We are dependent on certain suppliers for the development, supply and support
of third party software components that are integrated into our solutions. If
we fail to continue developing these relationships, our growth could be
limited. We do not have long-term contracts with some of these suppliers, and
they are not obligated to provide us with products or services for any
specified period of time. We have entered into agreements with third parties
relating to the integration of our products with their product offerings,
distribution, reselling and consulting. We are currently deriving revenues from
these agreements but we may not be able to derive significant revenues in the
future from these agreements. In addition, if any of our software vendors cease
production, cease operations or fail to make timely delivery of orders, we may
not be able to meet our delivery obligations to our customers, and may lose
revenues and suffer damage to our customer relationships. Furthermore, our
growth may be limited if prospective clients do not accept the solutions
offered by our strategic partners.

OUR SALES AND IMPLEMENTATION CYCLES DEPEND ON FACTORS OUTSIDE OUR CONTROL,
WHICH MAY CAUSE QUARTERLY LICENSE AND SERVICE FEES REVENUES TO VARY
SIGNIFICANTLY FROM PERIOD TO PERIOD.

To date, our customers have taken typically from three months to nine months to
evaluate our offering before making their purchase decisions. In addition,
depending on the nature and specific needs of a client, the implementation of
our products typically takes three to nine months. Sales of licenses and
implementation schedules are subject to a number of risks over which we have
little or no control, including clients' budgetary constraints, clients'
internal acceptance reviews, the success and continued internal support of
clients' own development efforts, the efforts of businesses with which we have
relationships, the nature, size and specific needs of a client and the
possibility of cancellation of projects by clients. The uncertain outcome of
our sales efforts and the length of our sales cycles could result in
substantial fluctuations in license revenues. Historically, a significant
portion of our sales in any given quarter occur in the last two weeks of the
quarter; if sales forecasted from a specific client for a particular quarter
are not realized in that quarter, we are unlikely to be able to generate
revenues from alternate sources in time to compensate for the shortfall. As a
result, and due to the relatively large size of some orders, a lost or delayed
sale could have a material adverse effect on our quarterly revenue and
operating results. Moreover, to the extent that significant sales occur earlier
than expected, revenue and operating results for subsequent quarters could be
adversely affected.

WE DEPEND ON KEY PERSONNEL, AND THE LOSS OF ANY KEY PERSONNEL COULD AFFECT OUR
ABILITY TO COMPETE AND OUR ABILITY TO ATTRACT ADDITIONAL KEY PERSONNEL MAY BE
IMPAIRED.

We believe our future success will depend on the continued service of our
executive officers and other key sales and marketing, product development and
professional services personnel. Dr. Moshe BenBassat, our Chief Executive
Officer, has individually participated in and has been responsible for
overseeing much of the research and development of our core technologies. The
services of Dr. BenBassat and other members of our senior management team and
key personnel would be very difficult to replace and the loss of any of these
employees could harm our business significantly. We have employment
agreements with our executive officers, including Dr. BenBassat. Although
these agreements generally require sixty to ninety days notification prior to
departure, relationships with these officers and key employees are at will.
The loss of any of our key personnel could harm our ability to execute our
business strategy and compete.

IF WE FAIL TO EXPAND OUR PROFESSIONAL SERVICES ORGANIZATION, WE MAY NOT BE ABLE
TO SERVICE ADDITIONAL CLIENTS.

We cannot be certain that we can attract or retain a sufficient number of
highly qualified professional services personnel to meet our business needs.
Clients that license our software typically engage our professional services
organization to assist with the installation and operation of our software
applications. Our

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 28
<PAGE>

professional services organization also provides assistance to our clients
related to the maintenance, management and expansion of their software
systems. Future growth in licenses of our software will depend in part on our
ability to provide our clients with these services. In addition, we will be
required to expand our professional services organization to enable us to
continue to support our existing installed base of customers. If we were not
able to maintain our professional services organization, our ability to
support our service business would be limited.

ANY FUTURE MERGERS WITH OR ACQUISITIONS OF COMPANIES, PRODUCTS OR
TECHNOLOGIES AND THE RESULTANT INTEGRATION PROCESS MAY DISTRACT OUR
MANAGEMENT AND DISRUPT OUR BUSINESS.

Our industry has witnessed a substantial amount of mergers and acquisitions
activities throughout the past few years. One of our possible business
strategies is to consider strategic partnerships, alliances, mergers and/or
acquisitions of complementary businesses, products and technologies. Pursuit of
such strategies requires significant investments of management time and
attention. Mergers with or acquisitions of companies involve a number of risks
including the difficulty of assimilating the operations and personnel of the
merged or acquired companies and of maintaining uniform standards, controls and
policies. There can be no assurance that technology or rights acquired by us
will be incorporated successfully into products we introduce or market, that
such products will achieve market acceptance or that we will not encounter
other problems in connection with such acquisitions. If we consummate one or
more significant acquisitions in which the consideration consists of ordinary
shares, shareholders would suffer significant dilution of their interests in
us.

OUR MARKET MAY EXPERIENCE RAPID TECHNOLOGICAL CHANGES THAT COULD CAUSE OUR
PRODUCTS TO FAIL OR REQUIRE US TO REDESIGN OUR PRODUCTS, WHICH WOULD RESULT
IN INCREASED RESEARCH AND DEVELOPMENT EXPENSES.

Our market is characterized by rapid technological change, dynamic client needs
and frequent introductions of new products and product enhancements. If we fail
to anticipate or respond adequately to technology developments and client
requirements, or if our product development or introduction is delayed, we may
have lower revenues. Client product requirements can change rapidly as a result
of computer hardware and software innovations or changes in and the emergence,
evolution and adoption of new industry standards. The actual or anticipated
introduction of new products has resulted and will continue to result in some
reformulation of our product offerings. Technology and industry standards can
make existing products obsolete or unmarketable or result in delays in the
purchase of such products. As a result, the life cycles of our products are
difficult to estimate. We must respond to developments rapidly and continue to
make substantial product development investments. As is customary in the
software industry, we have previously experienced delays in introducing new
products and features, and we may experience such delays in the future that
could impair our revenue and operating results. Our business, financial
condition and results of operations will be materially adversely affected if we
fail to enhance our product functionality to meet our current and future
customer needs.

OUR PRODUCTS COULD BE SUSCEPTIBLE TO ERRORS OR DEFECTS THAT COULD RESULT IN
LOST REVENUES, LIABILITY OR DELAYED OR LIMITED MARKET ACCEPTANCE.

Complex software products such as ours often contain errors or defects,
particularly when first introduced or when new versions or enhancements are
released. In the past, some of our products have contained errors and defects
that have delayed implementation or required us to expend additional resources
to correct the problems. Despite internal testing, testing by current and
potential clients and the history of use by our installed base of customers,
our current and future products may contain as yet undetected serious defects
or errors. Any such defects or errors could result in lost revenues, liability
or a delay in market acceptance of these products, any of which would have a
material adverse effect on our business, operating results and financial
condition. The introduction of products with quality or compatibility problems
could result in reduced revenues and orders, delays in collecting accounts
receivable and additional costs. There can be no assurance that, despite
testing by us or by our customers, errors or defects will not be found in our
products after commencement of commercial deployment. Errors or defects could
result in product redevelopment costs and loss of market demand, delay in
market acceptance, loss of revenues, loss of market share, and loss of
potential new customers.

The performance of our products also depends in part upon the accuracy and
continued availability of third-party data. We rely on third parties that
provide information such as street and address locations and mapping functions
that we incorporate into our products. If these parties do not provide accurate
information, or if we are unable to maintain our relationships with them, our
reputation and competitive position in our industry could suffer and we could
be unable to develop or enhance our products as required.


--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 29

<PAGE>

OUR INTELLECTUAL PROPERTY COULD BE USED BY THIRD PARTIES WITHOUT OUR CONSENT
BECAUSE PROTECTION OF OUR INTELLECTUAL PROPERTY IS LIMITED.

Our success and ability to compete are substantially dependent upon our
internally developed technology, which we protect through a combination of
copyright, trade secret and trademark law. However, we may not be able to
adequately protect our intellectual property rights, which may significantly
harm our business. Specifically, we may not be able to protect our trademarks
for our company name and our product names, and unauthorized parties may
attempt to copy or otherwise obtain and use our products or technology.
Policing unauthorized use of our products and technology is difficult,
particularly in countries outside the U.S., and we cannot be certain that the
steps we have taken will prevent infringement or misappropriation of our
intellectual property rights.

Our end-user licenses are designed to prohibit unauthorized use, copying or
disclosure of our software and technology in the United States, Israel and
other foreign countries. However, these provisions may be unenforceable under
the laws of some jurisdictions and foreign countries. Unauthorized third
parties may be able to copy some portions of our products, reverse engineer or
obtain and use information and technology that we regard as proprietary. Third
parties could also independently develop competing technology or design around
our technology. If we are unable to successfully detect infringement and/or to
enforce our rights to our technology, we may lose competitive position in the
market. We cannot assure you that our means of protecting our intellectual
property rights in the United States, Israel or elsewhere will be adequate or
that competing companies will not independently develop similar technology. In
addition, some of our licensed users may allow additional unauthorized users to
use our software, and if we do not detect such use, we could lose potential
license fees.

OUR CHANNEL AND STRATEGIC PARTNER STRATEGY MAY EXPOSE US TO ADDITIONAL RISK
OF INTELLECTUAL PROPERTY INFRINGEMENT.

Our increased reliance on our channel and strategic partners may increase the
likelihood of the infringement of our intellectual property. As we deepen our
ties with our channel and strategic partners, the number of people who are
exposed to and interact with our software and other intellectual property will
increase. Despite our best efforts to protect our intellectual property, our
channel or strategic partners, or their employees or customers, may copy some
portions of our products or otherwise obtain and use information and technology
that we regard as proprietary. Channel or strategic partners might also
improperly incorporate portions of our technology into their own products or
otherwise exceed the authorized scope of their licenses to our technology. If
we are unable to successfully detect and prevent infringement and/or to enforce
our rights to our technology, our revenues may be impacted and we may lose
competitive position in the market.

OUR TECHNOLOGY AND OTHER INTELLECTUAL PROPERTY MAY BE SUBJECT TO INFRINGEMENT
CLAIMS.

Substantial litigation regarding technology rights and other intellectual
property rights exists in the software industry both in terms of infringement
and ownership issues. A successful claim of patent, copyright or trademark
infringement or conflicting ownership rights against us could cause us to make
changes in our business or significantly harm our business. We believe that our
products do not infringe the intellectual property rights of third parties.
However, we cannot assure you that we will prevail in all future intellectual
property disputes.

We expect that software products may be increasingly subject to third-party
infringement or ownership claims as the number of competitors in our industry
segment grows and the functionality of products in different industry segments
overlaps. Third parties may make a claim of infringement or conflicting
ownership rights against us with respect to our products and technology. Any
claims, with or without merit, could:

   o    be time-consuming to defend;

   o    result in costly litigation;

   o    divert management's attention and resources; or

   o    cause product shipment delays.


--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 30

<PAGE>

Further, if an infringement or ownership claim is successfully brought against
us, we may have to pay damages or royalties, enter into a licensing agreement,
and/or stop selling the product or using the technology at issue. Any such
royalty or licensing agreements may not be available on commercially reasonable
terms, if at all.

From time to time, we may encounter disputes over rights and obligations
concerning intellectual property. We also indemnify some of our customers
against claims that our products infringe the intellectual property rights of
others. We have only conducted a partial search for existing patents and other
intellectual property registrations, and we cannot assure you that our products
do not infringe any issued patents. In addition, because patent applications in
the United States and Israel are not publicly disclosed until the patent is
issued, applications may have been filed which would relate to our products.

IF OUR RELATIONSHIPS WITH OUR KEY CUSTOMERS ARE TERMINATED, OUR REVENUES WILL
DECLINE AND OUR BUSINESS WILL BE ADVERSELY AFFECTED.

During 2004, our two main customers each accounted for more than 10% of our
sales. If for any reason, our relationship with either of these customers is
terminated, or if either of these key customers reduces purchases of our
products, then our business, financial condition and results of operations
would be materially adversely affected. The impact of the termination or
reduction of our key customer relationships would be intensified if we are
unable to increase sales to other customers in order to offset this termination
or reduction.

OUR BUSINESS MAY BECOME INCREASINGLY SUSCEPTIBLE TO NUMEROUS RISKS ASSOCIATED
WITH INTERNATIONAL OPERATIONS.

Significant portions of our operations occur outside the United States. Our
facilities are located in North America, Israel, the European continent, the
United Kingdom and Australia, and our executive officers and other key
employees are dispersed throughout the world. This geographic dispersion
requires significant management resources that may place us at a disadvantage
compared to our locally based competitors. In addition, our international
operations are generally subject to a number of risks, including:

   o    foreign currency exchange rate fluctuations;

   o    longer sales cycles; o multiple, conflicting and changing governmental
        laws and regulations;

   o    expenses associated with customizing products for foreign countries;

   o    protectionist laws and business practices that favor local
        competition;

   o    difficulties in collecting accounts receivable; and

   o    political and economic instability.

We expect international revenues to continue to account for a significant
percentage of total revenues and we believe that we must continue to expand our
international sales and professional services activities in order to be
successful. Our international sales growth will be limited if we are unable to
expand our international sales management and professional services
organizations, hire additional personnel, customize our products for local
markets and establish relationships with additional international distributors,
consultants and other third parties. If we fail to manage our geographically
dispersed organization, we may fail to meet or exceed our business plan and our
revenues may decline.

WE FACE RISKS RELATING TO OUR FINANCIAL STATEMENTS RESTATEMENT.

Following a reaudit of our financial statements conducted in the third and
fourth quarters of 2002 and the first quarter of 2003, we restated our
financial statements for 1999, 2000, 2001 and the first six months of 2002. On
January 24, 2003, we filed an amendment to our annual report on Form 10-K for
the fiscal year ended December 31, 2001.


--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 31

<PAGE>

The restatement of our prior financial statements may lead to litigation claims
against us. The defense of claims may cause the diversion of management's
attention and resources, and we may be required to pay damages if any such
claims are not resolved in our favor. Any litigation, even if resolved in our
favor, could cause us to incur significant legal and other expenses.

In this regard, on August 25, 2003, a complaint was filed in the United States
District Court for the District of Massachusetts against us, one of our
officers and one of our former officers. None of the defendants have been
served, and the case is in the preliminary stages. We learned about the
litigation via a computer check in 2003. To date, we have not received any
further formal documentation from the court nor the plaintiffs. The complaint
is substantially similar to a complaint previously filed in the same court
against these parties and dismissed by the court for failure to perfect service
on the defendants in a timely manner. The complaint is purportedly brought on
behalf of investors who purchased our securities between June 22, 2000 and
October 21, 2002 and seeks unspecified damages. The complaint contains various
allegations, including violations of the Securities Exchange Act of 1934 and
common law claims with respect to our financial results for 2000, 2001 and the
first six months of 2002. It is not possible for us to quantify the extent of
our potential liability, if any. An unfavorable outcome in this or any other
case could have a material adverse effect on our business, financial condition,
results of operations, cash flow and the trading price of our ordinary shares.

In addition, we have provided information regarding our financial statement
restatement to the staff of the Securities and Exchange Commission on a
voluntary basis, and the SEC has requested additional information. Any
additional inquiry by the SEC may result in a diversion of our management's
attention and resources and require additional expenses for professional
services. In addition, any claims against us or any inquiry by the SEC may
cause the price of our ordinary shares to decline.

