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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20459
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000.
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANFE ACT OF 1934
Commission File Number 0-29634
FUNDTECH LTD.
(Exact Name of Registrant as Specified in its Charter)
ISRAEL Not Applicable
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer
Organization) Identification No.)
12 Ha'hilazon Street 52522
Ramat-Gan, Israel (Zip Code)
(Address of Principal
Executive Officers)
011-972-3-575-2750
(Registrant's Telephone Number, Including Area Code)
(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: 14,177,423 shares of Ordinary
Shares, NIS 0.01 par value, as of September 30, 2000.
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FUNDTECH LTD. AND ITS SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
FINANCIAL INFORMATION
<S> <C>
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2000 (unaudited) and December 31, 1999...... p. 1
Condensed Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended
September 30, 2000 and September 30, 1999.................................................... p. 2
Condensed Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended
September 30, 2000 and September 30, 1999.................................................... p. 3
Notes to Condensed Consolidated Financial Statements (unaudited)...................................... p. 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....... p. 6
Item 3. Quantitative and Qualitative Disclosure About Market Risk................................... p. 8
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................................ p. 9
Index To Exhibits..................................................................................... p. 9
Signatures............................................................................................ p. 10
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ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PART I
FINANCIAL INFORMATION
FUNDTECH LTD. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
September 30, December 31,
ASSETS 2000 1999
---- -----
(unaudited)
Current assets:
Cash and cash equivalents $ 30,879 $ 41,493
Investments in marketable securities 42,750 41,023
Trade receivables, net 21,047 11,753
Other current assets 3,121 1,868
--------- ---------
Total current assets 97,797 96,137
--------- ---------
Long-term trade receivables 3,019 1,033
Property and equipment, net 9,507 7,941
Other assets, net 19,033 19,798
--------- ---------
Total assets $ 129,356 $ 124,909
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade payables $ 2,984 $ 1,528
Deferred revenues and accrued expenses 5,315 4,593
--------- ---------
Total current liabilities 8,299 6,121
Other Liabilities 255 194
Shareholders' equity:
Share capital 42 42
Additional paid-in capital 139,408 137,997
Accumulated other comprehensive loss (2,974) (1,156)
Deferred compensation (39) (147)
Accumulated deficit (15,635) (18,142)
--------- ---------
Total shareholders' equity 120,802 118,594
--------- ---------
Total liabilities and shareholders' equity $ 129,356 $ 124,909
========= =========
See notes to condensed consolidated financial statements (unaudited)
1
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FUNDTECH LTD. AND ITS SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Software license fees $ 8,926 $ 3,844 $ 21,117 $ 13,998
Maintenance and service fees 4,728 3,011 12,920 8,803
Hardware sales 210 296 1,146 1,283
-------- ------- --------- ---------
Total revenues 13,864 7,151 35,183 24,084
-------- ------- --------- ---------
Cost of revenues
Software license costs 83 164 145 472
Maintenance and service costs 3,224 2,054 8,704 5,707
Hardware costs 163 213 913 980
------- ------- ------- -------
Total cost of revenues 3,470 2,431 9,762 7,159
------- ------- ------- -------
Gross profit 10,394 4,720 25,421 16,925
-------- ------- -------- ------
Operating expenses:
Software development 4,828 3,824 13,162 8,741
Selling and marketing, net 2,364 2,087 7,242 4,486
Amortization of acquisition-related
Intangible assets 625 417 1,831 660
General and administrative 1,799 1,155 5,051 2,641
In process R&D write-off -- -- -- 2,802
-- -- -- -----
Total operating expenses 9,616 7,483 27,286 19,330
------ ----- ------ ------
Operating income (loss) 778 (2,763) (1,865) (2,405)
Financial income, net 1,366 1,320 4,372 2,297
--------- ------ --------- ------
Net income (loss) $ 2,144 $ (1,443) $ 2,507 $ (108)
======== ========= ========= ==========
Net income (loss) per share:
Basic income (loss) per share $ 0.15 $ (0.10) $ 0.18 $ (0.01)
Diluted income (loss) per share $ 0.15 $ (0.10) $ 0.17 $ (0.01)
Shares used in computing:
Basic income (loss) per share 14,154,094 13,935,399 14,060,978 12,485,490
Diluted income (loss) per share 14,773,733 13,935,399 14,767,478 12,485,490
Adjusted net income (loss) per share (a):
Adjusted net income (loss) used in
computing net income (loss) per share $ 2,769 $ (1,026) $ 4,338 $ 3,354
Diluted adjusted net income (loss) per share $ 0.19 $ ( 0.07) $ 0.29 $ 0.25
Shares used in computing diluted
Net income (loss) per share 14,773,733 13,935,399 14,767,478 13,168,690
(a) Adjusted net income and adjusted net income per share excludes the pre-tax
effects of the line item "Amortization of acquisition-related intangible
assets" and "In process R&D write-off", listed above.
