<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20459
-------------------------------
FORM 10-Q
<TABLE>
<S> <C>
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-29634
</TABLE>
FUNDTECH LTD.
(Exact Name of Registrant as Specified in its Charter)
-------------------------------
<TABLE>
<S> <C>
ISRAEL NOT APPLICABLE
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
12 HA'HILAZON STREET 52522
Ramat-Gan, Israel (Zip Code)
(Address of Principal Executive Officers)
</TABLE>
011972-3-575-2750
(Registrant's Telephone Number, Including Area Code)
-------------------------------
FORMER ADDRESS: BEIT HABONIM, 2 HABONIM ST. RAMAT GAN, ISRAEL
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 13,946,364 shares of Ordinary
Shares, NIS 0.01 par value, as of November 12, 1999.
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<PAGE> 2
FUNDTECH LTD.
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
<TABLE>
<S> <C> <C>
Item 1. Condensed Consolidated Financial Statements.................
Condensed Consolidated Balance Sheets as of September 30,
1999 (unaudited) and December 31, 1998.................... 1
Condensed Consolidated Statements of Operations (unaudited)
for the Three and Nine Months Ended September 30, 1999 and
September 30, 1998........................................ 2
Condensed Consolidated Statements of Cash Flows (unaudited)
for the Nine Months Ended September 30, 1999 and September
30, 1998.................................................. 3
Notes to Condensed Consolidated Financial Statements
(unaudited)............................................... 4
Management's Discussion and Analysis of Financial Condition
Item 2. and Results of Operations................................. 5
Item 3. Quantitative and Qualitative Disclosure About Market Risk... 8
PART II
OTHER INFORMATION
Item 1. Legal Proceedings........................................... 9
Item 4. Submission of Matters to a Vote of Securities Holders....... 9
Item 6. Exhibits and Reports on Form 8-K............................ 10
Index To Exhibits.................................................... 10
Signatures........................................................... 11
</TABLE>
<PAGE> 3
PART I
FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FUNDTECH LTD. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $ 46,552 $13,019
Short term investments...................................... 41,895 --
Trade receivables, net...................................... 12,799 12,040
Other current assets........................................ 1,915 579
-------- -------
Total current assets........................................ 103,161 25,638
Long-term trade receivables................................. 742 244
Property and equipment, net................................. 7,508 3,759
Goodwill and other assets, net.............................. 20,092 2,963
-------- -------
Total assets................................................ $131,503 $32,604
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade payables.............................................. $ 1,905 $ 1,386
Deferred revenues and accrued expenses...................... 8,631 6,112
-------- -------
Total current liabilities.............................. 10,536 7,498
-------- -------
Other liabilities...................................... 47 58
-------- -------
Shareholders' equity:
Share capital............................................... 41 34
Additional paid-in capital.................................. 137,672 41,664
Accumulated other comprehensive loss........................ (92) --
Deferred compensation....................................... (162) (219)
Accumulated deficit......................................... (16,539) (16,431)
-------- -------
Total shareholders' equity............................. 120,920 25,048
-------- -------
Total liabilities and shareholders' equity............. $131,503 $32,604
======== =======
</TABLE>
See notes to condensed consolidated financial statements (unaudited)
1
<PAGE> 4
FUNDTECH LTD. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Software licenses.................... $ 3,844 $ 4,267 $ 13,998 $ 9,211
Maintenance and service fees......... 3,011 2,291 8,803 4,759
Hardware sales....................... 296 396 1,283 1,412
----------- ----------- ----------- -----------
Total revenues.................. 7,151 6,954 24,084 15,382
----------- ----------- ----------- -----------
COST OF REVENUES:
Software licenses costs.............. 164........ 40 472 198
Maintenance and services costs....... 2,054 1,427 5,707 2,883
Hardware costs....................... 213 322 980 1,160
----------- ----------- ----------- -----------
Total cost of revenues.......... 2,431 1,789 7,159 4,241
----------- ----------- ----------- -----------
Gross profit.................... 4,720 5,165 16,925 11,141
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Software development................. 3,824 2,002 8,741 4,861
Selling and marketing, net........... 2,087 881 4,486 2,090
Amortization of acquisition-related