WE ARE INCORPORATED IN ISRAEL AND HAVE IMPORTANT FACILITIES AND RESOURCES
LOCATED IN ISRAEL, WHICH COULD BE NEGATIVELY AFFECTED DUE TO MILITARY OR
POLITICAL TENSIONS.

We are incorporated under the laws of the State of Israel and our research and
development facilities as well as significant executive offices are located in
Israel. Although substantial portions of our sales currently are to customers
outside of Israel, political, economic and military conditions in Israel could
nevertheless directly affect our operations. Since the establishment of the
State of Israel in 1948, a number of armed conflicts have taken place between
Israel and its Arab neighbors and a state of hostility, varying in degree and
intensity, has led to security and economic problems for Israel. Since
September 2000, a continuous armed conflict with hostile elements in the
Palestinian Authority has been taking place.

Despite our history of avoiding adverse effects, in the future we could be
adversely affected by any major hostilities involving Israel, the interruption
or curtailment of trade between Israel and its trading partners, a significant
increase in inflation, or a significant downturn in the economic or financial
condition of Israel. The current state of peace talks between Israel and its
Arab neighbors is uncertain. Several Arab countries still restrict business
with Israeli companies, which may limit our ability to make sales in those
countries. We could be adversely affected by restrictive laws or policies
directed towards Israel or Israeli businesses.

CERTAIN OF OUR OFFICERS AND EMPLOYEES ARE REQUIRED TO SERVE IN THE ISRAEL
DEFENSE FORCES AND THIS COULD FORCE THEM TO BE ABSENT FROM OUR BUSINESS FOR
EXTENDED PERIODS.

Certain of our officers and employees are currently obligated to perform up to
39-45 days of annual reserve duty in the Israel Defense Forces and are subject
to being called for active military duty at any time. The loss or extended
absence of any of our officers and key personnel due to these requirements
could harm our business.

WE ARE AN INTERNATIONAL COMPANY AND OUR INTERNATIONAL OPERATIONS ARE EXPANDING.
OUR RISK EXPOSURE TO FOREIGN CURRENCY FLUCTUATIONS IS INCREASING, AND WE MAY
NOT BE ABLE TO FULLY MITIGATE THE RISK.

Our revenue from the UK has grown both in absolute dollar basis as well as a
percentage of total revenues. We are expanding operations in other areas of
Europe, and income and expenses recognized in the European Community Euro are
increasing. In 2004, 21% of our costs were incurred in GBP and 6% in the Euro.
We incur a portion of our expenses, principally salaries and related personnel
expenses in Israel, in NIS. In 2004, 25% of our costs were incurred in NIS. In
2004, we incurred 7% of our costs in the Australian Dollar. In addition to
above, we have balance sheet exposure related to foreign net assets. We cannot
assure you that we will be able to adequately protect ourselves against such
risks.

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 32

<PAGE>
WE ARE INCURRING ADDITIONAL COSTS AND DEVOTING MORE MANAGEMENT RESOURCES TO
COMPLY WITH INCREASING REGULATION OF CORPORATE GOVERNANCE AND DISCLOSURE.

We are spending an increased amount of management time and external resources
to understand and comply with changing laws, regulations and standards relating
to corporate governance and public disclosure, including the Sarbanes-Oxley Act
of 2002, new SEC regulations and Nasdaq Stock Market rules. Devoting the
necessary resources to comply with evolving corporate governance and public
disclosure standards may result in increased general and administrative
expenses and a diversion of management time and attention to compliance
activities.

THE GOVERNMENT PROGRAMS IN WHICH WE CURRENTLY PARTICIPATE AND TAX BENEFITS
WHICH WE CURRENTLY RECEIVE REQUIRE US TO SATISFY PRESCRIBED CONDITIONS AND MAY
BE DELAYED, TERMINATED OR REDUCED IN THE FUTURE. THIS WOULD INCREASE OUR COSTS
AND TAXES.

We receive grants from the Government of the State of Israel through the Office
of the Chief Scientist of the Ministry of Industry and Trade, or the Chief
Scientist, for the financing of a significant portion of our research and
development expenditures in Israel, and we may apply for additional grants in
the future. We cannot assure that we will continue to receive grants at the
same rate or at all. The Chief Scientist budget has been subject to reductions
that may affect the availability of funds for Chief Scientist grants in the
future. The percentage of our research and development expenditures financed
using grants from the Chief Scientist may decline in the future, and the terms
of such grants may become less favorable. In connection with research and
development grants received from the Chief Scientist, we must make royalty
payments to the Chief Scientist on the revenues derived from the sale of
products, technologies and services developed with the grants from the Chief
Scientist. From time to time, the Government of Israel changes the rate of
royalties we must pay, so we are unable to accurately predict this rate. In
addition, our ability to manufacture products or transfer technology outside
Israel without the approval of the Chief Scientist is restricted under law. Any
manufacture of products or transfer of technology outside Israel will also
require us to pay increased royalties to the Chief Scientist up to 300%. We
currently conduct all of our manufacturing activities in Israel and intend to
continue doing so in the foreseeable future and therefore do not believe there
will be any increase in the amount of royalties we pay to the Chief Scientist.
Currently the office of the Chief Scientist does not consider the licensing of
our software in the ordinary course of business a transfer of technology and we
do not intend to transfer any technology outside of Israel. Consequently, we do
not anticipate having to pay increased royalties to the Chief Scientist for the
foreseeable future. In connection with our grant applications, we have made
representations and covenants to the Chief Scientist regarding our research and
development activities in Israel. The funding from the Chief Scientist is
subject to the accuracy of these representations and covenants. If we fail to
comply with any of these conditions, we could be required to refund payments
previously received together with interest and penalties and would likely be
denied receipt of these grants thereafter.

WE ANTICIPATE RECEIVING TAX BENEFITS FROM THE GOVERNMENT OF THE STATE OF ISRAEL,
HOWEVER THESE BENEFITS MAY BE DELAYED, REDUCED OR TERMINATED IN THE FUTURE.

Pursuant to the Law for the Encouragement of Capital Investments, the
Government of the State of Israel through the Investment Center has granted
"Approved Enterprise" status to three of our existing capital investment
programs. Consequently, we are eligible for certain tax benefits for the first
several years in which we generate taxable income. We have not, however, begun
to generate taxable income for purposes of this law and we do not expect to
utilize these tax benefits for the near future. Once we begin to generate
taxable income, our financial condition could suffer if our tax benefits were
significantly reduced. The benefits available to an approved enterprise are
dependent upon the fulfillment of certain conditions and criteria. If we fail
to comply with these conditions and criteria, the tax benefits that we receive
could be partially or fully canceled and we could be forced to refund the
amount of the benefits we received, adjusted for inflation and interest. From
time to time, the Government of Israel has discussed reducing or limiting the
benefits. We cannot assess whether these benefits will be continued in the
future at their current levels or at all.

IT MAY BE DIFFICULT TO ENFORCE A U.S. JUDGMENT AGAINST US, OUR OFFICERS AND
DIRECTORS AND THE ISRAELI ACCOUNTANTS NAMED AS EXPERTS IN THIS STATEMENT OR TO
ASSERT U.S. SECURITIES LAWS CLAIMS IN ISRAEL OR SERVE PROCESS ON SUBSTANTIALLY
ALL OF OUR OFFICERS AND DIRECTORS AND THESE ACCOUNTANTS.

We are incorporated in Israel and maintain significant operations in Israel.
Some of our executive officers and directors and the Israeli accountants named
as experts in this statement reside outside of the United States and a
significant portion of our assets and the assets of these persons are located
outside the United States. Therefore, it may be difficult for an investor, or
any other person or entity, to effect service of process on us or any of those
persons or to enforce a U.S. court judgment, based upon the civil liability
provisions of the U.S. federal securities laws, against us or any of those
persons, in an Israeli court. Additionally, it may be difficult for an investor,
or any other person or entity, to enforce civil liabilities under U.S.


--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 33
<PAGE>

federal securities laws in original actions instituted in Israel. We have
appointed ClickSoftware Inc., our U.S. subsidiary, as our agent to receive
service of process in any action against us arising out of our original June
22, 2000 initial public offering. We have not given our consent for our agent
to accept service of process in connection with any other claim. Furthermore,
if a foreign judgment is enforced by an Israeli court, it will be payable in
NIS.

A SIGNIFICANT PORTION OF OUR WORKFORCE IS SUBJECT TO ISRAELI LABOR LAWS, WHICH
MAY LEAD TO CLAIMS FOR ADDITIONAL OVERTIME PAY.

Israeli law provides that employment arrangements with employees not in senior
managerial positions, or whose working conditions and circumstances do not
facilitate employer supervision of their hours of work, must provide for
compensation which differentiates between compensation paid to employees for a
43 hour work week or for maximum daily work hours and compensation for overtime
work. Israeli law also limits the maximum number of hours of overtime. Certain
of our employment compensation arrangements are fixed and do not differentiate
between compensation for regular hours and overtime work. Therefore, we may
face potential claims from these employees asserting that the fixed salaries do
not compensate for overtime work. While there is no certainty that such claims
will prevail, even if they do, we do not believe that these claims would have a
material adverse effect on us.

OUR OFFICERS, DIRECTORS AND AFFILIATED ENTITIES OWN A LARGE PERCENTAGE OF OUR
ORDINARY SHARES AND COULD SIGNIFICANTLY INFLUENCE THE OUTCOME OF ACTIONS.

As of December 31, 2004, our executive officers, directors and entities
affiliated with them beneficially owned approximately 21.9% of our outstanding
ordinary shares. These shareholders, if acting together, would be able to
significantly influence all matters requiring approval by our shareholders,
including the election of directors. This concentration of ownership may also
have the effect of delaying or preventing a change of control of our company,
which could have a material adverse effect on our stock price. These actions
may be taken even if our other investors oppose them.

WE ARE SUBJECT TO ANTI-TAKEOVER PROVISIONS THAT COULD DELAY OR PREVENT AN
ACQUISITION OF US, EVEN IF AN ACQUISITION WOULD BE BENEFICIAL TO OUR
SHAREHOLDERS.

Provisions of Israeli corporate and tax law and of our articles of association
may have the effect of delaying, preventing or making more difficult any merger
or acquisition of us, even if doing so would be beneficial to our shareholders.
In addition, any merger or acquisition of us will require the prior consent of
the Chief Scientist. Israeli law regulates mergers, votes required to approve a
merger, acquisition of shares through tender offers and transactions involving
significant shareholders. In addition, our articles of association provide for
a staggered board of directors and for restrictions on business combinations
with interested shareholders. Any of these provisions may make it more
difficult to acquire us. Accordingly, an acquisition of us could be delayed or
prevented even if it would be beneficial to our shareholders.

OTHER ORDINARY SHARES MAY BE SOLD IN THE FUTURE. THIS COULD DEPRESS THE MARKET
PRICE FOR OUR ORDINARY SHARES.

As of December 31, 2004, we had 27,403,159 ordinary shares outstanding (net of
39,000 shares held in treasury). In addition, as of December 31, 2004, we had
4,128,941 ordinary shares issuable upon exercise of outstanding options and
warrants, and 905,073 additional ordinary shares reserved for issuance pursuant
to our stock option plans and employee share purchase plan. If we or our
existing shareholders sell a large number of our ordinary shares, the price of
our ordinary shares could fall dramatically. Restrictions under the securities
laws limit the number of ordinary shares available for sale by our shareholders
in the public market. We have filed Registration Statements on Form S-8 to
register for resale the ordinary shares reserved for issuance under our stock
option plans.

In connection with the strategic alliance we formed with IBM at the end of the
second quarter of 2004, we issued 100,000 of our ordinary shares to IBM for a
purchase price of 0.02 NIS (New Israel Shekels) per share and agreed to issue
an additional 100,000 of our ordinary shares to IBM for a purchase price of
0.02 NIS per share upon the first anniversary of the initial issuance, unless
the agreement with IBM is terminated by either IBM or the Company. We also
issued IBM 250,000 warrants that are exercisable into our ordinary shares with
an exercise price of $2.38 per share. Immediately upon entering into the
strategic alliance 62,500 of these warrants became exercisable. At the end of
each of the three years following the warrant issuance, up to 62,500 warrants
may become exercisable based on the attainment of certain revenue targets
relating to revenue


--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 34

<PAGE>

generated from the strategic alliance. If all performance milestones are met,
approximately 1.7% of ClickSoftware's outstanding share capital would be issued
to IBM. The sale of ordinary shares and warrants to IBM in connection with the
strategic alliance may adversely affect the price of our ordinary shares.

IF WE ARE CHARACTERIZED AS A PASSIVE FOREIGN INVESTMENT COMPANY, OUR UNITED
STATES SHAREHOLDERS WILL BE SUBJECT TO ADVERSE TAX CONSEQUENCES.

If, for any taxable year, either, (1) 75% or more of our gross income is
passive income or (2) 50% or more of the fair market value of our assets,
including cash (even if held as working capital), produce or are held to
produce passive income, we may be characterized as a "passive foreign
investment company" ("PFIC") for United States federal income tax purposes.
Passive income includes dividends, interest, royalties, rents annuities and the
excess of gains over losses from the disposition of assets, which produce
passive income. For purposes of the asset test, cash is considered to be an
asset that produces passive income. As a result of our cash position and the
decline in the value of our assets, there is a substantial risk that we are a
PFIC for U.S. federal income tax purposes.

If we are characterized as a PFIC, our shareholders who are residents of the
United States will be subject to adverse United States tax consequences. Our
treatment as a PFIC could result in a reduction in the after-tax return to
shareholders resident in the United States and may cause a reduction in the
value of such shares. If we were to be treated as a PFIC, our shareholders
will be required, in certain circumstances, to pay an interest charge together
with tax calculated at maximum rates on certain "excess distributions"
including any gain on the sale of ordinary shares. In order to avoid this tax
consequence, they (1) may be permitted to make a "qualified electing fund"
election (however we do not currently intend to take the action necessary for
our shareholders to make a "qualified electing fund" election, in which case,
in lieu of such treatment they would be required to include in their taxable
income certain undistributed amounts of our income) or (2) may elect to
mark-to-market the ordinary shares and recognize ordinary income (or possible
ordinary loss) each year with respect to such investment and on the sale or
other disposition of the ordinary shares. Prospective investors should consult
with their own tax advisors with respect to the tax consequences applicable to
them of investing in our ordinary shares.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the ordinary course of our operations, we are exposed to certain market
risks, primarily changes in foreign currency exchange rates and interest rates.

FOREIGN CURRENCY EXCHANGE RATE RISK. We develop products in Israel and sell
them primarily in North America, Europe, and the Asia Pacific and Africa
regions. As a result, our financial results could be affected by factors such
as changes in foreign currency exchange rates or weak economic conditions in
foreign markets. In 2004, 50% of our revenues and 41% of our expenses are
denominated in US$. Since our financial results are reported in functional
currency of U.S. dollars, fluctuations in the rates of exchange between the
dollar and non-dollar currencies may have a material effect on our results of
operations. The exposure to currency exchange rate changes is diversified due
to the number of different countries and currencies in which we conduct
business. The main currencies are US$, NIS, GBP and Euro.

In addition to above, we have balance sheet exposure related to foreign net
assets.

We enter from time to time into forward contracts related to foreign currency
rates in order to protect against foreign currency accounts receivables and
certain forecasted transactions. We do not participate in any speculative
investments.

INTEREST RATE RISK. As of December 31, 2004, we had cash, cash equivalents and
short-term investments of $11.7 million, which consist of cash and highly
liquid short-term investments. Of this, a total of $0.8 million is denominated
in non-dollar currencies. A substantial decrease in market interest rates would
have immaterial impact on our financial condition.