</TABLE>
See notes to condensed consolidated financial statements (unaudited)
2
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FUNDTECH LTD. AND ITS SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
For Nine Months Ended September 30, 2000 and September 30, 1999
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,507 $ (108)
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 3,953 1,743
In process research and development write-off -- 2,802
Amortization of deferred compensation 45 57
Capital gain on sale of property and equipment (2) (2)
Loss on short-term investments -- 41
Increase (decrease) in other liabilities 61 (11)
Increase in trade receivables, net (11,203) (570)
Increase in other current assets (1,216) (1,118)
Increase in trade payables 1,429 391
Decrease in deferred revenues and accrued expenses (1,176) (4,544)
------ -------
Net cash used in operating activities (5,602) (1,319)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for acquisition -- (13,845)
Purchase of property and equipment (3,679) (3,782)
Investment in marketable securities (2,509) (40,981)
Proceeds from sale of property and equipment 81 7
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Net cash used in investing activities (6,107) (58,601)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of share capital and exercise of
stock options and warrants, net 1,474 93,061
Proceeds from long term loans -- 392
-- ---
Net cash provided by financing activities 1,474 93,453
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Effect of exchange rate on cash and cash equivalents
(379) --
Increase (decrease) in cash and cash equivalents (10,614) 33,533
Cash and cash equivalents at the beginning of the period 41,493 13,019
---------- ----------
Cash and cash equivalents at the end of the period $ 30,879 $ 46,552
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</TABLE>
See notes to condensed consolidated financial statements (unaudited)
3
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FUNDTECH LTD. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONDOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements as of
September 30, 2000 and for the three months ended September 30, 2000 and 1999
and for the nine months ended September 30, 2000 and 1999 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, 1999. The results of operations for the nine months ended September
30, 2000 are not necessarily indicative of the results for the entire fiscal
year ending December 31, 2000.
2. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities" and its
amendments, SFAS 137 and 138 in June 1999 and June 2000, respectively. These
statements establish accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability, measured at its fair value. These statements also require that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gain or loss to offset related results
on the hedge item in the income statement and requires that the company formally
document, designate, and assess the effectiveness of transactions that receive
hedge accounting. The FASB has issued SFAS No.137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133." The statement defers for one year the effective date of SFAS
No.133. The rule will apply to all fiscal quarters of all fiscal years beginning
after June 15, 2000. The company does not expect the impact of this new
statement in the company's consolidated balance sheets or results of operations
to be material.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpetation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation", an interpretation of APB Opinion No. 25 (FIN 44). The
Interpretation clarifies guidance for certain issues that arose in application
of APB Opinion No. 25, "Accounting for Stock Issued to Employees". The
Interpretation will apply to all fiscal quarters of all fiscal years beginning
after July 1, 2000. The company does not expect an impact of this new FIN on the
company's consolidated balance sheets or results of operations.
On December 3, 1999, the staff of the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin No. 101 (SAB 101) "Revenue Recognition in
Financial Statements". SAB 101 summarizes some of the staff interpretations of
the application of generally accepted accounting principles to revenue
recognition. SAB 101 shall be effective no later than the fourth fiscal quarter
of the fiscal year beginning after December 15, 1999. The company is currently
evaluating the impact of this adoption on its financial statements.
3. REALLOCATION OF BUSINESS ACQUISITIONS
In 1999, the company acquired all the shares of Biveroni Batchelet Partners AG
("BBP") and certain assets and certain liabilities of Sterling Commerce,
("Sterling"). The acquisitions have been accounted for by the purchase method of
accounting and accordingly, the purchases have been allocated to the net assets
acquired, based on the fair value estimations at the date of acquisition. The
excess of the purchase price over the estimated fair value of net assets
acquired has been recorded as goodwill.