intangible assets.................. 417 77 660 129
General and administrative........... 1,155 635 2,641 1,482
In process R&D write-off............. 0 0 2,802 16,600
----------- ----------- ----------- -----------
Total operating expenses........ 7,483 3,595 19,330 25,162
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS)................... (2,763) 1,570 (2,405) (14,021)
Financial income, net................ 1,320 166 2,297 412
----------- ----------- ----------- -----------
NET INCOME (LOSS)......................... $ (1,443) $ 1,736 $ (108) $ (13,609)
=========== =========== =========== ===========
NET INCOME (LOSS) per share:
Basic income (loss) per share........ $ (0.10) $ 0.16 $ (0.01) $ (1.37)
Diluted income (loss) per share...... $ (0.10) $ 0.16 $ (0.01) $ (1.37)
Diluted income (loss) per share
excluding in process R&D
write-off.......................... $ (0.10) $ 0.16 $ 0.20 $ 0.29
SHARES USED IN COMPUTING:
Basic income (loss) per share........ 13,935,399 10,751,000 12,485,490 9,912,000
Diluted income (loss) per share...... 13,935,399 11,195,000 12,485,490 9,912,000
Diluted income (loss) per share
excluding in process R&D
write-off.......................... 13,935,399 11,195,000 13,168,690 10,435,000
ADJUSTED NET INCOME (LOSS) PER SHARE (A):
Adjusted net income (loss) used in
computing net income (loss) per
share.............................. $ (1,026) $ 1,813 $ 3,354 $ 3,120
Diluted adjusted income (loss) per
share.............................. $ (0.07) $ 0.16 $ 0.25 $ 0.30
SHARES USED IN COMPUTING:
Diluted income (loss) per share...... 13,935,399 11,195,000 13,168,690 10,435,000
</TABLE>
- ---------------
(a) Adjusted net income and adjusted net income per share exclude the pre-tax
effects of the line items "Amortization of acquisition-related intangible
assets" and "In-process R&D write-off", listed above.
2
<PAGE> 5
FUNDTECH LTD. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1999 1998
----------- --------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ (108) $(13,609)
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization.......................... 1,743 293
In process research and development write-off.......... 2,802 16,600
Amortization of deferred compensation.................. 57 50
Capital loss (gain) on sale of fixed assets............ (2) --
Loss in short term investments......................... 41 --
Increase (decrease) in other liabilities............... (11) 14
Decrease (increase) in trade receivables, net.......... (570) 335
Increase in other current assets....................... (1,118) (684)
Increase in trade payables............................. 391 181
Decrease in deferred revenues and accrued expenses..... (4,544) (3,358)
-------- --------
Net cash used in operating activities..................... (1,319) (178)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for acquisitions............................... (13,845) (18,600)
Short term investments................................. (40,981) 2,694
Proceeds from sale of fixed assets..................... 7 --
Purchase of fixed assets............................... (3,782) (1,091)
-------- --------
Net cash used in investing activities..................... (58,601) (16,997)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payment of long-term loan to a related
party................................................. -- (246)
Principal payment of long term loan to a bank.......... -- (15)
Proceeds from the issuance of share capital and
exercise of stock options and warrants, net........... 93,061 29,079
Proceeds from long term loans.......................... 392 --
Short-term bank credit, net............................ -- (250)
-------- --------
Net cash provided by financing activities................. 93,453 28,568
-------- --------
Increase in cash and cash equivalents....................... 33,533 11,393
Cash and cash equivalents at the beginning of the period.... 13,019 1,573
-------- --------
Cash and cash equivalents at the end of the period.......... $ 46,552 $ 12,966
======== ========
</TABLE>
See notes to condensed consolidated financial statements (unaudited)
3
<PAGE> 6
FUNDTECH LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements as
of September 30, 1999 and for the three months ended September 30, 1999 and 1998
and for the nine months ended September 30, 1999 and 1998 are unaudited and
reflect all adjustments (consisting only of normal recurring adjustments) which
are, in the opinion of management, necessary for a fair presentation of the
financial position and operating results for the interim periods. The condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto, together with management's
discussion and analysis of the financial condition and results of operations,
contained in Fundtech's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998. The results of operations for the three months ended
September 30, 1999 are not necessarily indicative of the results for the entire
fiscal year ending December 31, 1999.