The following table provides information about our investment portfolio, cash,
and investments as of December 31, 2004 and presents principal cash flows and
related weighted averages interest rates by expected maturity dates.


--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 35

<PAGE>


        YEAR OF MATURITY                                                   2005
        (in thousands of dollars)
        A) Cash, cash equivalents and investments portfolio:
        ----------------------------------------------------
        Cash and Cash equivalents                                        $4,196
          Average interest rate                                            1.5%

        Bank deposits                                                    $7,797
          Average interest rate                                            2.1%

        B) Long-term debts:
        -------------------
        None.






--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 36



<PAGE>

ITEM 8. FINANCIAL STATEMENTS

The following consolidated financial statements, and the related notes thereto,
of ClickSoftware Technologies Ltd. and the Report of Independent Registered
Public Accounting Firm are filed as a part of this Form 10-K.



Report of Independent Registered Public Accounting Firm...................... 38

Consolidated Balance Sheets...................................................39

Consolidated Statements of Operations.........................................40

Consolidated Statements of Changes in Shareholders' Equity....................41

Consolidated Statements of Cash Flows.........................................42

Notes to Consolidated Financial Statements....................................43





--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 37


<PAGE>


            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Shareholders of
ClickSoftware Technologies Ltd.


We have audited the accompanying consolidated balance sheets of ClickSoftware
Technologies Ltd. ("the Company") and its subsidiaries as of December 31, 2004
and 2003 and the related statements of operations, changes in shareholders'
equity and cash flows for each of the three years in the period ended December
31, 2004. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Company and its
subsidiaries as of December 31, 2004 and 2003 and the consolidated results of
their operations and their consolidated cash flows for each of the three years
in the period ended December 31, 2004 in conformity with U.S. generally
accepted accounting principles.



Brightman Almagor & Co.
Certified Public Accountants
A member firm of Deloitte Touche Tohmatsu



Tel Aviv, Israel
February 21, 2005



--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 38
<PAGE>
<TABLE>
<CAPTION>
                                    CLICKSOFTWARE TECHNOLOGIES LTD.
                                      CONSOLIDATED BALANCE SHEETS
                                   (in thousands, except share data)

                                                                                         DECEMBER 31,
                                                                                      2004          2003
                                                                                      ----          ----

ASSETS
CURRENT ASSETS:
<S>                                                                                  <C>            <C>
  Cash and cash equivalents (note 3)                                                 $ 4,196        $ 7,695
  Short-term investments (note 4 & Note 11b)                                           7,533          3,394
    Trade receivables, net of allowance for doubtful accounts
    of $300 and $735 as of December 31, 2004 and 2003, respectively (note 5)           5,317          3,362
  Other receivables and prepaid expenses (note 6)                                        982            722
                                                                                ----------------------------
     Total current assets                                                             18,028         15,173

 LONG-TERM INVESTMENTS (NOTE 7 & NOTE 11B)                                               264            580

 SEVERANCE PAY DEPOSITS (NOTE 10)                                                        890            779

 PROPERTY AND EQUIPMENT, NET (NOTE 8)                                                  1,067            923
                                                                                ============================
     Total assets                                                                    $20,249        $17,455
                                                                                ============================

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable and accrued expenses (note 9)                                     $ 4,731        $ 4,077
  Deferred revenues                                                                    2,969          2,275
                                                                                ----------------------------
     Total current liabilities                                                         7,700          6,352
                                                                                ----------------------------

LONG-TERM LIABILITIES
     Accrued severance pay (note 10)                                                   1,677          1,490
                                                                                ----------------------------
     Total liabilities                                                                 9,377          7,842
                                                                                ----------------------------

COMMITMENTS AND CONTINGENCIES (NOTE 11)

SHAREHOLDERS' EQUITY: (NOTE 12)
 Special preferred shares NIS 0.02 par value
    Authorized - 5,000,000 as of December 31, 2004 and 2003;
     no issued and outstanding shares as of December 31, 2004 and 2003;
Ordinary shares of NIS 0.02 par value:
    Authorized -- 100,000,000 as of December 31, 2004 and 2003;
    Issued - 27,442,159 shares as of December 31, 2004 and
    27,119,955 as of December 31,2003;
    Outstanding - 27,403,159 shares as of December 31, 2004 and
    27,080,955 shares as of December 31, 2003.                                           110            109
Additional paid-in capital                                                            70,930         70,276
Deferred stock compensation                                                             (309)             -
Accumulated deficit                                                                  (59,816)       (60,729)
                                                                                ----------------------------
                                                                                      10,915          9,656
Treasury shares, at cost: 39,000 shares                                                  (43)           (43)
                                                                                ----------------------------
     Total shareholders' equity                                                       10,872          9,613
                                                                                ----------------------------
     Total liabilities and shareholders' equity                                      $20,249        $17,455
                                                                                ============================

The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 39

<PAGE>
<TABLE>
<CAPTION>
                                          CLICKSOFTWARE TECHNOLOGIES LTD.
                                       CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (in thousands, except share and per share amounts)

                                                                                YEAR ENDED DECEMBER 31,
                                                                          2004               2003               2002
                                                                          ----               ----               ----
Revenues (note 13):
<S>                                                                    <C>               <C>                  <C>
  Software license                                                     $10,603           $ 10,622             $7,113
  Services                                                              12,102             11,788              8,640
                                                                -----------------------------------------------------
     Total revenues                                                     22,705             22,410             15,753
                                                                -----------------------------------------------------

Cost of revenues:
  Software license                                                       1,109                955                949
  Services                                                               6,395              6,631              5,804
                                                                -----------------------------------------------------
     Total cost of revenues                                              7,504              7,586              6,753
                                                                -----------------------------------------------------

                                                                -----------------------------------------------------
     Gross profit                                                       15,201             14,824              9,000
                                                                -----------------------------------------------------

Operating expenses:
  Research and development expenses                                      3,069              2,434              3,759
        Less - participation by the Chief Scientist of the
        Government of Israel (note 11a)                                    359                523                953
                                                                -----------------------------------------------------
  Research and development expenses, net                                 2,710              1,911              2,806
  Selling and marketing expenses                                         8,939              7,836             10,473
  General and administrative expenses                                    2,809              3,494              3,106
  Restructuring and assets impairment                                        -                  -              2,665
  Amortization of deferred stock-based compensation (1)                      9                101                300
                                                                -----------------------------------------------------
     Total operating expenses                                           14,467             13,342             19,350
                                                                -----------------------------------------------------
     Operating Income (loss)                                               734              1,482            (10,350)
Interest and other income, net                                             179                259                252
                                                                -----------------------------------------------------
Net Income (loss)                                                        $ 913             $1,741           $(10,098)
                                                                -----------------------------------------------------

                                                                -----------------------------------------------------
Basic net Income (loss) per share                                       $ 0.03              $0.07            $(0.40)
                                                                -----------------------------------------------------
Diluted net Income (loss) per share                                     $ 0.03              $0.06            $(0.40)
                                                                -----------------------------------------------------
Shares used in computing basic Net Income (Loss) per share          27,202,804         25,847,758         25,553,891
                                                                -----------------------------------------------------
Shares used in computing diluted Net Income (Loss) per share        28,336,450         26,874,351         25,553,891
                                                                -----------------------------------------------------
</TABLE>


(1) Amortization of deferred stock-based compensation would be further
classified as follows:



                                                 YEAR ENDED DECEMBER 31,
                                           2004           2003          2002

Cost of revenues                             $ -             $7           $20
Research and development expenses              -             15            44
Selling and marketing expenses                 -              4            12
General and administrative expenses            9             75           224
                                        --------------------------------------
Total                                        $ 9           $101         $ 300
                                        --------------------------------------

The accompanying notes are an integral part of these consolidated financial
statements.

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 40

<PAGE>
<TABLE>
<CAPTION>

                                                CLICKSOFTWARE TECHNOLOGIES LTD.
                                  CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                                               (in thousands, except share data)

                                NUMBER OF                 ADDITIONAL                                      LESS COST
                                ORDINARY      SHARE        PAID-IN        DEFERRED         ACCUMULATED   OF TREASURY
                                 SHARES       CAPITAL      CAPITAL      COMPENSATION        DEFICIT        SHARES        TOTAL
                             --------------- ----------------------------------------------------------------------- ------------
<S>                              <C>             <C>          <C>          <C>              <C>               <C>        <C>
Balance as of
December 31, 2001                26,246,464      $ 101        $69,143      $ (401)          $ (52,372)        $(43)      $16,428
Employee options exercised            1,500          -              5            -                   -            -            5
Employee Stock purchase plan        125,285          1             48            -                   -            -           49
Amortization of deferred
compensation                              -          -              -          300                   -            -          300
Net loss                                  -          -              -            -            (10,098)            -     (10,098)
                             --------------- ----------------------------------------------------------------------- ------------
Balance as of
December 31, 2002                26,373,249      $ 102        $69,196      $ (101)          $ (62,470)        $(43)      $ 6,684
Employee options exercised          306,684          4          1,001            -                   -            -        1,005
Employee Stock purchase plan        401,022          3             79            -                   -            -           82
Amortization of deferred
compensation                              -          -              -          101                   -            -          101
Net Income                                -          -              -            -               1,741            -        1,741
                             --------------- ----------------------------------------------------------------------- ------------
Balance as of
December 31, 2003                27,080,955      $ 109        $70,276         $  -            (60,729)        $(43)      $ 9,613
Employee options exercised          164,023          -            173            -                   -            -          173
Employee Stock purchase plan         58,181          1            107            -                   -            -          108
Shares issued to IBM                100,000          -              -            -                   -            -            -
Deferred stock
compensation related to
shares and  stock option
grants to consultants                     -          -            374        (374)                   -            -            -
Amortization of deferred
compensation                              -          -              -           65                   -            -           65
Net Income                                -          -              -            -                 913            -          913
                             --------------- ----------------------------------------------------------------------- ------------
Balance as of
December 31, 2004                27,403,159      $ 110        $70,930      $ (309)          $ (59,816)        $(43)     $ 10,872
                             --------------- ----------------------------------------------------------------------- ------------


The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 41

<PAGE>
<TABLE>
<CAPTION>
                                         CLICKSOFTWARE TECHNOLOGIES LTD.
                                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                  (in thousands)

                                                                         YEAR ENDED DECEMBER 31,
                                                                  2004            2003            2002
                                                                  ----            ----            ----
<S>                                                               <C>            <C>           <C>

CASH FLOWS FROM OPERATING ACTIVITIES:

Adjustments to reconcile net income (loss)
to net cash used in operating activities:

Net Income (loss)                                                 $ 913          $1,741        $(10,098)
  Depreciation                                                      406             551              890
  Amortization of deferred compensation                              65             101              300
  Unrealized (gain) loss from Investments                            58             (21)              28
  Severance pay, net                                                 76              16              (32)
  Assets impairment                                                   -               -            1,195
  Other                                                              37               -              (35)
  Trade receivables                                              (1,955)            681            1,564
  Other receivables                                                (260)            532              231
  Accounts payable and accrued expenses                             654          (1,292)           2,705
  Deferred revenues                                                 694           1,864              343
  Decrease in marketable securities, net                              -               -            1,818
                                                          -----------------------------------------------

Net cash provided by (used in) operating activities                 688           4,173           (1,091)
                                                          -----------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchase of investments                                          (3,881)           (724)          (3,229)
Purchases of equipment                                             (587)           (224)            (315)
                                                          -----------------------------------------------
Net cash used in investing activities                            (4,468)           (948)          (3,544)
                                                          -----------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:

Short-term debt (net)                                                 -             (17)            (123)
Repayments of long-term debt                                          -               -              (21)
Employee and ESPP options exercised                                 281           1,087               54
                                                          -----------------------------------------------
Net cash provided by (used in)  financing activities                281           1,070              (90)
                                                          -----------------------------------------------
Increase (decrease) in cash and cash equivalents                 (3,499)          4,295           (4,725)

Cash and cash equivalents at beginning of year                    7,695           3,400            8,125
                                                          -----------------------------------------------
Cash and cash equivalents at end of year                        $ 4,196          $7,695          $ 3,400
                                                          -------------- --------------- ----------------

Supplemental cash flow information:
Cash paid for interest                                               $2             $10              $10
                                                          -----------------------------------------------


The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 42

<PAGE>

                        CLICKSOFTWARE TECHNOLOGIES LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     (AS OF DECEMBER 31, 2004 AND 2003 AND
             FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 and 2002)
                           (IN THOUSANDS OF DOLLARS)

NOTE 1 -- GENERAL

ClickSoftware Technologies Ltd. (the "Company" or "ClickSoftware") was
incorporated in Israel and is a leading provider of end-to-end service
optimization software. The ClickSoftware Service Optimization suite consists of
ClickSchedule, which enables companies to automate and optimize their service
resources; ClickAnalyze, ClickPlan and ClickForecast, which enable corporate
decision makers to intelligently analyze past performance, monitor current
performance, and effectively plan for future service needs; ClickFix, a
diagnostic and trouble-shooting tool, and ClickMobile, which empower service
personnel by providing real-time information and solutions for service related
issues. ClickSoftware products are used by a wide array of companies, including
customers in the telecommunications, utilities, financial services, aerospace,
defense, semi-conductor, and home service industries.

On June 2000, the Company completed an initial public offering of its ordinary
shares (the "IPO").

The consolidated financial statements include the financial statements of the
Company and its wholly owned subsidiaries in the U.S. (ClickSoftware, Inc.), in
the U.K. (ClickSoftware Europe Limited), in Germany (ClickSoftware Central
Europe, GmbH), in Belgium (ClickSoftware Belgium, N.V.) and in Australia
(ClickSoftware Australia PTY, Ltd, a wholly owned subsidiary of ClickSoftware,
Inc.). The subsidiaries are primarily engaged in the sale and marketing of the
Company's products in North America, Europe and the rest of the world.

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The financial statements have been prepared in conformity with accounting
principles generally accepted in the U.S.

Principles of Consolidation

The financial statements include the accounts of the Company and its wholly
owned subsidiaries. All significant material intercompany balances and
transactions have been eliminated.

Financial statements in U.S. dollars

The reporting currency of the Company is the U.S. dollar ("dollar"). The dollar
is the functional currency of the Company and its subsidiaries. Transactions
and balances originally denominated in dollars are presented at their original
amounts. Non-dollar transactions and balances are remeasured into dollars in
accordance with the principles set forth in Statement of Financial Accounting
Standards ("SFAS") No. 52. All exchange gains and losses from translation of
monetary balance sheet items resulting from transactions in non-dollar
currencies are recorded in the statement of operations as they arise.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash equivalents consist of short-term, highly liquid investments that are
readily convertible into cash with original maturities of three months or less.
Bank deposits with maturities of more than three months but less than one year
are included in short-term investments.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to credit risk,
consist principally of cash instruments and accounts receivable. The Company
maintains cash and cash equivalents and investments with major financial
institutions and limits the amount of credit exposure with any institution. The
accounts receivable are derived from sales to a large number of customers,
mainly large industrial corporations and their suppliers located mainly in
Europe and the United States. The Company generally does not require

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 43

<PAGE>

collateral. The Company performs ongoing credit evaluations of its customers
and maintains an allowance for doubtful accounts which management believes
adequately covers all anticipated losses in respect of trade receivables.

Property and Equipment

Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, ranging
from 3 to 16 years. Leasehold improvements are amortized using the
straight-line method, over the shorter of the lease term, including renewal
options, or the useful lives of the improvements.