In the three months and nine months ended September 30, 2000, the initial
purchase price allocation has been reallocated to appropriately reflect the fair
value of the Sterling and BBP net assets acquired. The purchase price
reallocation resulted in a total reduction to the fair value of the Sterling and
BBP acquisitions for the three month and nine month periods of approximately
$500 and $1,787 thousand respectively as well as a corresponding increase to
goodwill for the same period.
4
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4. NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed using the weighted average number
of common shares outstanding during each period. Diluted net income (loss) per
share is computed using the weighted average number of common shares outstanding
and dilutive common stock equivalents outstanding during the period. Our
reconciliation of the numerators and denominators used in computing the basic
and diluted net income (loss) per share is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------------------ -----------------
(in thousands, except share data)
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic and diluted per share
amounts - net income (loss) $ 2,144 $ (1,443) $ 2,507 $ (108)
Denominator:
Denominator for basic net income (loss)
per share weighted average shares 14,154,094 13,935,399 14,060,978 12,485,490
Effect of dilutive stock options 619,639 -- 706,500 --
---------- ---------- ---------- ----------
Denominator for dilutive net income (loss)
per share weighted average shares
and assumed conversions 14,773,733 13,935,399 14,767,478 12,485,490
========== ========== ========== ==========
</TABLE>
5
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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 of total revenue for the Company for the periods indicated:
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<CAPTION>
Three Months Ended September 30,
--------------------------------
% of % of
2000 Revenues 1999 Revenues
---- -------- ---- --------
<S> <C> <C> <C> <C>
Revenues:
Software license fees $ 8,926 64.4% $ 3,844 53.8%
Maintenance and service fees 4,728 34.1 3,011 42.1
Hardware sales 210 1.5 296 4.1
------ ----- ------ -----
Total revenues 13,864 100.0 7,151 100.0
Cost of revenues:
Software license costs 83 0.6 164 2.3
Maintenance and service costs 3,224 23.2 2,054 28.7
Hardware costs 163 1.2 213 3.0
----- ------ ------ ------
Total cost of revenues 3,470 25.0 2,431 34.0
------ ----- ------ -------
Gross profit 10,394 75.0 4,720 66.0
------- ----- ------ -------
Operating expenses:
Software development 4,828 34.8 3,824 53.5
Selling and marketing, net 2,364 17.1 2,087 29.2
Amortization of acquisition-related
intangible assets 625 4.5 417 5.8
General and administrative 1,799 13.0 1,155 16.2
----- ---- ----- ----
Total operating expenses 9,616 69.4 7,483 104.7
------ ---- ----- -----
Income (Loss) from operations 778 5.6 (2,763) (38.7)
Financial income, net 1,366 9.9 1,320 18.5
-------- ----- -------- ------
Net income (loss) $ 2,144 15.5% $ (1,443) (20.2)%
======== ====== ======== ========
</TABLE>
6
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THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999
SOFTWARE LICENSE FEES. Software license fees consist of revenues derived from
software license agreements entered between Fundtech and its customers. Software
license fees increased by $5,082,000 to $8,926,000 in the three months ended
September 30, 2000 from $3,844,000 for the three months ended September 30,
1999, an increase of 132%. The increase is attributable to the sale of our
current product offerings including PayPlus CLS, as well as growth in sales from
our acquired businesses including the internet cash management products.
MAINTENANCE AND SERVICE FEES. Maintenance and service fees include revenues
derived from maintenance contracts, installation and training revenue, service
bureau fees, 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 service fees increased by $1,717,000 to
$4,728,000 in the three months ended September 30, 2000 from $3,011,000 in the
three months ended September 30, 1999, an increase of 57%. The increase is
commensurate with the increase in the number of customers and the acquisition of
the Sterling Cash Management Business during 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 $86,000 to $210,000 in the three months ended September 30,
2000 from $296,000 in the three months ended September 30, 1999, a decrease of
29%. The decrease is attributable to the number of software licenses 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
decreased by $81,000 to $83,000 in the three months ended September 30, 2000
from $164,000 in the three months ended September 30, 1999, a decrease of 49%.
The gross margin of software license fees increased from 96% in the three months
ended September 30, 1999 to 99% in the three months ended September 30, 2000.
The increase is attributed to a lower percentage of software that is subject to
royalties.