2. NET INCOME (LOSS) PER SHARE
Basic net income per share is computed using the weighted average number of
common shares outstanding during each period. Diluted net income per share is
computed using the weighted average number of common shares outstanding and
dilutive common stock equivalents outstanding during the period. A
reconciliation of the numerators and denominators used in computing the basic
and diluted net income per share is as follows:
<TABLE>
<CAPTION>
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- ------------------------
1999 1998 1999 1998
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic and diluted per share
amounts -- net income (loss).......... $ (1,443) $ 1,736 $ (108) $ (13,609)
Denominator:
Denominator for basic net income (loss)
per share weighted average shares..... 13,935,399 10,751,000 12,485,490 9,912,000
Effect of dilutive stock options and
warrants................................. -- 444,000 -- --
Denominator for dilutive net income
(loss) per share weighted average
shares and assumed conversions........ 13,935,399 11,195,000 12,485,490 9,912,000
</TABLE>
3. SHARE CAPITAL
On April 30, 1999, Fundtech completed a public offering of 2,900,000
Ordinary Shares, which raised net proceeds in the amount of approximately $92.4
million.
4. COMPREHENSIVE (LOSS) INCOME
Comprehensive loss for the period of nine months ended September 30, 1999
is $92,000 and the comprehensive income for the period of three months ended
September 30, 1999 is $75,000.
5. PURCHASE OF BBP AND CERTAIN ASSETS FROM STERLING
In June 1999, Fundtech entered into a Share Purchase Agreement, with
Biveroni Batchelet Partners AG, a Swiss corporation ("BBP") and its
shareholders, pursuant to which Fundtech purchased all of the outstanding shares
of BBP for an aggregate purchase price of approximately $13.3 million, of which
75% was paid in cash and 25% in stock (105,315 Ordinary Shares). The transaction
was accounted for as a purchase
4
<PAGE> 7
and resulted in the initial recording of approximately $10 million of goodwill
and other intangibles which is being amortized over an average period of 8.5
years and a one time write-off of R&D in process in the amount of $2.8 million.
The Pro Forma unaudited results of operations for the nine months ended
September 30, 1999 and September 1998, assuming consummation of the purchase and
issuance of 105,315 Ordinary Shares as of January 1, 1998 are as follows:
<TABLE>
<CAPTION>
(U.S. DOLLARS IN
THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1999 1998
------- --------
<S> <C> <C>
Sales....................................................... 27,214 18,697
Net Income (loss)........................................... (757) (14,990)
Net Income per share:
Basic....................................................... (0.06) (1.50)
Diluted..................................................... (0.06) (1.50)
</TABLE>
On September 30, 1999, Fundtech Corporation, a wholly owned subsidiary of
Fundtech Ltd. and FCMS, LLC, an indirect wholly owned subsidiary of the Company,
consummated the purchase of certain assets and assumed liabilities constituting
the cash management business of Sterling Commerce (Northern America) Inc. (the
"Cash Management Business"). The aggregate cash purchase price paid by the
Company for the Cash Management Business was approximately $4.6 million. The
cash consideration was paid through immediately available funds from the
Company's working capital. The transaction was accounted for as a purchase and
resulted in the initial recording of approximately $7.3 million of goodwill
which will be amortized over 10 years.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following table sets forth certain financial data and the percentage
total revenue of the Company for the periods indicated:
<TABLE>
<CAPTION>
(U.S. DOLLARS IN THOUSANDS)
THREE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------
% OF % OF
1999 REVENUES 1998 REVENUES
------- -------- ------ --------
<S> <C> <C> <C> <C>
REVENUES:
Software license fees........................... $ 3,844 53.8% $4,267 61.4%
Maintenance and service fees.................... 3,011 42.1 2,291 32.9
Hardware sales.................................. 296 4.1 396 5.7
------- ----- ------ -----
Total revenues............................. 7,151 100.0 6,954 100.0
Cost of revenues:
Software license costs.......................... 164 2.3 40 0.6
Maintenance and service costs................... 2,054 28.7 1,427 20.5
Hardware costs.................................. 213 3.0 322 4.6
------- ----- ------ -----
Total cost of revenues..................... 2,431 34.0 1,789 25.7
------- ----- ------ -----
Gross profit......................................... 4,720 66.0 5,165 74.3
------- ----- ------ -----
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
(U.S. DOLLARS IN THOUSANDS)
THREE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------
% OF % OF
1999 REVENUES 1998 REVENUES
------- -------- ------ --------
<S> <C> <C> <C> <C>
OPERATING EXPENSES:
Software development............................ 3,824 53.5 2,002 28.8
Selling and marketing, net...................... 2,087 29.2 881 12.7
Amortization of acquisition-related intangible
assets............................................... 417 5.8 77 1.1
General and administrative...................... 1,155 16.2 635 9.1
------- ----- ------ -----
Total operating expenses................... 7,483 104.7 3,595 51.7
------- ----- ------ -----
Operating income (loss).............................. (2,763) (38.7) 1,570 22.6
Financial income, net................................ 1,320 18.5 166 2.4
------- ----- ------ -----
Net income (loss).................................... $(1,443) (20.2)% $1,736 25.0%
======= ===== ====== =====
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS
ENDED SEPTEMBER 30, 1998
Software License Fees. Software license fees consist of revenues derived
from software license agreements entered into by Fundtech and its customers.