The Company complies with provisions of SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This statement requires that
long-lived assets and certain identifiable intangible assets be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to undiscounted future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less cost to sell.

Software Research and Development Costs

Software research and development costs incurred prior to the establishment of
technological feasibility are included in research and development expenses.
The Company defines establishment of technological feasibility as the
completion of a working model. Software development costs incurred subsequent
to the establishment of technological feasibility through the period of general
market availability of the products are capitalized, if material, after
consideration of various factors, including net realizable value. To date,
software development costs that are eligible for capitalization have not been
material and have been expensed.

Revenue Recognition

The Company recognizes revenues in accordance with the American Institute of
Certified Public Accountants ("AICPA") Statement of Position 97-2, Software
Revenue Recognition, as amended.

In accordance with SOP 97-2, revenues from software license fees are recognized
when persuasive evidence of an arrangement exists, the software product covered
by written agreement or a purchase order signed by the customer has been
delivered, the license fees are fixed and determinable and collection of the
license fees is considered probable. Revenues from software product license
agreements, which require significant customization and modification of the
software product are deferred and recognized using the percentage-of-completion
method of contract accounting in accordance with AICPA Statement of Position
81-1. When software arrangements involve multiple elements the Company
allocates revenue to each element based on the relative fair values of the
elements. The Company's determination of fair value of each element in multiple
element arrangements is based on vendor-specific objective evidence (VSOE). The
Company limits its assessment of VSOE for each element to the price charged
when the same element is sold separately. If vendor specific objective evidence
of fair value does not exist for all elements to support the allocation of the
total fee among all delivered and undelivered elements of the arrangement,
revenue is deferred until such evidence exist for the undelivered elements, or
until all elements are delivered, whichever is earlier.

If the fee due from the customer is not fixed or determinable, revenue is
recognized as payments become due from the customer, assuming all other revenue
recognition criteria have been met. Generally, the Company considers all
arrangements with extended payment terms greater than nine months not to be
fixed or determinable.

The Company also enters into license arrangements with resellers whereby
revenues are recognized upon sale through to the end user by the reseller.
Service revenues include consulting services, post-contract customer support
and training. Consulting revenues are generally recognized on a time and
material basis. However, revenues from certain fixed-price contracts are
recognized on the percentage of completion basis. Post-contract customer
support agreements provide technical support and the right to unspecified
updates on an if-and-when-available basis. Post-contract customer support
revenues are recognized ratably over the term of the support period (generally
one year) and training and other service revenues are recognized as the related
services are provided.

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 44

<PAGE>

Basic and Diluted Net Income (Loss) Per Share

Basic and diluted net Income (loss) per share are presented in conformity with
SFAS No. 128 "Earnings per Share" for all years presented. Basic and diluted
net Income (loss) per share have been computed using the weighted-average
number of ordinary shares outstanding during the year. (See note 12).

Outstanding share options and shares issued and reserved for outstanding share
options have been excluded from the calculation of basic and diluted net income
(loss) per share to the extent such securities are anti-dilutive. The total
number of shares excluded from the calculations of diluted net Income (loss)
per share were 2,917,216, 2,044,623 and 3,676,203 for the years ended December
31, 2004, 2003 and 2002, respectively.

Fair Value of Financial Instruments

The financial instruments of the Company consist mainly of cash and cash
equivalents, short-term investments, current and non-current accounts
receivable, accounts payable and long-term liabilities. In view of their
nature, the fair value of the financial instruments included in working capital
of the Company is usually identical or close to their carrying amounts.

Stock-Based Compensation

The Company accounts for employee stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and in accordance with FASB Interpretation No. 44. Pursuant to these
accounting pronouncements, the Company records compensation for stock options
granted to employees over the vesting period of the options based on the
difference, if any, between the exercise price of the options and the market
price of the underlying shares at that date. Deferred compensation is amortized
to compensation expense over the vesting period of the options.

If stock-based compensation had been measured under the alternative fair value
accounting method provided for under SFAS No. 123, "Accounting for Stock-Based
Compensation", as amended by SFAS 148, the Company's net Income (loss) and
basic and diluted net Income (loss) per share would have been increased or
decreased to the following pro-forma amounts:

                                            2004          2003          2002
                                            ----          ----          ----
                                        (in thousands, except per share amounts)
Net Income (loss)
     As reported                            $913        $1,741        $(10,098)
Add - stock based compensation
  determined under APB 25                      -           101             300
Deduct - stock based compensation
  determined under SFAS 123               (1,059)         (419)           (534)
Pro-forma                                  $(146)       $1,423        $(10,332)

Basic net Income (loss) per Share

     As reported                           $0.03         $0.07         $(0.40)
     Pro-forma                            $(0.01)        $0.05         $(0.40)

Diluted net Income (loss) per Share

     As reported                           $0.03         $0.06         $(0.40)
     Pro-forma                            $(0.01)        $0.05         $(0.40)

Under SFAS 123, the fair market value of each option grant is estimated on the
date of grant using the "Black-Scholes option pricing" method with the
following weighted-average assumptions:(1) expected life of 5 years (2)
dividend yield of 0% (3) expected volatility of 147% (2003 - 151%, 2002 - 122%)
and (4) risk-free interest rate of 3.1% (2003 - 3.1%, 2002 - 4.0%).

Income Taxes

The Company accounts for income taxes, in accordance with the provisions of
SFAS 109 "Accounting for Income Taxes," under the liability method of
accounting. Under the liability method, deferred taxes are determined based on
the differences between the financial statement and tax basis of assets and
liabilities at enacted tax rates in effect in the year in which the differences
are expected to reverse. Valuation allowances are established, when necessary,
to reduce deferred tax assets to amounts expected to be realized.

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 45

<PAGE>
Recent Accounting Pronouncements

SFAS NO. 123 (REVISED 2004) "SHARE BASED PAYMENTS" - In December 2004, the FASB
issued SFAS No. 123 (revised 2004) "Share Based Payments" ("SFAS 123(R)"). This
Statement is a revision of FASB Statement No. 123, "Accounting for Stock-Based
Compensation", which supersedes APB Opinion No. 25, "Accounting for Stock
Issued to Employees" and its authoritative interpretations. SFAS 123(R) will be
implemented in the U.S. GAAP reconciliation Note. SFAS 123(R) establishes
standards for the accounting for transactions in which an entity exchanges its
equity instruments for goods or services; focuses primarily on accounting for
transactions in which an entity obtains employee and director services in
share-based payment transactions; and does not change the accounting guidance
for share-based payment transactions with parties other than employees.

SFAS 123(R) eliminates the alternative to use APB 25's intrinsic value method
of accounting that was provided in SFAS 123 as originally issued and requires
to measure the cost of employee services received in exchange for an award of
equity instruments based on the grant-date fair value of the award. The
fair-value-based method in this Statement is similar to the fair-value-based
method in SFAS 123 in most respects. The costs associated with the awards will
be recognized over the period during which an employee is required to provide
service in exchange for the award - the requisite service period (usually the
vesting period).

The grant-date fair value of employee share options and similar instruments
will be estimated using option-pricing models adjusted for the unique
characteristics of those instruments (unless observable market prices for the
same or similar instruments are available). If an equity award is modified
after the grant date, incremental compensation cost will be recognized in an
amount equal to the excess of the fair value of the modified award over the
fair value of the original award immediately before the modification.

The provisions of SFAS 123(R) apply to all awards to be granted by the Company
after June 30, 2005 and to awards modified, repurchased, or cancelled after
that date. When initially applying the provisions of SFAS 123(R), in the third
quarter of 2005, the Company will be required to elect between using either the
"modified prospective method" or the "modified retrospective method". Under the
modified prospective method, the Company is required to recognize compensation
cost for all awards granted after the adoption of SFAS 123(R) and for the
unvested portion of previously granted awards that are outstanding on that
date.

Under the modified retrospective method, the Company is required to restate its
previously issued financial statements to recognize the amounts previously
calculated and reported on a pro forma basis, as if the original provisions of
SFAS 123 had been adopted. Under both methods, it is permitted to use either a
straight line or an accelerated method to amortize the cost as an expense for
awards with graded vesting.

Management has recently commenced identifying the potential future impact of
applying the provisions of SFAS 123(R), including each of its proposed
transition methods, yet is currently unable to fully quantify the effect of
this Standard on the Company's future financial position and results of
operations in accordance with U.S. GAAP. Nonetheless, it is expected that the
adoption of SFAS 123(R) will increase the stock-based-award expenses the
Company is to record in the future in comparison to the expenses recorded under
the guidance currently applied by the Company.

SFAS 153, EXCHANGE OF NON-MONETARY ASSETS - In December 2004, the FASB issued
SFAS No. 153, "Exchanges of Nonmonetary Assets an amendment of APB No. 29".
This Statement amends Opinion 29 to eliminate the exception for nonmonetary
exchanges of similar productive assets and replaces it with a general exception
for exchanges of nonmonetary assets that do not have commercial substance. The
Statement specifies that a nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a
result of the exchange. This Statement is effective for nonmonetary asset
exchanges occurring in fiscal periods beginning after June 15, 2005. Earlier
application is permitted for nonmonetary asset exchanges occurring in fiscal
periods beginning after the date this Statement is issued. Retroactive
application is not permitted. The Company is assessing the impact of the
adoption of this Standard, and currently estimates that its adoption in not
expected to have a material effect on the Company's financial position and
results of operations.

NOTE 3 -- CASH AND CASH EQUIVALENTS

                                                                DECEMBER 31,
                                                             2004        2003
                                                       ------------  -----------
                                                             (in thousands)

In U.S. dollars                                              $3,422      $7,173
In British Pounds                                               164          64
In Australian dollars                                           353           -
In Israeli shekels                                              154          15
In Euro                                                         103         443
                                                       ------------  -----------
                                                             $4,196      $7,695
                                                       ============  ===========

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 46
<PAGE>

The cash balances bear interest at an average annual rate of 1.5%.

NOTE 4 -- SHORT-TERM INVESTMENTS

                                                                DECEMBER 31,
                                                               2004      2003
                                                       ------------  -----------
                                                             (in thousands)

Bank Deposits (see also note 11b)                           $ 7,533      $ 3,394
                                                       ------------  -----------
                                                            $ 7,533      $ 3,394
                                                       ============  ===========

The bank deposits bear interest at an average annual rate of 2.1%.

NOTE 5 -- ALLOWANCE FOR DOUBTFUL ACCOUNTS

                                                                DECEMBER 31,
                                                               2004      2003
                                                       ------------  -----------
                                                             (in thousands)

Balance at Beginning of Year                                  $735         $752
(Decrease) increase to allowance                              (180)         223
Write-offs                                                    (255)        (240)
                                                       ------------  -----------
Balance at Year end                                           $300         $735
                                                       ============  ===========

NOTE 6 -- OTHER RECEIVABLES AND PREPAID EXPENSES

                                                                DECEMBER 31,
                                                              2004       2003
                                                       -----------   -----------
                                                             (in thousands)

Prepaid expenses                                               $764          494
Government participation and other
  government receivables                                         40          $55
Employees                                                       127          132
Other receivables                                                51           41
                                                       ------------  -----------
                                                               $982         $722
                                                       ============  ===========

NOTE 7 -- LONG-TERM INVESTMENTS

                                                                DECEMBER 31,
                                                             2004        2003
                                                       ------------  -----------
                                                             (in thousands)

Bank Deposits (see also note 11b)                              $264         $580
                                                       ------------  -----------
                                                               $264         $580
                                                       ============  ===========

 The bank deposits bear interest at an average annual rate of 2.1%.



--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 47

<PAGE>

NOTE 8 -- PROPERTY AND EQUIPMENT, NET

                                                                DECEMBER 31,
                                                             2004        2003
                                                       ------------  -----------
                                                             (in thousands)
Cost
Computers and office equipment                              $2,822       $3,093
Leasehold improvements                                         563          617
Motor vehicles                                                 328          408
                                                       ------------  -----------
                                                            $3,713       $4,118
Accumulated Depreciation                                     2,646        3,195
                                                       ------------  -----------
                                                            $1,067         $923
                                                       ============  ===========

NOTE 9 -- ACCOUNTS PAYABLE AND ACCRUED EXPENSES

                                                                DECEMBER 31,
                                                              2004       2003
                                                       ------------  -----------
                                                             (in thousands)

Suppliers                                                    $1,242         $956
Employee and related expenses                                 1,117        1,408
Government commitment                                           734          110
Accrued royalties                                               734          732
Accrued restructuring                                            91           91
Other                                                           813          780
                                                       ------------  -----------
                                                             $4,731       $4,077
                                                       ============  ===========

NOTE 10 - ACCRUED SEVERANCE PAY

Under Israeli law and labor agreements, the Company is required to make
severance payments to its dismissed employees and employees leaving its
employment in certain other circumstances. The Company's severance pay
obligation to its employees, which is calculated on the basis of the salary of
each employee for the last month of the reported period multiplied by the years
of such employee's employment, is reflected by the accrual presented in the
balance sheet and is partially funded by deposits with insurance companies and
provident funds.

Severance pay expenses amounted to $336, $234 and 283 for the years ended
December 31, 2004, 2003 and 2002, respectively.

NOTE 11 -- COMMITMENTS AND CONTINGENCIES

A:   In connection with its research and development, the Company received
     grants from the State of Israel in the total amount of $7,590. The Company
     is committed to pay royalties at a rate of 3% to 5% of sales of the
     developed product, up to 100% - 150% of the amount of grants received plus
     annual interest of LIBOR as of the date of approval for programs approved
     from 1999 and thereafter. The Company so far has paid or accrued royalties
     through December 31, 2004 of $3,930. The total additional contingent
     liability to pay royalties is $3,660. The payment of such additional
     royalties is contingent on future sales and the Company has no obligation
     to refund these grants, if sufficient sales are not generated.

B:   The Company has entered into standby letters of credit agreements with
     banks and financial institutions relating to the guarantee of future
     performance on certain contracts. As of December 31, 2004, contingent
     liabilities on outstanding letter of credit agreements which expire after
     December 31, 2003 aggregated approximately $0.5 million. The letters of
     credit are secured by $0.3 million in deposits to cover any potential
     payments under the guarantees.

C:   The Company operates from leased facilities in Israel, the United States,
     U.K., Germany and Australia, for periods expiring in the years 2006
     through 2007. Minimum future rental payments, as of December 31, 2004 are
     as follows:


--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 48

<PAGE>

Rent expense amounted to $566, $620 and $1,139 for the years ended December 31,
2004, 2003 and 2002, respectively.

                                                                (in thousands)
                                                           -------------------

                                                     2005                $636
                                                     2006                 486
                                                     2007                 130
                                                           -------------------
                                                                       $1,252
                                                           ===================


     D: On August 25, 2003, a complaint was filed in the United States District
     Court for the District of Massachusetts against the Company, one of its
     officers and one of its former officers. None of the defendants have been
     served, and the case is in the preliminary stages. The complaint is
     substantially similar to a complaint previously filed in the same court
     against these parties and dismissed by the court for failure to perfect
     service on the defendants in a timely manner. The complaint is purportedly
     brought on behalf of investors who purchased the Company's securities
     between June 22, 2000 and October 21, 2002 and seeks unspecified damages.
     The complaint contains various allegations, including violations of the
     Securities Exchange Act of 1934 and common law claims with respect to the
     Company's financial results for 2000, 2001 and the first six months of
     2002.