MAINTENANCE AND SERVICE COSTS. Maintenance and service costs consist primarily
of personnel costs, telephone support costs and other costs related to the
provision of maintenance, service bureau and consulting services. Maintenance
and service costs increased by $1,170,000 to $3,224,000 in the three months
ended September 30, 2000 from $2,054,000 in the three months ended September 30,
1999, an increase of 57%. The gross margin on maintenance and services fees
remained constant at 32% in the three months ended September 30, 2000 compared
to the three months ended September 30, 1999.
HARDWARE COSTS. Hardware costs consist primarily of Fundtech's cost of computer
hardware resold to its customers. Cost of hardware sales decreased by $50,000 to
$163,000 in the three months ended September 30, 2000 from $213,000 in the three
months ended September 30, 1999, a decrease of 23%. The gross margin on hardware
decreased from 28% in the three months September 30, 1999 to 22% in the three
months ended September 30, 2000. The decrease is primarily attributed to a lower
volume of high margin hardware products.
SOFTWARE DEVELOPMENT. Software development expenses are related to the
development and testing of new products. Software development expenses increased
by $1,004,000 to $4,828,000 in the three months ended September 30, 2000, from
$3,824,000 in the three months ended September 30, 1999, an increase of 26%. The
increase in software development costs is principally related to the development
of new products, such as Global PAYplus RTGS, PAYplus CLS, Access.pro,
NostroPlus and Global CASHstar and also due to the development resources added
as a result of the acquisition of the Sterling Cash Management Business.
SELLING AND MARKETING, NET. Selling and marketing expenses increased by $277,000
to $2,364,000 in the three months ended September 30, 2000 from $2,087,000 in
the three months ended September 30, 1999, an increase of 13%. The increase in
the expenses related to opening the sales offices in Australia and Singapore,
expanding the sales channels in Europe, increasing the size of the U.S. sales
group and as a result of the acquisition of the Sterling Cash Management
Business.
7
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GENERAL AND ADMINISTRATIVE. General and administrative expenses increased by
$644,000 to $1,799,000 in the three months ended September 30, 2000 from
$1,155,000 in the three months ended September 30, 1999, an increase of 56%. The
increase is due the expansion of the business and also due to the acquisition of
the Sterling Cash Management Business.
AMORTIZATION OF ACQUISITION-RELATED INTANGIBLE ASSETS. Amortization expense
increased by $208,000 to $625,000 in the three months ended September 30, 2000
from $417,000 in the three months ended September 30, 1999, an increase of 50%.
The increase is due to the amortization of goodwill from the Sterling
acquisition.
FINANCIAL INCOME, NET. Net financial income increased by $46,000 to $1,366,000
in the three months ended September 30, 2000 from $1,320,000 in the three months
ended September 30, 1999, an increase of 3%. The increase of the financial
income is due mainly to higher rates of interest earned on cash received from
our April 30, 1999 secondary public offering.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, working capital was $89.5 million. Cash, cash
equivalents and marketable securities were $73.6 million. Net cash used in
operating activities amounted to $5,602,000 for the nine months ended September
30, 2000 and net cash utilized by operating activities amounted to $1,319,000
for the nine months ended September 30, 1999.
Fundtech believes that cash, cash equivalents and marketable securities
(including proceeds from its public offering) and cash flows from operations
will provide adequate financial resources to finance its current operations and
the planned expansion of its operations for the foreseeable future. However, in
the event that Fundtech makes one or more acquisitions or investments 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.
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.
8
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FUNDTECH LTD. AND ITS SUBSIDIARIES
PART II
OTHER INFORMATION
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, dated September 3, 2000, pertaining to Item 5,
Other Events, reporting information derived from Fundtech's Annual Report which
was not included in Fundtech's report on Form 10-K for the year ended December
1999, and to which a copy of Fundtech's press release dated September 4, 2000
was attached.
FUNDTECH LTD.
INDEX TO EXHIBITS
Exhibit Number Description
-------------- -----------
27.00 Financial Data Schedule
9
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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.
Fundtech Ltd.
(Registrant)
/s/ Reuven Ben Menachem
-----------------------
Dated: November 14, 2000 Chairman, President and CEO
/s/ Michael Carus
-----------------
Dated: November 14, 2000 Executive Vice President COO &
CFO (Principal Financial Officer)
10