Software license fees decreased by $423,000 to $3,844,000 in the three months
ended September 30, 1999 from $4,267,000 for the three months ended September
30, 1998, a decrease of 10%. As Year 2000 has approached, financial institutions
have become increasingly cautious in making decisions affecting their mission
critical systems. Management believes that this has resulted in the delaying of
customer purchase decisions, even of Y2K-compliant systems.
Maintenance and Services Fees. Maintenance and services fees include
revenues derived from maintenance contracts, installation and training revenue,
consulting fees, certification fees and related items. Fundtech generally
receives a contract for maintenance and service at the time of the sale of the
system. Maintenance and services fees increased by $720,000 to $3,011,000 in the
three months ended September 30, 1999 from $2,291,000 in the three months ended
September 30, 1998, an increase of 31%. The increase is commensurate with the
increase in the number of customers licenses compared to the previous period as
well as maintenance and service fees from business acquired in 1999.
Hardware Sales. Hardware sales consist of the reselling of third-party
hardware in connection with the license and installation of Fundtech's software.
Hardware sales decreased by $100,000 to $296,000 in the three months ended
September 30, 1999 from $396,000 in the three months ended September 30, 1998, a
decrease of 25%. Hardware sales are attributable to the number of software
systems sold whereby the customer purchases hardware through the Company.
Software License Costs. Software license costs consist primarily of the
royalty payments related to grants from the Government of Israel, product media,
duplication, manuals, shipping and royalties to others. Software license costs
increased by $124,000 to $164,000 in the three months ended September 30, 1999
from $40,000 in the three months ended September 30, 1998, an increase of 310%.
The gross margin of software license fees decreased from 99% in the three months
ended September 30,1998 to 96% in the three months ended September 30, 1999. The
decrease in gross margin is attributable to the increase in expenses relating to
royalties to others.
Maintenance and Services Costs. Maintenance and services costs consist
primarily of personnel costs, telephone support costs and other costs related to
the provision of maintenance and consulting services. Maintenance and services
costs increased by $627,000 to $2,054,000 in the three months ended September
30, 1999 from $1,427,000 in the three months ended September 30, 1998, an
increase of 44%. The gross margin on maintenance and services fees decreased
from 38% in the three months September 30, 1998 to 32% in the three months ended
September 30, 1999. The decrease in gross margin was primarily due to an
increase in personnel associated with such maintenance and services.
6
<PAGE> 9
Hardware Costs. Hardware costs consist primarily of Fundtech's cost of
computer hardware resold to its customers. Cost of hardware sales decreased by
$109,000 to $213,000 in the three months ended September 30, 1999 from $322,000
in the three months ended September 30, 1998, a decrease of 34%. The gross
margin on hardware increased from 19% in the three months September 30, 1998 to
28% in the three months ended September 30, 1999.
Software Development. Software development expenses are related to the
development and testing of new products and the enhancement of existing product.
Software development expenses increased by $1,822,000 to $3,824,000 in the three
months ended September 30, 1999, from $2,002 in the three month ended September
30, 1998 an increase of 91%. The increase in software development costs is
principally related to the development of new product offerings by Fundtech such
as PAYplus RTGS, Access.pro, Nostro Management System and Global CASHstar as
well as enhancements to certain of Fundtech's existing products and to products
relating to the business acquired in 1999. In the three months ended September
30, 1998 and 1999 Fundtech did not receive grants from the Government of Israel.
Selling and Marketing, Net. Selling and marketing expenses increased by
$1,206,000 to $2,087,000 in the three months ended September 30, 1999 from
$881,000 in the three months ended September 30, 1998, an increase of 137%.