NOTE 12 -- SHAREHOLDERS' EQUITY

A. PUBLIC OFFERING

On June 2000, the Company completed an initial public offering of its ordinary
shares (the "IPO") with total net proceeds of $28.2 million.

B. SHARE CAPITAL

Share capital is comprised of ordinary shares of NIS 0.02 par value. The amount
of shares issued includes shares reserved for issuance to employees held in
trust. The total number of ordinary shares held by the trustee is none as of
December 31, 2004, and 71,819 as of December 31, 2003.

C. EMPLOYEE STOCK PURCHASE PLAN ("ESPP")

During 2000, the Board of Directors approved the ESPP, effective August 2000.
Under the ESPP, the maximum number of shares to be made available is 800,000
with an annual increase to be added on the first day of each year commencing
2001 equal to the lesser of 2% shares or 500,000 of the outstanding shares on
such date or a lesser amount determined by the Board of Directors. During 2003,
the Board of directors decided to increase the ESPP pool by 250,000 shares
effective January 1, 2004.

Employees are eligible to participate in the ESPP if they are employed by the
Company or its U.S subsidiary for at least 20 hours per week and more than 5
months in any calendar year. Employee stock purchases are made through payroll
deductions. Under the terms of the ESPP, employees may not deduct an amount
exceeding $25,000 in total value of stock in any one year and may not purchase
more than 5,000 shares during any six-month offering period. The purchase price
of the stock will be 85% of the lower of the fair market value of an ordinary
share on the first day of the offering period and the fair market value on the
last day of the offering period. The offering period was determined to be six
months. The ESPP shall terminate in 2010, unless terminated earlier by the
Board of Directors.

As of January 1, 2004, 766,691 ordinary shares were issued under the ESPP, and
an additional 383,309 ordinary shares are reserved for issuance. During 2004
the company Board of Directors resolved to temporarily cease the Company's ESPP
program.


--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 49

<PAGE>


D. EMPLOYEE, DIRECTORS, AND CONSULTANT OPTION PLANS

The Company adopted new option plans in 2000. Under these plans, the Company
granted 886,100, 1,160,840 (including 39,840 shares pursuant to an exchange
offer), 513,500 and 1,375,652 options at an average exercise price of $2.47,
$2.41, $1.28 and $1.50 for the years ended December 31, 2004, 2003, 2002 and
2001, respectively.

During the year ended December 31, 2004 the Board of Directors and Shareholders
at the annual meeting approved the grants of stand-alone options to directors
to purchase 295,000 ordinary shares.

During the year ended December 31, 2003 the Board of Directors and Shareholders
at the annual meeting approved the grants of stand-alone options to purchase
385,000 ordinary shares to directors.

During the year ended December 31, 2001 the Board of Directors and Shareholders
at the annual meeting approved the grants of stand-alone options to purchase
144,036 ordinary shares to directors.

In April 2003 the Company commenced a voluntary stock option exchange program
for its employees. Under the program participating employees were given the
opportunity to have unexercised stock options previously granted to them
cancelled, and to receive replacement options at a future date. Replacement
options were granted at a ratio of between 50% and 5% for each option
cancelled, at an exercise price equal to the fair market value of the Company's
Ordinary Shares on the date of the re-grant. Pursuant to the terms of the
offer, 279,118 options were cancelled at May 2003. The Company granted 39,840
replacement options at December 2003 at an exercise price of $4.39.

During the year ended December 31, 2003 the Board of Directors decided to
increase the reserve for grants under its umbrella option plan, the Amended and
Restated 2000 Share Option Plan (the "ESOP"), by 400,000 options effective
January 1, 2004.

A summary of the status of the Company's stock option plans as of December 31,
2004 and 2003 and changes during the years then ended are as follows:

<TABLE>
<CAPTION>
                                           OPTIONS AND                         WEIGHTED       WEIGHTED-
                                             SHARES                          FOR EXERCISE     AVERAGE
                                            AVAILABLE       OUTSTANDING       PRICE PER      FAIR VALUE
                                            FOR GRANT       OPTIONS (*)        SHARE          OF OPTION
                                         ---------------------------------------------------------------
<S>                                           <C>                <C>                <C>          <C>

Outstanding December 31, 2002                  2,147,618         3,558,477          2.15
Granted                                       (1,506,000)        1,506,000          2.08         $ 1.94
Granted Exchange Offer                           (39,840)           39,840          4.39         $ 1.91
Forfeited                                        642,146          (642,146)         2.92
Forfeited Exchange Offer                         279,118          (279,118)          0.7
Exercised                                              -          (991,702)         1.10
Exercised Employee Stock Purchase plan         (401,022)                 -             -
                                         ------------------------------------------------
Outstanding December 31, 2003                  1,122,020         3,191,351           2.1
Increase in ESPP and option pool                 650,000
Granted                                         (886,100)          886,100          2.47         $ 2.24
Forfeited                                         77,334           (77,334)         3.28
Exercised                                              -          (221,176)         0.86
Exercised Employee Stock Purchase plan           (58,181)                -             -
                                         ------------------------------------------------
Outstanding December 31, 2004                    905,073         3,778,941          2.23
                                         ------------------------------------------------
</TABLE>


(*) As of December 31, 2003 and 2002, 71,819 and 756,839 outstanding options,
respectively, were held by a trustee and have been reserved for allocation
against certain employee options granted but not yet exercised. As of December
31, 2004, no outstanding options were held by a trustee for this purpose.

The following table summarizes information about options outstanding and
exercisable as of December 31, 2004:


--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 50

<PAGE>
<TABLE>
<CAPTION>
                                    OPTIONS OUTSTANDING                        OPTIONS EXERCISABLE
                    ---------------------------------------------------  ---------------------------------
                        NUMBER        WEIGHTED-AVERAGE     WEIGHTED-            NUMBER          WEIGHTED-
    RANGE OF         OUTSTANDING AT       REMAINING        AVERAGE          OUTSTANDING AT      AVERAGE
 EXERCISE PRICE     DECEMBER 31,        CONTRACTUAL        EXERCISE           DECEMBER 31,      EXERCISE
       $                 2004               LIFE           PRICE                  2003          PRICE
-----------------------------------------------------------------------  ---------------------------------
<S>      <C>                  <C>                   <C>      <C>                   <C>         <C>
  0.21 - 0.95                 437,889               4.7      $ 0.44                317,623     $ 0.52
  1.01 - 1.95               2,227,929               5.9      $ 1.58              1,529,055     $ 1.56
  2.04 - 3.67                 314,600               6.6      $ 2.84                125,788     $ 3.21
  4.15 - 4.39                 701,923                 7      $ 4.25                182,373     $ 4.30
  8.00 - 10.00                 96,600               1.6      $ 8.66                 96,600     $ 8.66
                      ----------------                                     ----------------
                            3,778,941                                            2,251,439
                      ================                                     ================
</TABLE>


E. IBM Share and Warrants Grants

At the end of the second quarter of 2004, the Company formalized a strategic
alliance with IBM pursuant to which the Company will team with IBM in providing
workforce optimization solutions. In connection with this strategic alliance,
the Company issued 100,000 of its ordinary shares to IBM for a purchase price
of 0.02 NIS (New Israel Shekels) per share and agreed to issue an additional
100,000 of its ordinary shares to IBM for a purchase price of 0.02 NIS per
share upon the first anniversary of the initial issuance, unless the contract
is Earlier terminated by either IBM or the Company. The Company also issued IBM
250,000 warrants that are exercisable into ordinary shares with an exercise
price of $2.38 per share. Immediately upon entering into the strategic alliance
62,500 of these warrants are immediately vested and became exercisable. At the
end of each of the three years following the warrant issuance, up to 62,500
warrants vest may become exercisable based upon on the attainment of certain
revenue targets relating to revenue generated from the strategic alliance. If
all performance milestones are met, approximately 1.7% of the Company's total
current equity outstanding share capital would be issued to IBM.

The Company accounted for these warrants and options under the fair value
method of FAS No. 123 and EITF 96-18. The fair value was determined using the
Black-Scholes pricing model with the following assumptions: risk-free interest
rate of 3.1%; volatility rate of 147%; dividend yields of 0% and an expected
life of two to five years.

The Company recorded in 2004 deferred stock-based compensation of $374,000 for
the 62,500 warrants granted and 100,000 shares issued in 2004 to IBM and for
options granted to a consultant. Compensation expenses of $56,000 (which were
deducted from Revenues) were recognized for the year ended December 31, 2004.

NOTE 13 -- SEGMENT REPORTING

The Company operates in one segment, the design, development, and marketing of
software solutions. The Company's revenues by geographic area are as follows:

                                           YEAR ENDED DECEMBER 31,
                                     2004             2003            2002
                                     ----             ----            ----
                                           (in thousands)
Revenue
U.S                                 $ 5,184        $ 8,177          $ 5,770
Canada                                1,806          2,004            1,802
U.K                                   5,135          4,342            1,847
Germany                               4,503          2,283            1,068
Other European countries              2,420          2,530            1,819
Israel                                   12             71              297
Australia                             3,636          2,935            3,067
Rest of the world                         9             68               83
                            ------------------------------------------------
                                    $22,705        $22,410          $15,753
                            ================================================


--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 51

<PAGE>

Sales to a single customer exceeding 10% of total sales:

                                     2004             2003            2002
                                     ----             ----            ----
                                       %                %               %
Customer A                            15                -               -
Customer B                            11                -               -
Customer C                             -               13               -
Customer D                             -               10               -


Long-lived assets by geographical areas are as follows:

                                                   YEAR ENDED DECEMBER 31,
                                                    2004            2003
                                                    ----            ----
                                                       (in thousands)
  Net Property and Equipment
  North America                                       $ 232          $ 170
  Europe                                                157            113
  Australia                                              13              8
  Israel                                                665            632
                                                ------------    -----------
                                                     $1,067           $923
                                                ============    ===========


NOTE 14-- TAXES ON INCOME

The Company is subject to the Israeli Income Tax Law (Inflationary
Adjustments), 1985, measuring income on the basis of changes in the Israeli
Consumer Price Index.

Part of the Company's investment in equipment has received approvals in
accordance with the Law for the Encouragement of Capital Investments, 1959
("Approved Enterprise" status). The Company has chosen to receive its benefits
through the "Alternative Benefits" track, and, as such, is eligible for various
benefits. These benefits include accelerated depreciation of fixed assets used
in the investment program, as well as a full tax exemption on undistributed
income in relation to income derived from the first plan for a period of 2
years and for the second, third and fourth plans for a period of 4 years (as
defined below). Thereafter a reduced tax rate of 10%-25% (based on foreign
ownership in each taxable year) will be applicable for an additional period of
up to 5 years for the first plan and 3 years for the second, third and fourth
plans, commencing with the date on which taxable income is first earned but not
later than certain dates. In the case of foreign investment of more than 25%,
the tax benefits are extended to 10 years, and in the case of foreign
investment ranging from 49% to 100% the tax rate is reduced on a sliding scale
to 10%. The period of tax benefits detailed above is subject to limits of 12
years from the year of commencement of operation, or 14 years from the date of
granting the approval, whichever is earlier.

The first investment plan (First plan) benefit period has already expired.

In 1992, the Company received approval for its first expansion program. (Second
plan). The commencing year for the Second plan is 1995 and the expected
expiration year is 2006.

In 1996, the Company received approval for its second expansion program (Third
plan). The commencing year for the third plan is 2000 and the expected
expiration year is 2010.

In 2002, the Company received approval for its third expansion program (Fourth
plan). In December 2004 the company finished its investments related to the
Fourth plan and issued a request for extending the plan until the end of 2005.
The request is in the process of approval. The commencing year for the fourth
plan hasn't been established yet. The expected expiration year is 2014.

Income derived from the expansion programs will be tax-exempt for a period of
two years and will be subject to a reduced tax rate as mentioned above for an
additional period of eight years.

The benefit periods of the second and third plans have not yet commenced.

The entitlement to the above benefits is conditional upon the Company
fulfilling the conditions stipulated by the above law, regulations published
thereunder and the instruments of approval for the specific investments in
"Approved Enterprises". In the event of failure to comply with these
conditions, the benefits may be canceled and the Company may be required to
refund the amount of the benefits, in whole or in part, including interest.

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 52

<PAGE>

Income not eligible for "Approved enterprise" benefits mentioned above is taxed
at a regular rate of 35%. The regular Company Tax rate is to be gradually
reduced to 30% until 2007 (34% in 2005, 32% in 2006 and 30% in 2007).

In the event of distribution by the Company of a cash dividend out of retained
earnings that were tax exempt due to its approved enterprise status, the
Company would have to pay a 25% corporate tax on the income from which the
dividend was distributed. A 15% withholding tax may be deducted from dividends
distributed to the recipients.

The Company has not provided deferred taxes on future distributions of
tax-exempt earnings, as management and the Board of Directors have determined
not to make any distribution that may result in a tax liability for the
Company. Accordingly, such earnings have been considered to be permanently
reinvested. The tax-exempt earnings may be distributed to shareholders without
subjecting the Company to taxes only upon a complete liquidation of the
Company.

Tax assessments
---------------
Final tax assessments in Israel have been received up to and including the 1999
tax year.

Deferred taxes
--------------
As of December 31, 2004, net operating loss carryforwards in Israel amounted to
approximately $21.6 million. Additional Tax losses are approximately $26.4
million attributable to the U.S. subsidiary and approximately $8.6 million
attributable to the European subsidiaries. The tax loss carryforwards for
Israel and the European companies have no expiration date. The tax loss
carryforwards in the U.S. expire between 2008 and 2024. The company expects
that during the period in which these tax losses are utilized, its income would
be substantially tax-exempt. Accordingly there will be no tax benefit available
from such losses and no deferred tax assets have been included in these
financial statements.

Israel and International components of income profit (loss) before taxes are:

                                                   YEAR ENDED DECEMBER 31,
                                              2004           2003           2002
                                              ----           ----           ----
                                                      (in thousands)
Israel                                         $90        $ 1,381        $ (181)
International                                  823            360        (9,917)
                                         ---------------------------------------
                                              $913         $1,741      $(10,098)
                                         =======================================


NOTE 15 -- TRANSACTIONS WITH RELATED PARTIES

                                                        YEAR ENDED DECEMBER 31,
                                                         2004      2003     2002
                                                         ----      ----     ----
                                                            (in thousands)
 Transactions:

   Management fee received                                $39       $39     $48
   Other General and administrative expenses received     $47       $44     $67



--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 53

<PAGE>


ITEM 8A. UNAUDITED CONSOLIDATED QUARTERLY FINANCIAL DATA

The following table presents the quarterly information for fiscal 2004 and 2003:

<TABLE>
<CAPTION>
                                                         First          Second         Third          Forth
                                                        Quarter         Quarter       Quarter        Quarter

                                                     -----------------------------------------------------------
                                                              (in thousands, except per share amounts)
                                                                            (Unaudited)
2004
<S>                                                         <C>            <C>           <C>            <C>
Net sales                                                   $ 5,008        $ 5,419       $ 5,457        $ 6,821
Gross profit                                                $ 3,399        $ 3,594       $ 3,675        $ 4,533
Net Income                                                     $ 72          $ 230         $ 183          $ 428
----------------------------------------------------------------------------------------------------------------

Basic net Income per share:                                  $ 0.00         $ 0.01        $ 0.01         $ 0.02
Diluted net Income per share:                                $ 0.00         $ 0.01        $ 0.01         $ 0.02
Shares used in computing basic net
Income per share (in thousands)                              27,036         27,157        27,296         27,319
Shares used in computing diluted net
Income per share (in thousands)                              28,697         28,361        27,965         28,293
Price per ordinary share - high                              $ 5.28         $ 4.14        $ 3.01         $ 3.02
Price per ordinary share - low                               $ 3.25         $ 2.06        $ 1.20         $ 1.73



2003
Net sales                                                    $5,141         $5,060        $5,902         $6,307
Gross profit                                                 $3,333         $3,333        $3,885         $4,273
Net Loss                                                       $158           $173          $687           $723
----------------------------------------------------------------------------------------------------------------

Basic net Income per share:                                  $ 0.01         $ 0.01        $ 0.03         $ 0.03
Diluted net Income per share:                                $ 0.01         $ 0.01        $ 0.03         $ 0.03
Shares used in computing basic net
Income per share (in thousands)                              25,616         25,648        25,729         26,379
Shares used in computing diluted net
Income per share (in thousands)                              25,616         25,942        27,047         28,456

Price per ordinary share - high                              $ 0.23         $ 2.33        $ 2.85         $ 4.95
Price per ordinary share - low                               $ 0.12         $ 0.19        $ 1.52         $ 1.95

</TABLE>

The Company's ordinary shares are traded on the NASDAQ SmallCap Market. As of
February 28, 2004, there were approximately 45 registered holders of ordinary
shares.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

ITEM  9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures - We have established
disclosure controls and procedures to ensure that material information relating
to the Company, including its consolidated subsidiaries, is made known to the
officers who certify our financial reports and to other members of senior
management and the Board of Directors.

Based on their evaluation as of December 31, 2004, our Chief Executive Officer
and Chief Financial Officer have concluded that our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) are effective to ensure that the information required to
be disclosed in our reports that we file or submit under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in SEC rules and forms.

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 54

<PAGE>

Management's Report on Internal Control Over Financial Reporting - Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rules
13a-15(f). Under the supervision and with the participation of our management,
including our chief executive officer and chief financial officer, we conducted
an evaluation of the effectiveness of our internal control over financial
reporting based on the framework in Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on our evaluation under the framework in Internal Control - Integrated
Framework, our management concluded that our internal control over financial
reporting was effective as of December 31, 2004.

Changes in Internal Controls - In October 2004, we initiated a company-wide
implementation of new integrated finance and ERP system applications software
(the new systems) and went live in January 2005. As of December 31, 2004, we
were in the process of transitioning many of our businesses to the new systems.
The implementation has involved changes in systems that included internal
controls, and accordingly, these changes have required changes to our system of
internal controls. We are reviewing each system as it is being implemented and
the controls affected by the implementation of the new systems and are making
appropriate changes to affected internal controls as we implement the new
systems. We believe that the controls as modified are appropriate and
functioning effectively.


PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

EXECUTIVE OFFICERS -

Our executive officers and certain information about them as of March 14, 2005
are as follows:

Name                         Age    Position
----                         ---    --------
Dr. Moshe BenBassat          57     Chief Executive Officer and Chairman of
                                    the Board
Shmuel Arvatz                42     Executive Vice President and Chief
                                    Financial Officer
Hannan Carmeli               46     Executive Vice President, Sales &
                                    Professional Services
David Schapiro               47     Executive Vice President, Markets & Products
Amit Bendov                  40     Senior Vice President, Product Marketing


DR. MOSHE BENBASSAT co-founded ClickSoftware and has served as Chairman and
Chief Executive Officer since inception. From 1987 to 1999, Dr. BenBassat
served as a Professor of Information Systems at the Faculty of Management at
Tel-Aviv University. Dr. BenBassat has also held academic positions at the
University of Southern California and the University of California in Los
Angeles. From 1996 to January 1999, Dr. BenBassat also served as a board member
of Tadiran Telecommunications Inc., a telecommunications company. From 1990 to
1996, Dr. BenBassat served as a board member of Tadiran Electronic Systems
Ltd., a defense electronics company. Dr. BenBassat holds Bachelor of Science,
Master of Science and PhD. degrees in Mathematics and Statistics from Tel-Aviv
University.

SHMUEL ARVATZ has served as our Executive Vice President and Chief Financial
Officer since October 2002. Prior to joining ClickSoftware, Mr. Arvatz served
as the Chief Financial Officer at Shrem, Fudim, Kelner Technologies Ltd., a
leading investment house in Israel. From June 1999 to February 2001, Mr. Arvatz
served as Executive Vice President and Chief Financial Officer of Tecnomatix
Technologies Ltd. (NASDAQ: TCNO), a provider of software e-manufacturing
solutions. From 1990 to 1999, Mr. Arvatz served as Vice President and Chief
Financial Officer at ADC Israel Ltd. (previously Teledata Communications Ltd.,
a telecommunications equipment provider which was acquired by ADC Telecom Inc.
in 1998). Mr. Arvatz holds a B.A. in Accounting and Economics from Bar-Ilan
University in Tel Aviv, Israel.

HANNAN CARMELI serves as our Executive Vice President of Sales & Professional
Services since August 2004. Prior to this position, he managed our Professional
Services organizations worldwide since the beginning of 2001. From August 1996
to December 2000, Mr. Carmeli held various executive roles including General
Manager of the TechMate Division as well as Manager of Product Services and
Operations. Prior to joining us, Mr. Carmeli held R&D and field positions with
various software vendors ranging from software development through product
management and sales management. Mr. Carmeli holds a Bachelor of Science

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 55

<PAGE>

degree from the Technion Institute of Technology in Haifa, Israel and a Master
of Science degree in Computer Science from Boston University.

DAVID SCHAPIRO has served as our Executive Vice President of Markets & Products
since April 2001. Prior to this position and since 1994, he held various
executive and management roles at ClickSoftware, including Senior Vice
President of Product Development, ClickSchedule Division General Manager, and
Vice President of Business Development. From 1984 until 1994, Mr. Schapiro
served in positions at Applied Materials, a semiconductor equipment
manufacturer, Scitex Corporation, a digital printing system company, and
ClickSoftware. Mr. Schapiro received a Bachelor of Science degree in
Mathematics and Computer Science from Tel-Aviv University, and a Master of
Science degree in Computer Science from Bar-Ilan University.

AMIT BENDOV has served as our Senior Vice President of Product Marketing since
July 1998. From September 1996 to June 1998, Mr. Bendov served as our Director
of Customer Support and Integration. From August 1994 to August 1996, Mr.
Bendov served as our Research and Development Manager. Mr. Bendov holds a
Bachelor of Science degree in Computer Science and Statistics from Tel Aviv
University.

Executive officers serve at the discretion of the Board and are appointed
annually. The employment of each of our executive officers is at will and may
be terminated at any time, with or without cause, subject to contractual notice
provisions. There are no family relationships between any of our directors or
executive officers.

DIRECTORS -

The Company's Articles of Association currently provide for a board of
directors of not less than two members nor more than eleven members. There are
currently seven members on the Company's board. The Company has a classified
board of directors as set forth in the following table:

                                             YEAR OF ANNUAL
                                            MEETING AT WHICH
 NAME OF DIRECTOR AND CLASS                  TERM EXPIRES             AGE
------------------------------------    ----------------------   --------------

James W. Thanos, Class I                          2007                56
Roni A. Einav, Class II                           2005                61
Gil Weiser, Class II                              2005                63
Moshe BenBassat, Class III                        2006                57
Israel Borovich, external director                2007                63
Naomi Atsmon, external director                   2006                52
Dan Falk, external director                       2006                60


There are no family relationships among any directors or executive officers of
the Company.

Under the Israeli Companies Law, 1999, Israeli companies whose shares have been
offered to the public in or outside of Israel (such as the Company) are
required to appoint two people to serve as external directors on the board of
directors of the company. The Companies Law provides that a person may not be
appointed as an external director if the person or the person's relative,
partner, employer or any entity controlled by that person has at the date of
appointment, or has had at any time during the two years preceding that date,
any affiliation with the company, any entity controlling the company or any
entity controlled by the company or by this controlling entity. The term
"affiliation" includes:

     o    an employment relationship,
     o    a business or professional relationship maintained on a regular basis,
     o    control, or
     o    service as an officer.

No person can serve as an external director if the person's position or
other business creates, or may create, conflicts of interest with the
person's responsibilities as an external director or if such position or
other business may impair such director's ability to serve as an external
director. No person who is a director in one company can serve as an
external director in another company, if at that time a director of the
other company serves as an external director in the first company. The
Companies Law further provides that when, at the time

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 56

<PAGE>

of appointment of an external director, all members of the board of
directors of the company are of one gender, then the external director
appointed must be of the other gender.

The following information as of March 14, 2005 is provided with respect to each
of our directors:

<TABLE>
<CAPTION>

CLASS I DIRECTOR

NAME , PRINCIPAL OCCUPATION AND DIRECTORSHIPS                                           AGE       DIRECTOR
                                                                                                  SINCE
----------------------------------------------------------------------------------------------------------------

<S>                                                                                       <C>          <C>
JAMES W. THANOS                                                                           56       May 2000

From October 1999 to June 2002, Mr. Thanos served as Executive Vice
President, Worldwide Field Operations of BroadVision, Inc., an
ecommerce software company. From March 1998 to October 1999, Mr.
Thanos served as BroadVision's Vice President and General Manager,
Americas. Prior to working for BroadVision, Mr. Thanos served as
Senior Vice President of Worldwide sales at Aurum Software, a sales
force automation company. Mr. Thanos is a member of the board of
directors of SupportSoft, Covigna, and PilotSoftware. Mr. Thanos holds
a Bachelor of Arts degree in International Relations and a Bachelor of
Arts degree in Behavioral Sciences from Johns Hopkins University


CLASS II DIRECTORS

RONI A. EINAV                                                                             61     April 2000

   Mr. Einav is the General Manager of Einav High-Tec Assets Ltd., an
investment company focused on technology ventures, founded by him in
1995. From 1983 to April 1999, Mr. Einav served as Chairman of the
Board of Directors of New Dimension Software, Ltd., a systems software
company he had founded, which was subsequently acquired by BMC
Software for over $650 million. Mr. Einav serves on the board of
directors of XciTel, Eurekify, and Motivia, and is on the advisory
boards of Xenia and Cogniview. Mr. Einav has also played a key role in
founding approximately a dozen other software companies, including
Liraz Computers, Jacada Ltd., UDS, XciTel, CePost, CeDimension, ComDa,
Computer Systems and Einav Systems. Mr. Einav was a Major in the
Israeli Defense Forces and served as a systems analyst in a research
and development division. Mr. Einav holds a Bachelor of Science degree
in Management and Industrial Engineering as well as a Master of
Science degree in Operations Research from the Technion Institute,
Haifa, Israel.


GIL WEISER                                                                                63       May 2003

   Mr. Weiser is currently Chairman or a member of the Board of
Directors of the following companies: Formula Systems Ltd., a holding
and managing company of a group of IT companies, Optibase Ltd., a
video communications company, Fundtech, a software company, BBP, a
subsidiary of Fundtech, Tescom, a service company, and Carmel, a
company connected with Haifa University. Mr. Weiser previously served
as a member of the Board of Directors of the Tel Aviv Stock Exchange
from 2002 to 2004. From January to December 2002, he was the Acting
Vice Chairman of ORAMA, an international investment banking group.
From 1995 to 2000, Mr. Weiser served as Chief Executive Officer of
Hewllett-Packard Israel, a technology company. From 1993 to 1995, Mr.
Weiser served as Chief Executive Officer of Fibronics Corporation,

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 57

</TABLE>

<PAGE>
<TABLE>
<CAPTION>
<S>                                                                                       <C>          <C>

a communications company. From 1976 to 1993, he served as Chief
Executive Officer of Digital Israel, a computing company. Mr. Weiser
is Chairman of the Executive Committee of Haifa University. Mr. Weiser
was the Vice Chairman of the Israel Management Center and is a member
of the Israel High-Tech Association Executive Committee. Mr. Weiser
holds a Bachelor of Science degree in Electrical Engineering from the
Technion Institute and a Master of Science degree in Electronics/
Computers from the University of Minnesota in Minneapolis.


CLASS III DIRECTOR

NAME , PRINCIPAL OCCUPATION AND DIRECTORSHIPS                                           AGE       DIRECTOR
                                                                                                  SINCE
----------------------------------------------------------------------------------------------------------------

MOSHE BENBASSAT                                                                           57           1979

   Dr. BenBassat co-founded ClickSoftware and has served as Chairman
and Chief Executive Officer since inception. From 1987 to 1999, Dr.
BenBassat served as a Professor of Information Systems at the Faculty
of Management at Tel-Aviv University. Dr. BenBassat has also held
academic positions at the University of Southern California and the
University of California in Los Angeles. From 1996 to January 1999,
Dr. BenBassat also served as a board member of Tadiran
Telecommunications Inc., a telecommunications company. From 1990 to
1996, Dr. BenBassat served as a board member of Tadiran Electronic
Systems Ltd., a defense electronics company. Dr. BenBassat holds
Bachelor of Science, Master of Science and PhD. degrees in Mathematics
and Statistics from Tel-Aviv University.


EXTERNAL DIRECTORS


NAME , PRINCIPAL OCCUPATION AND DIRECTORSHIPS                                           AGE       DIRECTOR
                                                                                                  SINCE
----------------------------------------------------------------------------------------------------------------

ISRAEL BOROVICH                                                                           63      July 1997

   Dr. Borovich has served as a director of the Company since July
1997 and as an external director according to the Israeli Companies
Law since July 2001. Dr. Borovich currently serves as Chairman of the
Board of Elal Israel Airlines Ltd. From 1988 until 2004, Dr. Borovich
served as President and CEO of Arkia Israeli Airlines Ltd. and
Knafaim-Arkia Holdings Ltd., an investment management company. Dr.
Borovich currently serves as a director of Issta Lines Israel Students
Travel Company Ltd., Arkia International (1981) Ltd. and other
companies of Arkia's group in the aviation and tourism business. DR.
Borovich also serves as Chairman of Granit Hacarmel Investments Ltd.
and Sonol Israel Ltd., an investment management company. Dr. Borovich
also serves as a director of Knafaim-Arkia Holdings, Ltd., an
investment management company, Maman-Cargo Terminals &Handling Ltd.
and Ayalon Highways (Israel) Ltd. Dr. Borovich served as a Professor
on the Faculty of Management of Tel Aviv University. Dr. Borovich
holds Bachelor of Science, Master of Science and Ph.D. degrees in
Industrial Engineering from the Polytechnic Institute in Brooklyn.

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 58

</TABLE>

<PAGE>
<TABLE>
<CAPTION>
<S>                                                                                       <C>          <C>

NAOMI ATSMON                                                                              52       May 2003

   Ms. Atsmon was employed by Amdocs Ltd., a customer care and
software company, from 1986 until the end of 2002. From 1997 until
2002,Ms. Atsmon served as a division President at Amdocs Ltd.,
managing large scale billing projects for telephone companies in North
America and Europe, with overall responsibility for the profit and
loss statement of the division. From 1994 until 1997, Ms. Atsmon
served as a Vice President at Amdocs Ltd. From 1991 until 1994, she
was a director for Amdocs Ltd. n charge of software development and
customer relations with one of the largest telephone companies in the
United States. Prior to joining Amdocs Ltd., Ms. Atsmon was a project
manager at Bank Hapoalim, in charge of a large financial project for
the bank controller. From 1976 to 1981, Ms.Atsmon was a system analyst
with Agrexco Ltd. Ms. Atsmon also currently serves as a board member
of Jacada Ltd., a software provider. Ms. Atsmon holds a Bachelor of
Science degree in Management & Industrial Engineering from the
Technion Institute, and studied business administration at Tel-Aviv
University.