Selling and marketing expenses as a percentage of revenues increased from 13% in
September 30, 1998 to 29% in the three months ended September 30, 1999 due to
decrease in the average sales attributable to each salesperson, expenses
relating to the opening of a sales office in Australia and expanding the sales
channels in Europe.
General and Administrative. General and administrative expenses increased
by $520,000 to $1,155,000 in the three months ended September 30, 1999 from
$635,000 in the three months ended September 30, 1998 an increase of 82%. The
increase is due to the infrastructure which has been added in order to support
the expansion of the business.
Amortization of Acquisition-Related Intangible Assets. Amortization
expenses increased by $340,000 to $417,000 in the three months ended September
30, 1999 from $77,000 in the three months ended September 30, 1998 an increase
of 441%. This increase was due to the amortization of goodwill from the BBP
acquisition.
Financial Income, Net. Net financial income increased by $1,154,000 to
$1,320,000 in the three months ended September 30, 1999 from $166,000 in the
three months ended September 30, 1998 an increase of 695%. The increase of the
financial income is due primarily to interest earned on cash received from our
April 30, 1999 secondary public offering.
LIQUIDITY AND CAPITAL RESOURCES
Fundtech has financed its operations primarily through the sale of equity
securities to its shareholders in the amount of approximately $137.7 million
including net proceeds from the IPO in the amount of approximately $29.0
million, proceeds from the secondary public offering in the amount of
approximately $92.4 million, from grants from the Government of Israel and from
borrowings from banks.
As of September 30, 1999 Fundtech's working capital was $92.6 million. Cash
and cash equivalents were $46.5 million and short-term investments were $41.8
million. Fundtech utilized net cash from operations amounting to $1,319,000 for
the nine months ended September 30, 1999 and $178,000 for the nine months ended
September 30, 1998.
In April 1998, Fundtech acquired certain businesses from CheckFree for
approximately $18.8 million in cash including expenses. On April 30, 1999
Fundtech completed a second public offering of 2,900,000 Ordinary Shares, which
raised net proceeds in the amount of approximately $92.3 million.
In June 1999, Fundtech acquired all of the outstanding shares of BBP for
approximately $10.4 million in cash and $2.9 million in stock.
7
<PAGE> 10
In September 1999, Fundtech purchased certain assets constituting the cash
management business of Sterling Commerce (Northern America) Inc. ("Sterling")
for approximately $4.6 million in cash.
Fundtech believes that cash on hand and cash flows from operations during
the remainder of 1999 together with the proceeds from its April 30, 1999
offering will provide adequate financial resources to finance Fundtech's current
operations and the planned expansion of its operations for the foreseeable
future. However, in the event that Fundtech makes one or more acquisitions for
consideration consisting of all or a substantial part of Fundtech's available
cash, Fundtech might be required to seek external debt or equity financing for
such acquisition or acquisitions or to fund subsequent operations.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs being written using
two digits (rather than four) to identify a given year. Computer programs that
have time-sensitive software may interpret the date code "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in other normal business activities. We maintain a significant number of
computer software programs and operating systems across our entire organization,
including various administrative and billing functions, all of which are
potentially subject to Year 2000 problems.
Fundtech's Year 2000 compliance program is divided into two sections:
software programs licensed to Fundtech's customer and internal information
technology systems. Phases common to both sections include preparing inventory
of all software and hardware items affected by the Year 2000 issue, assessing
the Year 2000 compliance of identified items, repairing or replacing items that
are determined not to be Year 2000 compliant, testing items, and creating
contingency plans.
The software product section of Fundtech's compliance program includes all
Fundtech software products licensed by Fundtech's customers. As of July 31,1999
substantially all of Fundtech's software products had been assessed for Year
2000 compliance. The software repair and testing phases began in June 1997. The
assessment phase will be repeated periodically through January 2000 to verify
that any changes made to Fundtech's existing software do not bring any of
Fundtech's software components out of Year 2000 compliance. The repair and
testing steps will be repeated as necessary depending on the outcome of the
periodic assessments. Both phases are dependent on the availability of Year 2000
compliant versions of software from some external vendors. If Fundtech's testing
uncovers any material Year 2000 compliance issues in any widely-used versions of
our software, it may be necessary for Fundtech to upgrade all affected customers
to a newer version of Fundtech's software which is Year 2000 compliant.
The infrastructure section of our compliance program consists of hardware
and software used by Fundtech's staff in the course of operating its business.