DAN FALK                                                                                  60       May 2003

   From 2000 to May 2003 Mr. Falk served as the Chairman of the Board
Directors of Atara Technology Ventures Ltd., an Israeli company
engaged in investment in advanced technology enterprises. He is also a
member of the Boards of Directors of Orbotech Ltd., Nice Systems Ltd.,
Orad Ltd, Netafim, Plastopil Cooperative Society, Dmatek, Ltd., Dor
Chemicals Ltd., Attunity Ltd., Visionix Ltd., Jacada Ltd., Ormat Inc.
(publicly traded on NYSE), and Poalim Ventures I, all of which are
Israeli high technology companies.From July 1999 to November 2000, Mr.
Falk served as President and Chief Operating Officer of Sapiens
International Corporation N.V., a Netherlands Antilles company engaged
in the development of software solutions for large-scale,
cross-platform systems. Mr. Falk was Executive Vice President of
Orbotech, a high technology company, from August 1995 to July 1999,
and between June 1994 and August 1995 served as its Executive Vice
President and Chief Financial Officer. From October 1992 until June
1994, Mr. Falk was Vice President and Chief Financial Officer of
Orbotech. Mr. Falk was Director of Finance and Chief Financial Officer
of Orbot Systems, predecessor of Orbotech Ltd., from 1985 until 1992.
Mr. Falk received a Master of Business Administration degree in 1973
from the Hebrew University School of Business and had 15 years
experience in finance and banking, including senior positions at
Israel Discount Bank Ltd., prior to joining Orbot.
</TABLE>

LEGAL PROCEEDINGS

Except as disclosed in Item 3 above, to our knowledge there are no claims or
legal proceedings against our directors and officers.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Based solely on its review of copies of filings under Section 16(a) of the
Securities Exchange Act of 1934, as amended, received by it, or written
representations from certain reporting persons, the Company believes that
during 2004 all Section 16 filing requirements were met, except for the
following: Gil Weiser, Dan Falk, Moshe BenBassat, Israel Borovitch and Roni
Einav each reported one transaction late; and Naomi Atsmon reported two
transactions late on two Forms 4.

AUDIT COMMITTEE

The audit committee consists of Ms. Atsmon, Dr. Borovich, Mr. Falk and Mr.
Weiser, each of whom is "independent," as such term is defined under Rule
4200(a)(15) of the listing standards of the National Association of Securities
Dealers. The Company's board of directors has determined that Mr. Falk also


--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 59

<PAGE>


qualifies as a "financial expert" within the meaning of the rules of the
Securities and Exchange Commission, or SEC.

CODE OF ETHICS

The Company has adopted a Code of Ethics for Principal Executive and Senior
Financial Officers that applies to the Company's principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions. The Code of Ethics for Principal
Executive and Senior Financial Officers is posted on our website at
www.clicksoftware.com.


ITEM 11. EXECUTIVE COMPENSATION

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with Moshe BenBassat, its
Chief Executive Officer, Shmuel Arvatz, its Chief Financial Officer, Hannan
Carmeli, EVP Sales and Professional Services, and David Schapiro, EVP Markets &
Products. The agreements provide that each of the executives' employment
relationships is "at-will" and may be terminated at any time by either the
Company or the executive with or without cause, and following three months'
notice to Mr. Arvatz, Mr. Carmeli and Mr. Schapiro. The agreements provide that
in the event the executive is terminated by the Company without cause, the
executive will be entitled to severance payments in amounts equal to twelve
months of annual base salary as of the date of termination for Dr. BenBassat
and up to three months of base salary as of the date of termination for Mr.
Arvatz, Mr. Carmeli and Mr. Schapiro (plus, in the case of Mr. Arvatz, Mr.
Carmeli and Mr. Schapiro, a severance amount due in accordance with applicable
law). Dr. BenBassat is entitled to full acceleration of option vesting in the
event of a change in control. Mr. Arvatz, Mr. Carmeli and Mr. Schapiro are
entitled to 50% or 100% acceleration of options vesting, depending on the
conditions of a change of control. The executives' rights to receive the
contractual severance benefits set forth above will immediately terminate if
the executive is terminated for cause, as defined in the employment agreements.

EXECUTIVE COMPENSATION

The following table sets forth information regarding executive compensation for
services rendered during our fiscal years ended December 31, 2004, 2003 and
2002 by the Company's chief executive officer and our other four most highly
compensated executive officers who were serving as executive officers as of
December 31, 2004 and whose salary and bonus for our last fiscal year exceeded
$100,000. These five individuals constitute the group referred to elsewhere as
the Named Executive Officers. The compensation summarized in the following
table does not include perquisites or other personal benefits that do not in
the aggregate exceed the lesser of $50,000 or 10% of the Named Executive
Officer's salary and bonus.

<TABLE>
<CAPTION>
                                                           ANNUAL COMPENSATION
                                              ---------------------------------------------  -------------------------------
                                                                                              SECURITIES       ALL OTHER
        NAME AND PRINCIPAL                                                  OTHER ANNUAL      UNDERLYING      COMPENSATION
             POSITION                YEAR      SALARY         BONUS         COMPENSATION        OPTIONS            ($)
----------------------------------  ------    --------     -----------   ------------------  -------------  ----------------

<S>                                  <C>       <C>              <C>          <C>     <C>         <C>                <C>
Moshe BenBassat..................    2002      209,297            -          121,838 (1)             -              -
     CEO                             2003      192,375      374,500(2)       219,137 (1)       250,000              -
                                     2004      240,000       25,000          173,235 (1)       250,000              -

Shmuel Arvatz (3)................    2002       24,191            -            4,145 (4)             -              -
     Chief Financial Officer         2003      117,996       35,573           21,782 (4)       285,000              -
                                     2004      125,146       -                21,065 (4)        35,000              -

David Schapiro...................    2002      111,378            -           24,905 (4)        10,000              -
     Executive V.P.,                 2003      112,102       34,392           19,916 (4)        25,000              -
     Markets and Products            2004      118,272       -                27,400 (4)        35,000              -

Hannan Carmeli...................    2002      105,488            -           14,967 (4)        10,000              -
     Executive V.P.,                 2003      101,466       32,987           14,570 (4)       125,000              -
     Professional Services           2004      111,816            -           18,024 (4)        20,000              -

Amit BenDov......................    2002      123,473            -            9,677 (5)         8,000              -
     SR. V.P Product                 2003      113,490       19,000            8,165 (5)        25,505              -
       Marketing                     2004      117,460            -            2,136 (5)        15,000              -

</TABLE>


--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 60

<PAGE>


---------------------------
(1) Other compensation to Dr. BenBassat includes $75,000 housing allowance for
2002, $190,000 housing allowance for 2003 (of which $62,000 was with respect to
the previous year) and $128,500 housing allowance for 2004.
(2) Of this amount, $149,500 was approved by the shareholders at the 2004
annual meeting and $225,000 was granted pursuant to the bonus component of the
employment agreement approved by the shareholders on May 28, 2003.
(3) Mr. Arvatz was appointed as Chief Financial Officer effective October 20,
2002.
(4) Contributions to employee benefit programs.
(5) Medical insurance and executive disability insurance.

OPTION GRANTS IN 2004

The following table sets forth information concerning grants of stock options
to each of the Named Executive Officers during 2004. All such options were
granted under the Company's various option plans approved during 2004, and
generally vest over two to four years.

<TABLE>
<CAPTION>
                                 NUMBER OF        % OF TOTAL
                                   SHARES          OPTIONS
                                 UNDERLYING       GRANTED TO       EXERCISE                         GRANT DATE
                                  OPTIONS         EMPLOYEES         PRICE          EXPIRATION        PRESENT
             NAME                 GRANTED          IN 2003          ($/SH)            DATE          VALUE (1)
             ----             ---------------   --------------    ------------     ----------     -------------

<S>                                <C>              <C>               <C>            <C>  <C>        <C>
Moshe BenBassat..............      250,000          28%               $1.95          7/20/14         $367,932
Shmuel Arvatz................       35,000           4%               $1.59          9/02/14          $42,001
David Schapiro...............       35,000           4%               $1.59          9/02/14          $42,001
Hannan Carmeli...............       20,000           2%               $1.59          9/02/14          $24,001
Amit BenDov..................       15,000           2%               $1.59          9/02/14          $18,000

</TABLE>

---------------------------
(1) Computed using the Black-Scholes option pricing model. Full vesting of
options is between two and four years from grant date. Assumes the average
expected life of the option is 5 years, a volatility of 143%, an annual
dividend yield of 0.0% and a risk-free interest rate of 3.1%.


AGGREGATED OPTION EXERCISES IN 2004 AND YEAR-END OPTION VALUES

The following table sets forth certain information concerning options exercised
by the Named Executive Officers in 2004, and exercisable and unexercisable
stock options held by each of the Named Executive Officers as of December 31,
2004.

<TABLE>
<CAPTION>
                                                                NUMBER OF SECURITIES
                                                               UNDERLYING UNEXERCISED              VALUE OF UNEXERCISED
                           SHARES                                    OPTIONS AT                   IN-THE-MONEY OPTIONS AT
                        ACQUIRED ON        VALUE                 DECEMBER 31, 2004                 DECEMBER 31, 2004 (1)
        NAME              EXERCISE        REALIZED         EXERCISABLE       UNEXERCISABLE     EXERCISABLE    UNEXERCISABLE

<S>                            <C>         <C>                 <C>               <C>             <C>             <C>

Moshe BenBassat......              -             -            758,475           237,917         $886,279        $242,504
Amit BenDov..........          5,000       $16,169             46,255            26,250          $43,200         $19,050
Shmuel Arvatz........         15,100       $59,955            131,983           172,917         $328,163        $355,476
David Schapiro.......         40,000       $90,433            162,286            53,750         $249,203         $44,450
Hannan Carmeli.......         54,388      $103,018            152,250            63,750         $205,790         $66,400

</TABLE>


                                     ESPP


                                 NUMBER OF                DISCOUNT
                                ESPP SHARES                 VALUE
        NAME                  ACQUIRED IN 2004       ON DATE OF PURCHASE


Amit BenDov..........             1,292                    $421
Shmuel Arvatz........             3,714                  $1,209
Hannan Carmeli.......             2,554                    $831



--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 61

<PAGE>


---------------------------
(1) Based upon the closing price of the ordinary shares on December 31, 2004 of
$2.86, less the exercise price per share.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

As noted above, Dr. Borovich, Mr. Thanos and Mr. Weiser currently serve on the
compensation committee. None of these persons is or was formerly an officer or
an employee of the Company or any of its subsidiaries. No interlocking
relationship exists between the Company's board of directors or its
compensation committee and the board of directors or compensation committee of
any other company, nor did any interlocking relationships exist during the past
fiscal year.

DIRECTOR COMPENSATION

CASH COMPENSATION. Regulations under the Israeli Companies Law govern the
compensation paid by the Company to its external directors. In addition, all
compensation paid to directors is subject to approval of shareholders.

In accordance with these regulations, on December 5, 2002, the board of
directors adopted a resolution, approved by the Company's shareholders on May
28, 2003, and following the recommendation and approval by the audit committee,
approving a cash compensation arrangement for outside directors (the Company's
external directors, all directors that are not employees of the Company, or
directors that beneficially own, or otherwise represent a shareholder that
beneficially owns, less than 5% of the outstanding shares of the Company).
Under this arrangement, outside directors receive the fixed annual and per
meeting participation fees provided in the regulations under the Companies Law
that are payable by the Company to its outside directors. The fixed fees are be
based upon the "fixed amounts" set forth in the second and third supplements to
the Israeli Companies Regulations (Rules for Compensation and Expenses of
External Directors), as amended, updated and adjusted from time to time. Based
on the category to which the Company belongs, under the regulations, the
current participation fees payable by the Company to its external directors
equal NIS 15,750 for the annual fee and NIS 990 for the per meeting
participation fees. Such amounts may be updated from time to time as provided
in the Israeli Companies Regulations.

STOCK OPTIONS. Following the Company's July 20, 2004 annual meeting and in
accordance with the Company's 2000 Share Option Plan or 2003 Israeli Share
Option Plan, as applicable (the "Plans"), each of the Company's non-employee
directors received option grants. The Plans provide that each non-employee
director, including each external director, is automatically granted an option
to purchase 7,500 ordinary shares following each annual meeting of the
shareholders of the Company if on such date he or she will have served on the
board of directors for at least the preceding six (6) months (the "Annual
Grant"). Following the Company's July 20, 2004 annual meeting, the six
continuing non-employee directors, Dr. Borovich, Mr. Einav, Mr. Thanos, Ms.
Atsmon, Mr. Falk and Mr. Weiser each received Annual Grants of options to
purchase 7,500 ordinary shares, 7,500 with respect to service during 2004, at
an exercise price of $1.95 (the closing sale price for the ordinary shares on
the last market trading day prior to grant). Those options vest in full on the
first anniversary of the date of grant, provided that the respective director
continues to serve as a director on such date.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS

The following table sets forth information with respect to the beneficial
ownership of the Company's ordinary shares as of March 14, 2005 for:

     o    the Named Executive Officers;

     o    each of the Company's directors;

     o    each person or group known by the Company to beneficially own more
          than 5% of its outstanding ordinary shares; and

     o    all of the Company's executive officers and directors as a group.


--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 62

<PAGE>
Beneficial ownership of ordinary shares is determined in accordance with the
rules of the SEC and generally includes any ordinary shares over which a person
exercises sole or shared voting or investment powers, or of which a person has
a right to acquire ownership at any time within 60 days of March 14, 2005.
Except as otherwise indicated, and subject to applicable community property
laws, the persons named in this table have sole voting and investment power
with respect to all ordinary shares held by them. Applicable percentage
ownership in the following table is based on 27,480,809 shares outstanding as
of March 14, 2005. Unless otherwise indicated below, the address of each of the
principal shareholders is c/o ClickSoftware Technologies Ltd., 34 Habarzel
Street, Tel Aviv, Israel 69710.

<TABLE>
<CAPTION>
                                                                                      ORDINARY SHARES
                                                                                     BENEFICIALLY OWNED
                                                                                   ----------------------
NAME AND ADDRESS                                                                      NUMBER     PERCENT
--------------------------------------------------------------------------------  ------------ ---------

     Named Executive Officers and Directors
     --------------------------------------

<S>                                                                                   <C>           <C>
     Moshe BenBassat  (1)...................................................          5,413,772     19.1%

     Shmuel Arvatz    (2)...................................................            155,213      *

     David Schapiro   (3)...................................................            138,849      *

     Hannan Carmeli   (4)...................................................            182,588      *

     Amit BenDov      (5)...................................................             44,298      *

     Naomi Atsmon     (6)...................................................             12,050      *

     Israel Borovich  (7)...................................................             60,000      *

     Roni A. Einav    (8)...................................................             60,000      *

     Dan Falk         (9)...................................................              7,500      *

     James W. Thanos (10)...................................................             65,000      *

     Gil Weiser      (11)...................................................              7,500      *

     G.  Nicholas Farwell (12)
         1240 Arbor Road
         Menlo Park, CA 94025...............................................          3,008,100     10.1%

     Austin W. Marxe and David M. Greenhouse (13)
         153 East 53rd Street,
         55th floor, New York, NY  10022....................................          2,662,195      9.7%


     All executive officers and directors as a group (11 persons) (14)......          6,146,770     21.8%
</TABLE>

---------------------------
* Less than one percent.

     (1) Includes 2,246,887 shares held by Dr. BenBassat's spouse, Idit
         BenBassat. Dr. BenBassat has disclaimed beneficial ownership of those
         shares. Also includes options to purchase 832,142 ordinary shares
         exercisable within 60 days of March 14, 2005 held by Dr. BenBassat.
     (2) Includes options to purchase 155,213 ordinary shares exercisable
         within 60 days of March 14, 2005 held by Mr. Arvatz.
     (3) Includes options to purchase 138,849 ordinary shares exercisable
         within 60 days of March 14, 2005 held by Mr. Schapiro.
     (4) Includes options to purchase 174,646 ordinary shares exercisable
         within 60 days of March 14, 2005 held by Mr. Carmeli.
     (5) Includes options to purchase 35,193 ordinary shares exercisable
         within 60 days of March 14, 2005 held by Mr. BenDov.
     (6) Includes options to purchase 7,500 ordinary shares exercisable within
         60 days of March 14, 2005 held by Ms. Atsmon.
     (7) Includes options to purchase 60,000 ordinary shares exercisable
         within 60 days of March 14, 2005 held by Dr. Borovich.
     (8) Includes options to purchase 60,000 ordinary shares exercisable
         within 60 days of March 14, 2005 held by Mr. Einav.
     (9) Includes options to purchase 7,500 ordinary shares exercisable within
         60 days of March 14, 2005 held by Mr. Falk.
     (10) Includes options to purchase 60,000 ordinary shares exercisable
          within 60 days of March 14, 2005 held by Mr. Thanos.
     (11) Includes options to purchase 7,500 ordinary shares exercisable
          within 60 days of March 31, 2004 held by Mr. Weiser.
     (12) As reported on schedule 13G filed with the SEC for fiscal 2004.


--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 63
<PAGE>
    (13)  As reported on Schedule 13G filed with the SEC for fiscal 2004.
          This is a joint filing by Austin W. Marxe and David M. Greenhouse.
          Marxe and Greenhouse share sole voting and investment power over
          245,000 shares of Common Stock owned by Special Situations Cayman
          Fund, L.P., 1,023,500 shares of Common Stock owned by Special
          Situations Fund III,L.P., 204,995 shares of Common Stock owned by
          Special Situations Technology Fund, L.P. and 1,029,600 shares of
          Common Stock owned by Special Situations Technology Fund II, L.P.

     (14) Includes options to purchase 1,538,543 ordinary shares exercisable
          within 60 days of March 14, 2005.

<TABLE>
<CAPTION>
                                    EQUITY COMPENSATION PLAN INFORMATION
                                         (AS OF DECEMBER 31, 2004)


                                                                                   NUMBER OF SECURITIES
                                    NUMBER OF SECURITIES      WEIGHTED-AVERAGE     REMAINING AVAILABLE FOR
                                    TO BE ISSUED UPON         EXERCISE PRICE OF    FUTURE ISSUANCE UNDER
                                    EXERCISE OF               OUTSTANDING          COMPENSATION PLANS
                                    OUTSTANDING OPTIONS,      OPTIONS, WARRANTS    SECURITIES REFLECTED
PLAN CATEGORY                       WARRANTS AND RIGHTS       AND RIGHTS           COLUMN (A)
-------------                       -------------------       -----------------    ------------------------

Equity compensation plans
<S>                                       <C>                      <C>                  <C>
approved by security holders (1)          3,778,941                $2.23                905,073


Equity compensation plans
not approved by security holders                  0                  N/A                      0


Total                                     3,778,941                $2.23                905,073
</TABLE>

(1) Not including 250,000 warrants issued to IBM.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES

The compensation of the auditors is either determined by the Company's
shareholders or, upon shareholder authorization, by the board of directors upon
the recommendation of the audit committee. Auditor compensation is determined
according to the nature and volume of the auditors' services.

The approximate fees billed to us by our auditors, Brightman Almagor & Co., a
member of Deloitte Touche Tohmatsu, for services rendered with respect to 2004
and 2003 were as follows:

AUDIT FEES. Brightman Almagor billed to the Company approximately $65,000 for
professional services rendered in connection with its audit of the Company's
financial statements for the fiscal year ended December 31, 2004 and its review
of the Company's financial statement included in quarterly reports on Form 10-Q
during fiscal year 2004. Company an aggregate of approximately $65,000 for
professional services rendered in connection with its audit of the Company's
financial statements for the fiscal year ended December 31, 2003 and its review
of the Company's financial statement included in quarterly reports on Form 10-Q
during fiscal year 2003.

AUDIT-RELATED FEES. None.

TAX FEES. During 2004 Brightman Almagor billed the Company an aggregate of
approximately $5,500 for tax services, and Deloitte Touche of Boston billed the
Company approximately $35,000 for tax advice and tax planning services. During
2003 Brightman Almagor billed the Company approximately $11,000 for tax
services.

ALL OTHER FEES. Brightman Almagor billed the Company an aggregate of
approximately $9,000 for other permitted non-audit related fees during 2004.
There were no such fees for 2003.

PRE-APPROVAL OF AUDITORS' COMPENSATION. Pursuant to its charter, the audit
committee is responsible for pre-approving audit and non-audit services provided
to the Company by the independent auditors and, as requested by the board of
directors, pre-approving services of other public accounting firms (or
subsequently approving non-audit services in those circumstances where a
subsequent approval is necessary and permissible). Absent such a request from
the board of directors, the Company's management approves the non-audit services
provided to the Company by accountants other than the auditors. 100% of the non-

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 64
<PAGE>


audit services provided to the Company by the independent auditors in 2004
were pre-approved by the full audit committee.



ITEM  15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

The following documents are filed as part of this report:

(a)(1) FINANCIAL STATEMENTS - See Item 8 hereto
         Consolidated Balance Sheets
         Consolidated Statements of Operations and Comprehensive Loss
         Consolidated Statements of Shareholders' Equity
         Consolidated Statements of Cash Flows

(a)(2) FINANCIAL STATEMENTS SCHEDULES - See Item 8 hereto
         Schedule II - Valuation and Qualifying Accounts and Reserves

         All other financial statements and schedules not listed have been
omitted because the required information is included in the consolidated
financial statements or notes thereto, or is not applicable or required.

(b)  EXHIBITS

<TABLE>
<CAPTION>

                                 EXHIBIT INDEX
    EXHIBIT
    NUMBER                                          DESCRIPTION OF DOCUMENT


<S>              <C>
3.3  (1)         Articles of Association of ClickSoftware Technologies Ltd., amended and restated as of May
                 28, 2003
4.1  (2)         Specimen of Ordinary Share Certificate
4.2  (2)         Fourth Amended and Restated Registration Rights Agreement, dated December 15, 1999
10.1 (3)         Form of 2000 Share Option Plan, as amended
10.2 (2)         Form of 2000 Employee Share Purchase Plan
10.6 (2)         Form of 1996 Option Plan
10.7 (2)         Form of 1997 Option Plan
10.8 (2)         Form of 1998 Option Plan
10.9 (2)         Form of 1999 Option Plan
10.12(2)         Form of 2000 Israeli Plan
10.13(2)         Form of 2000 Unapproved U.K. Share Scheme
10.14(2)         Form of 2000 Approved U.K. Share Scheme
10.17(4)         Employment Agreement between ClickSoftware Technologies Ltd. and Shmuel Arvatz
10.18(5)         Amended Form of Indemnification Agreement
10.19(5)         Amended Employment Agreement between ClickSoftware Technologies Ltd. and Moshe
                 BenBassat
10.20(5)         2003 Israeli Share Option Plan
10.21(6)         Form of 2000 Unapproved U.K. Share Scheme, as amended
10.22(6)         Form of 2000 U.K. Share Scheme, as amended
10.23            Employment Agreement between Clicksoftware Technologies Ltd. and Hannan Carmeli
10.24            Employment Agreement between Clicksoftware Technologies Ltd. and David Schapiro
10.25(7)         Teaming Agreement between Clicksoftware Technologies Ltd. and IBM United Kingdom
                 Limited, dated July 1, 2004
10.26(7)         Share Purchase Agreement between Clicksoftware Technologies Ltd. and IBM United
                 Kingdom Limited, dated June 30, 2004
10.27(7)         Warrant Agreement between Clicksoftware Technologies Ltd. and IBM United Kingdom
                 Limited, dated June 30, 2004
10.28            Underlease Agreement between ClickSoftware Europe Limited and Polycom (United
                 Kingdom)Limited related to premises in Slough, the United Kingdom
10.29            Gross Lease Agreement between ClickSoftware Inc. and Corporate Drive Corporation
                 related to premises in Burlington, Massachussets
10.30            Summary of Material Terms of the Lease Agreement (in Hebrew) by and among
</TABLE>

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 65

<PAGE>

<TABLE>
<CAPTION>
<S>              <C>

                 ClickSoftware Technologies Ltd., Aradin Ltd., Larga Ltd., T.N.R properties Ltd. and Eligar
                 Ltd. related to premises in Tel Aviv, Israel
21.1             Subsidiaries of the Registrant
23.1             Consent of Brightman Almagor & Co., member of Deloitte Touche Tohmatsu
31.1             Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities
                 Exchange Act of 1934, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2             Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities
                 Exchange act of 1934, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1             Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
                 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2             Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
                 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
</TABLE>

(1) Incorporated by reference to the Registrant's report on Form 10-Q filed
with the SEC on August 13, 2003.

(2) Incorporated by reference to the Registrant's Registration Statement on
Form S-1/A (file no. 333-30274), as amended.

(3) Incorporated by reference to the Registrant's definitive proxy statement
filed with the SEC on August 6, 2001.

(4) Incorporated by reference to the Registrant's annual report on Form 10-K
filed with the SEC on March 24, 2003.

(5) Incorporated by reference to the Registrants definitive proxy statement
filed with the SEC on April 30, 2003.

(6) Incorporated by reference to the Registrant's annual report on Form 10-K
filed with the SEC on March 22, 2004.

(7) Incorporated by reference to the Registrant's report on Form 10-Q filed
with the SEC on August 11, 2004.

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 66

<PAGE>


                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized,


                                          CLICKSOFTWARE TECHNOLOGIES LTD.


                                          By:    /s/ Shmuel Arvatz
                                          ------------------------------
                                                 Shmuel Arvatz
                                                 Chief Financial Officer

                                          Date: March 17, 2005


Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

               Signature                                     Title                         Date
---------------------------- ---------------------------------------------------- -------------------


<S>                               <C>                                                 <C>
/s/ Dr. Moshe BenBassat           Chief Executive Officer and Chairman of the         March 17, 2005
----------------------------      Board of Directors
     Dr. Moshe BenBassat          (Principal Executive Officer)

/s/ Shmuel Arvatz                 Chief Financial Officer (Principal Financial        March 17, 2005
----------------------------      and Accounting Officer)
       Shmuel Arvatz

/s/ Naomi Atsmon                  Director                                            March 17, 2005
----------------------------
        Naomi Atsmon

/s/ Dr. Israel Borovich           Director                                            March 17, 2005
----------------------------
     Dr. Israel Borovich

/s/ Roni A.Einav                  Director                                            March 17, 2005
----------------------------
        Roni A.Einav

/s/ Dan Falk                      Director                                            March 17, 2005
----------------------------
          Dan Falk

/s/ James W. Thanos               Director                                            March 17, 2005
----------------------------
       James W. Thanos

/s/ Gil Weiser                    Director                                             March 17,2005
----------------------------
          Gil Weiser

</TABLE>




--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                     Page 67

<PAGE>


                                 EXHIBIT INDEX
    EXHIBIT
    NUMBER                      DESCRIPTION OF DOCUMENT


3.3  (1)         Articles of Association of ClickSoftware Technologies Ltd.,
                 amended and restated as of May 28, 2003
4.1  (2)         Specimen of Ordinary Share Certificate
4.2  (2)         Fourth Amended and Restated Registration Rights Agreement,
                 dated December 15, 1999
10.1 (3)         Form of 2000 Share Option Plan, as amended
10.2 (2)         Form of 2000 Employee Share Purchase Plan
10.6 (2)         Form of 1996 Option Plan
10.7 (2)         Form of 1997 Option Plan
10.8 (2)         Form of 1998 Option Plan
10.9 (2)         Form of 1999 Option Plan
10.12(2)         Form of 2000 Israeli Plan
10.13(2)         Form of 2000 Unapproved U.K. Share Scheme
10.14(2)         Form of 2000 Approved U.K. Share Scheme
10.17(4)         Employment Agreement between ClickSoftware Technologies Ltd.
                 and Shmuel Arvatz
10.18(5)         Amended Form of Indemnification Agreement
10.19(5)         Amended Employment Agreement between ClickSoftware Technologies
                 Ltd. and Moshe BenBassat
10.20(5)         2003 Israeli Share Option Plan
10.21(6)         Form of 2000 Unapproved U.K. Share Scheme, as amended
10.22(6)         Form of 2000 U.K. Share Scheme, as amended
10.23            Employment Agreement between Clicksoftware Technologies Ltd.
                 and Hannan Carmeli
10.24            Employment Agreement between Clicksoftware Technologies Ltd.
                 and David Schapiro
10.25(7)         Teaming Agreement between Clicksoftware Technologies Ltd. and
                 IBM United Kingdom Limited, dated July 1, 2004
10.26(7)         Share Purchase Agreement between Clicksoftware Technologies
                 Ltd. and IBM United Kingdom Limited, dated June 30, 2004
10.27(7)         Warrant Agreement between Clicksoftware Technologies Ltd. and
                 IBM United Kingdom Limited, dated June 30, 2004
10.28            Underlease Agreement between ClickSoftware Europe Limited and
                 Polycom (United Kingdom) Limited related to premises in Slough,
                 the United Kingdom
10.29            Gross Lease Agreement between ClickSoftware Inc. and Corporate
                 Drive Corporation related to premises in Burlington,
                 Massachussets
10.30            Summary of Material Terms of the Lease Agreement (in Hebrew) by
                 and among ClickSoftware Technologies Ltd., Aradin Ltd., Larga
                 Ltd., T.N.R properties Ltd. and Eligar Ltd. related to premises
                 in Tel Aviv, Israel
21.1             Subsidiaries of the Registrant
23.1             Consent of Brightman Almagor & Co., member of Deloitte Touche
                 Tohmatsu
31.1             Certification of the Chief Executive Officer pursuant to Rule
                 13a-14(a) under the Securities Exchange Act of 1934, pursuant
                 to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2             Certification of the Chief Financial Officer pursuant to Rule
                 13a-14(a) under the Securities Exchange act of 1934, pursuant
                 to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1             Certification of the Chief Executive Officer pursuant to 18
                 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                 Sarbanes-Oxley Act of 2002.
32.2             Certification of the 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 by reference to the Registrant's report on Form 10-Q filed
with the SEC on August 13, 2003.
(2) Incorporated by reference to the Registrant's Registration Statement on Form
S-1/A (file no. 333-30274), as amended.
(3) Incorporated by reference to the Registrant's definitive proxy statement
filed with the SEC on August 6, 2001.
(4) Incorporated by reference to the Registrant's annual report on Form 10-K
filed with the SEC on March 24, 2003.
(5) Incorporated by reference to the Registrants definitive proxy statement
filed with the SEC on April 30, 2003.
(6) Incorporated by reference to the Registrant's annual report on Form 10-K
filed with the SEC on March 22, 2004.
(7) Incorporated by reference to the Registrant's report on Form 10-Q filed with
the SEC on August 11, 2004.

--------------------------------------------------------------------------------
10-K ClickSoftware Technologies Ltd.                                      Page 1