Fundtech's Year 2000 Task Force has conducted a comprehensive inventory and
evaluation of such internal hardware and software systems. As part of this
process, the Year 2000 Task Force has contacted most of the Company's vendors,
including all vendors that it believes supply hardware, software and services
that are critical to Fundtech's operations, to receive written confirmation that
such systems and services are Year 2000 compliant. The inventory, evaluation,
repair/ replacement and testing phases are significantly complete and are
updated regularly.
In its review process, Fundtech confirmed that a substantial majority of
all of its customers, the disruption of whose operations could have a material
adverse impact on Fundtech's operations, are subject to regulations promulgated
by the Federal Reserve mandating Year 2000 compliance. Fundtech expects that
substantially all such customers will comply with such regulations prior to
January 1, 2000.
Fundtech expects that its employees will perform all significant work for
the Year 2000 project described above. Fundtech does not anticipate hiring any
additional employees, nor does Fundtech anticipate incurring any significant
consulting expenses for the Year 2000 project. The cost of software tools and
consulting expenses used for detection of Year 2000 compliance problems, and
repair of affected software is not currently expected to exceed $650,000.
Fundtech's Year 2000 contingency plan has been distributed to it's various
locations for coordination.
8
<PAGE> 11
Compliance with Year 2000 requirements may disrupt Fundtech's ability to
continue developing and marketing its electronic payments and funds transfers
and cash and treasury management solutions. Fundtech may also incur certain
unexpected expenditures in connection with Year 2000 compliance. While
uncertainty exists concerning such expenditures, Fundtech does not believe that
Year 2000 compliance expenditures will result in a material adverse effect on
its business, financial condition or results of operations. Even if Fundtech's
products and services are Year 2000 compliant, the electronic funds transfer
products and services used be funds transferring parties not using Fundtech's
products may not be Year 2000 compliant, thereby disrupting the ability of
Fundtech's customers to use Fundtech's products for funds transfer transactions
with these parties. Furthermore, if funds transfers were unable to be processed
by Fundtech's customer because of Year 2000 compliance problems, there can be no
assurance that third parties will not commence litigation against Fundtech for
such funds transfer failure.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Fundtech does not utilize financial instruments for trading purposes and
holds no derivative financial instruments which could expose Fundtech to
significant market risk.
FUNDTECH LTD.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 22, 1999, Israel Cohen filed a class action against Fundtech
Ltd. Incorporated, in the United States District Court for the District of New
Jersey, alleging violation of the federal securities laws. The proposed class is
limited to persons, who purchased Fundtech stock between the hours of 9:00 a.m.
and 2:46 p.m. EDT on October 6, 1999 based on alleged misstatements by a
representative of the Company. To date, the Company has not been served a copy
of the complaint. The Company intends to defend the lawsuit vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Fundtech's 1999 annual meeting of shareholders was held on September 7,
1999 (the "Annual Meeting"). The following matters were voted upon by the
shareholders:
1. Election of all of the directors of the Company to serve until their
respective successors are elected and qualified.
2. Ratification and approval of an increase in the number of Ordinary
Shares reserved for issuance pursuant to the Company's Directors' Option
Plan.
3. Approval of the compensation of the Company's directors for 1999.
4. Ratification and approval of the compensation and Option Awards of Mr.
Reuven Ben-Menachem, a member of the Company's Board of Directors and
Fundtech's Chief Executive Officer.
5. Approval of the grant of additional Option Awards to Ms. Rina Shainski
and Mr. George M. Lieberman, each a member of the Company's Board of
Directors.
6. Approval of the adoption of the 1999 Fundtech Ltd. Employee Option Plan.
7. Ratification and approval of amendments to the Company's 102 Plan, 1996
U.S. Plan, 1997 Israel Plan and the 1997 U.S. Plan, increasing the
aggregate number of Ordinary Shares reserved under such Plans.
8. Ratification and approval of Kost, Forer and Gabbay, a member of Ernst &
Young International, independent certified public accountants, as
auditors for Fundtech for fiscal year 1999.
9
<PAGE> 12
The following is a table setting forth the number of votes cast for,
withheld, as well as the number of abstentions and broker non votes, of the
above matters:
1. Election of Directors.
<TABLE>
<CAPTION>
NOMINEE FOR AGAINST ABSTAIN AUTHORITY WITHHELD
- ------- --------- ------- ------- ------------------
<S> <C> <C> <C> <C>
Reuven Ben-Menachem........ 7,472,968 3,300
George M. Lieberman........ 7,472,968 3,300
Jay B. Morrison............ 7,058,818 417,450
Achi Racov................. 7,472,968 3,300
Rina Shainski.............. 7,472,968 3,300
Eddy Shalev................ 7,472,968 3,300
Rimon Ben-Shaoul........... 7,472,968 3,300
</TABLE>
2. Ratification and approval of an increase in the number of Ordinary
Shares reserved for issuance pursuant to the Company's Directors' Option
Plan.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN AUTHORITY WITHHELD
--- --------- ------- ------------------
<S> <C> <C> <C>
7,118,486 206,922 150,860
</TABLE>
3. Approval of the compensation of the Company's directors for 1999.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN AUTHORITY WITHHELD
--- --------- ------- ------------------
<S> <C> <C> <C>
7,405,976 62,732 7,560
</TABLE>
4. Ratification and approval of the compensation and Option Awards of Mr.
Reuven Ben-Menachem, a member of the Company's Board of Directors and
Fundtech's Chief Executive Officer.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN AUTHORITY WITHHELD
--- --------- ------- ------------------
<S> <C> <C> <C>
7,252,096 72,012 152,160
</TABLE>
5. Approval of the grant of additional Option Awards to Ms. Rina Shainski
and Mr. George M. Lieberman, each a member of the Company's Board of
Directors.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN AUTHORITY WITHHELD
--- --------- ------- ------------------
<S> <C> <C> <C>
7,245,486 74,022 156,760
</TABLE>
6. Approval of the adoption of the 1999 Fundtech Ltd. Employee Option Plan.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN AUTHORITY WITHHELD
--- --------- ------- ------------------
<S> <C> <C> <C>
5,105,421 2,218,837 152,010
</TABLE>
7. Ratification and approval of amendments to the Company's 102 Plan, 1996
U.S. Plan, 1997 Israel Plan and the 1997 U.S. Plan, increasing the
aggregate number of Ordinary Shares reserved under such Plans.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN AUTHORITY WITHHELD
--- --------- ------- ------------------
<S> <C> <C> <C>
5,409,721 1,918,317 148,230
</TABLE>
8. Ratification and approval of Kost, Forer and Gabbay, a member of Ernst &
Young International, independent certified public accountants, as
auditors for Fundtech for fiscal year 1999.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN AUTHORITY WITHHELD
--- --------- ------- ------------------
<S> <C> <C> <C>
7,412,666 57,542 6,060
</TABLE>
10
<PAGE> 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.0 Financial Data Schedule
(b) Reports on Form 8-K
During the quarter, Fundtech filed the following Current Report on Form
8-K:
(1) A current Report on Form 8-K/A dated and filed July 21, 1999
pertaining to the consummation of the purchase of all of the outstanding shares
of BBP from the shareholders of BBP.
(2) A Current Report on Form 8-K dated and filed October 11, 1999,
pertaining to the consummation of a purchase of certain assets constituting the
cash management business of Sterling Commerce (Northern America) Inc.
FUNDTECH LTD.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27.00 Financial Data Schedule
</TABLE>
11
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
Fundtech Ltd.
(Registrant)
/s/ REUVEN BEN-MENACHEM
-----------------------------------------------------
Dated: November 16, 1999 Chairman, President and CEO
/s/ MICHAEL CARUS
-----------------------------------------------------
Executive Vice President COO & CFO
Dated: November 16, 1999 (Principal Financial Officer)
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) AS OF SEPTEMBER 30, 1999 AND
THE CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) FOR THE THREE
MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 46,552
<SECURITIES> 41,895
<RECEIVABLES> 12,799
<ALLOWANCES> 327
<INVENTORY> 0
<CURRENT-ASSETS> 103,161
<PP&E> 7,508
<DEPRECIATION> 1,093
<TOTAL-ASSETS> 131,503
<CURRENT-LIABILITIES> 10,536
<BONDS> 0
0
0
<COMMON> 41
<OTHER-SE> 137,672
<TOTAL-LIABILITY-AND-EQUITY> 131,503
<SALES> 24,084
<TOTAL-REVENUES> 24,084
<CGS> 7,159
<TOTAL-COSTS> 26,489
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (108)
<INCOME-TAX> 0
<INCOME-CONTINUING> (108)
<DISCONTINUED> 0
<EXTRAORDINARY> 2,802
<CHANGES> 0
<NET-INCOME> (108)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
